Goldman Sachs has issued a 'neutral' recommendation on gold miner Petropavlovsk (POG), despite increasing its 12-month price target to 500p, from 470p.

Analysts at the US bank remain concerned about medium-term drawbacks: falling grades; rising costs; dilution of returns from investment in its pressure oxidisation hub and related facilities; and still relatively high leverage and capex limiting scope for debt repayment and dividend increases in the medium term. However, they believe these challenges are already reflected in POG's share price.

They add: "The stock trades at a 2013 estimated price earnings ratio of 2.8 (excluding IRC - its former non-precious metals division now listed on the Hong Kong Stock Exchange), at a 55% discount to Central Eastern Europe Middle East and Africa gold peers' average.

"We also note that in October the value of POG's stake in IRC increased by about $130m or by about 45p per POG share. This has not been fully reflected in POG share price, in our view, and creates upside risks for POG in the short-term."

Goldman Sachs' twelve-month price target (based on the target price to net asset value multiple) increases to 500p (from 470p) due to higher estimates for gold prices in 2012 and 2013, rising by 2% and 12% respectively, and its increased IRC valuation.

CM

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