HONG KONG/MOSCOW (Reuters) - Fosun International Ltd, is in exclusive talks to buy a large minority stake in Russia’s biggest gold miner Polyus, three sources with knowledge of the matter told Reuters, in what would be the Chinese group’s maiden Russian deal.
Fosun, an aggressive buyer known internationally for its purchase of French resort operator Club Med, is keen to invest in Russia and other emerging markets such as India, as it moves away from Europe and developed markets. Reuters reported in August that Fosun is also in talks to buy a minority stake in Russian investment bank Renaissance Capital..
Fosun’s interest in Polyus comes as other Chinese companies have also been targeting gold mine acquisitions to meet domestic demand amid a recovery in prices. State-controlled Zijin Mining Group Co Ltd and state-backed Shandong Gold Mining Co Ltd held separate talks with Canada’s Barrick Gold Corp to buy a 50 percent stake in an Argentinian gold mine, Reuters reported last month..
China, the world’s top consumer, producer and importer of gold, has ambitions to be a global price setter.
The talks between Fosun and Polyus have been underway for a couple of weeks, said the sources, who declined to be named as the talks are confidential.
The two companies are still negotiating the final terms, including the size of the stake, and any deal value could be subject to last minute changes, one of the people said. Fosun is conducting due diligence on Polyus but no deal is imminent, the person added.
One of the sources said Fosun is looking to invest around $2 billion in Polyus, owned by the family of Russian billionaire Suleiman Kerimov. The source added that Fosun is looking to form a consortium of private equity investors to help finance the deal.
Both Fosun and Polyus declined to comment.
Both Zijin and Shandong Gold had previously expressed interest in buying a Polyus stake, one of the sources said. Zijing declined to comment while Shandong Gold did not offer an immediate comment.
Based on Polyus’ outstanding shares, the Russian gold miner has a market value of about $9 billion, according to Reuters calculations.
Polyus is planning a public placement with either existing or new shareholders to increase its free float, or the amount of shares available to the public for trading, to at least 10 percent to meet Moscow Exchange requirements, Reuters reported last month.
Polyus is on the state list of so called ‘strategic companies’ for Russia, which means that a large stake sale in the company would require government approval.
Analysts at ATON, a Russian research firm, said that a government approval “would not help Polyus’ plans to increase its free float.”
Fosun shares ended down 1.4 percent, while the benchmark Hang Seng share index fell 0.6 percent. Polyus shares were up 2.6 percent in morning trade.
Fosun’s interest in Polyus comes as the Shanghai-based conglomerate, controlled by billionaire co-founder Guo Guangchang, is shifting its investment focus to emerging markets where asset valuations are lower and growth prospects are higher.
Guo, 49, one of China’s most powerful business leaders, told Reuters in June that he considered 2016 a “good time” to invest in oil and commodities, adding that Fosun would increase investment in this segment.
Fosun this year acquired India’s Gland Pharma from KKR & Co for about $1.3 billion, marking its first Indian acquisition..
Fosun first diversified into natural resources in 2014 when it bought Australia’s Roc Oil Co for A$474 million ($364 million), although Guo said the investment was not a success due to plunging oil prices.
Fosun has already set up two subsidiaries - Fosun Management (Russia) and Fosun Eurasia Capital - to seek investment opportunities and build its asset management business in Russia and neighboring regions, its website shows.
Moscow-based Polyus has steadily raised gold output over the last few years and expects to produce up to 1.90 million ounces of gold this year. It also has the world’s fourth-largest gold reserves, according to the company, with over 64 million ounces of proven and probable gold reserves.
A weakened rouble has lowered the costs of gold mining in Russia in dollar terms, helping Polyus to post a record first-half core profit margin. Net debt, however, jumped during 2016 due to a share buyback and stood at $2.9 billion at the end of September.
($1 = 1.3040 Australian dollars)
Reporting by Julie Zhu in HONG KONG and; Polina Devitt in MOSCOW; Additional reporting by Oksana Kobzeva, Olga Popova, and Andrey Kuzmin; Writing by Denny Thomas; Editing by Lisa Jucca, Richard Pullin and Christian Schmollinger