Polymetal to sell Russian assets at knock-down price
Precious metals producer Polymetal International has agreed to sell its Russian assets to a Siberian gold miner for about $3.7bn, it said on Monday of a deal forced at a knock-down price by repercussions from the conflict in Ukraine.
Polymetal’s Russian assets were placed under US sanctions in 2023 in response to Moscow sending troops into Ukraine in February 2022 and the company switched its domicile to Kazakhstan from Jersey and listed on the Central Asian nation’s Astana International Exchange to try to facilitate a sale.
The deal involves Polymetal International selling its Russian business to Mangazeya Plus — part of business person Sergey Yanchukov’s Mangazeya Mining — for about $3.69bn, of which $2.21n is the Russian operation’s net debt.
Polymetal International CEO Vitaly Nesis said achieving a sale was “imperative” and with the external environment deteriorating over time, there was no point waiting for general conditions about doing business in Russia to improve.
“The current situation is ... unsustainable even in the short run,” Nesis told investors. “We do not have an option of sitting on our hands and waiting for something to happen.”
Polymetal’s Russian assets represent about 70% of production and more than 50% of core earnings. In 2021, the company’s market capitalisation was more than $10bn.
Its share price, down 7.5% on Monday, tanked after Russia launched its “special military operation” in Ukraine in 2022. Moscow also demands a hefty discount on foreign asset sales.
“It’s a good deal, it’s a satisfactory deal, but it’s certainly not a great deal,” Nesis told Reuters. “It’s clear we are not selling the assets for fair value.”
Tinkoff Investments analysts said the deal valued the assets at an enterprise value to ebitda multiple of 2.5 times, implying a “significant discount” to Russian peers’ current multiples and to the group’s historical average multiple of about eight times. Ebitda is earnings before interest, tax, depreciation and amortisation.
Mangazeya’s offer was the only realistic option of the three or four final proposals, Nesis said. “This buyer understood that an extra $100-$200m is not as important to us as the complete elimination of key vulnerabilities in the structure of the new company.”
Mangazeya Mining has largely operated in eastern Siberia since forming in 2011. It produced 466,00oz of gold in 2023, its website says, compared with Polymetal’s 1.23million gold equivalent ounces in Russia.
Urging shareholders to approve the deal, Nesis said nationalisation was a risk and Polymetal International’s board had no management oversight of the Russian business.
The transaction was fully compliant with all sanctions, the company said. Payments will be made in roubles. The deal includes cash of $1.48bn, of which $1.43bn is dividends from the Russian business, and an additional $50m.
The management team, led by CEO Sergey Cherkashin, will stay on.
Polymetal International, which will remain Kazakhstan’s second-largest gold producer after the transaction, will use $1.15bn of dividends received to repay intragroup debt. It will spend part of $300m retained in after-tax proceeds on developing the Ertis POX project in Kazakhstan.
Nesis said the company had started looking at possible merger & acquisition deals in Kazakhstan and Tajikistan and was planning to eventually return to the London Stock Exchange.