Polymetal, the gold price outlook and a juicy dividend

After a rough few months, higher prices and a generous payout have boosted interest in this miner.

The gold price weakness driving a 20% slide for shares in 2020 high-flyer Polymetal International (LSE:POLY) was put to one side with the help of a bumper dividend haul today.

The FTSE 100 index stock rallied 3% or 41.5p to 1,480.5p after disclosing a record $608 million in total dividends from 2020 trading — up 57% on a year earlier after more than doubling the most recent payment to 0.89 cents a share.

The award alongside today's annual results emerged as investors continue to see gold lose some of its shine as a safe haven asset. Even though the precious metal is a hedge against inflation, the price of the precious metal is back at a nine-month low of just above $1,700 an ounce because of the impact of rising US bond yields, which hit a one-year high last week.

Gold posted its worst monthly loss since November 2016 in February, having topped $2,000 an ounce at the height of pandemic worries in August. UBS Wealth Management said the recent sharp decline looked overdone but suspects that headwinds may intensify later this year as greater US stimulus raises the prospect of earlier-than-expected interest rate hikes.

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UBS has nudged its gold price forecasts lower to $1,750 an ounce at the end of June, $1,700 by September and $1,650 by this time next year.

The Swiss bank added: “While we recommend maintaining individual strategic weights given gold's importance as a portfolio diversifier, we also advise protecting against further downside risks in prices into the second half of 2021.”

The weaker price outlook has sent Polymetal shares down by a fifth since early January, having spent some of last summer above 2,000p as one of the best performing stocks in the FTSE 100. Its average realised gold price in today's results was 27% higher at $1,797, with silver up by the same percentage to $20.9 an ounce.

The miner, whose flagship facility is the Kyzyl mine in north-eastern Kazakhstan, capitalised on the market strength by increasing its gold sales 2% in the year.

The weaker value of the Russian rouble and Kazakh tenge also benefited Polymetal as it overcame Covid-19-related costs to report a 57% jump in underlying earnings to $1.7 billion.

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While the gold price has helped, Polymetal pointed out today that its total shareholder return of 198% over the past five years outperformed the price of the precious metal four-fold.

It joined the stock market in 2011, since when it has more than doubled production and built seven new mines. Polymetal, which is now worth almost £7 billion and joined the FTSE 100 index in 2019, is now the second largest in Russia for gold production with a total of nine gold and silver mines employing 11,500 people across two countries.

Chairman Ian Cockerill said: “2021 is likely to be a highly volatile year as the financial fallout from the pandemic becomes more obvious.

“So, I’m pleased to report that our company is in good shape and will be able to take advantage of the current positive stage in the precious metals cycle.”