Polymetal International LON:POLY, has had challenging year – understandably. Founded in 1998 in St. Petersburg, the Russian company built up a portfolio of gold and silver mines in Russia, Kazakhstan and Armenia. Thirteen years later, Polymetal placed 491m shares on the London Stock Exchange, and valued at GBP3.6bn became the first Russian company to achieve a premium listing on the LSE.
The company spent the next year developing gold, silver and copper assets at six sites in Russia, Kazakhstan and Armenia and in 2021 reported post-Covid production 1.4 million ounces (moz) of gold, 20.4moz of silver and 1,900 tonnes of copper.
However, the invasion of Ukraine by Russia in February 2022 changed the game for Polymetal. The following month Polymetal was ejected from the FTSE 100 along with several other Russia-linked companies, and in April 2022, Deloitte resigned as auditor, at the time making it likely that the company would lose its listing on the LSE if it was unable to find a new firm to carry out the audit.
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Polymetal had highlighted that it was seeing significant disruption in traditional supply chains because of the Covid-19 pandemic in China and sales channels – even though it was not directly targeted by Western sanctions – were drying up. In June the company updated the market to say its gold bullion and copper concentrate sales from Kazakhstan would continue undisrupted, but silver sales had been affected by the closedown of the Russian market. However, silver only made up around 5% of its total sales, said the company, so the slowdown would not have a huge material impact on total sales.
Debt financing
In lieu of revenue – caused by sanctions and Covid-19 in China – Polymetal fell back on the debt market, increasing its total net debt to USD2.3bn – mostly dollar-denominated. The company was servicing its debt with cash-in-hand and lines of credit out to non-sanctioned banks. The company remained confident it would hit its target of producing 1.67moz in gold in 2022.
Board changes aplenty followed in the year, and it strongly reiterated that although some of its assets were in Russia, it was not materially-owned by Russian entities. The company also went on walkabout, swapping the surrounds of Venice of the North, St. Petersburg, for the beaches and ice-cream of St. Helier in Jersey in August.
Production up, revenues down
First-half 2022 revenue decreased by 18%, to USD1bn, of which USD443m (42%) was generated from operations in Kazakhstan and USD605m from Russia. In November 2022, the company reported a 7% increase in 3Q22 production, but a 13% fall in year-on-year revenues, reiterating it 1.7moz production guidance. In December Polymetal completed the first tranche of a share exchange offer relating to the rights of 22% of its shares affected by sanctions, repurchasing just over 39 million of its shares.
So where now for Polymetal? Logistics remain a challenge, however, with the easing of Covid-19 restrictions in China, its distribution challenges should start to ease up, and it will have access to Chinese mining machinery, parts and spares. Regardless of the bigger picture, the company is still continuing its Kazakh and Russian operations extracting gold, silver and copper. Its new address will help, jurisdictionally separating the company from its previous Russian connections.
Renewed interest
It seems that the changes it made since March 2022 are starting to have an effect, as investors are starting to take an interest in its shares – it didn’t become the second listed Russian FTSE100 company for no reason. Debt will remain an issue, but if the company maintains projected production, and clears its inventory at the current price, its debt – especially the rouble-denominated debt which has been affected by the Russian currency’s weakening – should be comfortably serviceable and 2023 might see a resumption of dividends, maybe as early as March.
The company’s shares opened trading today (6th January) at 254.9p and was up to just over 282p in the first few hours of trading. The company has put on 9.5% year-to-date, however is -78.5% behind where it was a year ago.
The company has a market capitalisation of GBP1.2bn with its shares ranging between 92p and 1,256.5p over a 52-week period.
To say that Polymetal isn’t a company with troubles is a big call. However, Polymetal has made significant changes in its structure and as 2023 progresses, and the conflict in Ukraine possibly plays out to stalemate and negotiated settlement, Polymetal is one to watch.