The Company's revenue increased by 28% y/y, reaching USD454 mn due to an increase in gold sales by 41% y/y compared to 1Q2018. A significant increase in production at Kyzyl was due to the high productivity due to the softness of the surface rock, as well as high content (6.9 g/t) and average gold recovery (86.8%). During 1Q2019, the Amur Mining and Metallurgical Complex (POX) achieved design gold production in the amount of 109 koz (+21% y/y). Silver production declined due to a planned reduction in grade at the Dukat mine. The Company's net debt increased by 12% y/y to USD1.704 mn due to the seasonal purchase of diesel fuel and other consumables.
The Company began large-scale construction work at Nezhda and POX-2 and plans to commission two projects in 4Q2021 and in 2H2023, respectively. Polymetal confirmed its production plan for 2019 at 1.55 mn oz of gold equivalent, as well as projections for total cash costs (600-650 USD/oz) and all-in sustaining cash costs (800-850 USD/oz). The company noted the risk associated with the dynamics of the exchange rate of the ruble and tenge, which have a significant impact on the total cash costs of the Company. Polymetal plans to increase free cash flows in 2H2019 due to seasonal production growth and a reduction in working capital. According to the Company, the final dividend for 2018 in the amount of USD0.31 per share will be paid on May 24, 2019.
On April 17th 2019, the Company announced the listing of ordinary shares on AIFC (AIX) in Kazakhstan. Currently, Kazakhstan accounts for 38% of the Company's ore reserves (9.1 mn oz of gold out of 24 mn oz). In 2018, Kazakhstani assets produced 238 koz in gold equivalent and yielded income of USD272 mn (17% of adjusted EBITDA).
Our opinion:
Dynamics of the Company’s production performance is in line with our expectations. According to our estimates, in addition to a significant increase in production in 2019 due to the achievement of the production capacity at the Kyzyl field in 2018, a significant increase in production will occur at Varvara, Omolon, Svetloye and Mayskoye in 2019. We expect the Company to demonstrate a further increase in production in 2H2019 due to the seasonal factors and to achieve the production forecast for 2019 in the amount of 1.55 mn oz of gold. We view the Nezhda and POX-2 as promising growth projects in the long term in terms of production growth and the overall resource base of the Company. In the absence of a steady strengthening of the ruble and tenge, as well as an increase in oil prices, we predict that the Company's costs will remain in the planned range.
Given the Company's operational plans in line with our expectations, as well as the favorable trend in the precious metals market, we maintain our recommendation to Hold and 12M TP at 860 GBp/share.
