Polymetal wants to get rid of small assets
The company sold a small gold deposit in Armenia for $ 55 million.
Polymetal sold Chaparat Gold a Kapan gold field in Armenia for $ 55 million, the seller and buyer said. Part of the amount - no more than $ 5 million - Chaarat Gold can pay out convertible bonds with a maturity in 2021.
The deal should be closed before February 15, 2019. If for some reason this does not happen, Chaarat Gold will pay Polymetal a penalty of $ 10 million. If it is successfully closed, Polymetal will give Chaarat Gold a priority when selling other assets of Armenia, for example, the deposit Lichkvaz.
“The sale of Kapan is a step towards reducing the number of Polymetal assets to concentrate on large long-term projects,” the press service quoted the company's chief executive officer Vitaly Nesis. “The deal will bring immediate benefits, leading to lower costs and a debt burden.”
Executive Director of Chaarat Gold Artem Volynets indicates that Polymetal has invested $ 35 million in the development of Kapan, turning it into an effective deposit with a stable cash flow. The deal will allow Chaarat Gold “to achieve good production and reserves,” Volynets added.
Polymetal acquired Kapan in 2016 for $ 38 million. This is the smallest field of the company, with the highest level of costs. The reserves, production and EBITDA of the field accounted for only 3% of the total Polymetal. According to the company, production at the field for the 12 months ended September 30, 2018 was 51,000 ounces of gold equivalent. The life of the deposit is projected to last until 2021.
Kapan is a good asset, but small for Polymetal , says Nikolai Sosnovsky, director of metallurgy and mining at Prosperity Capital Management. In addition, the company has on its agenda the implementation of two major projects - Nezhdaninskoe and Prognoz deposits, the expert reminds. “It’s probably decided in the company that it’s better to concentrate on core assets and sell small and less profitable ones,” he says. And Chaarat Gold is growing from scratch, so it is ready to buy assets in riskier jurisdictions, Sosnovsky believes.
Kapan is the most expensive Polymetal project in terms of production costs, while the share of its reserves and production in the total business of the company does not exceed 3%, according to Maxim Khudalov, director of the ACRA corporate rating group. In addition, local authorities prevented exploration, which complicated the expansion of the resource base for the company, says the expert. “Against this background, the sale of an asset is a reasonable solution,” he said. In addition, the deal for Polymetal is profitable in any case: even if the sale does not take place, the company will earn $ 10 million on cancellation, emphasizes Khudalov.
Now Chaarat Gold is engaged in the exploration and development of gold deposits only in Kyrgyzstan. But within five years, the company plans, through mergers and acquisitions, to acquire assets in Central Asia and the CIS and achieve a production level of 1 million ounces, and a resource base of 15–20 million ounces. The company's largest shareholder is its chairman, Martin Anderson (35.5%). The capitalization of Chaarat Gold on the London Stock Exchange is $ 114.6 million. In the summer, the company was headed by Artem Volynets, the former CEO of En + Oleg Deripaska.