Polymetal International, one of the world’s largest gold producers, has agreed to sell its Russian operations to a local rival for about $3.7 billion. The deal is a result of US sanctions imposed on the company in 2023 over Russia’s military intervention in Ukraine.
Why Polymetal is leaving Russia
Polymetal International, which is listed on the London Stock Exchange and the Astana International Exchange, has been looking for a buyer for its Russian assets since 2023 when the US Treasury Department added it to its list of sanctioned entities. The sanctions prohibit US persons and companies from doing business with Polymetal and limit its access to international financing.
The company’s Russian assets account for about 70% of its production and more than 50% of its core earnings. In 2021, the company had a market capitalization of more than $10 billion. However, the sanctions have reduced its valuation and made it difficult to find a suitable buyer.
Polymetal’s CEO Vitaly Nesis said that selling the Russian business was “imperative” and that there was no point in waiting for the situation to improve. “The current situation is … unsustainable even in the short run,” he told investors. “We do not have an option of sitting on our hands and waiting for something to happen.”
Who is buying Polymetal’s Russian assets?
The buyer of Polymetal’s Russian business is Mangazeya Plus, a subsidiary of Mangazeya Mining, a Siberian gold miner owned by businessman Sergey Yanchukov. Mangazeya Mining was founded in 2011 and produced 466,000 ounces of gold last year, according to its website. Polymetal’s Russian operations produced 1.23 million gold equivalent ounces in 2021.
However, the deal involves Polymetal International selling 100% of its Russian business to Mangazeya Plus for a total consideration of about $3.69 billion, of which $2.21 billion is the Russian business’ net debt. Polymetal’s Moscow-listed shares dropped 8.6% after the announcement.
Nesis said that Mangazeya’s offer was the only realistic option among the three or four final proposals. “This buyer understood that an extra $100-200 million is not as important to us as the complete elimination of key vulnerabilities in the structure of the new company,” he told Reuters.
What’s next for Polymetal and the gold industry?
Polymetal International said that it will use the proceeds from the sale to pay down debt, return cash to shareholders, and invest in its remaining assets in Kazakhstan and Armenia. The company also said that it will explore opportunities to expand its portfolio in other jurisdictions.
Also, the deal is expected to close in the second half of 2024, subject to regulatory approvals and other customary conditions. It will also require the approval of Polymetal’s shareholders, who will vote on the transaction at a meeting in April.
The sale of Polymetal’s Russian assets is the latest in a series of mergers and acquisitions in the global gold industry, which has been consolidating in recent years amid rising costs, environmental pressures, and geopolitical risks. Analysts expect more deals to follow as gold miners seek to diversify their portfolios and increase their scale and efficiency.
Source: ReutersÂ
