Polymetal to complete separation of Russian and Kazakh assets in 2024

The largest Russian silver producer and one of the leading gold miners Polymetal plans to re-register from the British island of Jersey to Kazakhstan in the third quarter of 2023, Vitaly Nesis, the company's executive director, announced on January 25. It is planned to carry out the division of the company into Russian and Kazakh in January-June 2024.

This should unlock the company's ability to take further corporate action, including the payment of dividends, he explained. Re-registration is planned in the financial hub of the Astana International Financial Center (AIFC).

Polymetal's assets are currently located in Russia and Kazakhstan. The island of Jersey, where the company is registered, was included in the list of jurisdictions unfriendly to Russia due to sanctions imposed after the start of the NWO in Ukraine. As a result, Russian enterprises cannot transfer dividends to the parent company, and the parent company itself cannot pay dividends to resident shareholders (EU sanctions also apply against the National Settlement Depository of the Russian Federation).

“The division is our way of isolating toxic assets from non-toxic assets,” Nesis says of the reasons for the division. “For the two jurisdictions, the structure of the investor base is objectively different – ​​for Kazakh assets, this is a traditional pool of investors with a center in London, and for Russian assets, an investor base with a center in Asia, in China.”

The top manager added that Polymetal's "strategic flexibility" and its free cash flow are also limited in the medium term. Therefore, according to him, the company would like to sell "some unwanted assets, while there is a good situation in terms of gold prices." Which ones, the representative of Polymetal refused to specify to Vedomosti. Gold prices broke through the psychological $2,000 an ounce mark in March 2022 amid investor panic after the start of the CBO, but dropped 22% in the following months to $1,620 in mid-October. Since then, the precious metal quotes have won back the fall, demonstrating an increase of 20%. On January 25, it traded at $1,940 an ounce, according to data from the New York Comex Exchange (part of the CME Group).

Polymetal first announced that it was “exploring the possibility of splitting the asset ownership structure depending on jurisdiction” at the end of March 2022. In July, Nesis said that Polymetal was considering three options for changing the structure of the group - the sale of Russian assets to a third party, a buyout of Russian assets by management and spin-off of Russian assets into a separate company.

On August 5, 2022, Russian President Vladimir Putin issued a decree that expressly prohibits the sale by non-residents from unfriendly countries of assets in a number of sectors, including the mining of gold, nickel and platinum group metals, without special permission from the head of state. Jersey was also included in the list of hostiles.

Later, Polymetal's deputy general director for finance, Maxim Nazimok, explained during a presentation to investors that Putin's decree effectively blocked a deal to sell Russian assets, which the company "initially considered as the main option." Polymetal said in September that it was considering Hong Kong, mainland China, the UAE or Kazakhstan for re-registration from Jersey and that without this, the division of assets into two independent companies would be impossible.

Now, in January-March 2023, it is planned to hold consultations with shareholders on the change of jurisdiction and finalize the details on moving to the Astana economic zone. In the second quarter, a general meeting of shareholders is planned to vote on the issue of changing the place of registration of the company and changing the exchange of its listing, these actions themselves are scheduled for the third quarter. And in October-December there will be consultations with shareholders and their meeting to vote on the division of assets. Approval of both re-registration and division of the company requires 75% of the votes. If all approvals are obtained, all Polymetal shareholders will receive shares in both the Kazakh and Russian legal entities.

“The most difficult and still unsolved problem is where to bargain after re-registration,” Nesis said. “Optimally, we want to keep the listing on all three stock exchanges – London, Moscow and Kazakhstan.”

As a result of the re-registration to Kazakhstan, Polymetal's securities will be initially listed on the AIFC Stock Exchange (AIX), and the company will be able to issue GDRs to continue trading on the London Stock Exchange. The company is also considering a new listing on an alternative site, then trading in its shares in London will be terminated.

Nesis does not rule out that a separate listing of Russian assets will also be held, for example, in China.

However, Polymetal will not be able to maintain the current premium listing of its ordinary shares on the London Stock Exchange after re-registration - guided by EU sanctions from the ninth package, the depository refused the gold miner in a premium listing through the issuance of new GDRs for a new Kazakhstani company.

“We view the company's re-registration in Kazakhstan as the most favorable development for minority shareholders. After the change of jurisdiction to Astana, all shareholders of the company, including those who own shares traded on the Moscow Exchange, will be able to receive dividends, ”says Dmitry Smolin, senior analyst for metallurgy and mining at Sinara investment bank. He added that Polymetal shares are trading on a 2023 EV/EBITDA of 4.5, or a 20% discount to Russia's largest gold miner, Polyus.

“Polymetal management emphasized that the London listing will be retained in any case, whether the listing is a question of share receipts for the current company headquartered in Kazakhstan or share receipts for a future company with assets only in Kazakhstan after the split in 2024,” – asks Boris Sinitsyn, Head of Resource Sector Analytics at Renaissance Capital.

According to the analyst, the situation creates risks primarily for shareholders in London, as the type of listing will change and not everyone will be able to continue to hold receipts instead of shares. Sinitsyn believes that the main risk in moving Polymetal's main listing to AIX is low liquidity.

At the same time, management believes that the Russian and Kazakh parts of the company have a different public history, therefore, despite the operational dependence of assets on each other, the company still does not leave plans to split into two public ones, he emphasizes.

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