Down 86%, Polymetal shares are tempting me

Polymetal shares collapsed in the wake of Russia’s invasion of Ukraine. But maybe it’s starting to look like a good buy?

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A lot of investors were talking about Polymetal (LSE:POLY) earlier this year after its share price collapsed. Unfortunately for me, I already owned Polymetal shares before Russia invaded Ukraine and Western partners introduced wide-ranging sanctions on Russia.

The share price is down 86% over the past year, but has stabilised in recent months. So, should I take a risk and buy more Polymetal stock?

Why did the share price fall?

Polymetal is an Anglo-Russian precious metals mining company registered in Jersey. Its assets are split between Russia and Kazakhstan.

So, when Russia invaded Ukraine and the West introduced sanctions on Moscow and the Russian economy, the Polymetal share price sank.

The gold miner has highlighted uncertainty around funding as a result of sanctions placed on Russian banks and the state as a whole. Polymetal had previously warned about the impact of inflationary pressure on its operations. Constraints on the balance sheet have exacerbated issues relating to access to funding.

There are also concerns that Polymetal may struggle to sell its gold and silver. Fellow Russian miner Petropavlovsk has already said that its sales have fallen after its main customer, Gazprombank, was placed on a European sanctions list. 

Polymetal has also suspended its dividend in an effort to improve the stability and liquidity of the business.

Investors have also been concerned that Polymetal could find itself on the sanctions list too.

Is it looking cheap?

Polymetal certainly looks cheap if we take its price-to-earnings ratio, which is just over one. The firm made $1.16bn in pre-tax profit for the year ending 31 December, but is only valued at £1.1bn.

But obviously that’s not reflective of its potential future performance.

Polymetal’s management has actually been pretty upbeat on its 2022 forecast. Production fell 6% in the three months to 31 March, but higher prices meant revenue increased 4% year on year. The miner still expects to produce 1.7m ounces of gold this year — 1.2m oz in Russia and 500,000 oz in Kazakhstan. That’s the same as 2021, and gold prices are currently above the 2021 average.

I’m eagerly awaiting the next production update to see if Polymetal is actually producing in line with expectations. If it is, I think we’ll see the share price shoot up despite the risks.

Should I buy more Polymetal stock?

Will I buy more? I actually doubled my holding in April as I was reassured by Polymetal’s updates. I may even buy more at the current price, but I do accept the risks here.

The company also has an attractive portfolio of assets that should be hugely profitable right now. Mining firms, with the exception of those with sizeable exposure to Russia or Ukraine, have gone from strength to strength this year on the back of higher commodity prices.

In fact, if it wasn’t for the war, I’d expect Polymetal to be doing very well right now.

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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