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Russian stocks beating a path to the London Stock Exchange
Russian stocks have been beating a path to the London Stock Exchange recently with among them the gold and silver miner Polymetal International (LON:POLY). The group will be one of the largest gold producers listed in London and should enter the FTSE 100 in December.
Before its recent full listing, Polymetal International was previous listed in London as a Global Depositary Receipt (GDR), under the name JSC Polymetal. This listing is being cancelled with each GDR share replaced by one new fully listed London shares on a one for one basis.
Although the company is new to many investors, it has been producing for quite some time. In 2006 the group produced 17.3m ounces of silver and 256,000 ounces of gold having developed since 1998 to have four producing mines and a strong set of prospective exploration properties. More recently, production in 2010 coming in at 444,000 ounces of gold while silver was flat on 2006 at 17.3m ounces.
In the current year guidance is for 500,000 ounces of gold and 18-19m ounces of silver. Thus Polymetal is up there with the major UK listed producers and in gold equivalent terms may be the largest producer this year.
By comparison Randgold Resources, the UK's only FTSE 100 gold miner, expects output this year at between 740,000 and 760,000 ounces. African Barrick Gold (LON:ABG) meanwhile is looking to produce 700-760koz this year and may return to the FTSE 100 on the December reshuffle as it recovers from production downgrades.
Looking further ahead, in 2012 output is expected to grow to 630,000 (up 26% on 2011) ounces of gold while silver is set to reach a new production high of 25 million ounces (up 35% of 2011).
Turning to the asset base and Polymetal has a diversified portfolio of mines which are nearly all based in Russia. As of 1st July 2011, the group's resource base stood at 15 million ounces of proven and probable gold, silver and copper reserves with 13.5 million ounces measured, indicated and inferred.
Importantly for investors capital spending looks set to peak this year at a budgeted US$335m which is up from last year's US$283m. For 2012 expenditure is forecast at US$188m which falls to US$114m the following year.
On the risk front the group is certainly diversified in terms of the number of mines it operates but is clearly exposed to Russian political risk as well as currency moves in the rouble. Set against this Russia is a vast country and one that offers prospective exploration territory for gold mining groups.
In terms of costs the group states that in 2010 gold equivalent cash costs (per ounce of gold equivalent) were US$477 using US GAAP. This looks set to rise as a result of rising labour and fuel costs and may increase to over US$700 an ounce this year.
A further key risk is of the failure to reach production targets particularly for the current year as investor sentiment is very sensitive for newly listed companies. In the first half of 2011 output fell 12% for gold and by 15% for silver but growth targets for the full year remain and so Polymetal will need to catch up in the second half; the group caught up somewhat in Q3.
This article was produced by Senior Research Analyst, Andrew Latto.
