Polymetal shares slide on rising costs in the year ahead

Courtney Goldsmith
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Polymetal has struggled with increased diesel prices and a strong Russian currency
Polymetal has struggled with increased diesel prices and a strong Russian currency (Source: Getty)

Shares in Polymetal slid more than six per cent following news that production was broadly in line with targets but costs will go up in the year ahead.

Polymetal, which has mines in Russia, Kazakhstan and Armenia, said it delivered a "strong performance" in the fourth quarter of 2016, producing 375,000 ounces of gold equivalent, a 21 per cent increase, bringing total production for the year to 1.27m ounces, which was slightly above production guidance.

The Russian precious metals miner, which fell out of the FTSE 100 in 2013, said gold production for the quarter was at 285,000 ounces, up 30 per cent year-on-year, while silver production was 7m ounces, down three per cent from the same quarter in 2015.

For the full year, gold production was 890,000 ounces, up three per cent year-on-year, while silver production was 29.2m ounces, down nine per cent compared to 2015.

Net debt was flat year-on-year at $1.33bn, but it has decreased slightly from the previous quarter at $1.47bn.

Polymetal reported two fatalities in the fourth quarter, bringing the total for the year up to four.

Shares for the FTSE 250-listed firm were down 6.53 per cent at 872.5p in afternoon trading.

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"Polymetal continues to deliver a strong operating performance, driving solid cash flow and meaningful dividend payments. 2016 is the fifth consecutive year that the company meets its production guidance," said Vitaly Nesis, chief executive of Polymetal.

"In 2017, we will continue to focus on delivering free cash flows and dividends, moving Kyzyl towards completion, and advancing our long-term project pipeline."

The Kyzyl mine is on track to begin production in the third quarter of 2018.

The company reconfirmed its production guidance for 2017 and 2018 of 1.40m ounces and 1.55m ounces of gold equivalent, respectively.

However, cash costs for the year ahead are expected in the range of $600 to 650 per ounce and all-in sustaining cash costs at $775-825 per gold equivalent ounce, up from 2016 guidance. The company put the increase down to rising domestic diesel prices and the strengthening of the Russian rouble on the back of oil price growth in the fourth quarter of 2016.

Capital expenditure guidance has also been raised to $370m, up $30m from previous guidance. Additional investments will be directed towards the new project pipeline including Nezhda, Prognoz, and Viksha.

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