Polyus Adds New Metal, More Gold to Shake `Russian Discount'

(Bloomberg) -- Polyus PJSC is targeting more than just gold to help challenge the “Russian discount” it says is tainting its share price.

The Russian precious metals miner plans to sell shares on the market and boost gold production, which could vault it into the top five biggest miners in the world as early as next year from seventh now. It’s also developing markets for a mining by-product that can be used for gasoline and hybrid car batteries. And that while retaining one of the highest dividend yields in the industry.

"We are trying to expand output of existing assets as much as possible and at the same time return all free cash flow to our shareholders," Chief Executive Officer Pavel Grachev said in an interview in Moscow ahead of the company’s first capital markets day in London after relisting shares in the U.K. city last year. "We won’t spend on acquisitions. Organic growth and cutting costs is the main focus."

Yet even as Polyus shares gained 22 percent since the sale of more than $800 million of stock in June -- compared with a 6 percent advance in gold prices -- Russia’s biggest miner of the metal trades at a discount to its foreign peers relative to earnings before interest, taxes, depreciation and amortization.

Russia Discount

Incidents like the poisoning of a Russian double agent and his daughter near London this month and the detention by French authorities of billionaire Suleiman Kerimov, the father of Polyus’s main shareholder, last year contribute to a "Russian discount" that damps the stock prices of all Russian companies, Grachev said.

Without the perceived risk, “we cannot explain why Polyus is traded at 7.5 times Ebitda, while companies with high production costs, lower reserves, no growth history and assets in Africa are traded at 10 to 11 times Ebitda,” Grachev said.

Polyus is presenting its updated strategy to investors in London Tuesday in an attempt to narrow the discount, according to Grachev.

Production at existing facilities is forecast to rise by almost 23 percent by the end of next year to an annual 2.8 million ounces, allowing it to surpass Kinross Gold, according to Polyus’s estimates. The output is seen at the same level in 2020 as well, the miner said in a statement. New output ultimately may make Polyus the fourth-biggest gold producer globally, Grachev said in an interview with Bloomberg television Tuesday.

At the same time, the company will decrease capital expenditure to $550 million in 2020, keep costs below $450 an ounce -- one of the lowest levels globally, and continue to pay at least 30 percent of Ebitda in annual dividends, Grachev said.

Production will keep climbing as Polyus prepares to develop Sukhoi Log in Siberia, one of the world’s largest untapped gold fields with more than a quarter of Russian reserves. The miner hopes to have a feasibility study ready in 2020. Preliminary findings see Sukhoi Log’s annual capacity at 30 million metric tons of ore and as much as 1.7 million ounces of gold, Grachev said.

The miner has started production of antimony concentrate, used in batteries, with output in 2018 seen at as much as 20,000 tons, an equivalent of 10 percent of current global production, Grachev said. The price of antimony rose to over $8,000 a ton, which could help to cut gold production costs by up to $15 a ton, according to the CEO.

And to further boost the share price, Polyus aims to increase its free float to 25 percent to 30 percent from about 16 percent after last year’s sale, Grachev said. He didn’t give a timing for a possible share sale.

To contact the reporter on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Alex Devine, Nicholas Larkin

©2018 Bloomberg L.P.