What’s next for the Petropavlovsk share price?

After recent declines, the Petropavlovsk share price looks cheap, but the outlook for the company is highly uncertain says this Fool.

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The Petropavlovsk (LSE: POG) share price has plunged in value since the war in Eastern Europe began. Since the beginning of the year, the stock is off 92%. It has fallen 94% over the past 12 months.

Following this performance, I have been taking a closer look at the company. As a contrarian value investor, I am always on the lookout for stocks that have lost a substantial amount of value in a short amount of time. Sometimes, hunting for bargains with these equities can lead to high returns, although this is far from guaranteed.

Petropavlovsk share price outlook

Unfortunately, the company has close ties with Russia. This has become a problem as the western world has shut off access to the region with sanctions.

Under the latest sanctions, Gazprombank has been sanctioned by the UK. This is a double gut punch for the firm. Not only does it mean some of its financing arrangements are now in jeopardy, but the bank is also the only buyer of its gold.

The Russian gold miner has a $200m term loan and a near $90m revolving credit facility with Gazprombank. On top of these facilities, Gazprombank acts as an off-taker of 100% of the group’s gold production.

Commenting on the sanctions, the firm said it may become “challenging” to find an alternative purchaser for its gold output.

A huge challenge

This could be a vast, potentially terminal issue for Petropavlovsk. If it cannot sell its gold output, it cannot generate revenue. If it cannot generate revenue, then the firm cannot pay its staff, meet interest obligations, return cash to investors or find new buyers.

That being said, this might not be the end of the road for the company. The Russian government has said it is willing to act as a buyer of last resort for some businesses in the country. It has also said that it might allow oil and gas payments to be made in gold. If the corporation can find a buyer for its gold in Russia or outside of the sanctions regime, then it might be able to move ahead. If it can sell the output at current prices, then the stock looks cheap.

As such, the firm might be able to generate some revenue. However, trying to determine how these changes will impact the business is very challenging.

The bottom line

With this being the case, I am not a buyer of the shares at current levels. While the Petropavlovsk share price might look cheap compared to its trading history, the company’s underlying fundamentals are pretty poor.

If the corporation cannot sell its output, then the stock could fall further in value. Even after recent declines, shares in the company do not look cheap to me, considering the firm’s highly uncertain outlook.

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.

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