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Russia-focused gold-miner Polymetal has called a peak in its debt levels and negative cash flows as spending on a new critical asset in Kazakhstan begins to abate.

London-listed Polymetal is banking on a successful launch of its new Kyzyl mine in north-east Kazakhstan next autumn to increase its production 30 per cent by 2020, but heavy spending on the project has ramped up its debt levels and put pressure on cash flows.

“We are past the peak debt level, and as a result, leverage is expected to decline going forward,” said Vitaly Nesis, the miner’s chief executive. “In the second half of the year capex would probably be lower by roughly 20 per cent [than in the first half of the year]… and we will see a huge increase of cash flow from operations.”

Shares in the miner, which has gold and silver assets in Russia, Kazakhstan and Armenia, rose 3.9 per cent on Tuesday morning, after the company said it would increase its interim dividend to $0.14 a share, representing 50 per cent of half-year earnings.

That was despite a 27 per cent slide in net earnings in the first half of the year to $120m as a stronger Russian ruble and increased costs offset a rise in gold and silver prices.

Driven mainly by a doubling of costs at Kyzyl, capital expenditure during the period rose 65 per cent to $202m, contributing to a negative free cash flow of $163m, three times more than a year previously. Net debt at the end of June stood at $1.58bn, up 19 per cent in six months.

“Kyzyl project is slightly below budget and we do not expect any overruns. We are on track to launch in the third quarter of next year and so far have had no glitches or problems.” Mr Nesis said. “Right now we are at the peak capital requirements [for Kyzyl]. Next year’s spending will be less than half of what we plan to spend this year.”

The miner, one of only a few Russian companies to have retained a full presence on the London exchange after a number of delistings since the Ukraine crisis and the imposition of western sanctions against Moscow, reiterated its 2017 production guidance of 1.4m ounces of gold equivalent.

After Kyzyl begins full production, the company estimates output in 2020 of 1.8m ounces of gold equivalent.


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