Highland Gold will buy gold mines in Russia from Canadian Kinross

Highland Gold Vladislav Sviblov has agreed to buy Russian gold mining assets from the Canadian company Kinross Gold, both sides said in a deal on April 5. The purchase will amount to $ 680 million. The deal includes the Kupol and Dvoynoye mines in Chukotka, the Chulbatkan project in the Khabarovsk Krai, a number of areas for geological exploration and production infrastructure facilities.

Kinross Gold says it will receive $ 400 million for the Dome and licenses for nearby areas and $ 280 million for Chulbatkan. Highland Gold explains that the calculations assume a one-time payment of less than 15% of the total price and installments until the end of 2027, “provided with the necessary guarantee package.” The deal will take place without attracting bank financing, the company said. All payments under the agreement will be made in dollars, adds Kinross Gold.

Closing the deal will require the approval of a government commission to monitor foreign investment. Anton Imennov, managing partner of the Moscow office of the Pen & Paper Bar Association, explained that the deal could lead to regulatory problems, as the withdrawal of non-residents from “unfriendly” countries (Canada joined the last sanctions campaign against Russia and became one of the unfriendly countries). – “Vedomosti”) and persons under their control requires the approval of the government commission on foreign investment. Vedomosti sent a request to the FAS and the Ministry of Industry and Trade.

Sviblov, CEO and main owner of Highland Gold, whose words are quoted in the release, noted that the largest industrial clusters of his company are located in the same regions as the acquired assets – in Khabarovsk Krai and Chukotka. Which creates, according to the businessman, “opportunities for production, logistics and management synergies.”

On March 3, amid Russia’s special military operation in Ukraine and subsequent anti-Russian sanctions by the EU, Britain, the United States, Canada and other countries, Kinross Gold said it was suspending work on Chulbatkan and Kupala. But on March 5, the company clarified that it will ensure the operation of production facilities on a regular basis.

In late March, Kinross said she had received several offers to sell Russian business and was “in exclusive talks with an unaffiliated, non-sanctioned mining company.” At the time, Russia’s largest gold miners, Polyus, Polymetal, and Petropavlovsk, denied Vedomosti an interest in Kinross Gold’s assets, and Highland Gold declined to comment.

Kinross Gold has been operating in Russia since 1995, being the largest foreign investor in the country’s gold mining industry. The company, through its subsidiaries Chukotka Mining and Geological Company and Northern Gold, owns Dome and Double. In January 2020, Kinross acquired a license for the Chulbatkan field, where it conducted geological exploration through its “daughter” Udinsk Gold.

According to the Union of Gold Miners of Russia, in 2021 Kinross Gold produced 14.96 tons of gold (6% lower than in 2020). Last year, only Polyus (84.51 tons) and Polymetal (34.96 tons) had more production. According to the Kinross Gold report for 2021, the company’s Russian assets accounted for 23% of production – 481,000 ounces of gold equivalent of 2.08 million and 23% of revenue – $ 862.8 million of $ 3.73 billion.

Highland Gold operates in Khabarovsk, Transbaikalia and Kamchatka Krai, Chukotka, and also manages the construction of Lake GOK in Buryatia. Recently, Sviblov’s company has been actively consolidating the assets of Russian gold mining. In 2021, Highland Gold agreed to buy 100% of Kamchatka Gold (Amethyst and Baranyevskoye mines, Maletoyvayam project) from Viktor Vekselberg’s Renova and the group’s top managers. In September-December 2021, the perimeter of Highland Gold included the existing mine in Kamchatka “Asacha” and two companies in Transbaikalia – “Darasun” and “Darkhan”. In addition, the Highland Gold portfolio includes the Talatui project (Transbaikalia region) and several promising exploration areas. According to the company, the production of assets acquired by it in 2021 amounted to more than 5 tons of gold, and their resource base reached 200 tons.

According to the Union of Gold Miners of Russia, production of Highland Gold in 2021 amounted to 11.2 tons (30% more than a year earlier, 7th place in the country), production of “Gold of Kamchatka” – 3.58 tons, the mine “Asach “1.22 tons. Thus, the purchase of Kinross Gold assets can increase production of Highland Gold by 2.3 times to more than 26 tons per year, and taking into account the consolidation of other assets, production will grow to 31 tons per year.

According to public information on the reserves and quotations of gold mining companies, Kinross’s assets in Russia can be estimated at $ 700-800 million, says the managing director of the NRA rating service Sergei Grishunin, so Highland Gold buys assets at a discount to potential value. Earlier, analysts at Finama and BCS World of Investment estimated the value of Russia’s Kinross assets even higher at $ 1.5-2 billion (based on investment, production level and gold prices). Finama analyst Alexei Kalachev explained that a lower valuation of assets may take into account the return on investment. If we proceed from the annual production of Kinross in Russia and the value of public companies “Polyus” and “Polymetal”, the transaction price is understated, the analyst said, if we compare it with the value of Petropavlovsk, the price is significantly higher than the market. “Overall, this is a good selling price for Kinross in this situation, although there is a certain discount,” he added.

For Highland Gold, this deal is an opportunity to buy ready-made assets near the company’s fields, Kalachev continues. The company should have no problems with the sale of products, given that the Central Bank has resumed the purchase of gold, he added.

The deal will allow Highland Gold to increase gold reserves and gain access to existing assets, Grishunin agrees. At current costs and gold prices, Kinross assets could add $ 300-450 million in EBITDA to Highland Gold, the expert estimated. At the same time, according to him, the payment structure actually shifts the risks of dollar depreciation to the seller. The buyer receives gold, which is traditionally a protective asset against inflation, adds Grishunin.

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