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Will a Kazakh listing lift Polymetal shares?

Polymetal shares have been in a downward trend ahead of the release of its Q4 and full-year earnings report for 2022 on Thursday 16 March. The miner announced at the end of January that it intends to move its primary listing to Kazakhstan to help restore shareholder value. A switch would also allow the company to restart its dividend programme.

- Polymetal’s ore reserves declined in Q4 as sanctions on imports limited drilling activity.

- A switch to Kazakhstan's Astana International Exchange would allow the miner to resume paying dividends.

- BlackRock and VanEck, both of which had holdings in Polymetal, liquidated their Russia-focused ETFs.

Sanctions have continued to hit Anglo-Russian precious metals miner Polymetal International [POLY.L] ahead of its earnings report announcement on 16 March.

At the start of the month, the Cyprus-headquartered company reported a decline in ore reserves. Sanctions on imports of equipment and materials into Russia severely limited its drilling activity last year. Gold ore reserves were down 9% year-over-year as of 31 December 2022, while silver ore reserves declined 12%. Mineral resources grew 5%, however.

“We remain confident in the group’s ability to grow our high-quality reserve base and expect the resumption of the upward trend in 2023,” Polymetal CEO Vitaly Nesis said in a statement.

As of 10 March close at 220p, the Polymetal share price is down 8.33% in the past week and further 10.4% in the year-to-date .

Costs expected to jump amid strong rouble

Shares in Polymetal have been declining since peaking at 362.27p back in January following the release of the company’s full-year production results for 2022.

The shareholder exit can be explained in part by the announcement that the company is considering switching its primary listing from London for a “jurisdiction deemed to be ‘friendly’ by the Russian Federation”: Kazakhstan's Astana International Exchange (AIX) market. This “could unblock the ability of the company to execute further corporate actions”, says Polymetal of the change on its website.

Gold production for 2022 met original guidance, but the board warned that production would most likely be flat in 2023 and with higher costs. Gold equivalent production grew 2% to 1.71 million ounces versus expectations of 1.70 million ounces.

While fourth quarter (Q4) unaudited revenue jumped 30% to $1bn, full-year unaudited revenue slipped 3% to $2.8bn and cash costs were in the region of $900 to $1,000 per gold-equivalent ounce. Polymetal expects costs for 2023 to rise slightly to a range of $950 to $1,000 per ounce as a result of domestic inflation, a stronger rouble and an increase in Kazakhstan royalties.

Nebt debt had decreased by $400m to approximately $2.4bn by the end of Q4 “on the back of strong positive free cash flows from unwinding of working capital.”

Shareholders hope for dividend update

Investors will be hoping that Polymetal uses its earnings call as an opportunity to provide an update on its switch to Kazakhstan's AIX market.

The move would allow Polymetal to spin off its Kazakh business, which accounted for 30.4% of Q4 gold production. Once the transaction has been completed, the miner will be able to restart its dividend programme. Shareholder payouts have been suspended since September last year after EU asset sanctions froze shares held in Russia’s National Settlement Depository.

“We want to take the Kazakh business out of the shadows, out from under the canopy of sanctions,” CEO Vitaly Nesis told Reuters in February.

The company is hoping that it might be able to keep its London listing through global depositary receipts, but the uncertainty around what a move to the AIX would mean for shareholders has clouded any investment case ahead of earnings.

Funds in focus: iShares MSCI Global Silver and Metals Miners

The suspension of its dividends and uncertain near-term outlook means that funds have little-to-no exposure to the stock. Poly has less than 0.01% weighting in any of the funds that hold it.

BlackRock and VanEck decided to liquidate their Russia-focused ETFs last year after sanctions hindered US investing in Russian assets. Both funds had held Polymetal.

For investors that want broader exposure to the mining industry, there’s the iShares MSCI Global Silver and Metals Miners ETF [SLVP]. The fund is down 9.1% year-to-date and down 8.1% in the past month.

Investors may also consider the VanEck Gold Miners UCITS ETF [GDX]. The fund is down 5.1% year-to-date and down 8.2% in the past month.

Unsurprisingly, Polymetal has received little analyst coverage in the past 12 months. Berenberg downgraded the stock in April last year from ‘buy’ to ‘hold’, arguing that the share price had become severed from the business.

“We are currently attributing no value in our NAV to the Russian assets given uncertainty about Polymetal’s ability to remit funds from assets in the country to other parts of the corporate structure," wrote the bank in a note seen by Sharecast.

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