- The G7 has announced a ban on new sales of Russian gold
- We might think this will have a significant effect upon Polymetal
- But Russian gold is already not good delivery into London
- Also, Polymetal sells into Asia
Over the weekend the G7 grouping of the major industrial nations has proposed a ban on new Russian gold sales into the major countries – how will this affect Polymetal (LON: POLY) the last of the major Russian gold producers that is both London quoted and not already hamstrung by sanctions?
The answer is that this could go either way. It depends upon whether the market looks at the surface of this announcement or deeper into the nuts and bolts of what would actually change for Polymetal.
As background, Polymetal produces gold and silver in Russia and Kazakhstan. The business is roughly split between the countries, a little more production from Russia, a little more of the profit from Kazakhstan. Unlike Petropavlovsk (LON: POG) the sanctions haven't directly affected Polymetal. Rouble inflation isn't aiding matters. Not being able to import entirely up to date equipment is raising costs. But they're still operating, production is up to forecasts, sales continue. They don't sell to the Russian central bank, the company is of course affected by events but none of the sanctions apply directly to them.
Until this one of course. The G7, that grouping of the major industrial countries, is now suggesting that newly mined Russian gold should not be imported into those G7 countries. This is, according to the politicians, a blow against Russian exports. We though want to know what the effect upon Polymetal will be. And the answer could well be not very much.
The thing is, Polymetal doesn't sell Russian gold to G7 markets: “Sales of gold bullion and concentrates from Russian mines to diverse Asian markets returned to regular schedule”. If you don't ship to London anyway then not being able to ship to London might not be all that much of a problem.
It's also true that Russian refined gold hasn't been good delivery to either the London or Chicago markets for some months now. So Polymetal – along with all other Russian miners – hasn't been selling into the terminal markets anyway. It's been selling physical gold to physical users of gold in non-G7 countries. Which isn't something that this latest announcement is likely to affect all that much.
It's possible to think that there will now have to be a price discount for Russian sourced gold even in such physical markets elsewhere but even if there is it's unlikely to be all that great a price difference. There are simply too many secondary refiners – hundreds of them – and the margins on re-refining gold are too small for this to be any more than a few percent.
So, Polymetal doesn't sell its gold into the G7 markets anyway. Russian refined gold hasn't been good delivery into the main markets for months. It's not obvious that the G7 ban on new Russian gold sales is going to have any effect on Polymetal therefore.
As to trading on this, that becomes a matter of opinion. Will the price fall back as people worry? If it does, will it recover as the details make themselves known? As ever, short term price movements aren't so much about facts as what people believe them to be.