Key points:
- Polymetal shares are 300% up off their recent lows
- Largely because sanctions haven’t hit the gold miner
- Now sanctions have hit – the auditor has resigned
- European Equities Climb
Polymetal (LON: POLY) shares are up 300% from their recent lows. This is largely due to how it seems to be threading itself through the web of sanctions. Yes, there are substantial sanctions being imposed on the Russian economy and there are reactions to them from inside The Russia. None of them seem to have landed a blow upon Polymetal though, which aids in explaining the recovery in the share price. Until now that is – the auditor has resigned.
Polymetal mines gold in both Russia and Kazakhstan. No shareholders nor management are directly sanctioned. The company isn’t either. The London Bullion Market (and CMET) decisions to declare Russian bars not good delivery doesn’t affect Polymetal as it sells concentrates. There’s an argument that the Kazakh business alone is worth the current share price. The Russian central bank buying in gold also doesn’t affect – they sell concentrates, not gold.
There is still, clearly, considerable risk but none of the sanctions currently announced have hit or affected the company. It’s general conditions that are the problem, nothing specific.
Also Read: Metals Mania – Why Are Metal Prices Surging?
Until now that is, the auditor has resigned. Deloitte has announced that it cannot continue to audit Polymetal. This is an indirect effect of those sanctions – risk still exists even if there are no direct effects. The problem is that as part of the sanctions the local offices of Deloitte in Russia and Belarus are now no longer part of the Deloitte network. So, it’s not possible for Deloitte from London to have confidence in the audit results that might come from looking at the assets in Russia. Which is, of course, where a major part of the Polymetal business is.
Yes, of course, it’s possible to think this is being taken too far. Those Russian auditors are the same people who last month were part of the Deloitte network. But that’s the way it is.
ThusPolymetal finds itself in a minor league version of the problem Petropavlovsk has. There are no sanctions which directly affect POG. Except its bank is sanctioned. Which means that it cannot repay the working capital loans from Gazprombank, nor deliver gold as it is supposed to under the contracts, nor even refinance away from the sanctioned bank.
Polymetal’s problem is much more minor than this. But it’s unlikely that any of the Big Four accounting networks will be willing to pick up the audit for exactly the same reason. They’ve all dumped their Russian affiliates. But a listed company must have an auditor. So, Polymetal does face this problem of having to have an auditor, but it’s a British (OK, Jersey) company and those who can audit those will not have Russian arms to do the local work.
Quite how this will be resolved is unknown but it’s an interesting example of how sanctions do impose risk even if there are no direct sanctions. Polymetal might well be worth, just on the Kazakh assets, the current share price. But there’s still considerable risk involved.