15th Apr 2016 07:44
LONDON (Alliance News) - Polymetal International PLC Friday said it will update its production guidance in order to take its two new assets into account, highlighting the possibility that the miner could increase production this year rather than report the decline that the market is currently expecting.
Based on Polymetal's current guidance for 2016, production is expected to fall by over 3% this year. However, thanks to deals struck since the start of 2016 to acquire assets in Armenia and Kazakhstan, Polymetal plans to update its guidance, suggesting production could potentially rise.
Polymetal said production slipped in the first quarter of 2015 due to declining grades whilst sales lagged behind due to seasonal factors, but the miner reiterated its full-year production guidance for 2016 despite its plans to update it shortly.
"We are on track to deliver on our production and cost targets for the current year and remain on track regarding the Kyzyl development project", said Vitaly Nesis, chief executive of the Russian gold miner.
Polymetal's production was significantly lower in the first quarter of 2016 compared to the final quarter of last year and also down from the same period a year earlier.
Polymetal reported production of 260,000 ounces of gold equivalent in the first quarter of 2016, declining due to lower grades, as expected, at the mature Okhotsk operations, lower-grade stockpiles at Varvara, and a "one-off release of work in progress" at Voro.
"All other operations had strong performances and Varvara is expected to improve with the purchase of the Komarovskoye deposit," said Polymetal.
That is down 4% from the previous year, but more notably production in the first quarter was more than 16% lower than the final quarter of 2015 when it produced 310,000 ounces of gold.
Polymetal's overall gold equivalent production is the combined total of gold, silver and copper production. Gold production in the first quarter of 2016 was down 9% from a year ago and 23% lower than the previous quarter whilst silver production was up 6% year-on-year but flat from the final quarter of 2015.
Compared to the previous year, production grew from the Dukat, Albazino-Amursk, Mayskoye and Omolon operations in the recently-ended quarter by 1% to 26%, whilst production from the Voro, Varvara and Okhotsk operations fell between 28% to 32%.
Sales also lagged behind production, amounting to 243,000 ounces of gold equivalent in the quarter. The 17,000 ounces that were not sold will be added to the company's stockpile, but Polymetal said the lag is expected to be "fully reversed" during the year.
The reason sales came in lower than production was mostly due to "seasonal factors", the company said, including new year stoppages and annual contract renegotiation with silver off-take customers.
Those sales managed to generate USD286.0 million in revenue for the company in the first quarter of 2016, down 4% from USD298.0 million a year earlier and down a staggering 27% from the USD391.0 million generated in the final quarter of 2015.
Still, Polymetal reaffirmed its plan to produce 1.23 million ounces of gold equivalent in 2016, adding its total cash cost should still be in the region of USD525 to USD575 per ounce and all-in sustaining costs of USD700 to USD750 per ounce. However, Polymetal said the cash cost guidance is reliant on the exchange rate between the dollar and the Russian rouble. Spot gold stood at USD1,231.30 per ounce.
Polymetal managed to reduce its all-in sustaining cash cost by 18% in 2015 to USD733 per gold equivalent ounce, and also beat its own guidance, suggesting Polymetal is simply trying to maintain its current costs rather than lower them.
In 2015, Polymetal produced 1.27 million ounces of gold equivalent, which was down 3% from the previous year, and sales were also behind production during the year.
Based on the 260,000 ounces of gold equivalent produced in the first quarter, Polymetal would produce 1.04 million ounces in 2016, implying that production is expected to increase in the remaining three quarters of this year if Polymetal is to deliver its guidance.
That is likely to come from its new assets and potentially from the Kyzyl development project.
The Kyzyl project development is on track with all mining equipment is on site and all major contracts for processing equipment signed during the quarter, the miner said.
Polymetal said it will provide an updated production guidance soon to take into account its recent acquisitions of the Kapan gold-polymetallic mine in Armenia and the Komarovskoye gold deposit in Kazakhstan.
Polymetal agreed to snap up the Kapan gold mine in Armenia from Dundee Precious Metals Inc back in early March, paying USD25.0 million, comprised of USD10.0 million in cash and USD15.0 million in Polymetal shares.
The mine is expected to offer synergy benefits with its Lichkvaz deposit and help streamline its cost structure.
At the end of 2014, the indicated and inferred resource for the site was estimated at 15.9 million tonnes, containing around 1.4 million ounces of gold, 24.0 million ounces of silver, 80,000 tonnes of copper and 270,000 tonnes of zinc.
The deal concerning the Komarovskoye gold deposit was struck earlier this month, revealing that Polymetal will pay USD100.0 million in cash to purchase the deposit from Kazzinc Ltd, a Glencore PLC-owned business. Kazzinc also will receive a deferred consideration linked to future production from the deposit.
Komarovskoye is located in north-western Kazakhstan, around 187 kilometres from Polymetal's Varvarinskoye mine. The site comprises and open pit mine and heap leach facility with grid power available on the site. Over 200,000 ounces of gold have been produced at the site since 2006.
Net debt has increased 7% since the end of 2015 to sit at USD1.38 billion at the end of March, partly caused by the seasonal sales lag and because of increased spending on Kyzyl and equipment purchases which resulted in negative free cash flow in the quarter.
Unfortunately, Polymetal also reported one fatality at the Dukat underground mine on April 10.
Polymetal shares were trading down 0.5% to 700.50 pence per share on Friday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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