Can the Polymetal share price recover from its 75% fall?

Polymetal’s falling share price has left the Russian gold miner with a 26% dividend yield. Roland Head looks at the risks and explains what he’d do.

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The share price of Russian gold miner Polymetal International (LSE: POLY) has now fallen by around 75% since Russia invaded Ukraine on 24 February.

This tragic situation remains a much greater concern than any share price movements. However, investors holding this FTSE 100 stock will understandably be worried about their shareholdings. Polymetal (and fellow Russian firm Evraz) are expected to lose their FTSE 100 places at the end of March. But will  Polymetal’s share price ever recover from this slump?

2021 dividend confirmed

Polymetal International’s 2021 results were released today. They’ve provided some extra information on this complex and uncertain situation.

First of all, the company has confirmed that it will pay a final dividend for 2021. The final payout of $0.52 per share gives a total dividend for the year of $0.97 per share, down from $1.29 in 2020.

The 2021 dividend is below broker forecasts of around $1.20 per share. But it still leaves this stock with a trailing dividend yield of 26%, based on Polymetal’s recent share price of 275p.

Press reports have suggested the dividend cash was already transferred to the group’s Cyprus base before banking sanctions came into force. I’d guess that future dividends are more uncertain.

Profits already under pressure

Many of the big mining firms have reported record profits recently. Polymetal’s 2021 numbers don’t look quite so strong to me.

Revenue was roughly in line with forecasts, at $2,890m. But inflation pushed the gold miner’s all-in sustaining cash costs up by 18% to $1,030 per ounce, above management’s target range of $925-$975/oz.

As a result of these higher costs, net earnings of $904m were below broker forecasts of around $950m.

Looking ahead, Polymetal says it’s maintaining its gold production guidance of 1.7m ounces for 2022 but has withdrawn its guidance on costs. That means profit forecasts will be uncertain too.

Russia’s central bank has already said it will start buying gold from domestic producers. China may also remain a buyer. That should help to support the group’s ongoing operations. However, I expect international banking sanctions and the devaluation of the Russian rouble to have a big impact on Polymetal’s cost base. That could cause profits to tumble.

Polymetal share price: one big investor is buying

A lot of investors have been selling Polymetal shares — hence the share price collapse. But not all of them. US private equity giant Blackrock has doubled its stake in Polymetal from 5% to 10% this week, apparently betting on a recovery at some point.

The share price crash has certainly left the stock looking cheap. Based on broker forecasts for 2022 before today, the shares now trade on around two times forecast earnings. Even if I assume that profits will fall by 50% this year, my sums suggest Polymetal stock could still trade on a P/E of four, with a possible dividend yield of more than 10%.

I think it’s possible that Polymetal’s share price might make a partial recovery, over the long term. But one big worry for me is that the stock will be delisted in London before that happens — most likely shifting to the Moscow stock exchange. 

If that happened while I held Polymetal shares, I might be forced to sell them at any price. That’s another reason why this investment is far too risky for me. I 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.

Roland Head 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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