Polymetal International (MCX, LSE, AIX: POLY) - holding, registered in the island of Jersey under British jurisdiction, which owns a major gold producer, silver and other metals — Polymetal. Depositary receipts of the company are traded on the stock exchanges of Moscow, London and Astana.
About company
Polymetal owns nine active gold and silver deposits, including 123 license areas, two major development projects and several more projects, which plans to develop in the long term. Production at the company's fields is carried out as an open, as well as underground.
The company's assets are located in nine regions of Russia and two regions of Kazakhstan. Geographically, Polymetal distinguishes the following business segments:
- Kazakhstan. This includes the large gold producing enterprises Kyzyl and Varvarinskoye..
- Khabarovsk. In this segment, the company has Albazino and Svetloe gold production enterprises., as well as the Amur Hydrometallurgical Plant, where refractory ores are processed. Another plant under construction - AGMK-2, scheduled to launch at the end of 2023.
- Magadan. Enterprises for the production of gold "Omolon" and "Mayskoye", as well as a hub, including the largest in Russia and one of the world's largest deposits of primary silver Dukat.
- Ural. Enterprise for the production of gold "Vorontsovskoye" in the Sverdlovsk region.
- Yakutia. Includes the fourth largest gold deposit in Russia, Nezhdaninskoye, where silver is also mined. Production on it began in October 2021. The segment also includes the largest undeveloped silver deposit in Russia — Forecast.
The promising ones are:
- development of the large Veduga gold deposit in the Krasnoyarsk Territory, under which Polymetal approved investments in November 2021;
- Viksha project in the Republic of Karelia for the production of platinum group metals.
Polymetal is actively engaged in geological exploration, often collaborating with junior companies - we can say, mining start-ups — and gradually buying out the rights to develop projects of interest.
The company's production volume is growing steadily and, according to forecasts, will grow for many more years. By the end of 2021, Polymetal plans to produce about 1.6 million ounces of gold equivalent.
The company has a fairly even distribution of production across fields: according to the results of nine months of 2021, about a quarter was provided by Kyzyl, four more deposits account for more than 10% for each.
In recent years, Polymetal has increased capital expenditures, and expected, that they peaked in 2021, amounting to approximately 700 million dollars. Further, the volume of capital expenditures will gradually begin to decrease., but would still amount to a substantial several hundred million dollars a year.
The company produces ingots, concentrates and doré, sells them to different countries. Most - to the home markets of Russia and Kazakhstan, the rest goes to East Asia and Europe. If you look at the structure of revenue by metals, then more 80% gives gold, 16% - silver and only 1% belongs to other metals.
Polymetal occupies prominent positions in Russia and the world among gold miners in many respects. So, in terms of production and reserves, the company ranks ninth in the world and second in Russia, among local competitors second only to Polyus.
In terms of average content of precious metals, the company ranks second in the world with a value of 3,8 grams per ton in gold equivalent. This is one of the main reasons for the low cost of production.: as in general, and in terms of total cash costs, Polymetal ranks second in Russia and worldwide, yielding only to the same "Pole". Besides, Polymetal is the largest producer of primary silver in Russia.
