Buy something that is bad

Gold miners are planning to expand using underperforming assets

Polymetal decided to take over the ineffective assets of the Russian and Kazakh gold mining industries, and then, possibly, other regions. Yesterday, on the sidelines of the Minex conference dedicated to the problems of the mining industry, the head of the Polymetal-UK company (manages the assets of Polymetal) Vitaly Nesis announced to reporters that one of the forms of expansion the company had chosen was the purchase of “inefficiently managed assets”, but did not specify what it was for assets. Once the bulk of the interesting deposits have already been allocated, such an aggressive strategy could be a viable option for companies looking to expand.

Mr Nesis says Polymetal is looking at poorly managed assets in Russia, Kazakhstan and Kyrgyzstan. “These companies can be bought inexpensively, and then more money can be spent on development,” he noted. Polymetal has already begun negotiations with two companies in Kazakhstan, which may be absorbed in the future. A “non-disclosure agreement” has already been signed with one of them, thanks to which Polymetal experts will have access to internal information about the company. Mr. Nesis says that after studying the presented data and analyzing it, he will decide on the advisability of the purchase.

In Russia, he said, “there are also companies that manage their assets ineffectively,” and Polymetal could acquire them. “The deposits recently purchased by Norilsk Nickel from ALROSA are just like this,” Mr. Nesis said. “As a Russian citizen, I’m actually glad that Norilsk Nickel came there; this company is capable of effectively developing these deposits - it has both the experience and financial capabilities for this.”

An aggressive policy of buying up “poorly located” small companies with larger, stronger and more efficient ones may well become a real trend in the Russian gold mining industry. Analysts have long been saying that further consolidation will occur in this area. And, most likely, large companies will still compete among themselves for such “ineffective” assets.

Anna LANDER