Down 75%, can the Polymetal share price recover from the slump?

The Polymetal International (LSE:POLY) share price has endured a torrid time recently. Prior to Russia’s invasion of Ukraine, the shares were trading at around 1,000p. They’re down about 75% since the war began, currently trading at 270p. This was to be expected to some degree however, as the company operates gold mines in Russia and Kazakhstan. I currently own shares in this firm, but should I be adding to my holding? Let’s take a closer look.

Ongoing conflict

Polymetal’s presence in Kazakhstan may end up being its saving grace. It derives around 50% of its gold, and 50% of its sales, from operations there. 

This seems to give the firm a sizeable advantage over other mining companies that have a larger chunk of their business in Russia, like Evraz and Petropavlovsk.

On 29 March, Polymetal announced that it was exploring the possibility of a demerger of its Russian assets. 

This could shield shareholders from any future problems with the Russian part of the company.

It does, however, mean that re-ratings may take place based solely on Polymetal’s Kazakhstan assets. 

Investment bank Berenberg, for instance, recently lowered its price target from 500p to 300p for this reason.   

It’s also possible that people or entities associated with the firm could be the target of Western sanctions at a future time.

Operations and the Polymetal share price

Polymetal has not been operationally impacted by the war in Ukraine. In two statements in March, the company emphasised that mining and production were continuing uninterrupted. 

Despite this, production fell by 6% for the first three months of 2022, on a year-on-year comparison. 

In a very interesting move, the firm also confirmed that it was maintaining its full-year production target of 1.7m ounces of gold. As a shareholder, this was encouraging because management clearly believes that production will continue with a large degree of normality for this year. 

This makes me confident that the Polymetal share price has the potential to recover. 

Furthermore, revenue for the three months to 31 March increased by 4%. While this was partially due to higher gold prices, it also shows that the company is still productive despite the ongoing conflict.

The problem with a recovery, however, is that the share price is almost totally correlated to the prospect of peace in Ukraine. While the war is ongoing, a prolonged conflict is in nobody’s interests. 

Sanctions are hitting Russia and energy prices are spiking in many Western states, so it’s conceivable that an end to hostilities may come sooner rather than later. This would not only be good news for civilians, but also for the Polymetal share price.

Overall, the situation remains uncertain. Despite this, an end to the conflict would likely lead to a Polymetal share price recovery. With encouraging revenue and production figures, I think it’s a good time to add to my current holding to lower my average weighted price. I will buy more shares in this company soon.