Should I buy Polymetal shares after its stock price crash?
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Polymetal (LSE:POLY) The stock continued its downward trend early Wednesday morning, before recovering slightly. The Russian company is currently trading at just a fraction of its pre-Ukrainian invasion price. The mining stock slumped in February and March after Western countries introduced a series of tough sanctions against Russia as well as individuals and companies close to its leader Vladimir Putin.
The gold miner has not been hit by the same sanctions-related challenges that have plagued the Russian-based steel producer Evraz. However, its stock price collapsed. Unfortunately for me, I had bought Polymetal when I added a number of mining stocks to my portfolio at the end of 2021. Now my investment is worth less than a quarter of what it was. However, I can still increase my investment and significantly reduce my weighted purchase price. So should I buy more?
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Many people feared that the war would impact mining operations and, therefore, Polymetal’s profitability and share price. Coupled with the constant threat of Western sanctions, these were and are the main risks impacting the title. But also, as Russia and Russian companies become more and more isolated, Polymetal will find it increasingly difficult to obtain financing and possibly sell its gold.
Recently, he highlighted growing uncertainty around funding due to sanctions imposed on banks in Russia, as well as the wider economy. Higher working capital requirements and balance sheet constraints have exacerbated funding issues.
More bad news followed when Polymetal announced it would defer its dividend payments. Chairman Riccardo Orcel said the decision was made to maintain the stability and liquidity of the business. “We will continue to monitor the operating, funding and regulatory conditions in which the business operates, hoping that stability is restored, improving visibility that would allow us to return to our cash distribution policy.added Orcel.
Miners are doing well in 2022 and Polymetal is one of the few trading at a discount right now. In March, the company said its mining operations were running without interruption. The company also maintained its production guidance of 1.7 million ounces of gold for 2022.
Assuming operations are not interrupted, Polymetal will remain one of the world’s top 10 gold producers and one of the world’s top five silver producers with an attractive portfolio of assets located in Russia and Kazakhstan. These assets, which should be very profitable right now, were expected to generate high returns over the long term.
Is it a risk worth taking?
Despite the above, I will not be buying any more Polymetal shares at this time. I would need to see further evidence that the company is able to maintain operations in the current climate. I also fear that the war in Ukraine will escalate further, which would probably mean more sanctions. Another round of sanctions could hurt Polymetal even more.
An interesting prospect is the notion of a business split. The miner recently said he was considering splitting off his Russian business to protect his Kazakh operations from the effects of the sanctions. It could help the company’s struggling share price and it’s something I’m watching.