Polymetal may acquire gold deposit in Kazakhstan for $500mn

Mariyam Zhumadil, CFAOctober 10, 2013

Polymetal  may acquire Bakyrchik gold deposit in north-east Kazakhstan for $500mn, reported Kommersant newspaper today, citing sources familiar with the matter.

The purchase consideration includes $200mn payable with Polymetal stock (about 5% of issued share capital) and the rest, we assume, will be paid in cash. Bakyrchik deposit is part of the Kyzyl gold project, which is owned by Altynalmas Gold.

According to the JORC compliant February 2012 report, the total reserves of Bakyrchik are estimated at 5.76moz of gold at an average grade of 8.06 g/t, while in a separate report (December 2011) the total indicated resources of Bakyrchik are estimated at 7.35moz of gold. The feasibility study results suggest that the deposit's life-of-mine is twenty years with an average annual production of 321koz of gold at average cash cost of $500/oz.

Our view. The purchase consideration implies EV/Reserves multiple of 86.8x and is in line with the price paid by Sumeru Gold BV in August 2013 for a 50% interest in the Kyzyl Gold project. Recall that then Turquoise Hill Resources sold its stake in the project for $235mn. The acquisition fits Polymetal's opportunistic strategy of buying assets at the time of low gold prices.