Is Polymetal International a Buy?


LONDON -- I believe that accelerating gold production at Polymetal International -- whose mining assets are located in Russia and Kazakhstan -- should continue to drive revenues higher for some time.

Production rose 31% alone last year, and ambitious plans to bring the group's next generation of assets online in the coming years are said to be attracting interest from the likes of Polyus Gold.

Gold-lined production potential
In January's quarterly production report, Polymetal reaffirmed its output guidance of 1.2 million gold ounces in 2013, up from the 1.063 million ounces dug up during the previous year. The company also increased its capital expenditure target this year to $300 million from $210 million as it speeds up its greenfield development and exploration plans.

Polymetal is due to bring its so-called "POX" treatment facility to full capacity in the coming months which, barring further technical delays, should significantly enhance production in the near term.

Over the long term, broker Sberbank expects the company to produce between 1.35 million and 1.4 million gold equivalent ounces up to 2017. And the broker estimates that this figure could rise to 1.5 million ounces thereafter until 2022, when Polymetal's third generation of assets are expected to begin to contribute strongly, particularly at its Albazino-2 and Kutyn sites. Construction and production details for these projects are expected in the second half of 2013.

Like all mining operators, Polymetal is susceptible to volatility in the commodity and currency markets. However, I believe that current market conditions -- i.e., ongoing geopolitical and macroeconomic uncertainty, coupled with expectations of rising global inflation -- should keep demand for safe-haven precious metals pointing higher.

Healthy earnings growth expected
Polymetal's earnings growth is forecast to moderate in the near future, although I believe that attractive returns can still be expected. The City consensus puts earnings-per-share growth at 65% for 2012 to 82.6 pence (last year's results are due on Monday, April 8). A 42% increase is anticipated this year, to 117.1 pence per share, followed by growth of 13% in 2014 to 132.3 pence per share.

Rising revenues are set to boost the miner's share value, with a P/E ratio of 12.4 during 2012 anticipated to drop to bargain levels around 8.7 and 7.7 for 2013 and 2014, respectively. Indeed, Polymetal's projected leap in earnings provides a bargain-basement price/earnings to growth (PEG) rating of 0.2 for both 2012 and 2013, with a rise to 0.6 next year still attractive -- a reading under 1 is generally considered excellent value for the money.

Canary in the mine
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