Wed. May 18th, 2022

Polymetal is considering splitting its Russian business from the rest of the company in an attempt by the London-listed gold and silver miner to insulate its international business from the knock-on effects of western sanctions.

While Polymetal has not been placed under UK, US or EU sanctions, it has suffered an exodus of shareholders including Norway’s sovereign wealth fund since Russia’s invasion of Ukraine, with its stock falling as much as 75 per cent. The company has also been ejected from the FTSE 100 index.

To combat the departure of investors, Polymetal is weighing whether to split its Russian and Kazakh businesses, each with their own listing, two people familiar with the discussions said.

Any such move would provide a strategy for other London-listed Russia-linked groups whose stock has tumbled as investors look to get out of companies that could fall foul of UK, US, or EU sanctions, or be hit by western economic and financial restrictions .

Other London-listed Russian companies with some non-Russian assets include LMK, Evraz Lukoil and EN +, the metals group that owns Russian aluminum producer Rusal.

The three people said a Polymetal split would divide the “operationally good” Kazakh assets from the “reputationally bad” Russian assets, which have felt the secondary effects of Vladimir Putin’s invasion of Ukraine and western sanctions against Russia.

Investors would have the option to retain holdings in both companies, or to sell their shares in the Russia business, if they were worried about the reputational risk or additional western sanctions.

Polymetal said a demerger of its international assets was being “evaluated” after some investors “suggested that we explore ways to modify asset holding structure to enable distinct ownership in various jurisdictions”.

The company’s biggest shareholder is a company connected with its founder Alexander Nesis, the brother of Polymetal’s chief executive Vitaly. Another big investor is BlackRock, which doubled its holding to 10 per cent in February as Russian troops advanced on Ukraine’s two biggest cities.

Both people familiar with the talks said the discussions about whether to proceed with the split were continuing.

Polymetal last week appointed Riccardo Orcel as chair after a boardroom exodus.

The Italian was previously head of global banking at VTB Capital, the investment banking arm of Russia’s second-largest lender, which is winding down its European operations because of sanctions

Two-thirds of Polymetal’s assets are in Russia along with its management team, which is based in St Petersburg. The remainder of its business is in Kazakhstan where it operates two mines that produced more than 550,000 ounces of gold equivalent last year and generates enough cash to cover its dividend.

Last year it produced nearly 1.7mn ounces of gold. At the end of December the company had $ 1.8bn of net debt and no borrowings maturing this year. At present 39 per cent of the debt is with European banks, which may need to be refinanced at higher costs with Russian, Kazakh or Chinese banks, according to Berenberg.

When the company published annual results at the start of the month, Polymetal’s chief executive said its management team had not had time to consider the merits of a demerger because they had been “so busy fighting fires”.

“Management is definitely committed to evaluating the potential benefits and costs of such an approach,” he said.

Shares in Polymetal were up almost 40 per cent on Monday at 248p, valuing the company at £ 1bn, on hopes of a peace deal in Ukraine. Before the war the company was worth £ 5bn.

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