Risks for Polyus

The gold miner's financial performance for the first half of the year worsened

Despite high prices for precious metals, the first half of the year for Polyus Gold, Russia's largest gold miner, turned out to be worse than the same period last year. The company's net profit according to IFRS decreased by 30.3%, to $104.6 million. On Friday, after the publication of financial statements, Polyus shares fell by 3.5% on the London Metal Exchange.

Revenue from gold sales, thanks to high prices for the metal, increased by 38%, to $607.57 million (the average price of gold sales in the first half of 2010 was $1.16 thousand per ounce, which is 25% more than for the same period in 2009). The Polyus Group increased production by 5%, producing 503 thousand troy ounces of precious metal and selling 524 thousand ounces. By the end of the year, Polyus expects to fulfill the budgeted production plan of 1.5 million ounces. EBITDA in the first half of the year amounted to $247.58 million (a year earlier - $218 million). At the same time, the company noted a decrease in profitability due to rising costs, as well as the consolidation of KazakhGold, which operates at a loss ($29.8 million). The EBITDA margin was 39.8% (a year earlier - 48.2%), the net profit margin was 16.8% (instead of the previous 33.2%).

Polyus' costs in the first half of 2010 increased to $515 per ounce of precious metal from $361 in the same period last year. Company representatives explained during a telephone conference that the increase in costs was due, in particular, to changes in the ruble/dollar exchange rate, which led to an increase in dollar costs by 10%. Polyus' total operating expenses more than doubled during the reporting period, to $351 million. Of these, $117 million (a year earlier - $66 million) were costs of materials. Personnel costs rose 80% to $97 million.

The gold miner's investments amounted to $149 million (in the first half of 2009 - $116 million) and were aimed mainly at the construction of enterprises at the Blagodatnoye and Verninskoye deposits, the modernization of facilities at the Olimpiadinskoye deposit, as well as at enterprises in Kazakhstan.

“Already in the second half of the year, the coefficient of metal extraction from ore at the Olimpiada deposit will increase and financial indicators will be much better,” noted Uralsib analyst Nikolai Sosnovsky. The risk for the company is the situation around Polyus' reverse takeover of KazakhGold, which has once again been postponed, now until October 29. The postponement is due to the ongoing conflict between Polyus Gold and the former owners of KazakhGold - the Assaubayev family. Kazakh law enforcement agencies initiated a number of inspections of Polyus, as a result of which several criminal cases were initiated against the top management of the Russian gold miner.

Irina TSYRULEVA