Chinese investors will not be able to start massive expansion in the Russian gold mining industry at least this year, due to a recent decision of the board of Polyus Gold, one of Russia’s largest gold miners, not to sell a blocking stake in the company to the consortium of Chinese investors, led by Fosun Group.
The consortium, which is comprised of Fosun Group, Zhaojin Mining and Hainan Mining, will be able to acquire only 15% in Polyus Gold, not 25%, as was initially planned by the investors.
Total amount of the deal is estimated at US$1.4 billion. The agreement will allow the consortium to get two seats on the board of Polyus Gold.
The decision of Polyus board has come across as an unpleasant surprise for Fosun and its partners, which hoped to get a partial control over Polyus Gold, (the company, which currently is in the list of enterprises, which have strategic importance for Russian economy, since it develops subsoils of federal significance and operates gold reserves of 64.3 million ounces) and, more importantly, to directly participate in the development of Sukhoi Log, Russia’s largest gold field, located in the Irkutsk region, which has the existing reserves of about 100 million gold ounces. The development of the field was granted to SL Gold, a joint venture of Polyus Gold and the Russian state corporation Rostec, on January of the current year, as a result of an auction.
One of the possible reasons behind the decision of Polyus board not to sell a blocking stake in the company is the ever growing Chinese expansion into the Russian mining industry, as well as an example of neighbouring Kazakhtstan, where for the last 20-25 years Chinese investors have been able to buy up all the country’s largest mining assets.
At present, in accordance with the Russian legislation, private foreign companies can get 25% of shares or higher in strategic companies of the Russian Federation only with the approval of the state commission on foreign investments.
At the same time another reason for the failure of initially planned deal may be related with the position of Said Kerimov, the Russian billionaire and the main shareholder of the company, to not to sell the 25% of the company, due to the existing potential for increasing its value already in the short term.
Anyway, the agreement between the sides is expected to be signed already in the coming weeks.
After the deal, Polyus plans to conduct SPO on the London and Moscow stock exchanges, planning to sell upto 10% shares of the company.
The allocated funds will be primarily used to pay off loans, that were borrowed by the company for the purposes of its consolidation, completed at the end of 2015. At the end of the first quarter of the current year, net debt of the company was US$3.1 billion, the bulk of which accounted for loans, provided by Sberbank, Russia’s largest bank, which holds more than 50% of Polyus shares.