Rampant precious metals prices have carried many of London’s listed mining giants to the stars in 2019. One FTSE 250 share, Polymetal International (LSE: POLY), has seen its price swell by 25% since the turn of January on the back of these gains.
Gold has soared to its most expensive since 2011 in recent weeks and, pleasingly for the likes of Polymetal, it doesn’t appear as if it’s run out of steam just yet. In fact, gold market commentators have been getting more and more bullish over possible price levels. Analysts at ABN AMRO (AS:ABNd) now expect the yellow metal to keep rising until it reaches $1,500 per ounce late next year. But the boffins at precious metals research firm GFMS believe this level could be breached by the end of 2019.
A perfect storm And why wouldn’t they be so optimistic? The macroeconomic and geopolitical outlook looks worse now than it did a year ago, bolstering the demand picture for classic safe-haven investments like gold. Trade chatter between the US and China has deteriorated into a full-scale diplomatic crisis; the chances of a no-deal Brexit have increased immeasurably; key eurozone economies like Germany are on the brink of slipping into recession; and the threat of military action in the Middle East has reared its ugly head too.
Meanwhile, an unexpected and severe loosening of monetary policy by central banks all over the globe have given values of that hard, physical currency gold an extra boost as doubts over the value of paper currencies have re-emerged.
A great way to play gold prices So Polymetal’s boomed the back of these brilliant price rises. But roaring gold values aren’t the only reason to expect more considerable share price gains in 2020.
You see, production levels at the Russia-focused miner are shooting through the roof at present. In the second quarter, some 384,000 gold equivalent ounces were dug out of the ground, up 19% year-on-year, a result that powered group revenues to $492m (up 13%).
Output from its recently-commissioned Kyzyl mine is now in full swing, and although Polymetal kept its full-year estimates on hold following last month’s update, its flagship asset has outperformed wildly of late. Should this persist, estimates for the next couple of years could be significantly upgraded, giving the share price another reason to fly higher.
Soaring gold values and some thrilling output data have propelled Polymetal’s share price to the stars so far in 2019, but on paper the FTSE 250 business still appears massively underpriced. As well as carrying a forward price-to-earnings (P/E) ratio of 10.7 times, just above the bargain-basement benchmark of 10 times, City expectations of more meaty dividend growth in 2019 create a hefty 4.7% yield.
I consider such a rating to be far, far too low. Sure, the unpredictable nature of commodity production makes the company somewhat risky. I would argue, though, that the current share price doesn’t properly reflect those strong market conditions and impressive production numbers that we’ve seen of late. In my opinion, Polymetal’s a brilliantly-priced dividend stock to buy today, and one that’s in great shape to keep rising in value next year and probably beyond.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019