Petropavlovsk (LON: POG) shares are down 90% as a result of the issues in Ukraine and Russia. As, clearly, they’re going to be, in common with the other Russia exposed stocks like Evraz (LON: EVR), Polymetal (LON: POLY) and so on. The question for us as traders is to try and walk through what might happen to see what a likely outcome is.
Sadly, the information necessary to reach an actual conclusion simply isn’t there, For we face two entirely different sets of problems, sanctions possibilities from both sides.
Petropavlovsk is not a Russian company, it’s a company that does business in Russia. Therefore the sanctions hitting the Russian GDRs (Norilsk, Gazprom, etc) do not apply. There is no specific claim – as there has been at Evraz – about supplying Russia’s military. Nor are the western sanctions likely to be applied to the company. There is, though, the obvious thought that many would prefer not to be invested in any part of the Russian economy at present and so the price sinks like the stone it just has.
This could be seen as a buying opportunity, therefore. Yet on the other hand there’s the problem of what the Russian government might do. Gold miners can be thought of as exposed here. They’re a source of hard currency foreign exchange – most Russian mined gold is exported. Back in Soviet days, and for a period after as well, the foreign exchange earned had to be sold to the central bank at a highly disadvantageous rate. With a time delay on receiving the rubles too, something that matters in a time of high inflation.
This has not happened as yet but who knows? Further, there’s that speculation on whether Russia is going to allow foreigners to continue to own natural resources? It would be a significant leap for them to expropriate but that is still a tail end risk.
The problem with trading Petropavlovsk is this fog of uncertainty. Some clearly think that this is an opportunity to acquire significant assets at knockdown prices – a Russian company picked up 29% of the shares for example. On the other hand that also means that someone sold 29% of the shares, so that means that someone thinks matters can get worse for Petropavlovsk shares. Differences of opinion are, obviously enough, what make markets.
This makes any trade in Petropavlovsk significantly risky. The company itself says that as it is British domiciled then sanctions in the form of share trading bans are unlikely. Whether that is also going to apply to the company’s assets in Russia is simply an unknown.
It is not possible to determine that future. That makes any trade, either way, highly – extremely – risky and something to be done only in the knowledge that at this stage it is betting, not investment.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.