The Polymetal (LSE:POLY) share price fell again on Thursday, down nearly 6% at the close of business. The fall extended its downward trend over the last week. The stock had recently recovered a little having fallen considerably in late February and March following Russia’s invasion of Ukraine. The Russian gold miner is now trading at a fraction of its pre-invasion price.
Polymetal has not been impacted by the same sanctions-related challenges that have afflicted Russia-based steel producer Evraz. Nevertheless, the mining stock is definitely feeling the pressure. On Wednesday, the company said it was postponing a vote on a planned $246m dividend payment because of a liquidity crunch brought about by sanctions on Russia — one of its main operating locations.
The risks
The firm said that operating conditions had changed significantly in the past few weeks. It highlighted growing uncertainty around funding due to sanctions placed on Russian banks and the wider economy. This was being exacerbated by higher working capital needs and balance sheet constraints caused by scarce credit.
The decision to postpone the dividend was made in order to sustain the stability and liquidity of the business, according to chairman Riccardo Orcel. “We will continue to monitor the operating, funding and regulatory conditions in which the business operates, hoping that stability is restored, improving visibility which would allow us to return to our cash distribution policy,” Orcel added.
Polymetal has already been excluded from the series of FTSE equity indices.
However, even before the invasion of Ukraine, it had warned about the impact of inflation on profit margins and of Covid on its operations. It noted that three staff members were hospitalised and 130 off work with the virus in a January update. It had previously also raised concerns about the way the semiconductor shortage was affecting mining operations.
And the upside
It’s not all bad. Polymetal is a top-10 global gold producer and top-five global silver producer. It also has an attractive portfolio of assets located across Russia and Kazakhstan – these assets were expected to yield high long-term returns. The miner has recently said it was was debating whether to split its Russian business off to protect its Kazakh operations from the effects of sanctions.
Yet despite the business being fundamentally strong prior to the war, it’s apparent the stock will struggle if sanctions remain. Of course, an end to sanctions would likely send the share price soaring. But if I’m honest, I don’t think that’s going to be happening any time soon.
Is it right for my portfolio?
Unfortunately I held shares in Polymetal before the war, and still do. Despite considerable exposure to Russia professionally, I didn’t see the invasion coming.
Will I be buying more? I could double up on the shares for a fairly negligible amount of money. Having said that, I’d like to see more evidence that the company’s operations are still viable and that it can stay afloat before buying more. So, I won’t be buying for now.
