Kazakhstan’s copper and gold producer Kaz Minerals has announced the purchase of the Baim copper and gold deposit for $900 million. It is located in Chukotka, reserves – 9.5 million tons of copper and 16.5 million ounces of gold (it will mine ore and produce concentrate – 250 000 tons of copper and 400,000 ounces of gold (all in terms of metal) every year.)
Baimskoe deposit belongs to a consortium of individuals, including Roman Abramovich and Alexander Abramov. President of Invest AG Fund Sergey Bratukhin, as well as a representative of Millhouse confirmed the deal with Kaz Minerals.
To buy and develop Baim deposit Kaz Minerals will use both own and borrowed funding. The company estimates capital expenditures at $5.5 billion over eight years.
Calculations on the transaction will be carried out in parts and only after the sale of the strategic field is agreed by the government Commission on Foreign Investments. A meeting on this issue is expected in the first quarter of 2019 and the closing of the transaction in the first half of 2019. First part the Kazakh company will pay with cash ($436 million) and its shares (5% of the increased authorized capital). For that, Kaz Minerals will receive 75% of OOO “GDK Baimskaya”.
The remaining 25% Kaz Minerals will receive in 2029, and the method of payment – money or shares -depends on a number of conditions. If by March 2029 the transport and energy infrastructure is brought to the Baim field, tax benefits will be provided and the State will be able to achieve year-round navigation from the port of Pevek, the Baim sellers will receive another 4.7% of Kaz Minerals. Otherwise, the payment will be in cash – $225 million.
The representative of Kaz Minerals clarifies that the main condition for the completion of the transaction and the purchase of 25% of the enterprise is its successful output to the project production – 250 000 tons of copper concentrate (in terms of metal) per year. The company intends to sell it to China, Japan and the APR countries, the representative says. “The rapid growth of the market of electric vehicles and renewable energy improves the long–term prospects of the copper market,” says Gazprombank analyst Airat Khalikov.
Kaz Minerals has money – the company’s accounts at the end of 2017 were $ 1.8 billion, with net debt of $2 billion, and EBITDA last year – $1.2 billion with free cash flow of $ 452 million. Kaz Minerals is controlled by management (48.27%), another 2.5% – quasi-Treasury shares. The largest individual stake is with Kazakh businessman Vladimir Kim (33.4%).
According to Nikolay Sosnovsky, the Director of metallurgy and mining of Prosperity Capital, the Baim project may be quite profitable with proper implementation, but KAZ Minerals will begin to make a profit not earlier than in 5-7 years.
Earlier Baimskoe Deposit was targeted by “Norilsk Nickel” where the structure of Abramovich and Abramov “Crispian” owns a minority stake. In 2016, Vladimir Potanin, President and co-owner of Norilsk Nickel, in an interview with Russia 24, discussed the possibility of holding an IPO of Bystrinsky GOK in 2021-2022 at one of the Asian exchanges. But for this, he said, it is necessary to “enlarge” the project, it can be done with the help of Baim deposit area.
At the end of 2017 Potanin included Baimskoe to plan for the future acquisitions of Norilsk Nickel. It was then that the conflict between the shareholders of the company resumed. Potanin wanted to buy the Baim copper deposit, invest in a joint venture with “Russian platinum”. The other major shareholder “Norilsk Nickel” – UC Rusal Oleg Deripaska insisted on increasing dividends.
“The process of negotiations was competitive, the agreement was concluded with those who offered the most interesting conditions for the development of the project,” explained the deal with the company from Kazakhstan Mr.Bratukhin.
For the shareholders of Norilsk Nickel, the news that Baimskoye is being acquired by Kaz Minerals is rather positive – the company will not have to spend many years on the development of a complex field from the zero stage, and the resource base already owned by еhe company in the Norilsk district is not worse. But the shareholders of Kaz Minerals reacted strongly, the company only recently managed to complete large-scale investment projects and get a significant profit, shareholders rather hoped for dividends instead of further investment projects. Kaz Minerals securities are traded on London Stock Exchange (LSE), Hong Kong and Kazakhstan stock exchanges, after the announcement of the agreement, its capitalization on LSE fell by 26.8% to $3.6 billion.