Polymetal shares just jumped 10%! Should I buy now?

Polymetal shares surged on Friday morning but remain considerably down on their pre-war price. So, is it time to buy?

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Polymetal (LSE: POLY) shares rose by as much as 10% on Friday morning before falling slightly. The share price has fluctuated throughout the day. Despite the gains, the stock is currently trading at just a fraction of its pre-Ukraine invasion price.

The mining stock had collapsed in February and March. The firm’s share price was heavily impacted by the decision of Western nations to introduce a series of hard-hitting sanctions on Russia as well as individuals and businesses close to its leader Vladimir Putin.

What’s behind Friday’s gains?

Investors appear to be reacting to a trading update from fellow Russian miner Petropavlovsk (LSE: POG). Petropavlovsk said that first-quarter production has increased, despite the fallout from the war in Ukraine. However, it has seen sales fall as it looks for new buyers, after its main customer, Gazprombank, was placed on a European sanctions list. Petropavlovsk said it had applied for a new export licence after sanctions against Gazprombank left it unable to sell gold.

The news was seen as positive for Polymetal. Investors will hope that Polymetal’s operations have experienced limited disruption due to the war and sanctions, like Petropavlovsk. Polymetal had previously suggested that its operations were not impacted but noted that sanctions were causing finance-related issues.

What’s the upside?

Polymetal is one of the biggest gold and silver producers in the world. Its assets, located across Russia and Kazakhstan, are deemed to be very profitable and were expected to yield high long-term returns. In March, Polymetal maintained annual production guidance and said operations in Russia and Kazakhstan continue undisrupted. It also said that bullion sales remained unaffected by sanctions.

There are clearly signs that the business could remain profitable despite sanctions on Russia. It may also benefit from the soaring commodity prices we are seeing today. Despite this, the miner has recently announced that it was was debating whether to split its Russian business off to protect its Kazakh operations from the effects of sanctions.

Risks

There’s clearly a number of risks involved when investing in this stock. For one, Polymetal will find it increasingly hard to secure funding and possibly sell its gold if the war continues and Russia becomes more and more isolated.

The gold miner has also highlighted issues around access to funding. The sanctioning of Russian banks has made it difficult for Polymetal to finance its investments and operations amid increased working capital requirements and other balance sheet constraints.

There’s also the very real risk of the company being sanctioned. If the war escalates even further, we may seen Western nations apply blanket sanctions that could cripple the firm’s ability to sell its product.

Should I buy?

I already owned Polymetal shares before the war. I’ve previously said that I was waiting for more evidence that Polymetal’s operations were continuing without disruption before I bought more shares at a lower price. And Petropavlovsk’s trading update does give me some confidence. I am looking to add more Polymetal shares to my portfolio, but I appreciate there’s plenty of risk.

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.

James Fox owns shares in Polymetal. 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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