Polymetal Production Doing Well, But What About Sanctions?

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Tim Worstall
Updated: 25 Apr 2022

Key points:

Polymetal (LON: POLY) shares are largely unchanged (1% up) off the back of the Q1 2022 production report. Given the background events over Ukraine and Russia, this is a pretty good performance.


There are some inflationary pressures on production costs. This is largely the e3ffect of sanctions, and the knock-on need to move to suboptimal suppliers. Some processing capacity that was to be built in Russia is now to be constructed in Kazakhstan instead.

Even given all of that, revenues are mildly up (4%) given the rise in the gold price.

So, largely speaking, it’s possible to say that Polymetal is doing well as an operating business given the current background. But this isn’t what is the real determinant of the POLY share price of course, that’s all of that background events which is doing that. This brings us into the unknown as it regards future events.

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Current sanctions do, as the production report states, lead to higher operating costs. But there are no direct effects of sanctions as yet. This makes Polymetal distinctly different from Petropavlovsk, its fellow London listed Russian gold miner. For both companies there are no direct sanctions which hit operations, majority investors or even the basic structure of the businesses. But POG, as we’ve pointed out before, faces a possible extinction-level event given that its bank, Gazprombank, is sanctioned. Nothing like this – as far as we or anyone else know – is happening at Polymetal.

But the reason that Polymetal is trading at such a substantial discount to other gold producers in other geographies is obviously the possible effects of current events. There are small sanctions effects – those increases in production costs for example. The auditor resigned because they have disassociated their Russian network from the global one but that’s a solvable problem.

It’s also true that Polymetal is not purely The Russia based and it is under consideration – as the company has told us – to split into a pair of companies. To spin off the Kazakh operations perhaps. This isn’t as simple as it might look as the relative valuations will depend upon how the debt at corporate level is reallocated.

The dividend is currently suspended – it was announced but then they decided not to pay it and the decision will be revisited in August. At over 50 cents per share, that’s a pretty substantial sum too.

The essential lesson from this production report is that yes, sanctions and events are making the business more difficult. It’s not just those internal inflation effects, but that need to move to local, not international, contractors really. But, even given that there’s a good and profitable business here. But what is it worth? That depends upon how and whether those sanctions and or events change in the near future.

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