Source: London Stock Exchange
FTSE 100 gold miner Polymetal lost half of its market capitalization on Monday as the West stepped up sanctions on Russia over a sting operation in Ukraine and one of its largest shareholders prepares to sell shares.
Shares in the company, which owns eight mines and modern refineries in Russia and Kazakhstan, fell 56% to 351.2, the lowest since listing on the London Stock Exchange more than a decade ago. Investors are selling off Russian stocks after the EU, UK and US announced new economic restrictions on Moscow last weekend, analysts said.
“There are a lot of sellers and very few buyers,” said Jonathan Guy, an analyst at Berenberg. “It’s a crazy market.”
The Norwegian Sovereign Wealth Fund, one of the 10 largest shareholders of Polymetal, said it would withdraw all Russian investment as part of the sanctions.
Analysts expect Polymetal, which has fallen to £1.6bn from £7bn a year ago, to announce a final dividend of 75 cents per share on Wednesday when it reports results.
Analysts believe that the money needed to pay dividends has already been sent to Polymetal’s bank account in Cyprus, but the company may decide not to make payments and save funds amid increased market volatility.
“Certainly, this is of great concern to Polymetal shareholders, as many of them receive dividends along with gold,” Guy added.
Polymetal derives most of its revenues from the sale of gold to Russian banks, which in turn sell the metal on the international gold markets. However, the company also sells concentrated gold ore to China, where it is processed at local refineries.
Debt problems
Since Russian banks are effectively cut off from the international banking system, analysts say the Central Bank of Russia will become the buyer of last resort for domestic producers. This will give them the rubles they need to pay salaries and supplies.
The London Bullion Market Association, which controls the $5 trillion London gold market, has already canceled the membership of three Russian banks, Otkritie, VTB and Sovcombank.
On Sunday, the Central Bank of Russia announced the resumption of gold purchases, two years after the end of a long period of purchases that helped support local producers. According to the World Gold Council, the Bank increased gold purchases after the annexation of Crimea in 2014, and at the end of November last year, its reserves were just under 2,300 tons.
At current prices, the gold reserves of the Russian Central Bank – the sixth largest in the world – amount to $153 billion. This is about a fifth of the bank’s official reserves.
Polymetal is not the only Russian gold producer to be hit hard on Monday, with shares in Petropavlovsk falling 15% to a three-year low of 8p. The gold producer needs to refinance obligations in November, on which the principal amount of about $300 million is not repaid.
Peel Hunt analyst Peter Malin-Jones believes that while the company will be able to refinance its loan from Russian banks, it is unclear how it will make payments to bondholders.
“The problem is not in refinancing the loan, but in its actual repayment,” he said.
At the end of 2021, Polymetal’s net debt stood at $1.65 billion, Guy said. Nearly 40% of the debt is held by European banks, and if the company has to refinance this debt domestically or with Chinese banks, the interest rate is likely to be higher.
Prepared by Profinance.ru by materials The Financial Times
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