Dog of the Week
Dog of the Week - a weekly column from Fat Prophets, the providers of independent, unbiased research. Each stock is rated as either a Labrador, Poodle, Greyhound or Border Collie. All of the dogs have their own unique characteristics and qualities.
- Border Collie: Running now and will run all day
- Poodle: All show and ready for a fall
- Labrador: Going no where in a hurry
- Greyhound: Ready to run
Archive
- POG - Peter Hambro Mining 08 Feb 2012
- RB. - Reckitt Benckiser Group 02 Feb 2012
- ANTO - Antofagasta 03 Jan 2012
- FRES - Fresnillo 09 Dec 2011
- BT.A - BT Group 16 Nov 2011
- AVM - Avocet Mining 11 Nov 2011
- PFC - Petrofac Ltd 31 Oct 2011
- ARM - ARM Holdings 20 Oct 2011
- DGO - Dragon Oil 29 Sep 2011
- AU. - Autonomy 31 Aug 2011
Russian focussed gold producer Petropavlovsk (POG) now looks to be on the right track with a return to profits in the first half of 2011 after a loss in the first half of 2010. Output for 2011 came in ahead of guidance which contrasts with a significant shortfall in 2010. With a new mine in production and growth expected to continue in 2012 the long terms earnings outlook remains solid.
Petropavlovsk’s production numbers for the first half of 2011 showed much improvement on 2010. Production was up 32% to 219,100 ounces from 166,300 ounces in 2010 although this was still slightly down on the figure two years ago in 2009.
Since then POG has announced its first half financial results for 2011 and production updates for the full year. Starting with the interim results and the actual gold sold was far above the boost to production as the company timed its gold sales.
Thus the group sold 268,500 ounces in H1 2011 (up 73% on last year) while the realized gold price showed a gain of 26% to US$1,455 for the first half. Revenue from precious metals therefore more than doubled to come in at US$395.6m.
A disappointing feature was that despite the boost to output cash costs for hard rock deposits increased by 24% to US$659m. However, POG returned to profits in the first half with US$103m net profit versus a loss of US$55m in 2010. Earnings per share in 2011 H1 came in at US$0.57 which compares to a loss of US$0.31 in the prior year.
Looking at output growth and momentum continued into the second half of the year with Q3 output up 65% at 228,100 ounces – more than for the first half. While Q4 output was down 10% for the year as a whole POG saw gold output up 24% at 630,100 ounces which was 5% ahead of guidance.
By comparison output in 2010 was 506,800 ounces and in 2009 it came in at 486,800 ounces.
Beating guidance clearly contrasts with the dismal performance in 2010. For the current year guidance is for 680,000 oz which represents 11% output growth. This target excludes scheduled mine expansions.
Looking at the drivers of output growth for the group and the key has been the Pioneer mine which saw output up 56% in 2011 to produce 57% of total output. The group also its Malomir mine make a meaningful contribution at 88,500 ounces which was up 143% on last year.
As of mid-2011 Petropavlovsk had net debt of US$510.7m which compares to US$171m at the start of the year. This was on capex of US$354m and a negative working capital movement offsetting the US$151m cashflow.
The group floated off its iron ore business IRC in late 2010 and retains a stake of 57.5%. This represents another asset for the group which should increase in value as iron ore prices recovers and IRC ramps up production. IRC issued its interim results on 23rd August and these showed a maiden profit of US$3.6m with output up 142%.
A fourth hard rock mine in production, strong production growth in 2011 and a strengthening gold price look set to produce a strong increase in full year profits (release date scheduled for 28th March). A change of guard at the group also sees the CEO step down to pursue political aspirations but remains on the board in an honorary non-voting role.
This article was produces by Senior Research Analyst, Andrew Latto.
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