Daily analyst comments

On April 15, Polymetal published operating results for 1Q2010. Most of the indicators show annualized growth on the back of acquisitions and the improving operating results of acting mines. Gold production expanded 54%, except for Varvarinskoye, where output increased 26% to 18,300 ounces. The main factors behind production growth (not counting the Kazakh company) were growth in ore processing volumes and a higher metal content in ore at the Dukat and Vorontsovskoye deposits. Silver production rose 11%, with growth attributed to higher metal contents in ore at the Lunnoye and Khakandzhinskoye deposits, and growth in rock processing volumes at Dukat.

Polymetal: Operating results

The targets for 2010 have remained unchanged: Polymetal aims to produce 430,000-450,000 ounces of gold, 19-20 million ounces of silver and 4,000-5,000 tons of copper. Preparatory work is underway at Albazino, Maiskoye and Omolon. First ore from Albazino is to be stored in 2Q 2010, while the launch of the deposit is scheduled for 2Q2011. Ore processing at Omolon is expected to get underway as of August 2010. The capex program for Maiskoye is in progress and first gold output from this deposit is expected in 2012-2013.

We estimate the operating results as positive. The company presses ahead with its investment program and integration of the newly-bought sites, which should result in substantial production growth in the space of 3-4 years (gold output is to double by 2012-2013). Favorable trends on the precious metal market should be conducive for the successful implementation of the investment program.

Despite the positive results and expectations, we believe that Polymetal shares are overvalued relative to their fair price. Our rating for Polymetal common shares is SELL, with a target price of USD 7.4 at the end 2010.