Polymetal’s ADR Quotes Suspended; POLY Ticker Still Trades In London (POYYF) (AUCOY)

Gold bullion in the stack of many gold coins

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Polymetal (OTCPK: POYYF) (OTCPK: AUCOY) is, as many will know, a UK-listed company that manages gold mines in Russia and Kazakhstan. I recently suggested that it is an excellent speculation in the medium term. The details of the company i why I think so they are here. It doesn’t make sense to repeat it all, so read it there.

There are – or perhaps were – five different ways to negotiate stocks. The main listing in London (LON: POLY) and similar quotes on the stock exchanges of Kazakhstan and Moscow. All three of these stocks are the same, completely expendable by each other. Moscow is in trouble these days, of course, and Almaty doesn’t see much volume.

There were also two different US appointments, AUCOY and POYYF. The differences are explained here. At one point, it was possible to sell one to buy almost twice as much as the other, even though the underlying was exactly the same. However, this arbitration disappeared quite quickly, as detailed here.

We now have a sanction effect on two of these values. As the company explained this morning:

Following Executive Order 14066, 14068 or 14071 and subsequent clarification of the scope of the legislation by the Foreign Assets Control Office, the negotiation of Polymetal’s ADR program (AUCOY / POYYF tickers) has been stalled since of June 15, although Polymetal shares have not been issued by a Russian entity. After consulting with the custodian bank that administers the program and our legal advisors about the situation, the Company confirms that this event does not affect any rights of shareholders, including the right to receive dividends and voting rights. Shareholders who have ADRs can request the conversion and receive underlying shares.

Although it is not said directly, what is meant is that USG has been wrong here, but arguing with the City Council does not work. Therefore, AUCOY and POYYF are suspended. Headlines may just sit and wait. Or, request to pick up the underlying. This would be POLY listed in London.

In the comments in an earlier piece, it appears that many American brokers are not allowed to trade with POLY, presumably under the same error on the law. This is not a recommendation for these specific brokers, but as far as I know, both Hargreaves Lansdown and AJ Bell in London allow trading. This is further an inference from the fact that Polymetal still appears on its stock lists most traded by its customers. If they will negotiate for American citizens, I’m sorry, but I don’t know, we’ll have to try and figure it out.

The future

As I have been pointing out in recent months, Polymetal is not directly affected by the sanctions. Major shareholders are not sanctioned, their bank is not, gold mining is not, it seems they are going through restrictions. Okay, there are these ADRs, but that’s not a big, important issue.

They had a problem with the auditors. But even that wasn’t really them. As shares listed on London they need a UK auditor. To do business in Russia, they need someone to audit them, of course. But his London auditor cut his Russian business with sanctions, meaning he was no longer the only integrated company to do the full audit. Today Polymetal announced that they had also solved this problem.

In the more complete announcement also point out that there is ruble inflation, local bank loans are more expensive. Sanctions are limiting the import of more current equipment, thus increasing costs. On the other hand, they can still export gold, collect. There is no local silver bullion market, which is a problem, but it is also only 5% of turnover. They are storing production while trying to fix it.

Indeed, the company has some problems, yes, but it is still a very profitable gold miner, even considering the current limitations. They say production is still on target this year. The next announcement will be production for the first half of 2022 in late July. But the big announcement will be the dividend.

The dividend

Polymetal has a major dividend policy and the 2021 final was to be $ 0.52 per share. Given the events that were put on hold. Not canceled, just the decision to pay or not set aside a bit. The previous interim (i.e., the first half of 2021) was $ 0.45. 45 cents that is.

So, given the very generous assumption that the dividend policy will be maintained, this is about $ 1 a year with a £ 2 share. Considering the $ / £, we’re close to a 50% return (no, it’s not, but behind the envelope and all that).

Now, one reaction to this is that since the dividend is not paid, of course, the return is nothing. Which is fair, though perhaps hard. Another could be that if they restore the dividend they will not do so at the old rate, in any way. Because that would be ridiculous.

But here are two things. First, Polymetal has confirmed when they will make the decision on both the full year and the dividend for the first half of 2022, on September 22nd. Or at least that’s when they’ll announce it. There may be a significant change in valuation. Imagine if they actually paid the two dividends according to the above profit shares?

Now, normally, a dividend should make no difference in the price of a share. Retained benefits and paid benefits, the same. But in the current circumstances I think the return of Polymetal to the dividend list would create a significant revaluation. And if they pay with previous dividend schedules, at current share prices there is an immediate cash return of 40% (which is more accurate than the previous 50%) plus the appreciation of the shares of that return on payment of the dividend.

So why won’t they?

Okay, so the company might decide that this payment would be ridiculous. And to some extent it would be. They run no risk of acquisition, so there is no real reason for them to struggle to get a high stock price in the short term. We’ll see a bit of margin squeezing, from the high rubble, to ruble inflation (and it’s rare to have them both at the same time) and the higher costs of having to use less than optimal equipment and subcontractors. So maybe not. They may not pay any dividends, or they may limit what they pay.

But there is also this:

On June 3, the European Union imposed sanctions on Russia’s National Settlement Deposit (NSD) effectively blocking operations between Euroclear and NSD. The Company is informed that this development makes it impossible for those shareholders who hold their shares in NSD (~ 22% of our share capital) to receive dividends and / or participate in the corporate shares of any Company. Polymetal is in consultation with its legal and regulatory advisors to confirm the results of these sanctions and the steps that could be taken to ensure shareholder rights.

If they declare a dividend, 22% of the shareholder base that are registered through the Russian system cannot receive it. To be honest, I don’t see them fucking so much from their shareholder base.

This gives us a decision tree.

That’s speculative, really, it is. There is not enough information here to be sure of anything. But here is my reading, for how little this reading and opinion is worth. If Polymetal is unable to resolve this NSD issue, they are likely to continue to maintain the dividend. If Polymetal can find a way to pay these Russian headlines, I think they will. Maybe not the full dividend as we expected in the absence of current problems, but at least the last full year plus a reasonable intermediate.

Which becomes speculation. Well, actually, it’s a gamble, although we can say it with polite language and say it a speculation. If Polymetal picks up dividends, last year full year plus an interim, I would expect a significant increase in the share price. Plus, obviously, significant revenue for shareholders. In the absence of that, I don’t particularly expect to see a big drop in the stock price. Retained earnings would, well, be maintained and reduce the debt burden or otherwise increase corporate valuation.

What to look for is whether there are ads on the solution to this NSD problem. That, to me, would be the trigger for the decision one way or another.

My point of view

I’ve said before that I think Polymetal is good speculation in the medium term. I stick with that. What we are seeing now is more details on exactly how it might or might not work.

The vision of the investor

This all seems a little too technical, I get it. It is if the dividend is paid, and the dividend could be paid if NSD and so on. And yet, well, that’s how real-world decisions are made. If Polymetal can pay a dividend to all shareholders, on September 22 I think they will. Then, it’s an event that needs to be lengthened sooner. If they can’t, they probably won’t. Therefore, the trigger for a significant position would be any announcement about the solution of this NSD problem.

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