Thursday, August 25 2016 14:21
Alexandr Avanesov

Polymetal Plc launches Operational turn-around activities of recently acquired Kapan mine in Armenia

Polymetal Plc launches Operational turn-around activities of recently  acquired Kapan mine in Armenia

ArmInfo. Polymetal  International plc (LSE, MOEX:  POLY; ADR: AUCOY) (together with its  subsidiaries - "Polymetal", the "Company", or the "Group") has  announced the Group's production results for the second quarter and  six months ended June 30, 2016. 

According to the Company's production results, among others the  operational turn-around activities of our recently acquired Kapan  mine have started, with the medium-term guidance to be released  together with the FY2016 production results. Current management's  focus is on improving underground mine productivity and reserve  modeling.  In the first half of 2016m the Company's proceeds from  Kapan mine totaled $3 million. Concentrate sales from the mine  totaled 3Koz of gold equivalent.  

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".

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 company 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.

Polymetal International plc, the largest producer of silver 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 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.

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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