Polymetal to control Veduga asset through VTB Bank deal

Polymetal announced on Friday that VTB Bank - one of Russia's largest banks - was investing $71m for a 40.6% stake in Veduga, a gold deposit in the Krasnoyarsk region.

The FTSE 100 company said it would retain 59.4% ownership, and had been granted a call option to acquire VTB's stake in the future.

It explained that VTB would initially acquire a 25.7% stake in Amikan - the owner of the Veduga gold project - from the existing minority shareholders for cash consideration of $36m.

The implied Amikan equity transaction value was $140m.

VTB would then invest a further $35m in cash in exchange for newly-issued Amikan share capital, resulting in VTB holding a 40.6% stake in the asset.

Those cash-in proceeds would be used to fund the project's ongoing exploration and development costs.

VTB had been granted a put option to sell its stake in Amikan to Polymetal during the two-year option window between the third and fifth anniversaries following signing, at a fixed implied rate of return, with a customary cap in place.

Polymetal said it had been granted a call option to acquire VTB's stake in Amikan any time during the four years and nine months following signing, at a fixed implied rate of return for VTB, with both the put and call options to be settled in Polymetal shares.

Completion of the transaction was expected before the end of April, but in any event no later than 13 October, the Polymetal board said.

Upon completion, Polymetal's stake in Amikan would amount to 59.4%, with the company maintaining full operational control over the asset.

Looking at the strategic rationale for the transaction, Polymetal said that, following more than a two-fold reserve increase at Veduga in 2019, it had re-assessed the asset as core and discontinued the formal divestiture process.

The transaction would bring “significant” advantages for the group, it said, explaining that the buyout of minority shareholders would enable further development of the asset, with a streamlined decision-making process and full shareholder alignment.

It also described the valuation as “attractive” at $56 per ounce of gold reserves, which compared favorably with the current valuation of Polymetal at $412 per ounce of gold equivalent reserves.

The transaction would also decrease leverage, and make funds for further exploration and project development available.

It would also have “limited” value dilution compared to conventional equity financing, Polymetal said, due to the capped rate of return for the financial partner.

“This deal hands Polymetal full operational control of the asset and unlocks further project development,” said group chief executive officer Vitaly Nesis.

“The creative transaction structure allows us to benefit from the financial strength of VTB without straining our own balance sheet.

“Crucially, Polymetal now has a clear path to 100% ownership.”

Dmitry Snesar, head of client coverage and senior vice-president of VTB, said the bank had a long-standing partnership with Polymetal.

“We are fully committed to developing an innovative financing and advisory offering which will allow Polymetal to advance its long-term strategy.

“We believe that this arrangement will enable the fast tracking of the Veduga development, which is beneficial for both shareholders and the region.”

At 1202 BST, shares in Polymetal International were down 0.81% at 1,535p.