Shares in Petropavlovsk Plc. (LON: POG), the London-based gold mining company with operations in Russia, plunged over 86% on Tuesday after the London Stock Exchange decided to cut it out of the FTSE 250 index. The decision will come into effect on Monday.
Major international brokerages have already stopped trading Russian stocks and companies with operations in Russia, leaving behind a trail of nearly worthless stocks and an illiquid market. Even before the formal decision to cut Petropavlovsk from the FTSE 250 it was clear that the company wouldn’t survive the quarterly index reshuffle.The decision was formalised Monday when index provider FTSE Russell, part of the London Stock Exchange Group, said that Russia-linked companies such as Evraz (LON: EVR), Polymetal (LON:POLY) and Petropavlovsk would be cut from the FTSE indexes because of a lack of liquidity and the effect of sanctions.
All three companies Evraz, Petropavlovsk and Polymetal have lost more than 80% since the start of the year and are likely to lose even more once they leave the indexes as index tracker funds offload their shares. In the meantime, trading in steel-maker Evraz stopped completely after the UK placed sanctions on its majority shareholder and Chelsea FC owner Roman Abramovich.
Who is still buying Petropavlovsk shares?
While most investors are heading for the exit, a few are stocking up on the shares at bargain prices. Among them is Sergey Sudarikov, a Russian oligarch who is behind Region Financial Group and who also owns a stake in the sanctioned Credit Bank of Moscow. After shares dropped to 2 pence on 3 March (this was down almost 90% since the start of the year) Region Financial Group bought a 29% stake in the miner. Shares have moved up a notch since then and are trading at 2.53 pence. This compares with 18.89 pence at the start of the year.
Petropavlovsk is also listed on the Moscow Stock Exchange but trade there has been suspended since the start of Russia’s invasion in Ukraine and won’t restart at least until 18 March. Given that the stock is now trading at a bargain-basement price, it is likely that Russian buyers – at least those who can still access their money – will snap up shares once trading restarts in Moscow.
Russia’s domestic gold rush
Petropavlovsk runs four hard rock gold mines on the Kamchatka peninsula in the far east of Russia, the bit of land that is as far away from Moscow as it is possible to be while still being inside Russia. Since the start of the war in Ukraine, the rouble has fallen massively in value and Russian banks have started restricting how much money can be withdrawn from accounts, fuelling a flurry of domestic demand for investment-grade gold.
Russia’s central bank is looking to provide enough gold for domestic buyers and has said that it plans to buy this year’s output of domestic gold producers. It has also cut value-added on gold purchases.
While Petropavlovsk’s business fundamentals are relatively solid, the company’s corporate structure has a less than spotless record. In 2020 the company’s co-founder was arrested on charges of embezzlement while the chief executive who came in to replace him besieged the Moscow office of one of the four mines. He too was eventually arrested on criminal charges.
