Polymetal plans copper exploration to offset gold exposure

Russian gold miner Polymetal will explore for copper in Russia as it seeks greater exposure to a commodity set to enjoy rising demand because of the transition away from fossil fuels.

Vitaly Nesis, chief executive of the FTSE 100 miner, said the company’s board had approved a proposal to dedicate a larger share of exploration spending to explore for copper and other base metals alongside gold.

“I’m personally very bullish copper long term,” Nesis told the Financial Times, citing its use in electric vehicles and renewable energy.

The move comes as copper prices rose to their highest levels in a decade last month based on optimism that governments from the US to China will support a shift to cleaner forms of energy.

Gold prices, in contrast, fell to an eight-month low this week amid rising bond yields and signs of a global economic recovery.

Nesis said most analysts underestimated the amount of capital and time needed to build new copper mines. Polymetal has several joint ventures with junior copper miners in Russia and Kazakhstan but wanted to add exposure through exploration rather than acquisitions.

“Our long-term bullishness on copper in our case translates not into our desire to buy assets but rather to our willingness and readiness to invest in copper exploration,” he said.

Nesis also said he believed gold miners needed to improve their investor attractiveness to avoid being overlooked in favour of other miners, accusing his peers of being too miserly in terms of dividend payouts.

Polymetal trades at a value, including debt, of seven times its underlying earnings before interest, tax, depreciation and amortisation, against 14 times for US copper miner Freeport-McMoRan, according to Refinitiv.

“The competition with base metal miners for investors’ attention is quite acute,” he said. “In order to be truly competitive, the gold miners need to up their game and compare themselves not with their historic dividend payment performance, which has been abysmal, but rather the metrics of similar-sized base metal miners.”

Polymetal on Wednesday announced it would pay out dividends equal to 2020’s total free cash flow, resulting in a $0.89 payout per share that was above analyst estimates.

“I think on average the [gold] industry definitely is still not paying enough,” Nesis added.

The company also said it had recorded a more than doubling of annual net profit in 2020 to $1.1bn, thanks to a 28 per cent rise in annual revenues and a fall in costs, helped by the declines in the value of the Russian rouble and the price of crude oil last year.

London-listed shares in Polymetal were trading 2.9 per cent higher at midday on Wednesday.

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