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Polymetal, the FTSE 100 gold and silver miner that switched its main listing from Moscow to London last November as it raised £491m, said it was on target to raise production by a quarter this year after annual revenues increased 43 per cent.
Vitaly Nesis, chief executive and brother of company founder Alexander Nesis, said the good quality of prospective ore grades and high selling price of gold had combined to boost cash flow and allow investment in developing new projects.
He said economic uncertainty in Europe and the US continued to drive demand for gold as a store of value among investors, although there was no guarantee the precious metal would continue to trade at historically high levels.
Polymetal had a longstanding “doomsday scenario”, which would see it selectively suspend production at less efficient mines should the price of gold fall by 30 per cent to about $1,100 an ounce, he said.
“There’s a level when we would not make the required rate of return on some fixed assets,” he said. He also rebutted speculation over the prospects of merger with Polyus Gold, which in March abandoned plans to switch its main listing to London from Moscow.
Capital expenditure across Polymetal’s mines in eastern Siberia, central Russia and Kazakhstan rose from $444m to $480m last year, while net debt increased 12 per cent to $879m.
The rate of capital expenditure was expected to fall to $230m this year and $190m next, resulting in a further deleveraging of the company’s balance sheet, said Mr Nesis.
Cost pressures including domestic Russian inflation, an appreciation of the rouble against the dollar and increased royalties had pushed up average production costs from $555 to $701 an ounce.
But Mr Nesis said Polymetal was less vulnerable to some of gold mining peers in Russia and beyond to the main production threat in the sector – depletion of higher grade ore deposits.
Following its London IPO Polymetal has seen its free float edge just ahead of 50 per cent allowing for unconditional full London listing. Shares in Polymetal fell by 22.5p to 927.5p on Wednesday, but remained ahead of their 920p placing price.
Revenues rose from $925m to $1.33bn as pre-tax profits increased a third to $409m. Net income rose from $239m to $290m, as an increase in effective tax rate from 22 to 29 per cent held back earnings per share, which rose 12 per cent to 70 cents. Its maiden dividend was set at $0.20 a share.
Though down a tad on the day, Polymetal’s shares have fared reasonably since their London debut – treading water rather than suffering the reverses of fellow Russian precious metal miners Petropavlovsk
, Highland Gold and Nord Gold. With its net debt to ebitda ratio falling from 1.9 to 1.4 times and the shares trading on a modest prospective p/e of 8 times, Polymetal may arguably be the least risky of a risky bunch.