Broker snap: UBS downgrades Polymetal on silver exposure

Date: Thursday 28 Jun 2012

UBS has downgraded its recommendation for precious metals miner Polymetal from 'buy' to 'neutral' on the back of the stock's recent strength and weaker silver prices.

Shares were trading around the 891p level on Thursday, 1.82% lower on the day but still over 9% higher over the last month. This compares to the wider UK mining sector which has declined by nearly 5% during this time.

Meanwhile, silver prices have declined more significantly than gold recently. While Polymetal is more focused on growing gold output, silver still accounts for 40% of revenues in 2012 (falling to 32% next year).

"We think that sharply weaker silver prices will likely have a read-through for silver-exposed equities through lower earnings and net asset value (NAV) expectations," UBS said. The broker sees gold prices as the key driver of Polymetal's share price.

The price target is cut from 1,060p to 970p due to the decline in the price-to-NAV multiple of 1.3, down from 1.4 previously. "This is still the highest among Russian gold companies due to Polymetal’s strong management team and its ability to extract sustainable value beyond existing precious metals reserves."

BC

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