Polymetal keeps a lid on costs in 2012

Polymetal, the Russian gold producer and one the world's largest silver miners, managed to hold back on costs in 2012 despite a strong rise in revenue, prompting the firm to raise its payout ratio to shareholders.

Polymetal saw 40% growth in revenues from $1,326m to $1,854m (Credit Suisse: $1,843m), which was driven mainly by a 33% increase in gold equivalent sold. The company said that in addition to "robust" production growth, metal sales exceeded output for both gold and silver due to destockpiling of concentrate inventories at the Dukat project.

Total gold equivalent production was up 31% year-on-year at 1.06m ounces, exceeding the original guidance of 1.0m by 6.0%.

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"These excellent results were driven by stable performance at all mature mines, with a notable improvement achieved at Dukat, and successful ramp-up at Omolon and Albazino," the company said.

2013 guidance is for 1.2m ounces of gold equivalent production.

The firm's Amusk POX hub, Polymetal's largest project, poured first gold in 2012 and is currently undergoing the ramp-up period but this process has been slower than planned due to "certain problems". The POX plant is expected to reach full capacity by the fourth quarter.

Cash costs over 2012 remained broadly flat at $703/GE oz "as a result of intense management focus on cost control despite external and inflationary cost pressures".

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 47% year-on-year to $918m, above of Credit Suisse's $909m forecast. However, basic earnings per share were 103 cents, up 30% from 79 cents the year before but under forecasts as the company booked tax provisions of $116m in respect of prior years.

The company declared a final dividend of 31 cents per share in 2012 (2011: 20 cents), representing 30% of net earnings, up from the 20% payout ratio indicated the year before. The company also paid a 50 cents special dividend in January.

"We have demonstrated strong financial performance for the year driven by excellent operational performance and tight cost and capital discipline", said Vitaly Nesis, Chief Executive Officer.

"This success is marked by stable total cash costs, increasing margins and returns on capital, as well as increased free cash flow generation on the back of completion of our major growth projects. We are committed to delivering the value created to shareholders, by proposing a final dividend which, combined with special dividends, will result in a sector-leading yield combined with solid growth profile".