Gold miner Polymetal sees no writedowns at current levels
* Polymetal has reserve prices of $1,300/oz for gold and $22.5/oz for silver
* Says gold industry has been too slow to put projects on ice
LONDON, June 13 (Reuters) - Russian miner Polymetal , battered by a sharp drop in gold and silver prices this year, said on Thursday it does not expect to write down the value of its precious metals reserves at current prices, in part thanks to a weakening rouble.
After a once-in-a-generation plunge in gold prices in April, bullion has languished around $1,400 an ounce for the last month, and analysts have raised concerns that could force miners to write down the value of reserves and projects. Australia's Newcrest Mining took a $6 billion hit last week.
Polymetal is among the companies which uses a price to estimate the value of its reserves - $1,300 an ounce for gold and $22.5 for silver - either close to or below the current market prices, roughly to $1,380 and $21.6 respectively.
But Vitaly Nesis, chief executive of Polymetal, said the company did not expect to take a hit.
"We are helped to an extent that the rouble has depreciated compared to the exchange calculation used in the reserve calculation," he said after an analyst presentation in London.
"But to go through the pretty complex and labour intensive exercise of reestimating the reserves, we need to see a quarter (three months) of prices moving at least five percent below the reserve level."
Polymetal would routinely reassess reserves at the financial year end, with the results released in March.
"For us, even though the silver price is four percent lower than the reserve estimation, I don't think we will have to write down any of the reserves," he said.
Polymetal was one of two Russian metals companies that blazed their way into Britain's FTSE 100 index 18 months ago, but was demoted this week as price weakness took its toll. The shares have dropped some 45 percent this year.
Nesis dismissed the drop as a consequence of tumbling metals prices and said FTSE 100 membership was "not an end in itself".
Polymetal, like its rivals, is battling a weaker price environment and has focused on cutting costs, but Nesis says he balances that with the need to preserve shareholder value.
Nesis excludes high grading, for example, a tactic simply described as "cut the best and leave the rest" which involves creaming the highest grade ore - ore with the most gold per tonne - for a shorter period, but at the expense of wasting lower grade ore that would otherwise be economical.
Instead, Polymetal has opted, for example, to suspend mining at its Birkachan open pit. At Birkachan, in its Russian far eastern mining and processing hub of Omolon, costs are well above current market prices, topping $1,440 for cash cost alone.
"We can tolerate some losses for some time, but clearly if we have a minus 10 percent margin, the operation will be closed," Nesis said.
Polymetal has targeted a total cash cost for this year of $725-$750 per ounce - above $703 in 2012 - but expects that to come down due to cost cutting efforts and the weaker rouble.
Moves to keep a rein on spending include delaying decisions on new projects - a step he says rivals have been "startlingly" slow to take. The decision on the expansion of its Albazino mine will now come in the third quarter of 2014.
"I can appreciate the unwillingness to shut down operating mines," he said. "What I cannot understand is why the industry has been very slow in putting development projects on hold. The response has been wholly inadequate."
- White House reverses, says Obama met uncle and lived with him during law school
- South Africans, some fearful, wake to life without Mandela |
- U.S. television, Twitter, alive with new version of 'Sound of Music'
- RPT-UPDATE 1-Ford leans on global Mustang to burnish overseas image
- Ford leans on global Mustang to burnish overseas image