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.

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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.

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