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FTSE 250-listed Polymetal International (LSE: POLY) is up 2.5% this morning after announcing the first gold concentrate shipment from its Kyzyl operation to China. This is a welcome moment of light for a group whose share price has failed to shine lately.

All that glisters…

Polymetal trades 45% lower than two years ago, having being punished by the slump in gold and silver prices, so that its 2016 promotion to the FTSE 100 was only fleeting. One of today’s mysteries is why the gold price is stubbornly refusing to recover given current global economic and political uncertainty. It is down 12% in the last six months to languish below $1,200 an ounce.

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One reason is the strong dollar, which makes gold relatively more expensive to non-US buyers, alongside rising interest rates and the anticipated end to QE. Investors are bearishly shorting the precious metal but this could also be an opportunity for bold contrarians. If the Turkish crisis spreads to other emerging markets, this safe haven could dazzle again.

Pretty POLY

This morning Polymetal announced that it had shipped approximately 2,000 tonnes of gold concentrate from Kyzyl to China, with plans to produce 80 Koz (thousand ounces) of payable gold this year, rising to 280 Koz in 2019 and 330 Koz thereafter at a cost of US$500-$550 an oz.

Group CEO Vitaly Nesis said this “is a major milestone bringing the company closer to first cash flow from the asset”, and with the stock trading at a forecast valuation of 9.4 times earnings, many will be tempted. Especially with a forecast yield of 5.2%, covered exactly twice. Operating margins of 25.2% are healthy, and while City analysts forecast flat earnings this year, they anticipate 32% growth in 2019. Whether you buy partly depends on where you think the gold price will go next but G.A. Chester rates it a bargain

Metal magic

I suspect many would still prefer to buy a broadly diversified miner such as behemoth BHP Billiton (LSE: BLT), which boasts a market cap of £90bn, putting Polymetal’s £3bn in the shade. It has been a much better performer too, rising rather than falling over the last two years, and by an impressive 55%.

Fears of a US-China trade war have cast a cloud over the mining sector, including BHP, while many are also concerned about the outlook for Chinese growth. However, my Foolish colleague Rupert Hargreaves also points out that the group throws off plenty of money, pumping out almost $5bn of free cash last year, which should help to underpin its generous dividend.

Bargain time

It is often best to buy cyclical commodity stocks when they are down, rather than flying high, so recent slippage may be a decent entry point. At a forecast valuation of 12.1 times earnings you are certainly not overpaying. Income seekers will be tempted by its forecast yield of 5.6% with cover of 1.4, while the company’s operating margins stand at a healthy 31.8%.

If markets succumb to a summer swoon or autumn turbulence, I would suggest putting BHP Billiton high on your shopping list of retirement income stocks.

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harveyj has no position in any of the shares mentioned. 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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