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Article Excerpt
IN BRIEF
Editor's Choice
*** Many Russian metals and mining companies posted Q109 and 2008 results this week, with nearly all showing signs of suffering under the current financial climate.
Precious metals produced posted loses. No.1 Russian gold producer Polyus Gold saw its net profit to International Financial Reporting Standards (IFRS) fall 34% in 2008 to $60.36 million. Britain's Highland Gold Mining (HGM), which produces gold in Russia, closed 2008 with net losses of $226.3 million, compared with profit of $17.45 million in 2007.
Steelmakers have been among the worst hit companies during the global economic downturn. Russia's Severstal posted net losses under RAS of 10.3 billion rubles in the first quarter of 2009. The company had net losses of 6.538 billion rubles in the fourth quarter of 2008. Severstal said the losses could be attributed to a decline in sales revenue and, accordingly, profit from the sale of products, work and services, which resulted from a drop in metals prices. The company also said growth in expenditures on exchange rate changes had an impact on its financial results. Evraz Group said its net profit to IFRS fell 11.2% to $1.868 billion in 2008 and that it would not be paying a final dividend for last year. The company, which has $3 billion to pay back to bond holders and creditors by the end of this year, said it was putting further dividends on hold until its deleveraging was completed and the market recovers. London-listed NLMK ended the first quarter of 2009 with non-consolidated net profit of 138.9 million rubles to RAS, compared with losses in the fourth quarter of 2008, the Russian steel major said. The increase in net profit was largely driven by transfers on taxes for profits and expansion of deferred tax assets in the first quarter, the statement said. MMK saw its net profit to International Financial Reporting Standards (IFRS) shrink by 17% in 2008 to $1.081 billion. EBITDA fell 8% to $2.204 billion and the EBITDA margin was level with 2007 at 20.9%.
Iron ore miners fared little better. MGOK, a key upstream unit of the Metalloinvest holding, posted net losses according to RAS coming to 3.008 billion rubles for the first quarter, attributing the net losses for the to a drop in total sales and liabilities on suspended transactions for hedging interest risks. The holding's LGOK enterprise closed the first quarter of 2009 with net losses of 5.322 billion rubles, compared with profit of 4.886 billion rubles in the same period of last year.
In the non-ferrous sector, Arctic mining and smelting giant MMC Norilsk Nickel closed the first quarter of 2009 with non-consolidated net losses of 7.116 billion rubles to RAS for it's Arctic branch, while Mechel unit Yuzhuralnickel posted a net loss of 309.258 million rubles for Q109. Yuzhuralnickel said that it was able to lower net losses in the first quarter, in comparison with the fourth quarter owing to increasing nickel prices, a drop in production costs and increasing miscellaneous revenues. Chelyabinsk Zinc closed 2008 with net losses of 3.523 billion rubles to IFRS, blaming lower zinc prices on the LME as well as charges of 306 million rubles stemming from a recalculation of reserves at the Amurskoye deposit, a charge of 1.973 billion rubles for revaluation of assets in Kazakhstan and 779 million rubles for goodwill.
Coking coal producer Raspadskaya had net losses of 1.213 billion rubles to RAS in the first quarter, 16% higher than losses for the fourth quarter of last year. Meanwhile, the Mechel coal and steel group's Southern Kuzbass Coal Company closed the first quarter of 2009 with net losses of 2.496 billion rubles. Southern Kuzbass, one of Russia's biggest coal companies, said the Q1 losses arose due to a fall in sales and coal prices, and exchange-rate losses on forex bank loans.
*** Polyus Gold could close the takeover of Kazakhstan's KazakhGold soon, a source close to the No. 1 Russian gold miner told Interfax this week. Core shareholders are seen backing the deal and once bureaucratic necessities have been completed the acquisition will be put before the company's new board for final approval. The lengthy process to conclude the deal is because it is the first time in practice that an international transaction is being paid in shares in a Russian company.
*** Russia's top silver producer Polymetal has acquired a 9% stake in Gold Ore Company Mayskoye LLC from a subsidiary of Highland Gold for $13,300, Polymetal said this week. The remaining 91% was simultaneously purchased for $134,480 by four Russian companies not affiliated with Polymetal or Highland Gold. Polymetal is prepared to purchase the 91% stake given clearance from regulators. As part of the transaction, all inter-company loans owed by Mayskoye to Highland Gold and its affiliates were assigned to a third party, unrelated to Polymetal, for $24.852 million. Mayskoye also has an $80-million loan from Nomos Bank, but no other financial debts.
*** Oleg Deripaska's UC RUSAL said this week it is not currently thinking about parting with its shares in MMC Norilsk Nickel. Viktor Vekselberg, the aluminum giant's co-owner and board chairman, told the Vedomosti newspaper that RUSAL might sell its blocking stake in Norilsk in order to pay off a Vnesheconombank loan, drawn to refinance the acquisition of the shares in the first place. But a RUSAL representative told Interfax that "the acquisition of the 25% of Norilsk Nickel is a strategic investment for RUSAL, and we are not currently thinking of selling them." Vekselberg said talks with VEB on restructuring the $4.5-billion loan were "very active" and "involved representatives of the state." The main subject for discussion is issuing VEB bonds for RUSAL debt which could ultimately be converted into RUSAL shares.
