Is the Petropavlovsk (POG) share price now too cheap to miss?

Key points

• Investors are still concerned about the possibility of sanctions following the Russian invasion of Ukraine
• 2021 Q4 gold sales increased by 15%, year on year
• Total gold production for the 2021 calendar year declined by 18% compared to 2020

Operating exclusively in Russia, Petropavlovsk (LSE:POG) is a gold mining company. The firm has hit headlines over the past fortnight because of the ongoing military situation between Russia and Ukraine. Shares are currently trading at 3.45p, up nearly 50% today. With the POG share price down 90% in the past year, however, should I be adding this business to my portfolio? Let’s take a closer look.   

Recent activity and the POG share price

Given that Petropavlovsk exclusively operates in Russia, investors have been concerned about the company ever since the Russian invasion of Ukraine. In the last month, for instance, the share price fell 83%, while over the past week it is down 70%. This price movement has been troubling to watch. 

The main worry is that sanctions could target the firm. This would likely make trading very difficult. In addition, it would limit the client base to which it could sell its gold. Until now, however, no sanctions have targeted the business. 

On the other hand, we may soon see a ceasefire agreed. The situation could improve markedly, not only for the civilians, but also for the POG share price. In the meantime, however, the situation remains very uncertain and that is not attractive to me, a potential shareholder.

Company results

The firm recently released a production and sales report for the 2021 calendar year and Q4 2021. For Q4, total gold production increased 26% year on year, while own-mined gold production rose by 53%. Furthermore, gold sales for this period increased by 15%, year on year.

For the full year, however, the story is not as positive. Total gold production for 2021 was down 18% compared with 2020, although own-mined gold production grew by 1%. Also, gold sales for the 2021 calendar year fell by 20%.

In addition, the company’s cash balance in 2021 Q4 declined by about $10m since the previous quarter. On the flip side, the firm reduced its debt by $2m over the same time period.

With a trailing price-to-earnings (P/E) ratio of 12.85, this is lower than the 19.79 for Barrick Gold, a major competitor in the gold market. While this may indicate that Petropavlovsk is undervalued at the current share price, recent results aren’t particularly exciting. What’s more, the firm is subject to governance issues from $300m of transactions involving potential conflicts of interest.  

The company has been caught up in the investor exodus from firms operating in Russia. As the situation continues to be uncertain, I won’t be going anywhere near this business for the moment, regardless of the low P/E ratio. I will be waiting to gain a better understanding of where the Ukraine conflict is headed, while watching for further results. I prefer to give the current POG share price a miss.