Should I buy Polymetal shares after its positive trading update?

After issuing an encouraging trading update this week, are Polymetal shares now looking like a good addition to my portfolio?

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Polymetal (LSE:POLY) shares collapsed earlier this year following Russia’s invasion of Ukraine. After a period of volatility, the share price appears to have levelled out and earlier this week the Russian miner issued a positive trading update. I already own Polymetal shares, but should I be looking to buy more?

Concerns

The gold and silver miner wasn’t afflicted by the same sanctions-related challenges that hit Russia-based steel producer Evraz. However, its stock price collapsed. There are several reasons for this.

Polymetal has highlighted growing uncertainty around funding due to sanctions placed on banks in Russia, as well as the wider economy. Balance sheet constraints have exacerbated funding issues. 

It will find it increasingly hard to secure funding and possibly sell its gold if the war continues and Russia becomes more and more isolated. Fellow Russian miner Petropavlovsk recently said it has seen sales fall after its main customer, Gazprombank, was placed on a European sanctions list. But Petropavlovsk also announced that production had increased despite the war.

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. Even if Polymetal isn’t sanctioned itself, it may find it increasingly hard secure funding.

The upside

Polymetal is one of the biggest gold and silver producers in the world. On Monday, the firm reported a rise in first-quarter revenue, driven by higher prices and despite a fall in production. Revenue for the three months to March 31 rose 4% year-on-year to $616m. However, production of gold equivalent was down 6% to 372,000 troy ounces. Polymetal said it still expected to produce 1.7m ounces in 2022 — a figure similar to 2021.

Polymetal’s assets are located in Russia and Kazakhstan and are expected to yield high long-term returns. It should be a very profitable business, especially when commodity prices are elevated. In March, it said that bullion sales remained unaffected by sanctions.

So, it’s clear that the firm can remain profitable despite the challenging geopolitical situation. The company has even suggested spitting its Russian business off to protect its Kazakh operations from the effects of sanctions.

Should I buy more?

Amid sky-high commodity prices, Polymetal could well benefit as long as it can sustain production levels and find customers for its gold. I’ve been unsure about whether to buy more Polymetal shares for a while now. But as I see more and more evidence that the business is continuing to operate as usual, I’ve become increasingly keen on buying. I am currently looking to add more Polymetal stock to my portfolio.

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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