Structure of the company's production by products for 2020
| Gold and silver bars | 47% |
| Copper, gold and silver concentrate | 32% |
| Dore | 21% |
47%
Average grade in the reserves of the world's largest gold miners for 2020, g/t in gold equivalent
| Hochschild | 4,1 |
| "Polymetal" | 3,8 |
| Agnico Eagle | 2,2 |
| AngloGold | 1,9 |
| Barrick | 1,7 |
| Newmont | 1,1 |
| PanAmerican | 1,1 |
| Centerra | 0,9 |
| Newcrest | 0,8 |
| Kinross | 0,7 |
4,1
Cash costs of the world's largest gold miners in dollars per ounce in 2020
| TCC | AISC | |
|---|---|---|
| "Pole" | 362 | 604 |
| "Polymetal" | 638 | 874 |
| Newcrest | 616 | 909 |
| Gold Fields | 748 | 969 |
| Barrick | 719 | 969 |
| Kinross | 700 | 970 |
| Newmont | 710 | 1045 |
| Agnico Eagle | 774 | 1051 |
| AngloGold | 819 | 1059 |
| Harmony | 1146 | 1343 |
Production volume by the world's largest gold miners in 2020, million gold equivalent ounces
| Newmont | 5,9 |
| Barrick | 4,8 |
| AngloGold | 3,0 |
| "Pole" | 2,8 |
| Kinross | 2,4 |
| Gold Fields | 2,2 |
| Newcrest | 2,1 |
| Agnico Eagle | 1,7 |
| "Polymetal" | 1,6 |
| Kirkland Lake | 1,4 |
5,9
Reserves of the world's largest gold miners as of 2020, million gold equivalent ounces
| "Pole" | 104 |
| Newmont | 94 |
| Barrick | 68 |
| Newcrest | 49 |
| Gold Fields | 49 |
| Harmony | 35 |
| Kinross | 30 |
| AngloGold | 30 |
| "Polymetal" | 28 |
| Agnico Eagle | 24 |
104
Production by the company's fields for 9 months of 2021
| Red | 24% |
| Albazino | 17% |
| Varvara | 14% |
| Omolon | 14% |
| Ducat | 12% |
| Mayskoe | 7% |
| Light | 7% |
| Vorontsovskoye | 5% |
24%
The structure of the company's revenue by customer geography for the first half of 2021
| Russia | 47% |
| Kazakhstan | 39% |
| East Asia | 12% |
| Europe | 2% |
47%
The structure of the company's revenue by metals for the first half of 2021
| Gold | 83% |
| Silver | 16% |
| Other metals | 1% |
83%
Company's production volume by years, thousand ounces in gold equivalent
| 2017 | 1299 |
| 2018 | 1427 |
| 2019 | 1496 |
| 2020 | 1559 |
| 2021 | 1600 |
| 2022 | 1700 |
| 2023 | 1750 |
| 2024 | 1800 |
| 2025 | 1850 |
| 2026 | 1900 |
1299
Capital expenditures of the company by years, million dollars
| 2018 | 344 |
| 2019 | 436 |
| 2020 | 583 |
| 2021 | 675—725 |
| 2022 | 610 |
| 2023 | 590 |
| 2024 | 470 |
| 2025 | 400 |
344
Financial indicators
The company's revenue and net profit have grown steadily in recent years., contributed to both the growth of production indicators, and improved market conditions. At the same time, Polymetal reduced its net debt.
Positive trends generally continued in 2021: key financial results for the first half of the year exceeded those of the same period in 2020. The only thing is that net debt increased slightly, but during the peak of capital expenditures, this is understandable.
By the way, about debt: Polymetal has loans both on fixed, as well as floating rates. A significant part of the debt is denominated in dollars, corresponding to the main currency of revenue.
Financial results of Polymetal by years, billion rubles
| Revenue | Net profit | net debt | |
|---|---|---|---|
| 2017 | 105,9 | 21,9 | 162,9 |
| 2018 | 118,0 | 28,0 | 105,6 |
| 2019 | 145,2 | 37,9 | 91,6 |
| 2020 | 206,7 | 78,3 | 99,8 |
| 1п2021 | 95,0 | 31,4 | 132,2 |
History and share capital
Polymetal was founded in 1998 by the ICT Group, the main beneficiary of which is Alexander Nesis. Gradually acquiring new deposits and developing, the company has become a leader in the industry. Vitaly Nesis has been in charge of Polymetal since 2003, younger brother of a key shareholder. The company went public in 2007.
ICT Group is still the largest shareholder of Polymetal. As of December 2021, her share in the share capital is 23,9%. Yet 0,9% directors and top managers of the company. In this way, is in free circulation 75,2% securities of Polymetal. Among the major minority shareholders, PPF Group can be singled out with a share 3,3%.
Share capital structure of the company
| IST Group, beneficiary — Alexander Nesis | 23,9% |
| Directors and top managers of the company | 0,9% |
| Free float | 75,2% |
23,9%
Dividends and dividend policy
The company's dividend policy adopted in 2020 implies the payment of dividends twice a year, if the value of the “net debt / adjusted EBITDA” multiplier does not exceed 2,5. The size of the interim dividend is determined as 50% from adjusted net profit for the first half of the year, and the final - from the same value for the second half of the year to 100% of free cash flow at the discretion of the company's management.
In recent years, Polymetal has been generating about 5% dividend yield, which is above the industry average. The absolute size of the dividend is steadily growing following the growing financial performance of the company.
