As production stabilises, should I buy more Polymetal shares?

As the war in Ukraine continues, the Polymetal share price remains unpredictable. But is the low price an attractive buying opportunity?

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The war in Ukraine has sadly brought devastation and destruction to civilians. It also led to a sizeable stock market correction. During this time, I bought shares in Polymetal International (LSE:POLY), a gold company operating in Russia and Kazakhstan. As the war escalated, the price of Polymetal shares fell dramatically. Now some months into the conflict, is the situation any better for this firm? Should I now move to add more shares to my long-term portfolio at the current Polymetal share price? Let’s take a closer look.

War and the Polymetal share price

Like some other companies with exposure to Russia, such as Petropavlovsk and Evraz, Polymetal shares dived as investors retreated on the outbreak of war. 

Many worry that the conflict will impact mining operations and, consequently, the Polymetal share price. What’s more, there is the constant threat of Western sanctions. 

As Russia grows ever more isolated, it may also become more difficult for Polymetal to secure funding or sell the gold it produces. 

In March, the firm stated that its mining operations were running uninterrupted. Furthermore, it maintained its production guidance for 2022 of 1.7m ounces of gold. 

Keeping its production guidance gave me confidence that the business will be able to continue the mining of gold throughout the conflict. 

Where next?

The company is also looking at the possibility of a demerger of its Russian assets, thereby forming “distinct ownership” in “various jurisdictions”

This could be promising, considering that around half of Polymetal’s production and revenue is derived from its operations in Kazakhstan.

In April, however, investment bank Berenberg downgraded the firm to ‘hold’ and dropped its target price from 500p to 300p. The Polymetal share price is currently 254p. 

The downgrade was chiefly based on continued uncertainty about the war. There is the added possibility of the sanctioning of Alexander Nesis, the owner of ICT Group that holds a 24% stake in Polymetal. 

Berenberg was also solely basing the company’s net asset value (NAV) on its Kazakhstan interests, given its Russian ops are becoming increasingly isolated.

Also in April, accounting firm Deloitte resigned as auditor. It cited Polymetal’s Russian links as the reason for being unable to provide auditing services. 

Polymetal then announced that it was pulling its planned dividend of ¢52 per share. This was due to the impact of sanctions and potential funding issues.

A reason for optimism

The situation doesn’t exactly look great. Nevertheless, I don’t think a prolonged conflict is in anyone’s interests. As sanctions bite Russia, higher energy prices are hitting Europe. 

Since the Polymetal share price is almost directly correlated to the prospect of a peace agreement, I think there is some hope that that the firm will make it through. In the event of a peace deal, I think there is a high chance that Polymetal shares will skyrocket.

I have written previously on Polymetal’s strong revenue and earnings record. This could indeed be a golden opportunity to buy more shares in a quality company for my long-term portfolio. 

Given the uncertainty, however, I won’t be adding to my holding. I think I have enough exposure. But if the situation begins to stabilise, I won’t rule out a further purchase.  

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.

Andrew Woods owns shares in Polymetal International. 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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