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The Polyus Gold Board of Directors has voted against buying back company shares and instead gave the green light to a deal to buy into KazakhGold. We are positive about the rejection of the share buyback, as it allows the company to save the funds and finance capital projects. We are likewise upbeat on the deal with KazakhGold, given that 70% of the deal is to be paid for with shares.
According to information posted on the Onexim Group website on September 30, the Polyus Gold Board of Directors on Tuesday dropped a plan to buy back its shares and instead approved a deal to buy into KazakhGold. We view the rejection of the share buyback as a positive event, contributing to the company’s fundamental value by allowing it to save cash assets for new projects, including the Natalkinskoye deposit. At the same time, the decision made may trigger a short-term decline in quotes for the company’s shares, which have recently rallied on the expected buyout offer.
The deal to buy 50% plus one share in KazakhGold is also a step in the right direction, the way we see it, given that 70% of the transaction is to be funded with Polyus Gold quasi-treasury shares, now on the books of Jennington International, a Polyus Gold subsidiary, which will execute the deal with KazakhGold. Despite the high potential of KazakhGold, which owns large-scale gold deposits in Kazakhstan, its financial performance is not impressive. Therefore, given the surge in Polyus Gold shares, we may regard the multiples involved in the deal as rather high. In particular, the EV/EBITDA ratio is at 9 and the P/E multiple equals 32.8, based on the current market cap of Polyus Gold and KazakhGold’s financial performance in the past twelve months.
Our target price for Poyus Gold shares is USD 36.7 per share. Sulinov Aleksey
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Polyus Gold
Capitalization: $3 587 614 198,54
Common shares:
Price: $18,82
Delta week: 11,1%
Delta month: -16,2%
Delta year: -56,4%
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0.569
0.073
