Polyus: A Solid Hedge Against Challenging Times Jan. 31, 2020 11:15 AM ET|6 comments | About: Public Joint Stock Company Polyus (OPYGY)
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https://seekingalpha.com/article/4320556-polyus-solid-hedge-against-challenging-times
Danil Kolyako
Long only, value, long-term horizon
(433 followers)
Summary
Polyus published excellent Q4 operational results recently.
The stock went up by 6% in a week amid rising market fears caused by the coronavirus outbreak in China.
I continue to consider Polyus one of the best gold miners to pick for the long term.
Since the production figures of Polyus (OTCPK:OPYGY) are above the forecast for the sixth consecutive year, the strong result of 2019 is not a big surprise. As I have repeatedly noted in my previous articles, Polyus has outstanding growth dynamics, high-quality assets and one of the lowest production costs among global peers, making it one of the top picks in the gold mining sector.
Q4 Operational Results
Total gold production grew by 16% to 2,841 thousand ounces. The increase was due to the launch of the Natalka Mill in December 2018 and the implementation of capacity expansion projects at other assets.
Compared to the previous quarter, total gold production increased by 7% to 804 thousand ounces. In annual terms, total gold production increased by 26% Y-o-Y.
Source: Company data, Author's spreadsheet
Ore extraction volume is up 9% Q-o-Q to 19,011 thousand tonnes. As a result of intensified mining operations at Natalka and Verninskoye, production volumes increased 58% year-over-year.
Source: Company data, Author's spreadsheet
Ore processing volumes increased by 24% year-on-year to 11,527 thousand tonnes mainly due to the Natalka Mill reaching its design capacity.
Estimated revenue from gold sales was $1,277 million, an increase of 20% compared to the previous quarter with an estimated weighted average price of $1,482 per ounce, which is in line with Q3 2019.
Source: Company data, Author's spreadsheet
Net debt is estimated at $3,285 million at December 31, 2019, compared to $3,317 million at the end of the previous quarter.
Overall, Polyus published strong operating results, with its annual production forecast exceeded by 1.5%. Estimated revenues for the 4th quarter increased by 67% Y-o-Y both due to increased sales volumes and higher gold prices, so Q4 financial results will certainly please investors with record-high earnings.
The Outlook
Whereas the recent outbreak of 2019-nCov turned out to be a black swan for airlines, retailers and many other industries, for gold miners it is actually, well, a "white" swan.
Coronavirus Live Update Map by Johns Hopkins CSSE
With 143 people recovered and a mortality rate of 2%, the new coronavirus doesn't seem to be especially deadly. However, due to emergency measures taken by the Chinese government to reduce the spread of the virus, I expect that the virus outbreak will certainly do some noticeable damage to the Chinese economy as well as the global economy.
The U.S. market has its own concerns too.
Source: Crescat Capital
Corporate profits have been declining for a long time and now their growth has gone into negative territory for the first time in the last decade. This had happened just before every major bear market in modern American history.
It is hard to predict how long investors can ignore the deteriorating situation in the global economy. Perhaps, the additional liquidity injections from the Fed and strong results of the U.S. tech sector (which dominates the S&P 500) will put some pressure on gold by mid-year when the coronavirus epidemic will subside. This will cause a temporary decline in the stock price and allow investors (including me) to buy it at an attractive price.
Final Thoughts
Despite that short-term market fluctuations are usually not interesting for long-term investors, I would like to draw attention to an interesting fact.
Source: TradingView
In the Russian stock market, Russian investors have only two options among gold miners: Polyus and Polymetal (OTCPK:AUCOY). Given the extraordinarily high inflow of investors into the Russian market over the last year, I expect more and more people to use these two stocks as a tool to hedge the risks of recession, and the situation around the coronavirus is clear evidence of that.
It's important to note that in the U.S. Polyus trades on very little volume and "by appointment only," so look toward the London Stock Exchange, where the 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.