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. Last Updated: 07/27/2016

Polymetal Reports H1 Loss of $7.7M

Itar-TassA Polymetal silver ore-dressing complex in Magadan. The firm's profits were hit by losses on forward silver contracts.
Polymetal reported a first-half loss of $7.7 million from a profit of $27 million the previous year as it battled with falling production and unfavorable terms on its forward silver contracts.

"Financial results for the first six months of 2007 are unimpressive due to worse-than-expected production in the first quarter and deliveries into silver forward contracts at below-market prices," CEO Vitaly Nesis said in a statement.

Polymetal, which is controlled by billionaire Suleiman Kerimov, said silver production was down 7 percent to 7.9 million ounces, while gold output fell by 3 percent to 113,000 ounces. Gold sales fell by 18 percent.

Polymetal said it delivered 6.5 million ounces of silver at an average price of $7.79 per ounce in its forward contracts, resulting in about $34 million in lost revenues. The closing price for silver on the London Metals Exchange over the same period averaged $13.31 per ounce, up approximately 22 percent year on year.

As of Oct. 1, Polymetal must still deliver 3.4 million ounces of silver under existing hedging agreements, the company said.

Revenues fell 5 percent from $145.8 million to $139 million, while the cost of sales rose by 42 percent, and operating costs climbed by 10 percent.

"All told, these results are not impressive," Merrill Lynch said in a note to investors, pointing out that the results were distorted by IPO costs this year and through buying silver at a loss in the market. Reduced output forced Polymetal to buy silver from other producers to meet its hedging commitments.

Nesis remained bullish, saying that "2008 should see both revenues and profits increasing sharply as we start selling silver at market prices."