Gold miner Polymetal lines up buyers for its Russian assets

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Polymetal, until recently one of the world’s most profitable gold miners, aims to sell its Russian business within the next six months, with a list of Russian miners and Chinese investors among the potential buyers. 

The plan follows the miner’s relocation of its domicile from Jersey to Kazakhstan this month as it looks to carve out its Russian business despite Moscow’s onerous exit restrictions and western sanctions. 

Vitaly Nesis, chief executive of Polymetal, said in an interview with the Financial Times that while a discount on the sale of its Russian assets would be “inevitable”, it would not be “catastrophic”.

“If we had remained in Jersey, the risks of losing the Russian business’ value would have been exceptionally high. And now I am optimistic that Polymetal International will be able to reap significant benefits from its sale,” he said.

If successful, Polymetal’s sale of its Russian assets will be a rare example of successful corporate manoeuvring under new regulations of asset sales from the Kremlin and western sanctions.

The gold miner, which has mining operations in Russia and Kazakhstan, is incorporated in Cyprus, but is owned by a holding entity that has now switched its domicile from Jersey in the UK’s Channel Islands to Kazakhstan, a country categorised by Moscow as “friendly”.

After Russia’s invasion of Ukraine, Moscow banned the sale of Russian strategic assets including gold mines owned by “unfriendly” countries, which includes the US, the EU, the UK, and their offshore jurisdictions, such as Jersey. It has been implementing an ever-growing set of criteria that limit sales involving all entities of “unfriendly” origin.

Asset sales require government approval — which frequently depends on having personal connections with the Kremlin rather than formal criteria — and are restricted to a maximum value of half the assets’ worth. The seller must also make a “voluntary” contribution to the Russian budget. 

Polymetal does not believe that Moscow will seize its assets, as it did with Danone and Carlsberg, where its Russian operations were nationalised. Both companies were negotiating exit deals with potential buyers, but there are no precedents of the state taking assets away from the owners of “friendly” origin, said Nesis.

“I think such a step does not fit into the current approach of the Russian authorities,” he said. 

The group has eight gold and silver mines in Russia, and two in Kazakhstan, with the group producing 764,000 ounces of gold equivalent in the first half of 2023, up 3 per cent from the previous year. Its revenues for the first six months rose by 25 per cent to $1,3mn, on the back of a sales recovery in Russia and higher metal prices.

Although Russia accounts for just over three-quarters of Polymetal’s production volumes, the Kazakh unit contributed more than half of the group’s net profit and provided all of the cash flow in 2022, due to the US sanctions against the Russian company in May. 

Nesis aims to finalise the sale within the next six months, but acknowledged that obtaining approval from Russia’s Federal Antimonopoly Service — a standard prewar procedure for most deals of such scale — could potentially slow the process.

Among the bidders for the Russian unit are Russian and Chinese companies, mostly from the mining industry, said Nesis.

The group intends to use the proceeds from the sale in Russia to enhance its mining operations in Kazakhstan, where it has been listed since 2013 as the first foreign company traded on the Astana Stock Exchange (AIX).

According to Nesis, the long history of operating in Kazakhstan and a “clear business purpose” there made the redomicile possible for Polymetal, while for many other big companies, it is not a viable choice. 

The relocation to Kazakhstan allows Polymetal’s Russian unit to pay out dividends. Last May, Russia’s president Vladimir Putin signed a decree prohibiting Russian subsidiaries of companies from paying dividends to shareholders in “unfriendly” countries.

Polymetal shares on the London Stock Exchange, where it listed in 2011, dropped 80 per cent following the invasion. They have been suspended, and trading will not resume as the group plans to delist from the LSE by the end of August. 

The LSE shareholders will have either to sell their shares or open an account at AIX and transfer them to Kazakhstan, said Nesis.

“We made every effort to keep the LSE listing. But it required the active participation of financial services providers, primarily registrars, who declined to co-operate due to sanction-related risks,” he said, adding: “This has been a painful process, especially for shareholders in the retail sector, we acknowledge that.”