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Is "POG" finally trending up? The epic code for Petropavlovsk, a £250 million London-listed Russian gold miner, is its usual term of reference - cynics may say it is a variation on "dog", after the firm slumped amid operational setbacks, falling gold prices and high debts.

The five-year chart implies it is down-and-out, although this derives largely from 3.3 billion shares in issue, e.g. after drastically enlarging equity with a 157-for-10 rights issue at 5p in early 2015.

Yet the first-half 2016 results reflect a turnaround taking shape, with operating/admin costs pruned back, and gold prices are nowadays value-accretive for mining. At about 8p, the stock is fully-backed by net tangible assets, so all POG need do is establish reasonably progressive financial results to see it trend higher.

Context for gold remains overall supportive

Gold prices have been volatile lately, albeit in the context of a strong rise from about $1,060/ounce to $1,360 mid-year, currently $1,250. Some retracing was inevitable - it's inherent to markets - and traders now vie over the odds of a December US interest rate rise (should Hillary Clinton win the presidential election) as liable to weaken gold, versus risks of a US recession spurring another advance.

A median view is plenty other uncertainties for the global economy persisting, it only needing an element of investors to hedge via gold to sustain a price-range in support of profits. In such context, POG is seen as an ugly duckling, while swans such as Randgold Resources command about 25 times earnings (but also saw a 2013-15 underlying profits decline).

Randgold's chart has hit volatility with a sharp fall; risk/reward is arguably better for POGAs an industry leader, Randgold has been a prime means to play gold's re-rating, and it also boasts a strong record of dividends, whereas POG's lack of income will keep it off most institutional investors' radar.

Yet 25 times earnings leaves no headroom for mining's unpredictable issues, while forecasts suggest POG is on a price/earnings (PE) multiple reducing to four, which effectively prices them in. Some might say it reflects Russian political risk, but Randgold is operating from Mali, an area torn by civil war.

Not surprisingly, Randgold's chart has run into volatility with a sharp fall whereas risk/reward - in terms of price versus intrinsic value - is arguably more favourable for POG. This significantly reflects a flow of initiatives since the end of 2014 when Pavel Maslovskiy was re-appointed as chief executive following two years in Russian politics.

Interim results reflect a turnaround taking shape

Mind the Company REFS table is sterling-based, whereas news releases are in US dollars (in line with international resources industries).

The first half of 2016 showed a return to profitability with operating profit of $37.8 million (£30.9 million) and after-tax profit of $9.2 million versus an $81.6 million like-for-like loss a year earlier. This was mainly due to cutting production costs by over 20% and central administration costs by 17%.

Cost-cutting looks vital, given the end-June balance sheet shows net debt down by only 2%The first half-year is generally weaker for performance, although gold production was affected by severe flooding in June/July, which delayed stripping works, a 22% fall to 187,400 ounces and annual guidance indicated at the lower end of a 460,000-500,000 ounce range.

There have been various technical developments to advance from open-pit mining in the first quarter of 2017, and a pressure oxidising facility should unlock plenty more value from a 9.3 million group reserves base; capital expenditure on development was still reduced by 33%, though.

Cost-cutting looks vital, given the end-June balance sheet shows net debt down by only 2% to $598 million; the debt profile weighed 56% towards short-term maturities.

Watch out for news (indicated by end-October) of rebalancing debt maturities to 2022 with a back-ended repayment schedule, to better suit the company's production profile. Net gearing is, therefore, about 116%, its $30.5 million interest expense swallowing 89% of interim operating profit.

If 2017 forecasts are close to realistic, gross cash from operations should radically improveIt will be interesting to see if the update can indicate lower interest rates from a rescheduling although bankers might not go so far, having already relaxed covenants. But if there is steady long-term debt reduction, helped by improving cash flow, a depressant should be lifted from the stock, even though dividends look a long way off.

The interim cash flow statement shows net cash from operations nearly trebling close to $30 million, albeit wholly due to a 39% fall in interest paid and a 27% reduction in income tax.

If the 2017 forecasts are anywhere near realistic, however, gross cash from operations should radically improve. Recognise the speculation involved, but gold's context and the company's improvements imply good odds.

Bulking up for an era of consolidation

Last April, Petropavlovsk acquired Amur Zoloto, another Far East Russian gold-miner, for $144 million, issuing 1.4 billion shares at 6.9p to the vendors and further increasing the equity base by one third.

Despite its strong forecasts, broker SP Angel has a 'hold' stance and 7.8p a share targetManagement has said its institutional shareholders want to see more critical mass; fair enough, but equity dilution needs stemming and debt reducing for the stock to re-rate. Also, the company needs to show better consistency in its operational updates before adding much risk with acquisitions. Management needs to strike a balance.

The risk is shown by a longstanding 65 .6% stake in IRC Group which, it's possible to argue, isn't reflected in the stock price at all, but represented an opportunistic diversion into supplying iron ore to China. If such moves aren't valued then why give financial resource and attention this way?

Weak sentiment is potentially advantageous

Despite its strong forecasts cited in the table, broker SP Angel has a 'hold' stance and 7.8p a share target, the highest being 11p from Canaccord Genuity, albeit last April. Short selling interest has tailed off, however, and a 14 October announcement shows Polo Company S.A., a vehicle connected to Russian billionaire Viktor Vekselberg, taking its stake over 9%.

His Renova Group has a good track record of long-term strategic investments, which affirms the sense for Petropavlovsk as a tuck-away. Management just needs to maintain the improving trend they declared at interims, for an overhang of wariness towards POG to become an inflection point and its stock rise.

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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.