On May 30, the largest Russian silver producer and one of the leading gold miners Polymetal will hold a meeting of shareholders on the issue of redomiciliation from the island of Jersey to the financial hub of the Astana International Financial Center (AIFC) in Kazakhstan. The company announced this on Wednesday, May 10.
In the future, the division of the company, which is mining in Russia and Kazakhstan, into two independent ones on a country basis is considered. The largest shareholders of Polymetal are Alexander Nesis with partners (through the ICT Group they own 23.9% of the shares). 75.2% of shares are in free float.
“We have done quite a difficult job trying to convince Kazakh partners to accept us,” Vitaly Nesis, the company’s chief executive officer, admitted on a webcast for investors on May 10. Kazakhstan understands the sanctions against Russia very well and local lawyers have carefully considered the potential sanctions in the event of Polymetal’s redomiciliation there, he explained.
As a result, one of the arguments in favor of re-registering the company in this country was the promise to build a hydrometallurgical plant there. “The political support we received from the highest levels of the Kazakh authorities was at least partly due to the fact that we promised to invest in Kazakhstan,” Nesis said.
In 2022, Polymetal reported that due to difficulties with the supply of equipment, it postponed indefinitely the implementation of the Pacific Hydrometallurgical Plant (AGMK-3) project near the Sovetskaya Gavan seaport in the Khabarovsk Territory, while the company is exploring the possibility of moving it to Kazakhstan. In a presentation to investors in January 2023, it was said that a decision on Kazakhstan was planned to be made in the second half of 2024 with a possible launch of the project in 2028. The investment amount is $730 million, the processing capacity is 250,000-300,000 tons of ore per year. On a May 10 webcast, Nesis spoke of the plant in Kazakhstan as an approved project. Polymetal mines gold at the Kyzyl, Varvarinskoye and Komarovskoye deposits in Kazakhstan.
Polymetal first announced that it was “exploring the possibility of separating the asset ownership structure depending on jurisdiction” at the end of March 2022. In July, Nesis said that Polymetal was considering three options for changing the structure of the group – the sale of Russian assets to a third party, the buyout of Russian assets by management and their separation into a separate company. The option of selling assets, which was considered by management as the main one, turned out to be impossible after the signing of a presidential decree in August 2022, which directly prohibits the sale by non-residents from unfriendly countries of assets in a number of sectors, including gold mining, without special permission from the head of state.
The island of Jersey was included in the list of jurisdictions unfriendly to Russia due to the sanctions imposed after the start of the NWO in Ukraine. As a result, Russian enterprises were unable to transfer dividends to the parent company, and the parent company itself was unable to pay dividends to resident shareholders (EU sanctions also apply against the National Settlement Depository of the Russian Federation).
In June 2022, the EU imposed sanctions against NSD. As a result, Polymetal shareholders who hold their shares there lost the opportunity to receive dividends and participate in corporate decision-making. Polymetal estimates the share of such shareholders at about 22% of the authorized capital.
As a result of the redomiciliation, Polymetal shares will not meet the fundamental requirements of trading on the London Stock Exchange (LSE), where they are currently traded. Therefore, after the completion of the process, it is planned to terminate the listing, after which the main listing of the company will be on the AIFC exchange – AIX, where its shares are already traded.
Polymetal will not be able to maintain the current premium listing of its ordinary shares on the LSE after re-registration – guided by the EU sanctions from the ninth package, the depository refused the gold miner a premium listing through the issuance of new GDRs for a new Kazakhstani company. “The risk of catastrophic counter-sanctions in Russia outweighs the possible inconvenience of a relatively hastily planned redomiciliation,” Nesis told investors and shareholders.
According to him, in the event of a successful redomiciliation, the probability of paying dividends over the horizon of one year is “material, but not more than 50%. However, the final decision will also depend on the company’s financial results for the first half of 2023, the ruble exchange rate and the price of gold, he concluded.
Polymetal’s Q1 2023 production was 345,000 GE oz, down 5% year-on-year. Revenue in January-March 2023 increased by 19% year-on-year to $733 million.
Lacking “reliable export channels and domestic sales opportunities,” the company accumulated large stocks of unsold bars last year. Polymetal announced this in June last year. At the end of Q1 2023, according to Nesis, the company’s bar inventory was about 100,000 GE ounces, and concentrate was about 120,000-130,000 GE ounces.
According to Nesis, the company now sells most of its bullion production in Russia to retail buyers, jewelers and investors. “Local discounts have decreased significantly – they were close to 10% six months ago, now discounts in Russia are mostly less than 1%,” Nesis explained.
Commenting on the export of gold concentrate to China, Nesis called it “perhaps the most urgent operational challenge that Polymetal’s management is currently addressing.” “The problem with the sale of concentrate now is that the Russian railway is full of coal, which is moving east,” he said.
According to Dmitry Smolin, senior analyst for metallurgy and mining at Sinara investment bank, the presented redomiciliation plan will lead to a positive revaluation of Polymetal shares by reducing sanctions risks and resuming dividend payments. The main risk, according to Smolin, is that there is a possibility of disapproval of the redomiciliation by the shareholders. As the analyst explains, some Western investors from the UK and the EU do not have the opportunity to own shares of Polymetal from Kazakhstan and may not support the planned move.
Boris Sinitsyn, head of the resource sectors analytics department at Renaissance Capital, notes that not all current shareholders, mainly on the LSE, can or want to change the Western financial infrastructure to the Kazakh one, but this will be required in any case after the parent company moves to Kazakhstan, he argues. In addition, after leaving the London Stock Exchange and re-domiciliation, the company will have such challenges as low share liquidity in Kazakhstan and the restoration of the rights of Russian shareholders who keep their Polymetal shares in NSD.