One of the most significant investments held by Baker Steel Resources Investment Trust (LON:BSRT), Polar Acquisition Limited, has agreed to sell its interest in the Prognoz silver mine in Russia to Polymetal International PLC.
At the January monthly update, Polar Acquisition represented just under 38% of Baker Steel’s net asset value. But that’s likely to see significant uplift now.
The sale of 90 per cent of the silver resources at Prognoz will realise US$72 mln for Polar Acquisition, a boost to its valuation of approximately 25%.
The consideration is payable in shares in Polymetal.
In addition, Polar Acquisition will retain a continued interest through a royalty on future production.
The deal follows the sale in January 2017 of a 10% stake to Polymetal, which then committed to fund and undertake a pre-feasibility study on Prognoz. As part of that agreement Polymetal was granted an option to acquire the remaining 90% of Polar Silver in March 2019 for a price based on silver reserves and the silver price at that time.
But, following a successful field season in 2017, during which 37km of diamond drilling was undertaken, Polar Acquisition and Polymetal have now agreed to accelerate the exercise of the option.
Polar Silver holds a 50% interest in the Prognoz silver project which has JORC-compliant indicated and inferred Resources of 292 million ounces of silver at a grade of 586 grams per tonne.
Taking into account the value of the Polymetal shares to be received by Polar Acquisition and the valuation of the royalty, the Baker Steel’s carrying value of Polar Acquisition can be expected to increase to approximately US$41 million at the next NAV date, a 25% increase on the carrying value at 31 January 2018.
Baker Steel has invested a total of US$14.2mln over the past seven years into Polar Acquisition, realised US$6mln in cash during 2017, resulting in a return on investment of in excess of three times.