“The idea is to consolidate the fragmented gold sector in Central Asia,” says Artem Volynets, the man tasked with directing the M&A strategy of Chaarat Gold Holdings Ltd.
He’s fairly new on to the board of Chaarat, appointed earlier this year, and the latest arrival in the clean sweep that’s been initiated by chairman Martin Andersson.
Over the past year or so, change at the top has seen the appointment of Rob Benbow as chief executive officer, of Dusty Nicol as non-executive director with a brief for exploration, of Peter Carter as chief operating officer and Pete Gardner as chief financial officer.
Volynet’s arrival as chief deal-maker completes the set, and it hasn’t taken him long to make his first move.
In April,Chaarat tabled an unsolicited offer for the Kumtor gold mine, a major producer in Kyrgyzstan owned by Centerra Gold.
Centerra didn’t exactly rush to engage with Chaarat once the offer was announced, but that may not be the deciding factor.
Much more important is the attitude of the authorities in Kyrgyzstan, and here Volynets and Chaarat bring something extra to the table.
The plan isn’t just to get hold of Kumtor and its large cashflows. The plan also involves reinvesting those cashflows into the Kyrgyzstan gold mining sector to acquire and build new mines. That type of inward investment for a country that isn’t overflowing with foreign capital has major attractions to legislators, and may trump any resistance that Centerra cares to put up.
It’s noteworthy, for example, that a Kyrgyz investment forum to be held in London next week is to be jointly hosted by the Kyrgyz embassy and Chaarat.
Why is Volynets confident that Chaarat, capitalised at around £90mln in London, can effect the takeover of the flagship asset of a C$2bn Canadian company
The answer lies in his background as a financier working for, amongst others, Rusal.
“I’ve done a number of big transactions,” he says.
“I’ve closed US$30bn worth of deals. I was head of strategy at Rusal when we listed it on the Hong Kong stock exchange. I established key relationships while I was working for these large companies we borrowed maybe US$18bn from banks.”
This is not your standard modus operandi for the director of a junior mining company, and clearly to speaks to where Chaarat is going rather than where it’s been.
No wonder Pete Gardner, widely recognised as one of the leading up and comers in the UK mining sector, was so quick to jump on board. Before Andersson had completed his board restructuring Gardner’s move looked slightly odd. Now, it makes complete sense.
Chaarat is no longer focused on convincing investors it can make a go of the Tulkubash project, often cited as being in difficult terrain. Rob Benbow put paid to those doubts with a simple comparison to British Columbia, which is also mountainous and also plays host to several major gold mines.
With this new board of directors the challenges of Tulkubash look much more manageable.
But Volynets’ play for Kumtor in any case transforms the outlook for Chaarat. Tulkubash still looks good, but next to Kumtor it will definitely be playing second fiddle. And Volynets doesn’t plan to stop with the acquisition of Kumtor either. He plans a string of deals right across central Asia.
“The sector is very large, probably the second largest in regional terms.”
Even so, no major gold miner is, yet, centred in Central Asia. Even the Russian challengers are second rank.
“Polyus production is 1.8mln ounces,” says Volynets. “Polymetal is 1.4mln ounces. Compared to the western giants these are mid-sized.”
So there’s an opportunity to create something significant, and at a decent price. The thirty or so smaller companies and projects that are in the region are all making money, as Volynets explains.
“They have their sales in dollars and their costs in local currencies,” he says.
“But most are priced on equity markets at a discount because of the perceived political risk. The idea is to use this window of opportunity, because there are a lot of assets around and not many buyers.”
Kumtor is the first move. It won’t be the last.
“We have a thick deal pipeline,” says Volynets. “Kumtor is just one that became public. There are plenty of other assets in the pipeline.”