Key points
- Gold output increased 24% for the three months to 31 December 2021, year-on-year
- The company has a lower forward P/E ratio than a major competitor
- It is investing $471m in a new mining project
With the developing situation in Ukraine and Russia, the share prices of many companies operating in the region plummeted yesterday. Polymetal International (LSE: POLY), a FTSE 100 gold miner, fell 40%. With mines across Russia and Kazakhstan, investors became nervous that production would grind to a halt or Western sanctions would target the company. I am trying to look beyond this issue to assess the firm’s performance over a longer period, although I’m not ignoring the severity of the conflict. This is with a view to holding the shares for the long term. Let’s take a closer look.
A FTSE 100 business with a strong track record
In a recent trading update for the three months to 31 December 2021, Polymetal stated that gold production was up 2% year-on-year. Indeed, this was 5% above guidance. Furthermore, gold output increased 24% in comparison with the same period in 2020. On the other hand, revenue declined by 6% year-on-year. The firm explained that this was largely due to lower gold prices during the period. I expect this to change in the next quarter, given the rise in the gold price recently.
The business also has a strong earnings record. Between the calendar years 2016 and 2020, earnings per share (EPS) grew from ¢90 to ¢228. By my calculations, this amounts to a compounding annual EPS growth rate of 20.4%. As a potential investor, I find this both impressive and consistent.
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A cheap stock at current levels?
By taking a look at the company’s price-to-earnings (P/E) ratio, I may better understand the extent to which it is under- or overvalued. Indeed, Polymetal has a forward P/E ratio, based on forecast earnings, of 9.73. On its own, this doesn’t tell me much. Compared to Barrick Gold, a major competitor, it does seem cheap. Barrick Gold has a forward P/E ratio of 23.04. For me, this is an indicator that Polymetal may indeed be undervalued at its current price.
Of course, I can’t ignore the impact of the Ukraine crisis on this firm. Yesterday the share price fell 40% on fears of military action affecting production and the possibility of sanctions. While it is possible that the business could be further impacted by these events, the company’s long-term track record is strong. Indeed, management recently signed on a deal to invest $471m in the Veduga mine project in southern Russia. This is estimated to yield 200,000 ounces of gold per year for 21 years.
While I won’t be buying this stock right now, I will be keeping a close eye to see if revenue begins to increase. This is likely, given the rising price of gold. I will certainly not rule out a purchase in the future.
