Polymetal secures $3.7bn deal to exit from Russian business
Anglo-Russian miner rushes to leave country to avoid nationalisation
Polymetal, until recently one of the world’s most profitable gold miners, has secured a buyer for its Russian business that values it at more than $3bn, in a deal the Anglo-Russian group claimed would protect it from nationalisation.
Polymetal shareholders will vote on the sale to Mangazeya Mining — a Russian precious metals producer based in eastern Siberia — at next month’s shareholders’ meeting, the company said on Monday. If approved, the deal is expected to close as soon as March.
The terms highlight the increasingly challenging conditions for foreign companies trying to leave the Russian market with a decent valuation. Companies must find a buyer that does not violate western sanctions and must secure approval from Moscow.
“Some shareholders might say that financially the terms are not the best we could get — and I would agree,” Vitaly Nesis, Polymetal’s chief executive, said in an interview with the Financial Times. “But now it is more important to complete a satisfactory deal quickly than to continue striving for a good deal. It’s the question of uncontrollable risks of catastrophic nature.”
These include a “material risk of nationalisation or other form of property expropriation” by the Russian government and negative effects on Polymetal’s business in Kazakhstan, the company said in its statement.
Nesis, who only six months ago declared that he did not believe in the possibility of his company being nationalised, said he now believed this was very likely. “It’s not specific to us. It’s the general environment.”
Polymetal, until recently listed on the London Stock Exchange, has eight gold and silver mines in Russia and two in Kazakhstan, which account for about 40 per cent of the group’s earnings before tax and provide all of its cash flow. In the year ended June 30, the group produced 1,714 ounces of gold-equivalent and generated more than $3bn in revenues, an 8 per cent year-on-year rise.
The transaction values Polymetal’s Russian business at about $3.69bn, 5.3 times its earnings before interest, tax, depreciation and amortisation for 2023, the group said on Monday.
The deal is largely structured as a non-cash transaction, with the Russian unit paying a $1.4bn dividend to Polymetal while also retaining about $2.2bn of net debt.
The structure would avoid sanctions risks arising from the buyer’s need to attract external financing, since Russia is cut off from western capital markets and its own major lenders are subject to restrictions, said Nesis. Withdrawing so much cash from Russia would also be a challenge.
Nesis acknowledged that the “universe of potential buyers was limited” from the start because the company wanted to comply with sanctions, and the pool kept shrinking as the US and UK imposed new restrictions.
“There wasn’t much competition,” he said. “We probably had three or four offers, only one of which was actionable.”
Mangazeya is one of Russia’s 20 largest gold miners with four deposits in Siberia’s Zabaykalye region. It is owned by Sergey Yanchukov, a former oil trader who started his career in Ukraine’s Odesa region and has since worked with several Ukrainian and Russian oligarchs, including Vladimir Potanin of Norilsk Nickel.
According to Nesis, the choice of Mangazeya Mining was primarily dictated by Polymetal’s desire to fully comply with sanctions and its ability to complete the deal quickly without attracting attention.
The deal comes as multiple companies seeking to exit Russia have given up. The upcoming Russian presidential election, scheduled for March 15-17, has complicated matters further with turnover in some senior government personnel expected, including members of the government subcommission that approves corporate exits.
One person working on multiple exit deals said he knew at least two western companies that had recently decided to abandon planned exits altogether and remain.
Any exit involving a country deemed “unfriendly” by Russia — such as the US, UK or those in the EU — needs approval. This has in the past often depended on personal connections with government ministries and officials, while Moscow has also mandated a 50 per cent discount on assets. The seller must also make a contribution to Russia’s budget.
“You’re getting yourself in a mess,” the person involved in exits said. “You’re getting less money. Even if you ended up agreeing to less money at the beginning of the process, the end amount could be significantly lower.”