Polyus: Primed For Growth

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About: Public Joint Stock Company Polyus (OPYGY)
by: Danil Kolyako
Summary

Said Kerimov, the major shareholder of Polyus, sold 3.84% of shares in early April. The increased amount of free-float shares provides more liquidity to the stock.

The company also published solid operating results recently.

Polyus will make a dividend payment later this month, which will result in 6% dividend yield for 2018.

Company Overview

April has brought some interesting news about Polyus (OTCPK:OTCPK:OPYGY).

In early April, the holding company Polyus Gold International, controlled by Said Kerimov, sold 3.84% stake for $400 mn. The deal increased the company’s free float from 16.67 percent to 20.51 percent, which is a positive factor for the stock liquidity. Kerimov, in turn, retained a stake of 78.6 percent. The company said that it will not receive the proceeds from the sale.

The increased free float also means that the share of Polyus in the MSCI Russia index should increase from approximately 1% to 1.3%, which should lead to an inflow from passive funds and provide additional support for the stock price. This will likely occur during the May semi-annual rebalancing of indices.

Later this April the company announced the update of its ore reserves and mineral resources as at 31 December 2018. According to this update, Polyus’ Proved and Probable (P&P) Ore Reserves are estimated at 64 million ounces of gold. The Measured, Indicated and Inferred (MI&I) Mineral Resources amounted to 192 million ounces of gold, including 63 million ounces of Indicated and Inferred Mineral Resources for Sukhoi Log. The estimate for total gold reserves of Sukhoi Log hasn't changed since the previous update.

At the end of April, the company published operating (not financial) results for the first quarter of 2019. Compared to the previous quarter, total gold production decreased by 6% to 601 thousand ounces. On an annualized basis, ore gold production and total gold production increased by 22% and 19%, respectively.

Source: Company data, author's spreadsheet

The volume of ore mining amounted to 13,946 thousand tons, which is 16% higher than in the previous quarter. In annual terms, the volume of ore extraction increased by 58% due to the intensification of mining at the Natalka mine, as well as due to an increase in the productivity of existing assets after the implementation of projects to expand processing capacity.

Source: Company data, author's spreadsheet

The estimated revenue from gold sales was $741 million, a decrease of 3% (+22% Y-o-Y) compared to the previous quarter, with an estimated weighted average selling price of gold of $1,308 per ounce (6% higher than in Q4 2018). In Q1 2019, the company sold 570 thousand ounces of gold, which is 11% less than in the previous quarter. Polyus explained that this had happened due to the temporary intensification of production in areas of ore with a lower gold content and in the future the situation will change. The total volume of gold sales includes 22 thousand ounces of gold in concentrate from the Olympiada mine.

Source: Company data, author's spreadsheet

Net debt as of March 31, 2019 is estimated at $3,011 million compared to $3,086 million at the end of the previous quarter and $3,079 million as of March 31, 2018.

Source: Company data, author's spreadsheet

Overall, the company showed consistent growth in operational results, so I consider such results as a good basis for a financially successful first quarter of 2019.

Dividends

The company approved the full year 2018 dividends during the Annual General Meeting held on May 6, 2019. The final dividend payment has been approved at 143.62 roubles per ordinary share and is equivalent to approximately $2.22 per ordinary share or $1.11 per depositary share. The total amount of dividend payments for 2018 will correspond to approximately $560 million, including $264 million and $296 million paid in dividends for the first and second half of 2018 respectively.

The record date for the dividend will be May 16, 2019. If you want to receive the dividend, the last day to buy the stock is May 14th.

Gold Prices

Since the publication of my last article about the company, gold prices have declined.

Source: BullionVault

However, I still consider the price level of around $1,250/oz as more than enough for the company to deliver great financial results. I see the following positive factors affecting the price of gold in the mid-term:

  • The demand for gold as a defensive asset increased this year amid entering the late-cycle phase of the global economy.
  • Central banks continue to accumulate gold reserves thereby providing a level of support.
  • The ongoing trade war and its net effect of slowing down global growth will have a major impact on investor's sentiment in the foreseeable future.

At the same time, strong economic data in the U.S. and Europe will make investors more tolerable to the risk, pressing on gold prices.

On The Stock

After the Kerimov's stake sale, the stock has stuck in the range of $38-39 per share, waiting for any significant growth drivers. Good Q1 2019 financial results and MSCI Russia index rebalance should finally trigger the stock price growth in the medium term.

Source: Bloomberg

Final Thoughts

I have no doubt that the coming quarter results will satisfy Polyus' investors. The company will report 1Q 2019 results on May 14, so stay tuned for updates. I'll take a closer look at the company's long-term perspectives, particularly at the Sukhoi Log development project.

It's also important to note that OPYGY trades on very little volume and "by appointment only," so look toward the London Stock Exchange where Polyus' shares are also traded.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.