Polymetal signs deal to sell Armenia's Kapan mine to Chaarat Gold

The FTSE 250 company said the total consideration payable for Kapan would be $55m, subject to working capital and other customary adjustments, which represented $99 per ounce of gold equivalent ore reserves.

It said the consideration would be payable in cash upon closing of the transaction, with an option for Chaarat to elect to satisfy up to $5m of the consideration in its 2021 convertible notes.

The transaction remained conditional upon Chaarat obtaining financing to satisfy the purchase consideration, and certain regulatory approvals, including anti-monopoly approval from the Republic of Armenia.

Completion was expected to take place in the first quarter of 2019, and in any event no later than 15 February next year.

A termination fee of $10m would be payable to Polymetal in the event that the transaction was not completed by that date as a result of any conditions not being satisfied, with $5m of that fee to be deposited within 10 working days from signing of the sale and purchase agreement.

Polymetal said it would grant Chaarat an exclusive right for a period of six months from completion, and a right of first refusal for a period of 12 months upon expiry of the exclusivity period, in relation to its other interests in Armenia, including the Lichkvaz deposit.

Polymetal’s board said the sale of Kapan advanced its strategy of focusing on large-scale and long-life operations.

Kapan was the smallest and highest-cost mine in Polymetal's portfolio, representing 3% of its ore reserves as at 1 January, 3% of its LTM production ending 30 September, and 5% of its expected 2019 production, including feed from Lichkvaz.

It also represented 3% of its LTM-adjusted EBITDA ending 30 June, and 7% of its as at 30 September.

In 2017, Kapan's TCC of $871/oz and AISC of $1,292/oz were above Polymetal's averages of $650/oz and $877/oz respectively, excluding Kapan.

Polymetal acquired Kapan in April 2016 for $38m, including $9m fair value of the net smelter return royalty on future gold production.

The transaction was expected to result in a $3m accounting profit for the company, with Polymetal saying it planned to use proceeds from the transaction to reduce debt.

“The sale of Kapan is a step towards shrinking Polymetal's asset base to focus on large long-life projects,” said Polymetal group chief executive officer Vitaly Nesis.

“The transaction will have immediate benefits as it is expected to improve our cost position and reduce leverage.

“On behalf of Polymetal, I would like to thank the team at Kapan for their hard work and dedication and wish them all the best going forward.”