Shares in Russian resources companies are proving remarkably resilient, as lockdowns spread but production continues unimpaired
Since the beginning of 2020, the MOEX Russia Index, which tracks the market capitalisations of Russia’s most valuable companies, is down by nearly 15%.
Not surprising, given the widespread economic chaos caused by the global coronavirus pandemic. But it’s also worth noting that by taking only a moderately more medium-term view, the market is still up, and quite considerably.
On a five-year view the index is up by around 1,000 points, or around 40%, while on a ten year view it’s up slightly more. So, will the economic impact of the coronavirus in Russia be severe?
That’s hard to say at this point, especially as the number of cases continues to grow, and just under half the country’s regions are suffering lockdown.
But crucially, much of the country’s important industry is still functioning. Thus, even as President Putin ratchets up the stakes with the Saudis in terms of the oil price, the country’s major oil producers continue to pump out product.
Indeed, it’s noteworthy that none of the country’s big three producers, Gazprom, Rosneft and Lukoil have even put out press releases about coronavirus, although Gazprom does have a page about it on its website under “Help and Support.”
Other operators in Russia, though, in particular the miners, have made mention of coronavirus and, in business terms it’s not all been negative.
Trans-Siberian Gold (LON:TSG) was first out the gate, issuing a release in the third week of March to the effect that operations were continuing unaffected by the virus, and that with the oil price low and the gold price high, the impact on margins was likely to be favourable.
And a couple of days later, the daddy of them all, palladium and nickel producer Norilsk Nickel (OTCMKTS:NILSY) set out in some detail the measures it’s been taking to tackle the virus. The key phrase though, from the point of view of the Russian economy, came right at the beginning f the statement: “All Nornickel’s operations are carrying on business as usual.”
The same theme can be found throughout the Russian mining sector, from the large to the small. Alrosa, for example, the largest of the Russian diamond miners, prefaced its detailed announcement in regard to coronavirus with a similar statement.
“At the time of publication,” Alrosa said on 26 March, “production activity at the company's diamond-mining enterprises in Yakutia and the Arkhangelsk region continues as usual.”
Meanwhile, precious metals producer Polymetal (LON:POLY) has yet to say anything material regarding coronavirus, though at the end of March it did strike an interesting-looking deal with Australia’s Blackham Resources (ASX:BMI).
On the other hand, Polyus, the Russian gold giant, has said that it is donating 45 ventilators to help in the struggle against the virus in regions where the company operates. It’s also set up a RBL1Bn fund. And it can afford to - at over RBL10,900 its shares are trading at close to their all-time highs, and as at 30 March, production remained unaffected.
Canadian gold major Kinross (TSE:K), which operates the huge Kupol mine in Russia is also pressing ahead with production, not only in Russia, but at its projects right around the world. Accordingly, the company said in a statement a couple of days ago: “While the crisis has had no material impacts on the Company’s operations to date, Kinross has decided to withdraw its full-year 2020 guidance.”
Lower down the scale, meanwhile, Azarga Metals Corp (CVE:AZR) continues to drill on its Unkur project unhindered, though it is taking precautions in regard to coronavirus, and the support it’s getting from London investment house Baker Steel Resources Trust (LON:BSRT) has been slightly amended to take account of the new economic conditions.
And Orsu Metals (CVE:OSU) is quietly continuing with work on its Sergeevskoe gold project, which showed a resource of 1.4mln ounces at the last upgrade in February.
And how has this all impacted share prices?
Well, it’s not just Polyus that’s riding high.
Shares in Polymetal hit a five-year high of 1,379.5p right at the end of March, as those looking for ready cash were finally cleared out of the gold market, and the value investors regained the upper hand.
Norilsk Nickel is currently trading at the same levels it was at in October last year, which is to say a five year high to that point. True, between October and February they did go even higher, but the simple fact remains that anyone who bought shares between April 2015 and October 2019 is still in the money.
Shares in Kinross are close to five-year highs too, as the gold price continues strong.
It’s not such a pretty picture in the oil and gas sector, but even there share prices are still by-and-large trading well above five year lows.
So as far as the Russian resources sector goes, it looks as though while these are turbulent times, it ought in the end to come sailing through largely intact.