Daily analyst comments
Polymetal reports production in 2008
22.01.09 10:56
Polymetal has reported its 2008 production levels. The report indicates that the measures taken by the company to reduce the negative implications of a drop in ore quality have had a short-term positive effect. The long-term trend, though, arouses concern.
On January 21, Polymetal reported its production in 4Q and FY 2008. According to the latest data, the company in 4Q scaled down its ore mining operations, while increasing its gold and silver output. This holds specifically true for the company’s silver division, which managed to do so by raising its cut-off grade, as compared with 3Q. As a result, silver output increased by 20% q-o-q.
However, if compared with the year-earlier period, 4Q silver output declined, with the downturn attributed to the shrinking silver content in the ore extracted from the Dukat and Lunnoye deposits. To maintain production at these deposits, the company increasingly employs underground mining techniques, which are more costly than open-cast mining. The company’s gold-mining division reported robust production results, as the gold content of its ore remained almost unchanged. In the meantime, output from the Voro gold deposit grew by a hefty 12%.
In FY 2009 the company aims to produce 280,000-300,000 ounces of gold and 17-18 million ounces of silver, mostly in line with 2008. The company is targeting a 50% EBITDA margin on some of its deposits. We believe that the data released is indicative of the company’s ability to improve its operating indicators in the short term via intensive expansion of production. However, the company may eventually see its ability capped by its depleting resource base. To escape this, the company has devised new projects to replenish its resource base and improve the quality of its ores.
According to our estimates, the fair price for Polymetal is USD 7.7 per share.