The Polymetal share price is down 80%! Will it make a comeback?

The Polymetal share price has plunged in value and it does not look as if the market sentiment is going to change anytime soon.

| 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.

The Polymetal (LSE: POLY) share price has plunged a staggering 80% over the past year.

The stock was already on the back foot before the awful tragedy began to unfold with Russia’s invasion of Ukraine and the subsequent flurry of economic sanctions placed on the country’s economy. Between the end of May 2021 and the beginning of February this year, shares in the gold miner fell 40%.

Changed dramatically

The environment for the company has changed dramatically over the past couple of days. It operates eight mines and processing plants in Russia and Kazakhstan.

Historically, it has sold most of its gold production to Russian banks. These have then disposed of the asset on the international markets. 

Sanctions on Russian banks and the Russian economy will make it virtually impossible for these buyers to sell their gold onto the global market. 

However, that does not mean it will be impossible for Polymetal to make money. The company also sells ore to buyers in China. And just because Russian banks cannot sell gold on the international markets does not necessarily mean they will stop buying. 

Indeed, Russia’s central bank on Sunday said it would resume gold purchases two years after it ended a long-running buying spree that helped prop up local producers.

Put simply, I do not think it is likely Polymetal will go out of business anytime soon as it is likely the company will continue to find buyers for its gold. 

Nevertheless, I am worried about further sanctions and restrictions the company could face. Polymetal ended 2021 with net debt of $1.7bn. It may struggle to pay these borrowings if it has to accept rubles from Russian buyers. It may also struggle to acquire new machinery and parts. An increasing number of enterprises are avoiding dealing with Russian businesses. 

Polymetal share price risks

Then there is the chance the Russian state could decide to nationalise any businesses with Western connections. This is not an unprecedented move, and it is unlikely shareholders would receive any compensation.

This is the worst-case scenario. In the best-case scenario, Russia and the West will work out their differences over the next couple of years. The company will be able to resume gold sales to international buyers, and the Polymetal share price will recover. 

Unfortunately, I think the chances of this latter scenario playing out are relatively slim. Even if Russia and Ukraine agree on a ceasefire, the damage to both economies has already been done. For companies like Polymetal that have significant operations within Russia, I think the next few years are going to be very difficult. 

With this being the case, I think it is unlikely the Polymetal share price will recover to previous highs any time soon. Considering all of the risks the company is going to have to deal with over the next couple of years, I will be steering clear of this business. 

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.

Rupert Hargreaves 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

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
Charticle

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 »

Investing Articles

NatWest shares: is a once-in-a-lifetime opportunity on the way?

Should investors get ready for a unique opportunity as the UK government plans to sell off its NatWest shares later…

Read more »