Polymetal scraps dividend as sanctions bite

Polymetal has scrapped dividend payments and will resume them only if it manages to exchange shares frozen by EU sanctions, as the west’s financial penalties on Moscow push the Russian gold and silver miner towards a liquidity crunch.

The London-listed precious metals producer said on Thursday it had permanently cancelled its full-year 2021 dividend because of a “significant decline in operating cash flows, challenges in establishing new sales channels and the short-term liquidity headwinds”.

The company, which is 24 per cent owned by Russian businessman Alexander Nesis, added that it would not propose an interim dividend this year to “strengthen its cash position and enhance its resilience in a highly volatile environment”.

Polymetal has not been placed under direct sanctions by the west but Russian metal producers are facing difficulties selling gold in London or other western markets. Instead, they are turning to the country’s central bank as the buyer of last resort, which means they receive roubles rather than US dollars.

The dividend cancellation came after the group’s net debt rose to $2.8bn in the first half of 2022, up from about $2bn at the end of March. Its worsening financial situation was the result of growing inventories of unsold metal, accelerated expenditure on equipment, spares and funding to critical suppliers and an upward revaluation of rouble-denominated debt in dollar terms.

The company fell to a $321mn loss in the first six months of the year, against a profit of $419mn in the same period a year earlier, because of lower sales and higher costs. Fellow Russian precious metals producer Polyus this week reported a 25 per cent drop in adjusted core earnings in the first half of the year to $1.2bn for similar reasons.

Polymetal has said the suspension of dividend payments will continue until it finds a solution to unblock shares that are frozen because they are held through Russia’s National Settlement Depository, a domestic payment agent, which has been placed under EU sanctions.

As a solution, the company proposed exchanging electronic shares held through NSD for certificated ones. However, it said that would probably work for only half of the 22 per cent of the company’s share capital that is affected, since individuals or entities that are Russian residents, citizens or incorporated there would not be eligible.

Polymetal has been plotting a sale of its Russian assets, which would leave it solely with Kazakh mines. But Russian president Vladimir Putin has banned the sale of Russian strategic assets including gold mines owned by “unfriendly” countries, a list that includes Jersey where Polymetal is domiciled. To push a potential sale through, the company is evaluating redomiciling to a “friendly” country.

Shares in the precious metals producer, which has been expelled from the FTSE 100, fell a further 11 per cent on Thursday, taking losses since the start of the year to 84 per cent. Its market capitalisation has shrivelled to less than £1bn from more than £5.5bn before Russia invaded Ukraine.