Polymetal Sells Its Russian Gold Business to Mangazeya in a $3.7 Billion Deal Worth $300 Million in Cash

Summary: Polymetal International has agreed to sell its entire Russian gold business to Mangazeya, the group of Sergei Yanchukov, in a transaction valued at $3.7 billion including external and intra-group debt. After taxes and settlements Polymetal will receive only about $300 million in cash, but it sheds $2.2 billion of net debt that stays with the Russian entity, cuts its sanctions exposure and refocuses on Kazakhstan.

The structure of the deal

The Russian business was valued at 3.6x forecast adjusted EBITDA of $1 billion for 2023. The buyer pays only $50 million of its own money. Before closing, Polymetal receives $1.419 billion of dividends from the Russian structure and simultaneously returns $1.15 billion of intra-group debt to it; the net debt of $2.2 billion remains on the Russian company's balance sheet. In total, together with the buyer's payment and after taxes, Polymetal gets about $300 million, which the board intends to direct to financing construction of the Irtysh hydrometallurgical complex in Kazakhstan and to improving group liquidity after the deal.

Why the discount was accepted

Management explained the necessity of the transaction by sanctions risks for the whole group after the Russian legal entity was included in the SDN list. The deal circular also cites an economic climate in Russia that encourages new laws and restrictions affecting the business, and notes the board's awareness of cases of nationalisation of Russian subsidiaries of large foreign companies. Polymetal keeps its listing on the Kazakhstan exchange AIX; whether the shares of JSC Polymetal (MOEX: POLY) continue to trade after the deal is unclear. After the announcement the stock fell 3.5% in Kazakhstan and 8% in Moscow.

Alfa-Bank analysts Boris Krasnojenov and Elizaveta Degtyareva wrote that the chosen option does not look particularly attractive for minority shareholders, since the company does not intend to pay a dividend from the sale. Chief executive Vitaly Nesis said on a call that Polymetal will defer the decision on the 2023 dividend and may in principle change its policy toward smaller payouts: the new Polymetal will need to invest actively in growth, and dividends will move to the background. Historically the group had a very high free float of more than 75%; after the exit of the IST group of Alexander Nesis, the largest shareholder became Mercury Investments International, a structure of Oman's sovereign investment fund.

What Mangazeya gets

Assets producing 38 tonnes of gold a year, against Mangazeya's own 3.2 tonnes in 2022, according to Sergei Kashuba, head of the Union of Gold Industrialists of Russia.
Access to refractory ore processing through the Amur hydrometallurgical complex (AGMK) and, in prospect, AGMK-2, together with Polymetal's management team.
A step toward the top-five target among Russian gold producers that Mangazeya announced in 2022; the group operates in the Transbaikal region with total gold resources of 282 tonnes.

Loading the Amur plant

Under the agreements, Polymetal will continue processing concentrate from its Kyzyl deposit in Kazakhstan at AGMK, which, combined with the Russian ores of both Polymetal and Mangazeya, gives the plant high loading prospects, Kashuba noted.

Contact

Solidcore Resources (formerly Polymetal International), Astana, Kazakhstan. Media and investor relations enquiries are handled through the corporate website https://solidcore-resources.com.