Polymetal (LSE:POLY) shares have crashed this year. The Anglo-Russian precious metals miner is down 80% since the beginning of the year and 84% over the past 12 months. Polymetal stock collapsed in February and early March after Russia invaded Ukraine and Western partners introduced hard-hitting sanctions on Moscow.
I held Polymetal shares before the war started and given the strength of mining stocks this year, I think the investment would have been doing well. However, I’ve recently bought more Polymetal stock, doubling my holding in the miner. Here’s why.
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It’s looking very cheap
Polymetal has a price-to-earnings (P/E) ratio of just 1.7. This looks incredibly cheap, or more probably suggests that something is wrong. In this case, the low P/E reflects the concern investors hold about the firm’s capacity to carry on operating.
The miner has highlighted uncertainty around funding due to sanctions placed on Russian banks. Balance sheet constraints have exacerbated funding issues. Another concern is that as Russia becomes increasingly isolated, Polymetal may find it hard to sell its gold and other products. Russian miner Petropavlovsk has demonstrated this. Petropavlovsk said that sales had fallen after its main customer, Gazprombank, was sanctioned. There’s also the very real risk that Polymetal could be sanctioned too.
Based on the previous annual dividend, I could expect a near-30% yield from Polymetal if I bought at the current price. However, the share price took a tumble last month when chairman Riccardo Orcel announced the decision to postpone dividend payments for the foreseeable future. The decision was made to sustain the stability and liquidity of the business. However, as an investor, the dividend would have helped cover my losses on this stock.
The reason I’ve bought more is that I’ve seen enough data to make me think Polymetal can continue to operate successfully. Polymetal will remain a top-10 global gold producer and top-five global silver producer if operations aren’t impacted by the current situation. Production was only down 6% in Q1, which I don’t think is too much to be worried about. In fact, the fall might not be indicative of the sanctions-related pressure anyway. Polymetal has maintained its annual production guidance of 1.7m ounces of gold and said operations in Russia and Kazakhstan continue undisrupted. Q1 revenue actually rose 4% during the period driven by higher gold prices.
Finding buyers for its gold might be the biggest issue if production remains on track. But in the long run, Polymetal has an attractive portfolio of assets located across Russia and Kazakhstan. These mines are expected to yield high long-term returns.
Moreover, Polymetal derives around 50% of its gold, and 50% of its sales, from its operations in Kazakhstan. The firm even said it was mulling splitting its Russian and Kazakh businesses. This could shield shareholders from Russia-related issues.
Why did I buy?
I bought more because the prospects outweigh the risks, in my opinion. The stock is looking very cheap but almost everything I’ve seen suggests the miner should be able to continue operating as usual. It’s also more sheltered than other miners given its 50% exposure to Kazakhstan.