With inflation at 7%, mining stocks are in vogue. They’re not all equal, however. Following Russia’s invasion of Ukraine, the Polymetal (LSE: POLY) share price has plummeted nearly 80%. Meanwhile, several FTSE 100 miners are delivering impressive gains.
Is Polymetal a bargain compared to its competitors or are there better options out there? Let’s explore.
Will FTSE 100 mining stocks go higher?
Three Footsie mining stocks on my watchlist have made flying starts to 2022.
The Anglo American (LSE: AAL) share price climbed 34% following a $12bn increase in operating profit and a $1.7bn net debt reduction. Over a third of the miner’s 2021 EBITDA came from platinum group metals. Looking ahead, the company should prove resilient to geopolitical uncertainty. Anglo American, which is up 33% in a year, operates on six continents and has no Russian presence, unlike Polymetal.
Antofagasta (LSE: ANTO) is also racing ahead of the Polymetal share price, rising 22% this year (but down 10% over 12 months). As copper mining is the lifeblood of this Chilean multi-national’s business, shareholders will be encouraged by Goldman Sachs‘ 12-month copper price target of $13,000 per tonne. Antofagasta can build on a robust financial position after earnings per share rocketed by $87.80 last year.
Rio Tinto (LSE: RIO) stock completes the trio — it’s up 25% in 2022, but only up 4% in a year. Iron ore production accounts for almost 78% of its underlying earnings. In 2021, Rio Tinto generated +60% net cash and ordinary dividends per share rose 71%. Moreover, China’s iron ore imports remain stable in 2022, despite its economic slowdown. This is good news for the Rio Tinto share price.
With global interest rates rising, metal prices and mining stocks may fall so all of these shares come with risks. However, I believe the metals bull market could just be beginning as production seems unlikely to meet demand. For me, the outlook remains positive while supply side issues persist.
Will the Polymetal share price go lower?
Polymetal’s focus is precious metals, particularly gold and silver. It has operations in Russia and Kazakhstan. Although it consistently increased production over five years, the share price has been hurt by liquidity troubles caused by sanctions on Russian banks.
In further worrying signs, Polymetal postponed its decision on its 2021 final dividend payment. And Deloitte recently resigned as its auditor, threatening its London Stock Exchange listing.
Arguably, the stock’s substantial decline and a dirt cheap price-to-cash-flow ratio of 1.4 mean the risks it faces are priced in. Nascent plans to separate its Kazakh assets from the rest of the business lifted the Polymetal share price somewhat in recent days.
Nonetheless, I’m pessimistic about Polymetal shares. Headquartered in Cyprus, it avoided direct sanctions like those levied on Roman Abramovich’s Evraz. In a rapidly evolving situation, this could change.
The mining shares I’d buy now
Exposure to metals plays an important role in my diversified portfolio. I’m impressed by all three FTSE 100 stocks on my watchlist. They have strong balance sheets and are collectively spread across different geographies and commodities. I’d divide any spare cash between them.
By contrast, I see potential for further declines in the Polymetal share price. It’s simply too risky for me to buy at present, so I’m looking elsewhere for a solid gold miner.
