Wednesday, March 2 2016 19:32
Alexandr Avanesov

Polymetal International PLC buys Kapan gold mine in Armenia

Polymetal International PLC buys Kapan gold mine in Armenia

ArmInfo. Polymetal International plc, the largest producer of silven in Russia and one of the leading gold recovery companies has announced that it has entered into binding agreements with Dundee Precious Metals Inc for the acquisition of CJSC Dundee Precious Metals Kapan, the holding company for the Kapan Gold Mine in the Republic of Armenia for $25 million, according to the company's press-office.

The total consideration payable for the shares in DPMK at completion is US$25 million, subject to certain working capital adjustments. The consideration will consist of US$10 million payable in cash, which will be satisfied from existing cash balances, and US$15 million payable in Polymetal shares. In addition, Dundee will receive a 2% NSR2 (Net Smelter Return) royalty on the future production from the Kapan Gold Mine capped at US$25 million. Completion of the Transaction is conditional on certain regulatory approvals, including anti-monopoly approval in Republic of Armenia.

Upon completion, which is expected to occur in Q2 2016, Polymetal will provide further guidance on its near and long-term plans for Kapan.  The value of gross assets of the áompany subject to the transaction (on a 100% share basis) are US$49.8 million and a reported pre-tax loss attributable to these assets is US$47.0 million based FY2015 financial accounts.

Scotiabank Europe plc acted as financial advisor to Polymetal.

The Kapan property is located in the south-eastern Armenia, 320 kilometres from the capital city of Yerevan. The area surrounding the operation hosts a number of other prospective deposits, including the Lichkvaz gold deposit recently acquired by Polymetal and located approximately 70km from Kapan.

As of 31 December 2014, NI 43-101 compliant Indicated and Inferred resource was estimated at 15.9Mt containing approximately 1.4 Moz of gold, 24 Moz of silver, 80 Kt of copper and 270 Kt of zinc (2.6 Moz gold equivalent at 5.1 g/t GE)1.

The asset comprises a fully mechanised underground mine with a current capacity of approximately 400 ktpa, a conventional 750 ktpa flotation concentrator and various infrastructure facilities. The mine produces gold-copper-silver and zinc concentrates sold to international markets. More than US$ 75 million has been invested in Kapan over the last five years.

In 2015, Kapan mined 410 Kt and processed 411 Kt of ore. 21 Koz of gold, 1 Kt of copper, 5 Kt of zinc and 0.4 Moz of silver were sold during 2015. Over the same period, Kapan recorded net revenue of US$35 million with EBITDA of US$5 million and cash costs, net-of-product, of US$709 per ounce of gold sold.

"We believe Polymetal can transform Kapan from a low-margin asset into a capital-light profitable regional processing hub with sizable production" said Vitaly Nesis, Group CEO of Polymetal. "We believe that opportunistic acquisitions in jurisdictions we know well is the right way to create shareholder value at the current point in the cycle".

Earlier, Polymetal International plc (together with its subsidiaries - "Polymetal", the "Company", or the "Group") announced that it increased its interest in the Lichkvaz property in Armenia to 100%.

Polymetal purchased an additional 75% stake in the company holding Lichkvaz property in Armenia, and increased its ownership from 25% to 100%. The consideration comprises 1,084,853 Polymetal shares equal to US$9.7 million (0.26% of increased share capital). Details of the Transaction on the acquisition of a 25% stake can be found in the Company's announcement from 15 April 2015. The decision to increase the Company's interest to 100% was taken following successful results of exploration drilling performed during surveying season 2015.

Drilling has been completed, with 15,800 metres drilled across 70 diamond drill holes. To date, samples taken from 20 drill holes have been analysed (representing c.25% of total number of samples). Based on the first data obtained, nine productive intersections have been discovered with the average grade of 6.4 g/t GE per average true width of 4.5 metres.  The Company plans to further analyse exploration data obtained during 2015 and to prepare a resource estimate (JORC compliant) for release in Q2 2016.

