Chinese conglomerate makes its first investment in the country.
A consortium led by Fosun has agreed to acquire up to 15 per cent of Polyus, Russia’s largest gold producer, in the first big Chinese investment in the country’s sprawling mining industry.
Polyus earlier this year won control of a gold deposit thought to be one of the world’s largest. It has long been a target of the $13.3bn Shanghai-based conglomerate with interests from mining to tourism.
Fosun and two subsidiaries, Hainan Mining and Zhaojin Mining, will pay $890m for an initial 10 per cent stake in the company. The $70.60 share price represents a substantial discount to Wednesday’s closing price of Rbs4445 ($78.30). The deal also includes a one-year option to buy an additional 5 per cent stake for $490m.
The sale agreement follows more than a year of negotiations that nearly collapsed when Polyus’s board twice sought better terms to reflect the company’s improved business forecasts, two people briefed on the talks told the Financial Times.
Fosun, led by billionaire Guo Guangchang, owns the Club Med holiday chain and the Cirque du Soleil entertainment business. Its investment in Polyus will be its first purchase in Russia.
Polyus in January won an auction for the giant Sukhoi Log gold deposit in the Irkutsk region of Russia. Discovered in 1961, the deposit contains 62.4m ounces of gold with an estimated grade of 2 to 2.45 grams a tonne, according to analysts at Berenberg in London.
That success, as well as increased gold output at Polyus’s existing mines, prompted the company’s owner Said Kerimov to alter his plan of selling 25 per cent of the group plus one share to the Chinese group.
China is the world’s largest producer and consumer of gold. Polyus hopes to produce 2.7m ounces of gold by 2020, up from 1.97m ounces produced in 2016.
“This deal could facilitate further access to investors in Asia,” said Polyus chief financial officer Mikhail Stiskin. “That is a significant factor.”
Pavel Grachev, Polyus’s general director, said the “mutually acceptable deal” was in line with the company’s desire to diversify its shareholder base.
If the full 15 per cent purchase option is activated, Mr Kerimov’s stake will fall to 76.7 per cent, with a 6.8 per cent free float.
Moscow-listed Polyus delisted from the London Stock Exchange in 2015 at a time when Russia was encouraging its companies to return home following a deterioration in relations with the west over the conflict in Ukraine.
But the company, which raised $800m in a Eurobond in January, is close to finalising details of a secondary listing, which would increase its free float to 10 per cent of the company’s stock.
Under the deal, Fosun will nominate two directors to the company’s board, which will increase from nine to eleven members, with three independent directors.
In an attached deal the Russian Direct Investment Fund bought 0.28 per cent of Polyus on the same terms as Fosun.
In a statement announcing the deal, Polyus said the company would pay semi-annual dividends for 2017-21 worth 30 per cent of full-year earnings before interest, depreciation, taxation and amortisation, or $550m in 2017-19 and $650m in 2020 and 2021, whichever is greater.