Polymetal International (POLY.L), the Russian senior gold producer, is now in a position to start the construction activities on its Nezhda mine by the end of this quarter as it has now completed the deal wherein it acquired full ownership of the project. The company had to acquire a final 82.3% stake from companies controlled/owned by Ivan Kulakov.
This didn’t come cheap, as an initial 7% was acquired for US$8M in cash, while the remaining 75.3% stake was purchased for a total amount of US$144M, of which US$10M was a cash payment while the remaining $134M was settled by issuing almost 13.5M new shares. This brings the total acquisition cost for acquiring 100% of Nezhda to US$185M, which represents a price of $42 per gold-equivalent ounce in the reserves and US$15 per gold-equivalent ounce in the resources.
The All-In Sustaining costs are expected to be around $700-750 per ounce of gold-equivalent during the open pit phase, increasing to $800-850/oz during the underground mining phase. The after-tax Internal Rate of Return was estimated at 29%, but this is due to Polymetal using a relatively low gold price ($1200/oz) and the relatively long construction period of 2.5-3 years. Keep in mind this is an asset with a total resource containing 12.4 million ounces at an average grade of 4.5 g/t gold-equivalent.
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The author has no position in Polymetal. Please read the disclaimer
