Russia expected to sell Klondike gold deposit cheap amid sanctions - sources
23/01/2017 12:40
* Soviet estimate of Sukhoi Log's reserves 62.5 mln oz of
gold
* Auction to be held on Jan 26, starting price - $145 mln
* Foreign investors are not allowed to take control
* JV led by Russia's top gold miner seen as front-runner
By Polina Devitt
MOSCOW, Jan 23 (Reuters) - Russia is expected to sell
discounted rights to one of the world's largest untapped gold
deposits this week to a joint venture of miner Polyus PLZL.MM
and a state conglomerate, industry sources and analysts said,
after sanctions and restrictions discouraged other bidders.
The starting price in the Jan. 26 auction of the Sukhoi Log
deposit is $145 million, valuing gold there at $2 per ounce,
around 10 times cheaper than deposits of a similar size
elsewhere in the world, according to one analyst.
The Russian government, after 20 years of promises to sell
the deposit, hopes the start of production will generate
much-needed tax revenues and jobs.
Moscow has also come under pressure from a two-year lobbying
campaign by shareholders in the joint venture of Polyus and
state-run Rostec, according to an industry source, who spoke on
condition of anonymity.
Rostec is headed by Sergei Chemezov, a close associate of
Russian President Vladimir Putin.
As part of a policy of keeping strategic resources in
Russian hands, the government limited access of foreign
investors to the auction, ordering that 25 percent of any bidder
should be owned by state-controlled firms.
Western sanctions over Russia's involvement in the conflict
in Ukraine has also made it harder for Russian companies to get
access to foreign debt markets, thinning out potential bidders.
Only two bids, from SL Zoloto - the joint venture between
Polyus and Rostec - and Zoloto Bodaibo - a joint venture between
Polyus creditor VTB Bank VTBR.MM and businessman Ibragim
Palankoyev - were submitted to the auction. urn:newsml:reuters.com:*:nL8N1DX0J6
Polyus is owned by the family of Russian billionaire
Suleiman Kerimov.
"Polyus is the front-runner because it is able to cope with
the project in terms of financial resources," said Oleg
Petropavlovskiy at BCS Investment Bank. "Having a state partner
allows it to split risks and to reckon on state support with
infrastructure building."
Palankoyev's relatives have done business with Kerimov in
previous years, Vedomosti newspaper reported in December. He has
no known background in mining and has never held significant
mining assets. The auction would be declared void if there was
only one bidder.
The sale of Sukhoi Log is unlikely to affect gold markets
because the start of production is still years away.
Adding Sukhoi Log to Polyus's portfolio could make it more
attractive for deals long under consideration. These include a
secondary public offering in Moscow and talks with Chinese
investors, which, sources have said, are considering an
acquisition of a stake in Polyus. urn:newsml:reuters.com:*:nL8N1CK4OS urn:newsml:reuters.com:*:nL4N1D41CN
"It (Sukhoi Log) brings a saleable story," another senior
industry source said.
Polyus declined to comment.
The auction will start at a price of 8.6 billion roubles
($144 million) for the deposit, which, according to Soviet-era
research, contains 1,943 tonnes (62.5 million troy ounces) of
gold in its reserves.
Deposits of a similar size elsewhere in the world are 10
times more expensive, said Nikolay Sosnovskiy at Prosperity
Capital Management said.
However, the real value of the deposit is hard to estimate
because its reserves, based on Soviet research done in the 1960s
when it was discovered, require further exploration.
Sukhoi Log will require up to $5 billion in investments,
according to industry estimates based on a 10-year-old state
feasibility study.
($1 = 59.5505 roubles)
(Reporting by Polina Devitt; additional reporting by Diana
Asonova; editing by Susan Thomas)
((Polina.Devitt@thomsonreuters.com; +7 495 775 12 42; Reuters
Messaging: polina.devitt.reuters.com@reuters.net))
Keywords: RUSSIA SUKHOILOG/