Polymetal (LON:POLY), the gold mining company operating in Kazakhstan and Russia, said sales of gold bullion and concentrates from its Kazakh operations continue as usual while sales of its Russian assets begin to return to a more steady pace, recovering from the Covid-related disruption to its sales in Asian countries earlier in the spring.
The gold miner does not sell its gold to the Russian central bank, either directly or indirectly, he confirmed.
When is a turning point for Polymetal?
Sales logistics remain a challenge for Polymetal as China still has COVID restrictions in place and sanctions play a role, resulting in slower inventory turns and higher selling costs. The situation is expected to worsen slightly before improving with the biggest gap between production and sales expected in September.
Polymetal’s silver sales situation is more difficult because the Russian domestic market is currently non-existent and export channels are unreliable. The company’s silver bullion inventory continues to pile up, but Polymetal is in talks with a number of international commercial and industrial buyers looking for a solution. Compared to gold, silver bullion represents a relatively small share of the company’s overall sales and is expected to represent less than 5% of the company’s sales this year.
Since the previous update, Japan has joined Western countries in imposing additional sanctions against Russia, banning exports of industrial goods and technologies. Procurement continues to adapt to the current environment. The majority of existing contracts with overseas suppliers continue to be honored and the company maintains a large safety stock of critical consumables and spare parts, Polymetal said.
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Polymetal’s net debt is on the rise
A large increase in working capital and accelerated purchases increased the company’s net debt by $300 million last quarter to $2.3 billion, with 74% of that debt denominated in US currency. The company holds $300 million in cash, on deposit with unsanctioned financial institutions, and has access to an additional $400 million in undrawn lines of credit, also with unsanctioned banks. These amounts will be sufficient to cover Polymetal’s expected debt repayments over the next six months.
Currently, Polymetal finances its short-term working capital needs with dollar-denominated debt at lower interest rates. Loans in Russia are available in both rubles and dollars, and interest rates on ruble loans have now fallen to between 11-12% following the Russian Central Bank’s benchmark rate cut to 9, 5%. The gold miner recently secured an additional $200 million in revolving lines of credit and plans to add another $300 million this month.
The company’s operations in Russia and Kazakhstan continue uninterrupted and are expected to produce a total of 1.7 million ounces this year. The sanctions did not affect the medium-term development projects of Polymetal POX-2, Kutyn, Urals Flotation and Prognoz, all of which continue to progress. However, the strong appreciation of the ruble and the current logistical challenges are putting pressure on investment spending.
Polymetal will provide an update on its second quarter production results on July 21. Its decisions on the dividends for the year 2021 and the interim payment for 2022 will be published at the same time as its half-year results on September 22.
The company’s stock was trading at 181.7 on Thursday afternoon, up nearly 1% on the day.