Polymetal (LSE:POLY) shares collapsed earlier this year after many Western countries introduced sanctions on Russia and Russian businesses. The London-listed gold miner wasn’t sanctioned, but investors have become wary amid concerns it may struggle to fund its operations and sell its products.
Right now, based on the previous year’s data, Polymetal has a price-to-earnings ratio of just 1.6. That’s incredibly low.  In most cases I’d say that’s astoundingly cheap, or most probably, that something must be wrong. The figure reflects the fact that the stock is currently valued at £1.18bn while the company made $1.16bn in pre-tax profit for the year ending December 31. So, what’s behind the low P/E ratio and should I buy?
Why is the P/E so low
Investors are obviously concerned about the company’s capacity to carry on operating. Polymetal has highlighted uncertainty around funding as a result of sanctions placed on Russian banks and the state as a whole. Balance sheet constraints have exacerbated funding issues.
Moreover, as Russia becomes more isolated, Polymetal may find it hard to sell its gold and other products. In April, Russian miner Petropavlovsk said it had seen sales fall after its main customer, Gazprombank, was placed on a European sanctions list.Â
If the war in Ukraine escalates, there’s also the very real risk that the miner could be sanctioned too.
Polymetal has also announced that it will be postponing its dividend payments for the foreseeable future. Chairman Riccardo Orcel said the decision was made to sustain the stability and liquidity of the business.
What’s the upside?
I still see quite a lot of upside here. Firstly, the miner said it still expects to produce 1.7m ounces in 2022 — a figure similar to 2021. Q1 data was positive too. Despite a fall in production, revenue for the three months to March 31 rose 4% year-on-year to $616m. This was driven by higher prices. Production was only down 6%, which I don’t think is too much to be worried about. It may well be the case that the fall in production wasn’t a result of the geopolitical situation. Petropavlovsk actually announced that production had increased despite the war.
If operations continue relatively uninterrupted, Polymetal will remain a top-10 global gold producer and top-five global silver producer. It has an attractive portfolio of assets located across Russia and Kazakhstan. These assets, which should be very profitable right now, are expected to yield high long-term returns.
One for my portfolio?
I actually owned Polymetal before the war, which probably would have worked out for me as mining stocks have done very well this year. However, the war started and the value of my holdings crashed. I’ve been keeping a very close eye on this one and recently decided to double my holdings. I’ve seen enough data to suggest the firm can continue operating profitably. Yes, there certainly are risks as detailed above, but I decided it was a risk worth taking.