Stable dynamics of financial and production indicators. Polymetal's revenue increased by 4% y/y for 2018, reaching USD1,882 mn, due to the successful withdrawal of the Kazakh field Kyzyl to its design capacity. Total annual production increased in gold equivalent by 9% y/y to 1,562 mn oz, exceeding the production plan for 2018. Polymetal confirms operational forecasts for 2019-2020 in the volume of 1,55 mn and 1,6 mn oz of gold equivalent.
Reduction in cash cost of production. The company predicts a decrease in cash costs in 2019 in connection with the sale of non-core assets with a high level of costs and with the first year of operation of Kyzyl on project indicators. Total cash costs will be USD600-650 per oz of gold equivalent (-7% y/y), and all-in sustaining cash costs will drop to USD800-850 per oz of gold equivalent (-8% y/y).
Ensuring long-term growth. Kyzyl is a promising growth component in the medium term with low production costs and capital investments. In the long term, the Company will be able to increase production by 18% by the end of 2023 due to the launch of the Nezhda deposit and POX-2.
Successful listing on the AIFC (AIX). We note that due to the secondary placement on AIX in 2Q2019 the Company's shares have become more attractive and accessible to local investors, which is favorable for expanding the Company's share base.
Positive trends in the precious metals market. According to consensus forecasts, the dynamics of prices for metals sold is positive on the forecast horizon of 2019-2025. The average annual price increase for precious metals such as gold (+ 2%) and silver (+ 4%) will positively affect the Company's revenue. According to the World Gold Council, the increase in gold reserves by central banks and active investment in gold by India and China, which together make up 50% of the global demand for gold, will maintain a positive impact on the price of the metal in 2019.
Buy recommendation with 940 GBp/share 12M TP. The increase in production due to new deposits and projected prices for precious metals in the period from 2019-2025 will provide significant support for Polymetal's financial performance. The projected dividend yield of the Company will be 6% in 2019 relative to the current price.
