Russian gold group PLC () has agreed to buy Glencore’s () Komarovskoye mine in Kazakhstan for US$100m in cash plus royalties.
The mine is roughly 187km by rail from Polymetal's existing Varvarinskoye mine (Varvara).
Because of that Polymetal expects to spend less than US$5mln on capital expenditure as the mine fleet will be mostly transferred from Varvara.
Royalties from Komarovskoye will be paid quarterly at gold prices above US$1,250 per ounce, capped at US$80mln.
"Komarovskoye has long been in our sights as a natural close fit for our Varvara hub.
“We are very excited about the transaction which is expected to strengthen production profile, lower costs, and provide substantial incremental cash flows at Varvara in the near term,” said Polymetal chief executive Vitaly Nesis.
Komarovskoye is an active open pit mine and has been in operation since 2006, focused mainly on oxide mineralisation, which is now largely depleted.
Over 200,000oz of gold has been produced so far and a total of over 1Mt at an average grade of 2.5g have been processed at Varvara with an average recovery of 88%. Mining of primary ore and its sale to Varvara began in
"The acquisition of Komarovskoye should extend the life at Varvarinskoye. The ore is known to be treatable at the Polymetal plant and seems likely to supplant lower grade material in the existing plant feed. For Glencore, which is undertaking group-wide debt reduction, the disposal of a non-core asset for cash is a pragmatic solution which would seem to benefit both parties," said analysts at SP Angel.
Shares dipped slightly to 666p.