The Polymetal share price drops 75% in a week! Time to be brave or steer clear?

As the Polymetal share price collapses, it could mean an opportunity to load up or a major red flag. Andrew Mackie examines whether now is the time to buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As a relative newbie to financial markets, what’s unfolding with the Polymetal (LSE: POLY) share price is virtually unprecedented for me. On 23 February the share price stood at £10.97 a share. A day later, as the first Russian troops entered Ukraine, the price fell 40%. Then it bounced back 17%, only for it yesterday to fall an astonishing 56%. That included a fall to an intra-day low of £2.90, representing the lowest price it had ever seen.

As I write this article on 1 March, the share price remains under pressure and is down another 24% at £2.67. In times of rising uncertainty and heightened geopolitical tensions, gold and silver are traditionally seen as safe havens. However, as a large number of Polymetal’s mines are located in Russia, clearly there’s a great deal of uncertainty as to what will happen to its assets.

Fundamentals go out of the window

The most pressing concern for me is the hope that this human tragedy can be ended. For investors, an extra worry is the potential for the Russian government to seize Polymetal’s assets. As the country’s currency collapses, gold’s ability to maintain its value increases its prominence as a strategic asset. There’s also the prospect that it could be delisted. In any one of these scenarios, the share price could go down to zero.

In its latest production report at the end of January, Polymetal posted a promising set of figures. Gold production was up 2% year-on-year. As the company generated large sums of free cash flows, net debt fell by 13% to stand at $1.65bn. All-in sustaining costs (AISC) stood at $975 per gold equivalent ounce. Although 5% ahead of guidance, that figure was still considerably lower than many of its peers.

However, as the situation in Ukraine worsens and sanctions from the West become stronger, then fundamental analysis of the company has for all intents and purposes being thrown out of the window. Among the carnage, though, some institutional investors see value. Blackrock, the world’s largest asset manager, has just announced that it has doubled its stake in the company to 10%. However, the filing shows that it reached this position on 25 February. Consequently, at the moment, it’s sitting on large losses.

Time to buy?

I remember at the time of the Covid crash how the widespread shutdown of huge swathes of the economy meant that analysis of a company’s forecast earnings became completely irrelevant. To a certain extent, I’m in a similar position with Polymetal. However, arguably the situation is a lot worse here. As Western companies continue to sever ties with Russia – including FTSE 100 giants BP and Shell – predicting what could happen next is impossible.

There’s possibly money to be made with Polymetal for long-term investors who are brave. As gold heads toward $2,000 on the back of rising inflation, fears of fiat currency debasement after unprecedented money printing, together with the war in Ukraine, mean it should be a beneficiary. But I also see a clear path where its share price could go down to zero. Consequently, at the moment I’m sitting on the sidelines and won’t be buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Mackie has no position in any of the shares mentioned. The Motley Fool UK has 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.

More on Investing Articles

Close-up of British bank notes
Investing Articles

Here’s how I’d invest a £20K Stocks & Shares ISA to target £1,600 in dividend income every year

Our writer gets into the nitty gritty of how he would aim to build sizeable passive income streams from a…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 reasons why I’m loading up on FTSE 100 shares

This Fool thinks FTSE 100 shares look cheap. With that, he plans to continue snapping them up today. Here's one…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Why wait? I’d buy FTSE 100 shares now before the next stock market rally!

Our writer explains why he'd snap up what he sees as bargain FTSE 100 shares now rather than waiting in…

Read more »

Investing Articles

Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he's reconsidering his stance. Here's why.

Read more »

Investing Articles

Aviva share price: 3 reasons to consider buying for 2024

The Aviva share price is still lower then when I bought some nearly a decade ago. Here's why I'm thinking…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

These 2 shares could bank me £328 a month in second income

Jon Smith runs through two FTSE stocks that have above-average dividend yields that could pay out a generous second income…

Read more »

Stack of one pound coins falling over
Investing Articles

This passive income plan is simple – but could earn me thousands!

Christopher Ruane explains how putting a fiver a day to work in the stock market might help him earn thousands…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on

After record profits, are Lloyds shares a buy, sell, or hold?

As Lloyds pulls in pre-tax profits of £7.5bn, boosts its dividend, and continues to repurchase shares, are the company’s shares…

Read more »