Polymetal - 4Q19 Trading Update In Line; We Expect Up To 4% 2H19 DY

Polymetal has reported its 4Q19 trading update that showed production and sales figures broadly in line with our estimates. We forecast 2H19 EBITDA to come in at $595 mln and expect a decent dividend payment for 2H19 (a regular dividend from net income plus a special dividend) of up to $300 mln, for an up to 4% yield. At spot commodity prices and the current USD/RUB rate, Polymetal is trading at a 2020E EV/EBITDA of 7.9 and a 5% LFCF yield. We reiterate our HOLD recommendation.> Production marginally above guidance. Full-year 2019 production came in at 1,614 koz of gold equivalent (GE), which was up 3% y-o-y, marginally above the guidance of 1.6 moz GE (which was upgraded from 1.55 moz GE in October) and in line with our model. In 4Q19, production from continued operations dropped 15% y-o-y to 383 koz GE due to lower output from Amursk POX in 4Q19 due to scheduled downtime, which was in turn due to construction for the POX-2 project. Kyzyl's grade surprised to the upside again at 7.6 g/tonne in 4Q19 (production was up 4% y-o-y in the quarter), although the management believes that in 2020 it should fall closer to the guided 6.5 g/tonne.> TCC guided to increase 8% y-o-y in 2020, capex guidance raised 12%. Polymetal reiterated its 2019 TCC guidance at close to $650/oz GE. The guided TCC range for 2020 was raised by up to 8% y-o-y to $650-700/oz GE (in line with our model), which owed to higher royalties (as the spot gold price is 10% above the 2019 average) and to the recent strengthening of the ruble and tenge. The capex guidance for 2020 was raised by $50 mln to $475 mln. This increase broke down into $20 mln in capex for Nezhda pre-stripping being brought forward from 2021, $10 mln from an increase in Nezhda pre-stripping costs due to ruble appreciation and the recent diesel price growth, and $20 mln to be spent on environmental projects at Mayskoye and Omolon. We incorporate this into our model.> We expect a strong payout for 2H19, including a special dividend. We expect Polymetal's EBITDA in 2H19 to come in at $595 mln, bringing the full-year figure to $998 mln. Based on the disclosed $1.48 bln in net debt as of end-2H19 and taking into account the $95 mln paid in dividends in 2H19, we estimate 2H19 FCF at $315 mln, for a 4% yield. We calculate that the regular dividend for 2H19 - at a 50% payout from adjusted net income - should come in at around $200 mln. Net debt/EBITDA as of end-2019 should be at 1.48 - below Polymetal's medium-term target of 1.5, so we think that the company could also distribute a special dividend of $50-100 mln for 2H19, bringing the total dividend payout for the period up to $300 mln, which would mean a strong 4% yield.> Asset disposal and acquisition update. Polymetal has sold its remaining Armenian assets, including the Lichkvaz field, for $2.5 mln in cash, in line with the guidance provided at the November investor day. Sopka and North Kaluga (with a total valuation of more than $15 mln) are still guided to be sold in 1Q20, and the Sopka transaction could be announced in February. The possible acquisition of the minority stake in rare-earth Tomtor project in Yakutia is still being reviewed by the board, with the decision likely to come in 1Q20.