3 reasons why Polymetal shares fell 32% last week

Jon Smith considers the sanctions risks, the mine operations and upcoming financial results that could be weighing on Polymetal shares.

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Last week, Polymetal International (LSE:POLY) shares fell by 32%, to close the week at 792p. The week would have ended with an even worse performance, had it not been for a 17% rally in the share price on Friday as the FTSE 100 climbed. Clearly, such a large move in one week has to have some fundamental reasons behind it. The reasons for the move centered around the Russian invasion of Ukraine. 

Impact of potential sanctions

The first cause of the fall is linked to potential sanctions that might be imposed on Polymetal. In a statement, the company noted that “the scope and impact of these new potential sanctions (and any potential counter-sanctions) is yet unknown, however they might affect key Russian financial institutions as well as mining companies”.

Later it said it thought it unlikely Polymetal would face sanctions. However, its links to operations with mines in Russia and Kazakhstan have clearly worried some investors. As a miner, it’s in one of the sectors that are likely to be targeted. Therefore, the potential impact of sanctions is one clear reason for Polymetal shares slumping last week. 

It’s too early to say what kind of sanctions could be imposed. Yet the result of any of them is likely to damage revenues at Polymetal.

Operations of mines

Another cause for concern regarding the share price is whether operations will be able to continue as normal going forward. At present, the gold and silver mines haven’t been impacted, the company said. However, this might change as distribution routes out of Russia are likely to become more difficult.

To this end, Polymetal stated that “contingency planning has been initiated proactively to ensure business continuity, including selection of key equipment suppliers“. This is a positive. However the fact that this is needed in the first place is likely alarming for some investors. Ultimately, if the company isn’t able to access key suppliers and distributors, it’s going to slow down sales, which will hurt it further down the line.

Upcoming results are key for Polymetal shares

Finally, full-year results are due out for the business on Wednesday. The figures will be watched with interest and arguably, the outlook provided will be pivotal. Some investors might have been selling Polymetal shares last week in anticipation of these results.

The current situation in Eastern Europe could lead the company to revise lower its financial expectations versus 2021. This could lead the share price to move even lower, as investors factor in this lower bar for the year.

That’s despite the Q4 2021 results having made good overall reading. In the report, the company said that it “beat production guidance, maintained a solid safety track record, and paid record dividends.” It may have been that optimistic in January, but it will likely be hard to maintain such a tone in the next results report.

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Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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