August 28, 2013 1:56 pm

Polymetal earnings hit by higher costs and falling metal prices

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Higher costs combined with a fall in gold and silver prices pushed Polymetal’s earnings sharply lower in spite of the Russian precious metals miner’s rising output.

Shares in the London-listed miner slid more than 7 per cent as Polymetal made $305m of asset writedowns, in line with estimates revealed last month, to become the latest precious metals miner to reflect the sharp fall in gold and silver prices in the second quarter.

The average price obtained for gold was 13 per cent lower in the first half of the year compared with 2012, Polymetal said. Silver prices were down 18 per cent.

The lower prices led to revenues falling 6 per cent to $721m in spite of rising sales volumes, with the amount of gold sold up 8 per cent in the period.

Polymetal’s benchmark costs for gold production rose 17 per cent, partly affected by a ramp-up at a pressure oxidation, or Pox, plant at Amursk, one of its sites in Russia’s far east. However, Polymetal said costs should fall in the second half of the year.

Vitaly Nesis, chief executive, said the first half of the year was “challenging due to tough market conditions and operational issues”. He said improvements at Amursk, and a ramp-up of another concentrator that started in April and will supply Amursk, would “enable us to both remain profitable and retain long-term growth optionality”.

Polymetal had said writedowns would be between $280m and $340m. Most gold miners have readjusted the value of assets such as gold stockpiles and resources in the ground after gold suffered a sharp fall in April, although the price has now recovered by more than $200 per troy ounce since it dipped below $1,200/oz in June.

Adjusted earnings before interest, tax, depreciation and amortisation fell 38 per cent year-on-year to $239m. Polymetal swung to a net loss of $255m compared with income of $157m a year ago. Adjusted for the writedowns underlying net earnings were $17m.

Analysts at Liberum said earnings missed expectations because of lower prices while net debt was also higher than expected.

“Although gearing remains relatively high [Polymetal’s] ability to generate free cash is impressive and with the Pox plant starting to take meaningful positive steps forward,” they said.

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