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I’d welcome Polymetal International to the FTSE 100 by buying it today

With the gold price at a six-year high, it is hardly surprising that gold mining stocks are dazzling right now, notably Polymetal International (LSE: POLY), which is preparing to join the FTSE 100 today after a blistering run of share price growth.

Poly-talented

The Polymetal share price has jumped 44% in the last three months, and 86% over the year, at a time when the wider index has been heading in the other direction.

Gold famously does not correlate with stock markets – the price typically climbs when investors are bearish and falls when they are bullish. Right now, investors are definitely the former, as they fret about the US-China trade war, Brexit, slowing global growth and falling interest rates, and the Polymetal share price is the beneficiary.

Time to shine

The Russian multinational mining firm isn’t just a passive beneficiary of gold price movements, it recently delivered a robust half-yearly update showing revenues up a thumping 20% over the last year and adjusted earnings up 34%, while declaring it is firmly on track to meet production guidance. Talk of a special dividend and a potential move into rare earth metals added to the shine.

I braced myself for a hefty valuation, given its recent surge, but the £5.5bn group is trading at a modest 12.4 times forecast earnings, with a similarly undemanding PEG of 0.7.

One of the arguments against buying physical gold is that it does not pay interest, but gold miners do give you an income in the shape of dividends. Right now, Polymetal offers a forecast yield of 4% and cover of 1.9.

Forecast earnings growth of 15% this year and 17% in 2020 look highly promising, by which point the yield is expected to have hit 4.7%. The risk is that a sudden burst of positive sentiment could sink the gold price and Polymetal with it.

Gold may well be due a correction, after recent strong growth. So don’t expect recent strong growth to continue, but if you haven’t got any exposure in your portfolio, this could be a good way to get it.

Copper and gold

Chilean miner Antofagasta (LSE: ANTO) is seen as a copper specialist but it does dig for gold as well, and it’s been doing well on that front, with sales up 117.8% to 148,300 ounces in the first six months of 2019, helped by higher grades at its Centinela mine, which delivered EBITDA earnings of $532.5m.

Copper is still the main attraction and Antofagasta has been doing well here too, posting a 19.1% rise in total revenues to $2.5bn, as higher copper sales volumes offset a 6.3% drop in the realised copper price.

This combination of gold and copper, two of the most non-correlating assets I can think of right now, gives the stock natural in-built diversification, given that demand for copper rises while the global economy is expanding, and demand for gold rises once it contracts.

However, with sentiment firmly in decline right now, this makes the case in favour of Polymetal seem stronger as it enters the FTSE 100. Although some of you may prefer to wait and see if the gold price does correct from today’s high.

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Harvey Jones 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.