Polymetal Expecting Profitability

Polymetal, the country's biggest silver producer, expects profitability to rise 50 percent this year after it ended a hedging program and exposed sales to the full effect of booming prices for precious metals.

Improved grades of gold and silver ore at Polymetal's mines may also boost output as much as 13 percent, the company said Monday in a statement. The miner, controlled by billionaire Suleiman Kerimov, reported the lowest annual production in at least three years.

"They're no longer hedged, gold and silver prices are high, and the company's not that expensive any more," said Alexei Morozov, head of research at UBS in Moscow, which rates Polymetal a "buy." "Sentiment toward the company should change to a positive."

"2007 marked the low point for our company," Vitaly Nesis, chief executive officer, said in the statement. An end to hedging and development of new deposits "should ensure profits and cash flows increase significantly in 2008."

Polymetal declined almost 5 percent in London trading last year as about 90 percent of its silver was sold at $7.25 to $8.60 per ounce under hedging agreements with ABN Amro. Silver traded in London averaged $13.39 per ounce last year. The hedging accord expired in 2007.

The company also said mining costs for precious metals might jump as much as 23 percent this year because of high oil prices and a weakening dollar. Cash costs may rise to $420 to $430 per ounce of gold equivalent mined this year as oil makes up 40 percent of expenses, Nesis said in a conference call with investors Monday.