The total cash costs item is one of the most used metrics that investors have for comparing precious metal producers. It measures on-site mining production costs per ounce of output.
At the beginning of a gold bull run, investors will show a preference for high-cost producers since a rally in the commodity helps these high operating leverage companies to outperform their low-cost peers. But when metal prices are not in the initial stages of a gold bull run, investors prefer those miners with low total cash costs.
Since the commodity is not skyrocketing now, investors should look at low-cost producers. One of these companies is Polyus PJSC (MIC:PLZL, Financial).
The Russian mining company has one of the world’s lowest total cash costs per ounce of metal produced at $345 per ounce of gold as of the third quarter. It is expected to remain below $400 per ounce through the end of 2018.
Polyus qualifies as a long-term, high-quality investment because it is one of the few companies that can deliver double-digit growth in adjusted earnings before interest, taxes, depreciation and amortization when the commodity trades low. In fact, when gold averaged $1,212.75 per ounce during the third quarter, reflecting a 5.5% decline from the prior-year quarter, Polyus' adjusted EBITDA increased 18% from the second quarter and 13% year over year.
Boosted by a reduction in total debt, Polyus has proven to be particularly resilient to a low commodity price environment as the company was able to lower the net debt-to-adjusted EBITDA ratio to 1.6 from the previous value of 1.8. The net debt-to-adjusted EBITDA is a measurement of the company’s leverage, which is particularly appreciated in the community of gold investors.
A net debt-to-adjusted EBITDA ratio of 1.6 is impressive if we consider that the industry has a median of 2.3.
Polyus has a solid balance sheet with about $1 billion in cash on hand and short-term securities to sustain operations that, for the year, are expected to deliver approximately 2.425 million ounces of gold.
Polyus is also one of the world’s largest gold producers thanks to a portfolio of open-pit reserves that are situated in the most prolific mining areas of Russia. These are the Magadan region and the Siberian regions of Irkutsk and Krasnoyarsk.
The company is extracting the precious metal from proven and probable reserves totaling approximately 60 million ounces.
Gold is downtrending and for the remainder of 2018 it is projected to not average above $1,225 per ounce. Therefore, investors looking for gold mining investments should consider increasing their holdings of publicly traded producers that have demonstrated robust operational and financial performance when the yellow metal traded lower.
A buying approach on Polyus makes sense for long-term investors.
On Tuesday, the stock was trading around 4,341 roubles ($ 64.1) per share and slightly above the 200-, 100- and 50-day simple moving average lines according to the Investing.com chart. The 52-week range is $47.37 to $77.41. The market capitalization is approximately $8.5 billion.
Source: Investing.com
Disclosure: I have no positions in any securities mentioned in this article.
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