Polymetal (LON:POLY), the gold mining company operating in Kazakhstan and Russia, said that the sales of gold bullion and concentrates from its Kazakh operations continue as usual while sales from its Russian assets are beginning to go back to a more regular pace, recovering from Covid-related disruption to its Asian countries sales earlier in the spring.
The gold miner is not selling its gold to the Russian central bank, either directly or indirectly, it confirmed.
When will we see a turning point for Polymetal?
Sales logistics remain a challenge for Polymetal as China still has some COVID restrictions in place and sanctions play a role, leading to slower inventory turnover and higher selling costs. The situation is likely to get slightly worse before it gets better with the biggest gap between production and sales expected in September.
The situation with Polymetal’s silver sales is more difficult as the Russian domestic market is currently non-existent and export channels are unreliable. The company’s silver bullion stocks continue to accumulate but Polymetal is talking to a number of commercial and industrial international buyers in search of a solution. Compared with gold, silver bullion makes up a relatively small amount of the company’s overall sales and is expected to account for less than 5% of the company’s sales this year.
Since the previous update, Japan joined western countries and imposed additional sanctions against Russia, prohibiting exports of industrial goods and technologies. Procurement continues to adapt to the current environment. The majority of existing contracts with foreign suppliers continue to be honoured and the company maintains significant safety stock for critical consumables and spares, Polymetal said.
Polymetal’s net debt is on the rise
A large working capital increase and accelerated procurement have increased the company’s net debt by $300 million in the last quarter to $ 2.3 billion, with 74% of that debt denominated in the US currency. The company holds $300 million in cash, deposited with non-sanctioned financial institutions, and has access to another $400 million of undrawn credit lines, also from non-sanctioned banks. These amounts will be sufficient to cover Polymetal’s expected debt repayments in the next six months.At the moment, Polymetal is financing its short-term working capital requirements with dollar-denominated debt at lower interest rates. Lending in Russia is available in both roubles and dollars, and interest rates on rouble loans have now dropped to between 11-12% following the Russian Central Bank’s benchmark rate decrease to 9.5%. The gold miner has recently secured another $200 million worth of revolving credit lines and plans to add to this a further $300 million this month.
The company’s operations in Russia and Kazakhstan continue undisrupted and are expected to yield a total of 1.7 million ounces this year. Sanctions have not affected Polymetal’s medium-term development projects POX-2, Kutyn, Urals Flotation, and Prognoz, all of which continue to progress. However, the sharp appreciation of the rouble and the ongoing logistical challenges are putting pressure on capital expenditures.
Polymetal will provide an update on its second-quarter production results on 21 July. Its full-year 2021 and interim 2022 dividend decisions will be released at the same time as its half-year earnings results on 22 September.
The company’s share was trading at 181.7 Thursday afternoon, up nearly 1% on the day.
