Polyus Q1 2019 Results: Expectedly Strong

Firm Overview

Polyus (OTCPK:OPYGY) revealed strong monetary outcomes for the primary quarter of 2019.

Income for the primary quarter of 2019 amounted to $751 million, a lower of three% (22% Y-o-Y) in comparison with $774 million within the earlier quarter as a consequence of a lower within the quantity of flotation focus gross sales from 75 thousand ounces within the fourth quarter of 2018 to 22 thousand ounces in the course of the reporting interval.

Supply: Firm information, creator’s spreadsheet

The full money prices (TCC) of the corporate for the primary quarter of 2019 elevated by eight% to $358 per ounce towards $331 per ounce within the fourth quarter of 2018 primarily as a consequence of a lower within the gross sales of antimony flotation focus within the reporting interval, which led to decrease impact of by-product gross sales ($7 per ounce within the Q1 2019 towards $31 per ounce in This autumn 2018). These elements have been partially offset by a seasonal mining suspension of the structurally greater value alluvials and decrease restore bills at Natalka in comparison with the earlier quarter.

Supply: Company presentation

Adjusted EBITDA reached $488 million, a rise from $484 million within the earlier quarter (1% Q-o-Q; 26% Y-o-Y), because the impact of decrease gold gross sales and TCC progress per ounce was fully offset by rising gold costs and a lower generally, industrial and administrative bills within the reporting interval.

Supply: Firm information, creator’s spreadsheet

The adjusted internet revenue for the primary quarter of 2019 was $243 million, a seasonal lower of 16% in comparison with the This autumn 2018 (9% Y-o-Y).

Supply: Firm information, creator’s spreadsheet

Capital expenditures within the reporting interval amounted to $99 million, a lower of 48% Q-o-Q (-46% Y-o-Y) amid a decrease degree of capital expenditures in all Polyus’ enterprise models.

Supply: Firm information, creator’s spreadsheet

I count on Polyus’ capex to say no additional, as most firm’s tasks are already accomplished.

Supply: Company presentation

The corporate’s free money circulate elevated by three.three occasions in comparison with the primary quarter of 2018 and by 58% in comparison with the fourth quarter of 2018 and amounted to $339 million.

Supply: Firm information, creator’s spreadsheet

Polyus offered expectedly sturdy outcomes for the primary quarter of 2019. The income progress price was 22% in comparison with the primary quarter of 2018, which was a results of a rise in gold gross sales by 24% within the reporting interval with a slight lower in gold costs.

The corporate’s EBITDA margin in Q1 reached 65%, which is near the utmost values ​​within the firm’s historical past and is the main end result among the many world’s gold miners. The rise in margins and gross sales volumes had a constructive impression on the Polyus’ internet revenue, which elevated 2.5 occasions. Additionally, the ruble weakening had a major constructive impact on revenue, which resulted in extra $189 million as a consequence of forex revaluation.

One other constructive level is a major improve in free money circulate. FCF elevated by 58% Q-o-Q and three.three occasions in comparison with Q1 2018. Right here, gold gross sales in Q1 performed probably the most important function, with a seasonal lower in capex and dealing capital optimization.

Revisiting Sukhoi Log

Supply: Firm’s web site

Sukhoi Log is an important a part of Polyus’ long-term funding case. With estimated reserves of greater than 2,000 tonnes of gold (64.three million troy ounces), Sukhoi Log is without doubt one of the world’s largest untapped gold deposits. The deposit accounts for at the least 28% of all gold reserves in Russia.

Polyus has drilled roughly 160,000 meters since October 2017 and accomplished the primary levels of hydrogeology and geotechnical drilling. So as to additional replace of gold reserves estimates at Sukhoi Log, the corporate expanded the drilling marketing campaign. Polyus now expects to drill roughly 223,000 meters by the top of 2019, in comparison with 197,000 meters of initially deliberate drilling.

Supply: Company presentation

The corporate plans to current the outcomes of the primary evaluation of proved and possible reserves within the first half of 2020, after the completion of the drilling program. Polyus is anticipated to make a remaining funding determination in 2020-2021. Polyus estimates capital expenditures for the event of Sukhoi Log at $2-2.5 billion, the launch is scheduled for 2026.

Polyus stated the Sukhoi Log processing facility would use a standard gravity/flotation course of to deal with a median of 30 million tonnes of ore a 12 months. The corporate plans to achieve common annual manufacturing on the deposit of round 1.6 million ounces of gold with a complete money value of $420-470 per ounce.

With Sukhoi Log working at full capability, Polyus would be capable to nearly double its gold manufacturing. The event of Sukhoi Log has the potential to make the inventory value skyrocket in the long run, so actually affected person traders shall be actually rewarded with spectacular returns.


Excessive dependency on the Olimpiada mine (greater than 50% of the corporate’s income) carries a major danger to the corporate’s attractiveness in case of the mine’s underperformance. There’s a danger that the up to date information of the Sukhoi Log financial parameters might suggest greater capex which can lead to decrease FCF after 2020. I believe that the sanctions danger is the least related to Polyus. The corporate has no export to the US, would not have a lot to do with the Russian authorities and appears just like the least probably goal for sanctions.

Closing ideas

By and enormous, it’s exhausting to say one thing extra about Polyus. The corporate simply works and makes each effort to stay among the finest gold mining corporations on the earth. Amid the worldwide financial instability, the corporate seems to be enticing as a consequence of rising demand for gold.

It is also necessary to notice that OPYGY trades on little or no quantity and “by appointment solely,” so look towards the London Inventory Trade the place Polyus’ shares are additionally traded.

Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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