Translated material
Precious Exchange
For two deposits, Lev Leviev will receive about 3% of Polymetal shares
Polymetal, Russia's largest silver producer, may have a new shareholder - businessman Lev Leviev. His companies will sell to Polymetal 100% of the shares of Rudnik Kvartseviy LLC, which owns the license for the Sopka Kvartsevaya deposit, as well as 100% of Vneshstroygroup LLC, which owns the license for the Dalny gold and silver deposit. The deal will not be made in cash, but in exchange for Polymetal shares. To do this, Polymetal will issue an additional issue of 10 million shares with a par value of 0.02 rubles, and since the company's authorized capital is 315 million ordinary shares, Mr. Leviev's share should be about 3%.The market reacted positively to this news: Polymetal shares rose by 1.05% in yesterday's trading on the MICEX and by 2.92% on the LSE. And this is no coincidence; according to experts, Polymetal will get the deposits very cheaply. The deal is scheduled to close in the third quarter, but it still must be approved by the Federal Antimonopoly Service. As stated in the Polymetal statement, the consent of shareholders will also be required for an additional issue of shares. Polymetal CEO Vitaly Nesis said: “The acquisition of Sopka and Dalniy is a unique opportunity to prove the correctness of our vision for the development of Kubaka and gain significant synergy by avoiding capital costs for the construction of a separate factory. The transaction fully meets the company's acquisition criteria, will generate cash flow within 18 months and strengthens our strategic position in one of our key regions of activity.”
The decision to acquire the deposits was made by the Polymetal board of directors on April 7. At the same time, the company intends to begin mining operations at the deposit; in the first quarter of 2010, it is planned to calculate reserves according to JORC standards, as well as develop a detailed development plan for the assets from which the Kubaka plant is planned to be loaded with ore (Birkachan, Oroch, Sopka, "Further"). Commissioning of the plant is scheduled for the third quarter of 2010, and starting from 2011, it is expected to produce more than 100 thousand ounces of gold equivalent from ore mined at Sopka Kvartsevaya. The identified resources of this deposit according to JORC as of 2007 amounted to 1.7 million tons of ore (12.9 million ounces of silver and 562 thousand ounces of gold), estimated - 11.7 million tons (14.2 million ounces of silver and 432 thousand ounces of gold). The resources of the Dalniy deposit, according to Russian standards, are equal to 802 million tons of ore in categories C1+C2, gold resources - 152 thousand ounces, silver - 3.9 million ounces.
Pioglobal Asset Management analyst Evgeniy Ryabkov notes that the current market price of a 3% stake in Polymetal is about $65 million. “The purchase cost the company for Sopka Kvartsevaya $92 per ounce of recorded balance reserves of gold and 3. 2 dollars per ounce of silver, the expert calculated. — In general, Polymetal got the deposit relatively cheaply. It is very profitable for the company to have this deposit, because it is possible not to build a factory, but to transport ore to Dukat, which is located nearby.”
There are advantages to the deal for Mr. Leviev as well. “The debt of his group at the end of 2008 is about $300 million, and the fields need to be developed. Therefore, the most correct option is the sale of such non-core assets,” Mr. Ryabkov concluded.
Management Company "Polymetal" owns 24 licenses for deposits of precious metals and exploration areas. The company ranks first in Russia in silver mining, third in gold mining, and is also the fifth global silver producer. In 2008, Polymetal increased gold production by 17%, to 285 thousand ounces, and silver production by 8%, to 17.2 million ounces. The company's revenue at the end of last year increased by 62%, to $500 million. The company's main shareholders are the Czech PPF Group NV, the ICT group of companies and the structures of Alexander Mamut.
Lev Leviev's main business is development and diamonds. His group includes more than ten cutting factories in Russia, India, China, South Africa, Armenia and Ukraine. In addition, Leviev Group has a joint jewelry brand with the Italian Bvlgari and a joint venture with the H.Stern company to manage a chain of jewelry stores in Russia and the CIS. Leviev Group also owns licenses to develop the Karalveem gold deposit in Chukotka.