Polymetal International, a leading precious metals producer, has inked a pivotal agreement to offload its Russian assets to Mangazeya Plus, a subsidiary of Mangazeya Mining owned by businessman Sergey Yanchukov, for an estimated $3.69 billion. This strategic divestiture, propelled by the geopolitical tensions stemming from Russia's military actions in Ukraine, marks a significant reshaping of Polymetal's operational footprint. The deal, which encompasses approximately $2.21 billion in net debt of the Russian operations, is a direct response to the complexities introduced by U.S. sanctions imposed in 2023.
Vitaly Nesis, CEO of Polymetal International, emphasized the critical nature of this transaction amidst the deteriorating external environment, highlighting the untenable position of maintaining business as usual in Russia. "The current situation is unsustainable even in the short run," Nesis remarked, underscoring the urgency of adapting to the new, challenging realities faced by the company.
Polymetal, once valued at over $10 billion in 2021, has witnessed a significant erosion in its market capitalization following the onset of the conflict in Ukraine and subsequent sanctions. The transaction with Mangazeya Plus represents a pragmatic approach to navigating these adverse conditions, albeit at a considerable discount. Analysts from Tinkoff Investments pointed out the deal's valuation at an EV/EBITDA multiple of 2.5 times, starkly contrasting with the historical average of around 8 times and current multiples of Russian peers.
The acquisition by Mangazeya Plus emerged as the most viable among several proposals, with Nesis highlighting the buyer's understanding of Polymetal's urgency and the need to eliminate key vulnerabilities. Mangazeya Mining, with a track record of operations in eastern Siberia and a gold production tally of 466,000 ounces last year, is poised to integrate Polymetal's assets, which contributed to 1.23 million gold equivalent ounces in Russia alone.
The transaction is structured to include $1.48 billion in cash, bolstered by dividends from the Russian business and an additional $50 million, aligning with the company's compliance with all applicable sanctions. Payments are to be made in roubles, reflecting the transaction's adherence to the regulatory landscape.
Looking ahead, Polymetal International plans to channel a portion of the post-tax proceeds towards the development of the Ertis POX project in Kazakhstan, aiming to bolster its production capacity. Nesis revealed ambitions to re-enter the London Stock Exchange, contingent on scaling the company's production to 1 million gold equivalent ounces over the next three years.
This transaction underscores Polymetal International's strategic pivot in response to geopolitical pressures, balancing the need to preserve shareholder value with the imperative to mitigate the risks associated with its Russian operations. As the company embarks on this new chapter, its focus on growth and adaptation to the evolving global landscape will be critical in navigating the complexities of the precious metals market.
