Polymetal (LSE:POLY) stock continued its downward trend early Wednesday morning, before recovering slightly. The Russian firm is currently trading at just a fraction of its pre-Ukraine invasion price. The mining stock tanked in February and March after Western nations introduced a series of hard-hitting sanctions on Russia as well as individuals and businesses close to its leader Vladimir Putin.
The gold miner wasn’t hit by the same sanctions-related challenges that afflicted Russia-based steel producer Evraz. However, its stock price collapsed. Unfortunately for me, I had bought into Polymetal when I added a number of mining stocks to my portfolio at the end of 2021. Now my investment is worth less than a quarter of what it was. However, I can still increase my investment and reduce my weighted buy-in price substantially. So, should I buy more?
The risks
Many people were concerned that the war would impact mining operations and consequently, Polymetal’s profitability and share price. Coupled with the constant threat of Western sanctions, these were and are the main risks impacting the stock. But also, as Russia and Russian firms become increasingly isolated, Polymetal will find it increasingly hard to secure funding and possibly sell its gold.
Recently, it highlighted growing uncertainty around funding due to sanctions placed on banks in Russia, as well as the wider economy. Higher working capital needs and balance sheet constraints have exacerbated funding issues.
More bad news followed as Polymetal announced that it would be postponing its dividend payments. Chairman Riccardo Orcel said the decision was made to sustain the stability and liquidity of the business. “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.
The rewards
Miners have been doing well in 2022 and Polymetal is one of a few trading at a discount right now. In March, the firm stated that its mining operations were running uninterrupted. The company also maintained its production guidance of 1.7m ounces of gold for 2022.
Assuming operations are uninterrupted, Polymetal will remain a top-10 global gold producer and top-five global silver producer with an attractive portfolio of assets located across Russia and Kazakhstan. These assets, which should be very profitable right now, were expected to yield high long-term returns.
Is this a risk worth taking?
Despite the above, I won’t be buying more Polymetal stock for now. I’d need to see further evidence that the company is able to sustain its operations in the current climate. I’m also concerned that the war in Ukraine may escalate further and that would likely mean more sanctions. Another raft of sanctions may hurt Polymetal even more.
One interesting prospect is the notion of the company being split. The miner recently said it was considering splitting its Russian business off to protect its Kazakh operations from the effects of sanctions. That could help the company’s ailing share price and its something I’m keeping an eye on.
