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Polyus not looking for new investors after Fosun deal cancellation

Leading Russian gold miner PJSC Polyus is not looking for a new deal to replace the agreement struck with a consortium of Chinese investors led by Fosun International Ltd. to acquire a 10% stake in the company.

The deal fell through in January, giving rise to media speculation that the cancellation was linked to the arrest of Russian billionaire Suleiman Kerimov, whose family controls Polyus, in connection with a money laundering case in France.

Director of Investment for Polyus Victor Drozdov told S&P Global Market Intelligence that the key reason behind the cancellation was "the inability of the Chinese side to get approval for the deal."

He also noted that by January, Polyus' share price had rallied by more than 25%, prompting a renegotiation of the terms of the deal, but the two sides were unable to come to an agreement. In spite of the cancellation, the company was not looking for other Chinese investors, Drozdov added.

"As far as we know, the controlling shareholder is not looking for any replacement for those Chinese investments," Drozdov told S&P Global Market Intelligence during a roundtable discussion at the company's first capital markets day in London on March 20.

The initial deal struck with Fosun was worth an estimated US$886.9 million and allowed for the acquisition of an additional 5% stake in the company further down the line.

Polyus restarted operations at the Natalka project in Russia's Far East in the second half of 2017 and plans the full ramp-up of the facility in the second half of 2018.

COO Vladimir Polin said the project is running at 50% of capacity with over 15,000 tonnes of ore processed daily. Once the project reaches full capacity, Polin said the company expects to produce an average of 450,000 tonnes of gold per year. The project has a total cash cost forecast of US$550/oz to US$600/oz, significantly higher than the group average of US$364/oz.

Polyus attributes this to the relatively low grades and recovery rate at the project as well higher cost of inputs.

The company started a drilling campaign at Russia's largest untapped gold deposit, Sukhoi Log, in November 2017.

"In September or October 2018, we will be in the position to update the resources, creating the measured and indicated categories," said Sergey Lobov, vice president of mineral resources. Polyus expects Sukhoi Log to come online by 2025.

The company owns a 58.4% stake in the deposit along with Russian-state holding company Rostec and aims to boost its share to a 100% interest by the end of 2021. There is an option to accelerate the process, but the companies said they see no benefit in bringing the acquisition forward.

During an investor presentation, Polyus also announced plans to diversify into producing antimony. The metalloid is a byproduct of the company's operations at Olimpiada and is widely used in fire-retardant materials, battery production, ceramics and glass.

"If you look at the distribution of reserves globally, China dominates the markets. China plus Russia plus Bolivia equals 80% of global reserves. Reserves are currently estimated at 1.75 million tonnes, and Russia makes up 350,000 tonnes of antimony," said Senior Vice President of Finance and Strategy Mikhail Stiskin.

In terms of demand for the material, it mainly resides with China, Japan, South Korea and the U.S. Stiskin said pricing had recovered recently and stands at US$8,000/t, and Polyus estimates that it holds about 6% of global reserves.

"Our production will represent up to 15% of global supply," he said, adding that the company intends to produce 15,000 to 20,000 tonnes of antimony per year at cash costs of US$10/oz to US$15/oz.

The company reaffirmed its gold production guidance for 2018 of up to 2.425 million ounces. The company expects to further boost this to 2.8 million ounces in 2019 and 2020.