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Polymetal: Flat production, better efficiency

Polymetal International (LSE: POLY) reported FY18 results. The company produced 1,562koz of GE in FY18, up 9% YoY.  The company reported $1,882mn revenue (up 4% YoY) and $780mn adjusted EBITDA (up 5% YoY) in FY18. Total cash costs (TCC) of Polymetal were down 1% YoY to $649/GE oz, while AISC were down 4% YoY to $861/GE oz. Overall, results came in line with expectations and slightly above the company’s previous guidance.

Polymetal: 3Q18 Production results

Polymetal International (LSE: POLY) reported 3Q18 production results. The main take away is the successful ramp up to full throughput capacity of 150kt per month at Kyzyl. The recovery rate was 86%. The concentrate shipments to Amursk POX and to off-takers in China commenced. However, the limited number of railcars affected the deliveries schedule, building up inventory and contributed to the debt increase. The new railway spur is commissioned in October. Kyzyl delivered 47koz of gold in concentrate, including 10koz booked in production. The CEO of Polymetal Vitaly Nesis said on the conference call that Kyzyl is likely to exceed its production guidance of 80koz of payable gold for 2018, and the overall production of Polymetal will likely exceed the FY2018 guidance of 1.55moz of GE by 50koz. The company re-iterated production guidance of 1.7moz for 2019 and 1.8moz for 2020.

Polyus: FY2017 results and Company update

Polyus (PLZL) presented its strategy and operational update. The company reported its FY17 results on 15 February and presented an operational update on the Capital markets day on 20 March 2018. In 2017, the gold sales increased by 12.7% YoY to 2,158 koz. The gold production increased 10% YoY to 2,160 koz. The key drivers of the operating margin growth were higher gold sales volumes and lower TCC, despite 13% ruble appreciation during 2017.

Polymetal: FY2017 results and Company update

Polymetal International (LSE: POLY) published FY2017 financial results. The company reported 15% YoY revenue increase to $1,815mn in FY17, driven by 13% YoY production growth. Gold sales were up 24% YoY to 1,090 koz; silver sales were down 14% to 25.6 moz. According to the production report, GE production growth was due to the ramp-up at Svetloye and good performance of Varvara hub, Omolon, and Amursk-Albazino. The average realized gold price was up 2.5% YoY to $1,247/oz, and silver price was $16.1/oz, down 1.2% YoY. The company’s total cash cost increased 15% YoY to $658/GE oz in FY17, driven by the Russian ruble appreciation (from 67.1RUB/$ in 2016 to 58.3RUB/$ in 2017). All-in sustaining cash costs (AISC) also increased 15% YoY to $893/GE oz. Polymetal reported adjusted EBITDA at $745mn, down 2% YoY in FY17.

KazMunaiGas EP: Tender offer

KazMunaiGas EP (KMG EP) announced a cancellation of admission of GDRs to the Official List and to trading on LSE. The company invited shareholders to participate in the tender for cash at price of $14 per GDR less any applicable Kazakhstan withholding tax. The tender price sets 23.7% premium to the 30-day weighted average GDR price of $11.32 at  December 1, 2017. The company applies to KASE for the GDRs to be admitted to the official list of KASE to provide an option to GDR holders to sell their GDRs free of Kazakhstan withholding tax starting from 20 December 2017.  The tender closing date is 22 January 2018. The tender offer is for all GDRs. The company had 70,220,935 common shares as of 30 November 2017, including 2,793,620 treasury shares.  The company has 32.2% of common shares in the form of GDRs.  If KMG EP receives valid acceptances of the tender offer in respect of c 39.4% of GDRs and 12.8% of common shares (the stake of KMG NC reaches over 75%) the offer becomes unconditional.

Polymetal: Analyst and investor day takeaways

Polymetal International (LSE:POLY) provided update on its core projects Kyzyl, Amursk POX, and Nezhda during its Investor day. Polymetal confirmed its strategic goals to deliver sustainable dividend and ensure profitable growth. The dividend comes first, according to the Group CEO Vitaly Nesis, followed by the expansion program to maintain the growth pipeline. The company paid $0.37 per share in 2016, and $0.32 per share in 1H17. The next special dividend may be announced in February 2018. Major expansion projects are Kyzyl project in Kazakhstan, debottlenecking in Russia including Amur POX expansion, and Nezhda project, once the company decides to execute the option to acquire the control in it.

Precious metals: Gold Miners Play

The fundamentals of the gold sector look promising in the medium term. The gold sector demand and supply drivers seem to be supportive for better gold price performance in 2018, assuming the higher probability of weakening US dollar versus Euro and raising concerns of US stock market correction. We initiate coverage of two CIS producers Polymetal (LSE:POLY) and Polyus (MOEX:PLZL).

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