Dividends and dividend yield of the company
| Dividend, usd per share | Dividend yield | |
|---|---|---|
| 2017 | 0,44 | 3,8% |
| 2018 | 0,48 | 4,5% |
| 2019 | 0,82 | 5,2% |
| 2020 | 1,29 | 5,5% |
| 1п2021 | 0,45 | 2,1% |
Why stocks can go up
Major growing exporter. Polymetal is actively developing: builds a plant, develops new deposits, investing in exploration. All this allows an already large company to further increase its production and financial performance.. And a growing business is the most fundamental basis for the growth of securities quotes..
An added benefit is cost control.. It is provided both by the efficiency of the company, so and so, that the main costs of Polymetal are in rubles and Kazakhstani tenge. At the same time, the company's revenue is in dollars., which makes it an exporter in terms of revenue structure.
Looking at cartoons, then you can say, that the company is now priced quite attractively: in recent years it has had higher debt and a lower return on equity, at the same time, according to the multiplier P / E she cost more.
Compared to Polymetal's competitors in terms of multipliers, the valuation looks fairly fair: company is cheaper, than the industry leader Polyus, but more expensive than smaller and more efficient competitors.
Something about the defense sector. In the article about the "Pole" we have already discussed, what in the days, when blood is shed on the stock exchanges, gold becomes a traditional haven for frightened investors. Part of the money goes not into the gold itself, and in the shares of gold miners. And stock market turmoil is quite likely in the foreseeable future.: many stock indices in 2021 climbed to unprecedented heights, but high inflation is starting to adversely affect the business of many companies, and most importantly, it forces the central banks of different countries to tighten their monetary policies.
And again about ESG. Polymetal has actively plunged into the ESG agenda and has already achieved some success in this field: in 2020, he received the first green loan in the Russian mining sector. The company has pretty good ESG ratings from several reputable agencies: Sustainalytics, MSCI - and participation in the authoritative Dow Jones Sustainability Index World. According to Sustainalytics, Polymetal has the best ESG rating out of 60 precious metals companies.
Why stocks might fall
Dependence on market conditions. Like any commodity company, Polymetal is highly dependent on the prices of its products. And they are quite volatile and often pull financial indicators with them., Dividends, and with them - and quotes of securities.
Furthermore, worth considering, that a significant part of the produced precious metals, especially gold, used for investment purposes: precious metals bought by central banks, investment funds, as well as ordinary people in the form of ingots and coins. This adds even more volatility and uncertainty to the exchange prices of these metals..
Negative trend. In the past year and a half, gold and silver prices have risen significantly, which allowed the company to show excellent financial results. But, showing highs in mid-2021, prices went down. Maybe, this trend will continue: over the years there has been some reverse correlation gold prices and dollar index. And in the foreseeable future, the dollar index has every reason to strengthen: presumably in 2022, the purchase of bonds will be reduced and the rate will be increased.
Structure of global gold demand in 2020
| Jewelry production | 38% |
| Bars and coins | 24% |
| Exchange traded funds | 23% |
| Technological production | 8% |
| Central banks and other financial institutions | 7% |
38%
Multipliers of the largest Russian public gold miners for the first half of 2021
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| "Pole" | 13,9 | 62,1% | 0,52 |
| "Polymetal" | 8,95 | 56,7% | 1,05 |
| "Petropavlovsk" | Lesion | Lesion | 1,9 |
| "Seligdar" | 5,02 | 34,7% | 2,31 |
Multipliers of Polymetal by years
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| 2017 | 13,9 | 29,2% | 3,75 |
| 2018 | 11,2 | 29,2% | 2,16 |
| 2019 | 12,1 | 31,7% | 1,32 |
| 2020 | 10,5 | 53,0% | 0,82 |
| 1п2021 | 8,95 | 56,7% | 1,05 |
Eventually
The company invests a lot, constantly increasing production and financial performance, it is also one of the world leaders in terms of production costs.
At the same time, Polymetal is clearly inferior in most indicators to the industry leader, Polyus., but it is also priced cheaper than its competitor. It is also worth considering the foreign registration of the company.
As a result, for the investor, decided to invest in the Russian gold mining industry, depositary receipts of Polymetal are one of the main, though not the top choice to include in your portfolio.