PRECIOUS METALS
Polyus Gold cuts IFRS earnings 34% to $60.4 mln in 2008
MOSCOW. (Interfax) - Polyus Gold saw its net profit to International Financial Reporting Standards (IFRS) fall 34% in 2008 to $60.36 million, the No.1 Russian gold producer said in a financial statement.
2008 IFRS
Analysts forecast that the company would see losses of $48.6 million due to the depreciation of its securities portfolio.
Polyus said losses from investments were $217.591 million. This includes $178 million from investment in traded securities and $100 million from financial assets for sale.
Sales revenue grew 25.4% to $1.087 billion, including growth of 25.1% to $1.052 billion from the sale of gold. The cost of gold sales amounted to $558.118 million, up from $449.216 million in 2007.
Revenue grew primarily due to high gold prices and an increase in physical gold sales. Polyus Gold produced 1.222 million oz of gold in 2008, up from 1.214 million oz in 2007. The cash cost of producing gold rose to $392/oz from $306/oz.
Polyus Gold sold 1.226 million oz of gold in 2008, compared with 1.21 million oz in 2007. The average realized sale price of gold rose to $867.3/oz from $701.7/oz.
EBITDA grew 31.8% last year to $436.47 million, and the EBITDA margin was 40% (38% in 2007).
Cash and cash equivalents rose to $399 million at the end of 2008, from $226 million at the beginning of the year. Short-term investment fell to $285 million from $1.271 billion.
Capex grew to $630 million in 2008, from $459 million in 2007.
Q1 RAS
Polyus Gold posted net profit under Russian accounting standards (RAS) of 237.288 million rubles in the first quarter of 2009, the company said in a statement.
OJSC Polyus Gold is the management company and does not have production or exploration licenses. CJSC Polyus Gold handles production.
The company had posted net losses of 3.167 billion rubles in the previous quarter.
Polyus said the profit was the result of income from the revaluation of foreign currency funds, income received from the deposit of idle funds, income from coupon payments on bonds held in trusteeship, a reduction in management expenditures as well as a smaller decline in the value of securities held in trusteeship as compared to the previous quarter.
Polyus Gold ended 2008 with RAS net losses of 3.711 billion rubles compared to net profit of 563.032 million rubles in 2007. In particular, the company posted net losses of 3.167 billion rubles in the fourth quarter of 2008 compared to net profit of 463.309 million rubles in the third quarter. The company said the losses were the result of a decline in the value of securities held in trusteeship.
Directors & dividends
RiskMetrics consultancy has recommended that shareholders in Polyus Gold elect two independent directors and back the board's advice to waive dividends for 2008.
The two independent directors favored by the consultancy are Valery Braiko, head of the Russian Gold Producers' Union; and Robert Buchan, head of Allied Nevada.
The board recommended the dividend waiver due to the losses to Russian Accounting Standards (RAS) caused by the depreciation of the company's securities portfolio.
Polyus paid 2.95 rubles a share or a total of 562.352 million rubles to shareholders for 2007.
The AGM takes place on May 15. There are 21 candidates for nine seats on the new board, including six representing Suleiman Kerimov's Nafta Moskva, five representing each of Interros and Mikhail Prokhorov's Onexim, four independents and Yevgeny Ivanov, the chief executive. The Polyus board earlier recommended that the shareholders back all four independent candidates.
Valery Braiko and Robert Buchan sit on the current Polyus board, as do independent directors Patrick Gillford, head of Policy Partnership Limited Ltd.; and Valery Rudakov, chairman of the committee for entrepreneurial support for precious metals and gem manufacturers.
Shareholders on record as of March 27 are entitled to vote at the AGM.
Reports said at the beginning of March that Interros had sold around 20% of Polyus Gold to Kerimov. Reports said at the beginning of April that another 15% had been sold to Kerimov. Interros, Nafta Moskva, Onexim and Polyus Gold have not yet officially confirmed any changes in the gold producer's ownership.
Onexim controls Polyus by virtue of its majority on the board of directors. Onexim has confirmed it owns approximately 30%, but press reports earlier talked about 35%. Interros, too, has said it owns approximately 30%, while media reports have said 35%-37%.
PRECIOUS METALS
Polyus Gold could close KazakhGold takeover soon
MOSCOW. (Interfax) - Polyus Gold could close the takeover of Kazakhstan's KazakhGold soon, a source close to the No. 1 Russian gold miner told Interfax.
"The core shareholders in Polyus back the deal, and the company is working on the legal paperwork and plans to close soon," the source said.
The source said the terms of the deal are subject to approval by the board of directors, and that the new board to be elected at the AGM in May would likely do this.
The source said the deal had taken a while because "this is the first time in practice that an international transaction is being paid in shares in a Russian company."
Polyus said back in the autumn that it planned to buy 50% plus one share in KazakhGold. The Russian company had offered 0.298 Polyus shares and $7.95 per share. Based on the closing price of Polyus shares of 570 rubles on the MICEX on September 25, the overall offer amounted to $14.73 per share in KazakhGold. So the whole deal would have cost Polyus around $390 million, including a cash consideration of approximately $210 million, under the original terms.
But the Polyus board in December revised the terms and said it planned to offer 0.423 Polyus shares for each KazakhGold share. That valued the KazakhGold shares at $11.59, going by the value of Polyus Gold's own shares on December 26, at the Central Bank's then exchange rate of 28.6735 rubles/$1.
Polyus plans to buy the Kazakh company with the treasury shares held by its subsidiary Jenington.
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