Why Polyus PJSC Can Outperform

The Russian operator benefits from high return on mining activities

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Feb 12, 2020
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Gold outlook

While potential downside risks due to the new coronavirus will continue to be monitored by the Federal Reserve, Fed Chairman Jerome Powell said before the U.S. Congress on Tuesday that his outlook on the American economy remains positive, which is good for the stock market.

Therefore, the Fed is not expected to proceed with further cuts in interest rates in the short term, which slow down gold's bull run as a low yielding environments favour investments in the yellow metal.

However, fears about a large market sell-off heighten uncertainty, and individuals who are scared that a subsequent increase in volatility may hit their assets are more likely to take precautions by enhancing their exposure to precious metals such as gold and other safe-haven investment vehicles.

Thus, gold, which traded at $1,570.50 per troy ounce on the London bullion market as of Feb. 11, is projected to maintain its bull run in the second quarter of 2020.


In order to benefit from the next gold bull market, investors may want to purchase shares of publicly traded gold mining companies that tend to substantially outperform the industry when the underlying commodity rises.

The Russian gold operator Public Joint Stock Company Polyus (

OPYGY, Financial) represents an opportunity. In the past year through Feb. 11, when the precious metal rose on average more than 12%, the Russian miner grew 56% topping the VanEck Vectors Gold Miners (GDX, Financial) exchange-traded fund, which instead added only 31%.


Polyus relies on strong activities that it holds in mineral deposits in the Krasnoyarsk region of eastern Siberia, the Irkutsk region of southeast Siberia and the Yakutia region of Russia.

From its reserves (64.4 million ounces as of Dec. 31, 2018), which make Polyus the world’s third-largest gold producer, the miner made 2.84 million ounces in 2019 (up 16% from 2018 thanks to higher refined and gold concentrate), surpassing the company’s guidance for the sixth year in a row.

Due to higher sales volumes (up 23% year over year to 2.88 million ounces) and realized price (up 11% to $1,403 per ounce), total revenue was a record $4 billion (up 37%) and the Ebitda, helped by a better than expected total cash cost of $365 per ounce, also hit a record $2.68 million (up 44%). The company projected total cash costs in the range of $375 to $425 per ounce.

The adjusted Ebitda margin, which is a good indicator of Polyus’s profitability as for any other mining company, advanced three percentage points to 67% of total revenue in 2019 (from 64% of total revenue in 2018), thrashing the industry median of around 25%.

The company also reported a remarkable improvement in the net debt-to-adjusted Ebitda ratio (a measure of financial leverage), which decreased by 29% (the time needed to repay all the debt is estimated at 1.2 years from the prior 1.7 years).

Polyus guides for approximately 2.8 million ounces of gold produced in 2020, but at a higher total cash cost of $400 to $450 per ounce (as the mining company expects a costlier supply of production factors).

Provided that the underlying commodity stays supportive, Polyus also represents a good candidate to choose for the long run as the Russian gold mining company holds a pipeline of high-return brownfield development projects to bolster its operational profile for at least the next five years.

For full-year 2020, Polyus has raised total funds to allocate to capital expenditures to $700-750 million (from $630 million in 2018) as the Russian mining company plans to intensify exploration activities at the key assets and finance mill expansion, debottlenecking and upgrading programs.

Wall Street sell-side analysts recommend an overweight rating on Polyus and have set an average target price of $64.59 per American Depositary Receipt versus Tuesday’s closing price of $63.

The stock has a market capitalization of $16.4 billion and an enterprise value-EBITDA ratio of about 6 versus the industry median of 8.85.

The stock doesn’t trade cheaply, as it hit a 52-week high at close on Tuesday ($63 per share) and the share price is above the 200-, 100- and 50-day simple moving average lines. The 52-week low is $37.19 per share.


The 14-day relative strength indicator of 66 suggests the stock is still far from overbought levels.

Furthermore, the stock offers a forward dividend yield of 11.1% as of Feb. 11.

Disclosure: I have no positions in any security mentioned.

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