Polymetal (LON: POLY) (NASDAQ: AUCOY) (NASDAQ: POYYF) shares are down 6.5% in London on Monday on the announcement that work continues to deal with the sanctions problem. It's possible to think that this is an over-reaction - for there's no really new news here. Instead, the news is that the management continue to deal with the problem as they said they would do. It's necessary to redomicile the company at which point it will be possible to divorce the two sides of the company. That's really the only way that the sanctions can be dealt with - so quite why a significant price reduction as they announce that they're continuing with the plan isn't certain.
The problem, of course, is that whole Russia and Ukraine thing. Polymetal itself isn't hit with sanctions, nor is its bank, management and so on. Unlike poor old Petropavlovsk (LON: POG) which went bust when its bank was sanctioned. It wasn't allowed to service its working capital loan to Gazprombank, sanctions. It also wasn't allowed to refinance that loan - sanctions. So, going bust was all that remained as a possibility. That hasn't happened to Polymetal.
However, the Russian subsidiary has just been, a couple of weeks back, hit with sanctions. This makes more important what was already underway anyway.
Polymetal share price from London Stock Exchange
Given the more general sanctions it wasn't possible for Polymetal to communicate with Russian shareholders - or even to know who they were. So, no dividend could be paid. Thus some change in the corporate structure was, is, necessary. The best option seems to be to redomicile Polymetal as a Kazakh company. At which point it is possible to deal with the Russian shareholder base. Given the new sanctions on the Russian subsidiary the end result will be that the company splits. The Kazakh operations in one company, the Russian operations in another. The long term valuation of POLY will depend upon the price that can be got for the under sanctions Russian assets.
All of this has been true for some weeks. Monday's announcement is simply that the plans are proceeding. It's more of an announcement of how far they've got really. It's not, not really, new information so it's a puzzle as to why it's had this influence on the stock price. As we've noted before about Polymetal we expect the final disposition to be a much better price than today. And significant falls in POLY do tend to be followed by recoveries.
