Polymetal suspends cost guidance amid dividend risks

Russian companies are stuck between the motherland and the financial centres that have provided billions and billions in capital over the past few decades. Polymetal (POLY), a gold miner, shows this starkly. The company said it was “appalled” by the “events going on in Ukraine” at its 2021 results announcement. 

While less forthright than Shell (SHEL) and BP (BP.) statements that specifically talked about Russian aggression, the miner went further than fellow London-listed Russian companies Evraz (EVR) and Polyus (PLZL), both of which said in their results announcements last week that they would continue to monitor the geopolitical events. 

Polymetal’s market capitalisation has plunged almost 80 per cent – meaning it will fall out of the FTSE 100 at the next rearrangement – since the invasion as investors sought to get rid of Russian holdings. Questions also remain about its ability to actually pay the dividends announced in this week’s results, given the ever-growing list of sanctions against Russian entities. Always a strong yield company, Polymetal said its final 2021 payout would be 52¢ a share, taking the total dividend to 97¢, compared with 129¢ in 2020. 

A spokesperson for the company said there had been no indications from Euroclear, the company that handles the distributions, that the 2021 final dividend payment could not go ahead, although chief executive Vitaly Nesis said Polymetal would reserve the right to suspend or cancel the payout should conditions change. 

He was more bullish on the possibility of the company facing sanctions, saying this was "low on the list" of risks for the miner. 

At the top of this list was getting hold of supplies that are currently imported. Nessis said domestic gold and silver bullion buying would be enough to maintain sales, however. Russia’s central bank announced over the weekend it would restart gold purchases. Polymetal will receive payment in roubles for this gold, which introduces further uncertainty:at the start of March, the price of gold in roubles has climbed by over a quarter given the currency’s depreciation against the US dollar. Nesis said this differential could pose a risk to the dividend, too. 

Capital and operating cost guidance for this year has been suspended, and the company will review projects less than 20 per cent completed. 

We have had Polymetal as a buy for years given its dividends and stable output. Even if we were to ignore the war, these both look at risk (for London buyers, at least) and therefore we drop to hold, with a likely shift to sell if sanctions are ramped up or the dividend is cancelled. Hold. 

Last IC View: Buy, 1,466p, 26 Aug 2021