Polymetal doubles dividend as it rides gold price higher
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Polymetal doubled its dividend after higher gold and silver prices boosted profits in the first half of the year.
The London-listed Russian mining group, which also benefited from falls in the rouble and Kazakh tenge, said on Wednesday it would raise its payout to 40 cents per share.
Shares in Polymetal have risen 63 per cent this year to trade at £19.43, making it one of the best performers in the FTSE 100.
Mining has been among the few sectors in the index where dividends have been maintained, on the back of precious metals prices and stimulus measures in China that helped maintain demand.
But Vitaly Nesis, Polymetal chief executive, said many gold companies were failing to reward their shareholders with dividend payments, despite rising gold prices.
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“It's curious to see that a lot of gold companies either continue to pay the minimum dividend or no dividend,” he said. “If the gold price goes up the shareholder must be rewarded . . . If a gold company can’t pay a sizeable dividend when gold prices are near $2,000, what's the point of owning a gold stock?”
Gold prices hit a record high of $2,072 an ounce on August 6 on concerns about the impact of the coronavirus pandemic and a rise in negative-yielding bonds. Since gold provides no yield to investors, it becomes more attractive when bond yields are low.
Polymetal insisted Covid-19 infections among its staff would not hit its annual production target of 1.5m ounces of gold.
It said it had suspended its Olcha mining operations in far-eastern Siberia this month after a third of its 164 employees there tested positive for the virus this month. The closure, expected to last for another 10-14 days, would have no material impact on the company’s production since it was already outperforming its targets, it added.
“Employees are under constant medical supervision,” Polymetal said.
The company said it had maintained its cost guidance of $659-$750 an ounce as weakness in the rouble and tenge was offset by costs related to Covid-19 and higher mining tax.
Polymetal said adjusted earnings before interest, tax, depreciation and amortisation had risen 53 per cent to $616m, in line with analyst expectations. Revenue rose by 21 per cent to $1.14bn.
As well as raising its payout to investors, the company said it had revised its dividend policy to pay out 50 per cent of adjusted net income for the second half. It said it could pay up to 100 per cent of its free cash flow from 2021 in dividends subject to a net debt-to-ebitda cap of 2.5 times.
“We think this is a welcome change as it provides greater transparency for investors,” James Bell, an analyst at RBC, said.
Analysts at Citi said Polymetal’s dividend could rise by 65 per cent next year, putting the stock on track for a dividend yield of 8.5 per cent, against 2.6 per cent currently.