Polymetal cuts 2008 silver forecast to between 16.5m and 17m ounces
The drop in silver prices has convinced Russia’s largest silver miner, Polymetal, to cut its production this year, along with revising its proposed capital expenditures for 2009.
Posted: Monday , 20 Oct 2008
MOSCOW (Reuters) -
Polymetal, Russia's largest silver miner, cut its forecast for output of the metal on Monday due to a rapid fall in its price and said it would consider revising its investment plan for 2009.
Polymetal said in a statement its new Albazino/Amursk project in the Russian Far East would take priority when allocating next year's investment budget, although the expansion of its existing Dukat and Vorontsovskoye mines was on track.
"Polymetal is reviewing exploration and maintenance capital spending for 2009 to ensure adequate capital availability for Albazino/Amursk as the priority project," the company said.
Polymetal cuts its 2008 silver output forecast to between 16.5 million and 17.5 million ounces from a previous estimate of 17.7 million ounces.
"Due to a rapid silver price decline in August/September 2008, the company is re-examining the cut-off policy at Dukat, which may negatively impact total silver production in 2009-2010," Polymetal said in the statement.
Polymetal's share price fell 6.8 percent at 1514 GMT, underperforming the MICEX bourse's metals and mining index which was down 3.5 percent.
Polymetal forecast 2009 production at between 17 million and 18 million ounces. In September, Polymetal said it planned to produce 20 million ounces of silver in 2009, 21.5 million in 2010 and up to 26 million by 2011 as output at Dukat rose.
Silver prices have dropped from above $20 an ounce in March to trade below $10 now.
"If the price falls roughly below $8.50, with all other costs being equal, we will probably take out some high-cost parts of both the Lunnoye and Dukat underground projects from our mining plan," Chief Executive Vitaly Nesis said.
"Then, our production (in 2008) would be closer to 14 million ounces," he told a conference call.
"In order to keep output at 20 million ounces, we will need (a silver price of) around $13.50 per ounce," he added.
He said the company was satisfied with current gold prices. Spot gold lost about 23 percent from its lifetime high of $1,030.80 struck in March.
Gold output this year will be higher than earlier forecast: 260,000-280,000 ounces in 2008 from a previous estimate of 250,000 ounces, Polymetal said.
The company, Russia's third-largest gold miner last year, said it would produce 280,000-300,000 ounces of gold in 2009.
In September, Polymetal said it planned gold output of 300,000 ounces in 2009, 335,000 ounces in 2010 and 460,000 ounces by 2011.
Polymetal produced 4.6 percent of Russia's gold last year.
In the first nine months of 2008, Polymetal produced 12.6 million ounces of silver, up from 12.1 million ounces in the same period of 2007, while gold output rose to 211,000 ounces from 179,000 ounces in the same comparison.
"We continue to implement our growth programme in the face of financial crisis," Nesis said in the earlier statement.
"Our investment has already led to strong performance in gold and Polymetal remains firmly on track for further disciplined expansion."
The company increased silver sales to 12.2 million ounces in January-September 2008 from 11.5 million in the same nine months of 2007. Gold sales rose to 201,000 ounces from 170,000 ounces, increasing total revenues to $383 million from $221 million.
Nesis said Polymetal had about $300 million in debt, of which it had to repay nothing this year and $120-130 million next year.
"We are quite comfortable that the existing banking relationships will allow us to roll over that debt, as we mostly bank with Russia's largest banks, VTB, Sberbank and Gazprombank," he said.
"The banking situation in Russia is improving as we speak, so even if we need additional financing for our capex programme next year, we are confident we will be able to finance it." (Editing by Sue Thomas)
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