Mangazeya company buys Russian assets of Polymetal

Mangazeya, owned by Sergei Yanchukov, became one of the largest gold mining companies in the Russian Federation through the purchase of Russian assets of Polymetal. The total amount of the transaction is estimated at $3.7 billion. Of this, only $300 million will be paid in real money, but Polymetal will get rid of $2.2 billion of debt remaining on the Russian structure. As a result, Mangazeya will have access to the processing of refractory ores, and Polymetal will receive funds for development in Kazakhstan and relief from sanctions risks.

Polymetal sold its Russian business of the Mangazeya company of Sergei Yanchukov for $300 million. As a result of the transaction, Polymetal will retain its assets in Kazakhstan, generating slightly less than half of the group’s EBITDA, get rid of connections with Russia and sanctions risks, as well as most of the debt. But to do this, Polymetal shareholders had to agree to a significant discount.

For the deal, the company’s Russian business was valued at 3.6x based on forecast adjusted EBITDA for 2023 of $1 billion. The total transaction amount, taking into account external and intragroup debt, will be $3.7 billion. But the buyer will pay only $50 million with its own money. Polymetal before closing transaction will receive $1.419 billion in dividends from the Russian structure, but at the same time will return to it the intra-group debt of $1.15 billion. At the same time, the net debt of $2.2 billion will remain on the balance sheet of the Russian company. As a result, together with the buyer’s payment and after taxes, Polymetal will receive only $300 million, which the board of directors intends to use to finance the construction of the Irtysh MMC in Kazakhstan and improve the group’s liquidity after the transaction.

Management explained the need for the transaction by sanctions risks for the entire group after the Russian legal entity was included in the SDN list.

The circular to the deal also states that “the economic climate in Russia is conducive to the government introducing new laws and restrictions” that affect business. “The Board of Directors is also aware of cases of nationalization of Russian divisions of large foreign companies, which causes concern,” the circular says.

Polymetal will retain its listing on the Kazakhstan exchange AIX, and will the securities of Polymetal JSC continue to be traded (MOEX: POLY) after the transaction is unclear. A representative of Mangazeya declined to comment on the deal. After the announcement of the sale, Polymetal shares in Kazakhstan fell by 3.5%, and on the Moscow Exchange by 8%. Alfa Bank analysts Boris Krasnozhenov and Elizaveta Degtyareva write in a commentary on the deal that the chosen option for minority shareholders does not look particularly attractive, since the company does not intend to pay dividends based on the results of the transaction for the sale of Russian assets.

Moreover, the head of Polymetal, Vitaly Nesis, said during a teleconference that the company would postpone the decision on paying dividends for 2023, and could also, in principle, change its policy in favor of smaller payments. “If the old Polymetal was a company that was known for its stable dividend, then the new Polymetal will probably not be able to boast of a good yield for some time. We will need to actively invest in growth, and dividends will definitely fade into the background,” he said (quoted by Reuters).

Also, analysts note, there is no complete clarity around the timing and procedure for exchanging Russian shares of Polymetal on the Moscow Exchange for shares in Kazakhstan.

Currently, Russian shares of Polymetal are trading at a significant premium to securities in Kazakhstan. At the same time, Polymetal historically had a very high volume of free-float – more than 75%, and the largest shareholder after the exit of the ICT group was Alexander Nesis became Mercury Investments International (MII LLC) is a structure of the state investment fund of Oman.

Back in 2022, Mangazeya announced ambitious plans to become one of the five largest Russian gold producers. In 2022, Mangazeya’s production amounted to 3.2 tons of gold, says Sergei Kashuba, head of the Union of Gold Miners of Russia. Production of the acquired Russian assets of Polymetal was 38 tons.

“Mangazeya operates in the Trans-Baikal Territory with total gold resources of 282 tons. It is developing gradually, but at a serious annual pace. As far as I know, the company has been eyeing refractory ores for a long time. The management team of Polymetal, as well as the Amur MMC and, in the future, AGMK-2, allow it to gain a foothold in this market,” notes Mr. Kashuba. He clarified that, in accordance with the agreements, Polymetal will continue to process concentrate from the Kyzyl deposit in Kazakhstan at the AGMK, which, together with the Polymetal and Mangazeya deposits in Russia, “allows us to talk about high prospects for the AGMK’s utilization.”

Evgeniy Zainullin