Polymetal exercises call to buy remaining 75pc of Nezhda property

The FTSE 250 company said that, in accordance with the previously-announced shareholder agreement in July last year, it decided to exercise its call option to acquire the remaining stake in the Nezhda gold property from Ivan Kulakov's investment vehicle.

It said the acquisition, when completed, would bring its ownership in the asset to 100%.

The total consideration for the call option exercise would amount to $144m, payable in Polymetal shares.

Polymetal said the consideration amount was determined by multiplying $75.30 by the total gold reserve ounces estimated in the ore reserves report.

Nezhda JORC-compliant proven and probable ore reserves were estimated at 1,915 Koz of gold.

Completion of the transaction was expected by the end of 2018, after the receipt of required Russian regulatory approvals, including federal government clearance under the law governing foreign investment in strategic assets.

"We are excited about consolidating 100% of Nezhda under Polymetal,” said group CEO Vitaly Nesis.

“This deposit is a low-risk asset that provides the Company with the opportunity to realise superior returns on invested capital.

“High reserve grades and a long life-of-mine will ensure these returns are robust even in the event of a significant decline in gold prices.”

Polymetal described Nezhda as a “world-class” gold deposit that fit well with its strategy and core competences.

It featured “significant” high-grade open-pit reserves of 2.0 Moz of gold equivalent at 4.0 g/t, along with “outstanding” reserve growth potential with 8.9 Moz of additional resources at 5.0 g/t.

The property was conducive to simple mining, Polymetal said, with its straightforward metallurgy, and would require a low capital intensity according to the company’s board.

Polymetal said it planned to present a detailed development plan for Nezhda after the completion of a feasibility study in the fourth quarter of 2018.

Project activities for 2018 would include additional exploration and metallurgical testing, full-scale statutory permitting, and detailed engineering.

Subject to a positive development decision in 2018, first production was expected in 2022.

“Nezhda is Russia's fourth largest gold deposit,” the Polymetal board explained in its statement.

“It is located in northeast Yakutia, in the Tompon municipal district, approximately 480 km east from the city of Yakutsk.

“The property is remote with access by an all-season unpaved road and no grid connection.”

Polymetal said the climate was characterised by long severe winters and short hot summers, with the relief moderately mountainous with relative altitudes above valley floors not exceeding 600 metres.

Current reserve estimates assumed 11 years of open-pit mining from ore zone 1.

Ore would be processed by a conventional concentrator with further off-site downstream processing, or the sale of concentrate to third parties.

The company said it expected average annual production of 150 Koz of payable gold in concentrate with all-in sustaining cash costs in the range of $650-$710/oz of gold equivalent, and total cash costs in the range of $590-$640/oz of gold equivalent.

Polymetal said the gross assets of Nezhda were$95m, with a reported pre-tax loss of $5.3m attributable to the assets in 2017.

The company also announced on Tuesday that it was buying the remaining 50% of the Prognoz project that it did not already own, in a share deal worth $140m.