Polyus initiated at BUY, TP RUB 20,010 - An undervalued golden investment opportunity

We initiate coverage of Polyus, the largest open-pit gold miner in Russia and fourth largest globally in terms of production volume and exploited 2P reserves. Based on our NAV model, we suggest a target price of RUB 20,010 and assign a BUY recommendation. Being in full commercial production, Polyus pits are expected to produce 2.75-2.77 moz of gold per year in 2020-22e. We expect a boost in profitability on strong gold price of USD 1,950/oz flat in real terms and stable adjusted TCC of USD 521-544/oz in 2020-22e, thanks to Polyus undisputed cost leadership among peers. This is forecasted to add USD 980 mn, USD 256 mn and USD 219 mn of EBITDA in 2020e, 2021e and 2022e. This is in turn forecasted to fuel NOCF and FCF of USD 1.61 bn (5.8% yield), USD 1.91 bn (6.9% yield) and USD 2.35 bn (8.5% yield) in 2020e, 2021e and 20Polyus22e, respectively. As dividends are linked to EBITDA in the amount of its 30%, a declared DY of 3.9%, 4.2% and 4.5% is estimated for 2020e, 2021e and 2022e. All of this comes in alongside the strong credit profile with net debt-to-EBITDA below 0.7x in 2020-22e (negative at -0.2x from 2023e). An NPV of USD 13.13 bn comes from Sukhoi Log, globally the largest gold deposit with 40 moz of 2P gold reserves.