Research Notes

Polyus Gold is Turning into a Public Company

Polyus Gold is turning into a public company. The new firm is expected to be listed on Russian exchanges by the end of May and issue level-1 ADR in May-June. Given the auspicious climate on the gold market, we think that Polyus Gold stocks are an attractive investment vehicle.

For the record, at the beginning of 2006 gold assets were spun off from NorNickel into a new firm, PolyusGold, into which all shares of CJSC Polyus were contributed.

Starting May 4, 2006 Polyus Gold stocks could trade, although only on the OTC market.

Later, as part of spin-off procedures Polyus Gold is expected to apply for listings on domestic exchanges in May and issue level-1 ADR in May or June.

The new company’s shares are distributed among NorNickel shareholders registered as such on January 1, 2006 on a 1:1 ratio. We revised our valuation model of the company, namely our forecasts for midterm average gold prices due to the powerful rally in this metal on the global market which has been driven in recent months by geopolitical instability surrounding Iran (gold prices topped $673 per ounce). In addition, gold is a primary commodity, demand for which steadily exceeds supply, as a result of which we expect gold prices to climb higher.

As a matter of fact, the Russian equity market lacks any companies which offer the opportunity to take part in gold business, as a result of which we project investors to take a great interest in Polyus Gold stocks. Since the company is marked by leadership positions on the Russian market, a strong potential for ramping up production volumes and low production costs, all these factors should propel a rally in the company’s market cap in the future.

As a result, we upgraded our target price for Polyus Gold shares. According to our estimates, Polyus Gold is worth $9.3 bln, or $49.00 per share.

Nataly Kocheshkova

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