Should I Buy Polymetal International?

LONDON -- I'm window shopping for shares again, and there are plenty of goodies for sale. Should I pop Polymetal International  (LSE: POLY  ) into my basket?

Go West, go East
Russian gold and silver producer Polymetal International sought the greater security of a FTSE 100 listing in 2011 in a bid to attract a wider investor base, boost liquidity and reduce political risk. I'm tempted by the prospect of Western standards of corporate governance and Eastern growth potential. Should I buy it?

Polymetal International's share price has plummeted nearly 25% over the past six months, but publication of its preliminary 2012 results earlier this week sparked a sudden 6% rebound. That's down to its "strong operational performance", which included a 31% rise in gold production and a 40% leap in revenues to $1.85 billion dollars. Adjusted EBITDA grew a forecast-busting 47% to $918 million. Polymetal also fulfilled its promise to pay 30% of net earnings to investors (up from 20% last year), paying 31 cents a share (on top of a special dividend of 50 cents in January). Management has floated the idea of making a special payment every December, if cash flow allows. Given its strong cash position, Polymetal could be a nice little income earner.

Gold bugs
This week, Polymetal also announced that it had completed its purchase of the Maminskoye gold deposit in Sverdlovks, Russia, which it claims has "substantial exploration upside", and could yield between 80,000 and 120,000 ounces of gold a year. That's another advantage of a FTSE 100 listing. It makes equity-based acquisitions easier.

Polymetal is sitting pretty, thanks to its strong financial performance, stable cash flow, solid margins and healthy return on capital, and is already on track to meet its gold production targets for 2013. Commodity stocks have struggled in recent months, but that could make now a buying opportunity. Polymetal currently trades at 13.2 times earnings, and although that isn't dirt cheap, you aren't paying over the odds, either. You get a forecast yield of 3.7%, and an exciting dividend policy. Projected earnings-per-share growth is a shiny 56% this year, followed by 15% in 2014.

Chinese arithmetic
Your decision to buy will partly depend on how bullish you are about the global recovery. But with central bankers competing to pump liquidity into the economy, and Chinese domestic consumption rising, the tide could be moving in favor of commodities. Brokers rate Polymetal. Canaccord Genuity names it a buy, with a target price of £14, Morgan Stanley is overweight on a target of £11.25. You can currently buy it for £9.

As with every miner, you have to understand the risks. This is a volatile sector. Polymetal is still relatively new to the FTSE 100 index, while three major shareholders continue to dominate its board. The gold price is down 10% over the last six months, and any serious decline could hit investor sentiment. But if you think metals are set to get more precious over the next few years, Polymetal could prove a golden investment.

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