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. Last Updated: 07/27/2016

Hedge May Lose Metals Firm $74M

Polymetal, the world's biggest silver-mining company, may miss out on $73.7 million in earnings this year because it sold metal forward at prices that were too low, Deutsche Bank said.

Polymetal signed an agreement until 2008 with Standard Bank that commits it to sell as much as 68 percent of its silver at $7.8 per ounce, the German bank said Jan. 9 in a confidential report for investors. That price is 40 percent below Deutsche Bank's forecast average price for the metal in 2007. Albert Avetikov, a spokesman for Polymetal, declined to comment.

"We estimate this agreement will damage the company's financial performance in 2007,'' Deutsche Bank analysts in Moscow Alexander Pukhayev and Olga Okuneva and London-based Muneer Ismail wrote in the report. It's "an unfortunate hedge." Deutsche Bank estimates the company's 2007 profit at $90 million and revenue at $181 million.

Polymetal, also Russia's third-largest gold producer, plans to sell 30 percent of its shares in an initial public offering this year to cut debt and fund expansion. Deutsche Bank is managing the deal together with Merrill Lynch and UBS, the fourth sale in London by a Russian precious metals producer.

Polymetal has a market value of $2 billion to $2.6 billion, based on projected 2007 production of 20 million ounces of silver and 284,000 ounces of gold. Of total forecast sales for this year, the miner has 13.9 million ounces committed to Standard Bank, the London unit of Standard Bank Group, Africa's largest lender, the report said.

Polymetal, the biggest miner focusing on silver and the fifth-largest producer of the metal in the world, is wholly owned by Nafta Moscow holding company.