Nordgold could fall slightly short of 2012 production target - Morgan Stanley
MOSCOW. Oct 24 (Interfax) - Russia's Nordgold could produce 711,000 oz of gold this year, 1% less than a targeted 720,000 oz, due to expectations it will process leaner ore at its Buryatzoloto mines in Q4, Morgan Stanley said in a report following a meeting between its analysts and Nordgold CEO Nikolai Zelensky.
Morgan Stanley said Zelensky confirmed 2012 guidance for 720,000 oz, but said Q4 output could fall below the 206,000 oz needed to meet that target due to geological difficulties at Buryatzoloto.
Nordgold has said it produced 515,000 gold equivalent ounces (16 tonnes) in January-September.
Morgan Stanley said in the report that Nordgold continued to adhere to its long-term strategy and anticipates that higher production will bring cash costs down. It said that while the CEO was cautious about targeted production being achieved this year and next, he was confident about the Gross and Bissa projects being launched on schedule. Nordgold is not aiming to mine 1 million oz of gold at any cost in 2013, Morgan Stanley said.
Zelensky said during the meeting with the analysts that the company's board of directors would meet during November to discuss plans for next year. Morgan Stanley expects management to lower guidance for next year - 1 million oz had been announced.
Morgan Stanley lowered its own forecast for gold production by Nordgold next year by 12% to 836,000 oz, given the operating difficulties at the Buryatzoloto, Neryungri and Taparko mines, and the delay with Gross. But the analysts still forecast Nordgold will produce 1.028 million oz in 2014 and 1.194 million oz in 2015.
Morgan Stanley also lowered its EBITDA forecast for Nordgold this year by 1% to $549 million and that for 2013 by 13% to $739 million, due to the expected drop in production and a higher capex estimate of $330 million-$330 million in each of 2013 and 2014; and the assumption that cash costs will grow at Buryatzoloto (by $100 per oz in 2013) and at Bissa and Gross (to $700 and $800 oz, respectively, in 2013).
Zelensky said the board might revise dividend policy and that the company might start paying semi-annual or quarterly dividends. Existing policy states that it will pay up to 25% of annual earnings. However given high capex in 2012 ($472 million, including exploration costs) and weak operating cash flow, Morgan Stanley does not expect Nordgold to increase dividends or pay special dividends for 2012.
Zelensky also said at the meeting that Nordgold was not ruling out M&A activity, but that low liquidity was keeping its expansion in check right now.
The analytical note also said Nordgold's current debt was an estimated $520 million and that Sberbank was the company's only creditor.
The Gross mine, which is in Yakutia, is due to produce its first gold in Q2 2013. Zelensky said it could produce 15,000-30,000 oz in 2013 as a whole and achieve full capacity of 200,000 oz per year in 2015.
Bissa, which is in Burkina Faso, is still expected to go into production in 2013 and produce 80,000-100,000 oz of gold.
Nordgold (Nord Gold N.V.) was split off from Severstal in January 2012. Severstal chief Alexei Mordashov owns the majority stake.
Nordgold is an established pure-play emerging-markets gold producer, with operations in Burkina Faso, Guinea, Russia and Kazakhstan. Nordgold has eight producing mines and two development projects, five advanced exploration projects and a broad portfolio of early exploration projects and licenses.