January 26, 2017 / 8:56 AM / in 2 years

UPDATE 2-Russia sells giant gold deposit to Polyus-led joint venture

* JV of Polyus-Rostec pays $158 mln for Sukhoi Log

* Polyus will buy 23.9 pct stake in JV for $141 mln

* Exploration, feasibility study will take 3-4 years (Adds comment from Polyus and Rostec, details)

By Polina Devitt

MOSCOW, Jan 26 (Reuters) - A joint venture between Russia’s top gold producer Polyus and state conglomerate Rostec has bought the rights to develop Sukhoi Log, one of the world’s largest untapped gold deposits, for 9.4 billion roubles ($158 million).

Russia competes with Australia for second place among the world’s largest gold producers and has one of the world’s largest gold reserves. The ore of Sukhoi Log, which translates as “dry gully” in English, contains about one fifth of Russia’s gold reserves.

After 20 years of assuarances that it would sell the deposit to investors, the Russian government sold it on Thursday at a relatively cheap price as officials hope production will result in new tax revenues and jobs.

Sukhoi Log will require up to $5 billion in investments, according to industry estimates based on a 10-year-old state feasibility study.

“The development of such a large project will have a significant impact on the social and economic development of Irkutsk region (where Sukhoi Log is based),” Russian Natural Resources Minister Sergei Donskoi said in a statement.

Polyus and Rostec’s joint venture - SL Zoloto - made one raised bid in the auction, where the starting price was 8.6 billion roubles.

Polyus is owned by the family of Russian billionaire Suleiman Kerimov while Rostec is headed by Sergei Chemezov, a powerful ally of President Vladimir Putin and the joint venture was widely seen by industry players as the front-runner at the auction.

“We believe its (Sukhoi Log’s) advancement will enable us to enter the next stage of the company’s development,” Pavel Grachev, Polyus chief executive, said in a statement.

Adding Sukhoi Log to Polyus’s portfolio could make it more attractive for equity deals long under consideration, industry sources and analysts said earlier this week.

Polyus currently owns a 51-percent stake in the JV and plans to buy an additional 23.9 percent from Rostec for $141 million, it said in the statement. The payment will be made over the next five years.

Polyus also said the joint venture will need three to four years to conduct additional exploration works and a feasibility study. Sukhoi Log’s reserves were estimated in the Soviet era at 1,943 tonnes (62.5 million troy ounces) of gold.

The JV might adopt processing solutions implemented at Polyus’s Verninskoye deposit, located 20 km (12 miles) away from Sukhoi Log, as the ores of both have a similar mineral and chemical composition. ($1 = 59.6959 roubles) (Reporting by Polina Devitt; editing by Susan Thomas and Greg Mahlich)

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