Polymetal International Plc is poised to exit the ranks of the world’s top 10 gold miners by output following the impending sale of its Russian business—a move triggered by U.S. sanctions imposed last year in response to the Ukraine invasion.
The gold miner has reached an agreement to offload its Russian unit, a venture cultivated over decades, to Russian firm Mangazeya Plus. Polymetal announced on Monday that the deal, valued at approximately $3.7 billion, is expected to conclude by the end of March. However, after accounting for third-party debt and intra-group arrangements, Polymetal anticipates receiving around $300 million in cash post-tax.
This transaction underscores the repercussions faced by international enterprises with Russian exposure in the wake of President Vladimir Putin’s directive to deploy troops to Ukraine nearly two years ago.
In response to the invasion, Polymetal relocated its domicile from Jersey to Kazakhstan to facilitate international payments, including dividends, from Russia, as Jersey was deemed an unfriendly jurisdiction by the Kremlin. Following the U.S. sanctions on its St. Petersburg-based unit in May 2023, Polymetal embarked on a quest to divest its assets, which constituted 70% of its revenue last year.
The sale was not without its challenges. Mangazeya Plus, a subsidiary of a Russian conglomerate with modest gold mining assets in Siberia and helmed by entrepreneur Sergey Yanchukov, emerged as the frontrunner. While initial interest was expressed, Mangazeya Plus became the leading bidder following sanctions targeting larger Russian gold miners late last year, as revealed by Polymetal’s CEO Vitaly Nesis in a recent interview.
Subject to shareholder approval, the transaction heralds a new phase for Polymetal, founded in 1998. It will leave the company with an annual output of approximately 500,000 ounces per year, positioning it as a mid-size producer by global standards. In contrast, the group produced 1.7 million ounces in gold equivalent in 2023, inclusive of the Russian unit.
Nesis emphasized that this output is insufficient for a publicly-traded gold miner and outlined the firm’s aspirations for future growth, including a mid-term target of at least one million ounces per year in gold equivalent, potentially branching out into copper and other metals.
The sale of the Russian unit garnered support from the Omani government-owned fund, which became a significant shareholder in Polymetal in January.
Payments under the deal will be denominated in rubles, with provisions including a nearly $1.43 billion pre-tax dividend to be paid by the Russian unit to the Kazakh company. Polymetal intends to allocate approximately $1.15 billion of this amount to settle intragroup debt and interest with the Russian company. Additionally, the transaction encompasses $2.2 billion of net debt retained by Polymetal Russia, while the buyer will remit $50 million in cash to the Kazakh company upon completion of the deal.
Polymetal will continue utilizing the Amursk POX processing facility in Russia to process gold concentrate until the establishment of its own plant in Kazakhstan, with ongoing communication with U.S. authorities to mitigate the risk of secondary sanctions, as stated in the company’s announcement.
While numerous multinational corporations publicly pledged to disengage from Russia following Putin’s military intervention in Ukraine, instances of major business owners divesting or selling their assets remain relatively scarce. Notable examples include Dutch-registered Yandex NV’s agreement to sell its Russian business for approximately $5.2 billion this month, alongside reports of major shareholders of GlobalTrans and Qiwi divesting their assets earlier this year.
