The increase in prices for precious metals and the growth of operating indicators. According to the Bloomberg consensus forecast, the dynamics of prices for the precious metals is positive on the forecasted horizon of 2019-2024. The average annual price increase for precious metals, such as gold in (+1% y/y), copper (+2% y/y) and silver (+2% y/y), will positively affect the Company's financial performance. Polymetal confirms production data for 2019 in the amount of 1.7mln oz of gold equivalent (+10% y/y) and for 2020 in the amount of 1.8mln oz of gold equivalent (+6% y/y) due to the successful performance of the Kazakhstan’s project Kyzyl and the increase in production at current deposits. The Kyzyl project is a promising growth component for Polymetal in the medium term with low production costs and capital investments. In the long term, the Company will be able to increase production due to the consolidation of the Nezhda deposit and the launch of the 2nd Amursk Pressure Oxodation (POX).
Attractive dividend payments. The dividend policy of the Company implies payments in the amount of 50% of the adjusted net profit, provided that the ratio of net debt to adjusted EBITDA is below the established hard ceiling of 2.5x. In 2019, according to our forecasts, the Company will pay a dividend of 35.7 GBp/share (0.49 USD/share). The projected dividend yield of the Company in 2019 will be 4.2% relative to the current price. According to our forecasts, net income in 2019 will be equal to USD455m (+ 28% y/y).
Increase of 12M TP from 735 GBp/share to 860 GBp/share, recommendation is Hold. The increase in production due to new deposits and projected prices for precious metals in the period from 2019-2024 will provide substantial support for Polymetal's financial performance. However, taking into account continuous operating investments in current deposits and despite the anticipated growth in production, we assume that the Company's total cash costs may approach the upper limit of the range forecasted by the Company at 925 USD/oz and adversely affect the Company's profitability. We expect EBITDA margin to be 40% in 2019 and 41% in 2020.