Lichkvaz is located in the Meghri area of the Syunik-Marz province of southern Armenia, 380 km south of Yerevan. The infrastructure in the area is developed with power, water, accommodation and skilled labour force available.

A previous resource estimate (not JORC compliant) puts the total mineral endowment of the property at 2.4 Mt of material at 6.9 g/t in the inferred category for approximately 0.5 Moz of gold equivalent contained.

The geology of the project is characterised by a series of near-vertical shears and steep westerly dipping vein sets ranging up to 4-5 metres in width, hosted in andesite. The strike length of the system is about 800 metres, with northern extension covered by glacial till. The Lichkvaz property area is a part of the Tethyan Belt. The Company believes that property retains significant exploration potential.

As   result of the issuance of consideration shares, Polymetal's share capital will comprise 424,650,138 shares following the issue.  The application has been made to the London Stock Exchange and the UKLA and the shares issued as consideration are expected to be admitted to trading on or around 18 November 2015.

To note, Iberian Resources Company owned Lichqvaz-Tey mine in the 90s. In 2008 Tamaya Resources (the company owns 82.6% of Iberian Resources' shares) Board of members announced about the shut- down of the gold-mining project implemented in the mine. According to company's estimation, the amortization costs appeared to be higher, and the gold reserves appeared to be smaller in Armenia.  According to Iberian Resources preliminary estimation, there are 17 tons of gold reserves in the mine.  The mine mineralization appeared to be more complex than expected. Tamaya Resources made a decision to stop the investments for Meghri mine requires a lot of funds. In 2009 the preliminary investment cost was 65 mln USD.

The development of the mines in Meghri causes the concern of Armenian environmentalists. They believe that the mines contain (according to Soviet estimations) so-called powdered uranium. The Ministry of Nature Protection of Armenia officially refutes the data.

Polymetal is a leading gold and silver mining group, operating in Russia and Kazakhstan.  Company's shares are listed on London and Moscow Stock Exchanges.  Polymetal is a constituent of FTSE 250 and FTSE Gold mines.

Polymetal was incorporated in Saint Petersburg in 1998 by CJSC ICT (now controlled by Mr. Alexander Nesis) with the goal of creating a Russian mining company that would use state-of-the-art technology from exploration to bullion production, and capitalise on opportunities to commercially develop the results of Soviet era exploration.  In November 2005, control over JSC Polymetal (a holding company of the Group) was acquired by OAO GNK Nafta Moskva (Cyprus) Limited and transferred in August 2006 to Nafta Moskva (Cyprus) Limited (both controlled by Mr. Suleiman Kerimov).

In February 2007, JSC Polymetal held an initial public offering, as a result of which 24.4% of JSC Polymetal shares were placed to institutional investors. In conjunction with the initial public offering, the shares of JSC Polymetal were listed on the RTS and MICEX exchanges in Russia and the GDRs representing such shares were listed on the London Stock Exchange.

In June 2008, an affiliate of Nafta Moskva (Cyprus) Limited sold all of its shares in JSC Polymetal (68%) to three parties: Powerboom Investments Limited, a Cypriot entity that is ultimately beneficially owned by Mr. Alexander Nesis (23.97%), the founding shareholder of the Company; Pearlmoon Limited, a Cypriot entity owned by PFF Group N.V., which is controlled by Mr. Petr Kellner (24.82 %); and Vitalbond Limited, a Cypriot entity that is ultimately beneficially owned by Mr.  Alexander Mamut (19.02 %).

Polymetal International plc was incorporated in Jersey in July 2010 to become the new holding company of JSC Polymetal and seek admission of its shares to the premium listing segment of the Official List and to trading on the main market of the London Stock Exchange.  On November 2, 2011 Polymetal International plc was admitted to trading on the Official List of the London Stock Exchange raising US$ 763m from the IPO.

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