Berenberg downgrades Polymetal, upgrades Hochschild

The bank, which slashed its price target on the stock to 300p from 500p, said the share price has become detached from the underlying business.

"We are currently attributing no value in our NAV to the Russian assets given uncertainty about Polymetal’s ability to remit funds from assets in the country to other parts of the corporate structure," it said.

Berenberg said the company faces a number of material headwinds in terms of negotiating the sanctions that have been applied by the West on Russia and vice versa.

"There is the risk that Alexander Nesis, who holds a majority interest in ICT, the company’s 24% shareholder, will be sanctioned," it said. "The company may also need to secure debt from either domestic or Chinese lenders to replace the debt that is currently held with European banks, with higher borrowing costs. The company will face challenges importing spares, specialist equipment and skills from Western suppliers.

"Russian companies are now not allowed to remit dividends to offshore entities and so any dividend in the future will need to be funded from free cash flow from the Kazakh entities. A key decision that will need to be made is whether to split the business into its Russian and Kazakh assets, with the latter accounting for 35% of our NAV and 30% of group production."

Berenberg said this would create a sanctioned entity and unsanctioned entity, although management has flagged that there are potential regulatory hurdles to this.

In the same note on metals and mining, the bank upgraded Hochschild to ‘buy’ from ‘hold’ and lifted the price target to 160p from 130p as it argued the shares offer operationally-geared exposure to higher precious metal prices.