Key points:
- Polymetal has updated on its business activities in Russia and Kazakhstan
- The company appears to be operating as normal
- It’s possible that events will just pass it by
- Polymetal Jumps 30% On Sensible Plan
Polymetal (LON: POLY) shares have jumped another 10% this morning, following the 30% rise yesterday. This has now put that Blackrock stake in Polymetal into substantial profit. The reason for this is an update on how the business is actually operating in Russia.
As we said back then when Blackrock bought into Polymetal a trading 30% dividend yield on a mature gold miner would be, under normal circumstances, a screaming buy. These are not normal circumstances of course so there was and is substantial risk.
The big question though is how are the varied restrictions and sanctions affecting Polymetal’s underlying business? Different companies operate in slightly different ways and it’s possible for some people to be caught, unexpectedly, in the web of business limitations. Others might be able to thread their way through with no real impact. Petropavlovsk seems to be getting caught, Polymetal, so far at least, near unaffected.
So, given that Polymetal shares have fallen so considerably on the Russia risk finding out that – again, so far – there seems not to be so much risk is making that share price rebound.
Also Read: Base & Precious Metal Trading Guide
The announcement this morning follows their one of yesterday. Yesterday’s talked about strategic options like splitting the company into Russian and Kazakh sections. This would remove The Russia risk from the valuation of the Kazakh section. Today is an update on how the operating business – as opposed to worries about share listings and so on – is working given the new conditions. The answer being that not much has really changed.
One way of reading this is that Polymetal shares are therefore worth the £11 and £12 they were before all of this. But that would not be a sensible read – there is still substantial and new risk here. But, as the company says, actual on-the-ground operations seem to be remarkably unaffected.
Sales of gold and silver concentrates continue as they used to. Gold bullion sales are still to the market and not the central bank at some uninteresting price. The domestic to Russia price of gold continues to shadow the global price per ounce.
The one possible undesirable on the horizon is that the group's debt – largely working capital requirements – will need to be refinanced at some point and this will only be available in rubles and not dollars. That means a substantially higher interest rate – 23% and more. That’s not desirable of course but as the company doesn’t say but we can add the likely decline in the value of the ruble over time will soften any such refinancing blow.
Essentially, the current update is saying that – barring that possible rise in financing costs – Polymetal’s business is operating as normal. No, this doesn’t mean that all risk has disappeared but at least so far it tells us that the worst fears are unfounded. Thus that rise again in the Polymetal price.
