In mining, it’s always a nice surprise when predictions come true. We’ve all been in situations where we have to scrabble around for explanations when anticipated or projected yield doesn’t quite match up when the dust has settled. Projections being more-or-less-correct is a satisfaction I have thankfully enjoyed plenty of times in my mining career, but it’s a new experience when it comes to market analysis!
Last month, I wrote an article for MiningFeeds that suggested that Renova Group, the diversified business conglomerate run by bullish billionaire businessman Viktor Vekselberg, was gearing up for a run at the London Stock Exchange. This week, an article in Russia’s leading financial newspaper, Kommersant, confirms this is precisely what’s going on.
The article, written by the Moscow-based financial newspaper, leans on a source close to Renova to report that the company intends to take control of London-listed gold mining company Petropavlovsk at the forthcoming AGM. To recap: last month, Renova submitted its intention to vote against the reappointment of much of Petropavlovsk’s current board, apparently motivated by concerns around ‘corporate governance’. Petropavlovsk hit back, calling the move a takeover ‘by stealth’ and vowed to fight for the protection of smaller shareholders.
This week, the Russian newspaper reveals that Renova’s motivations may be less altruistic in nature. Kommersant reports that Renova intends to take control of the Petropavlovsk board to create a new, major gold-mining conglomerate (that would be Russia’s second largest gold player) by consolidating several Russian gold assets of varying quality into Petropavlovsk.
Provided the City of London Takeover Panel is satisfied with Renova’s approach to this deal, it certainly looks like a pretty strong move for the Russians. But, there’s one part of the report that still doesn’t make sense to me: Kamchatka. Kamchatka is a remote, volcanic region in Eastern Russia that has long been considered by optimistic mining consultants like me to be a sleeping giant for platinum, copper, nickel and gold. No one has managed to crack it yet, but plenty have tried.
Within its massive and diversified portfolio, Renova currently owns a company called Zoloto Kamchatki, another goldminer with development and production assets in Kamchatka. Last year, Petropavlovsk seriously and publicly considered the possible acquisition of Renova’s Kamchatka Gold assets along with Amur Zoloto, another gold mine in the very far east of Russia. Press releases were issued, exploration updates released, but the deal never happened.
We haven’t heard much about Kamchatka Gold since the deal fell apart, but oddly it rears its head once again in this latest news from Kommersant. Renova’s source now claims the Kamchatka Gold asset could push the value of Petropavlovsk to $500m. That’s nearly twice the estimated market cap of Petropavlovsk’s entire business. So why wasn’t this disclosed before? And why Renova’s sudden change of heart in moving away from a core development focus to which they were so committed just 6 months ago?
Of course, if the Kamchatka assets are really worth anywhere near what they’re claimed to be, the acquisition sounds like a no-brainer. But the difficulty here for big shareholders like Sothic and M&G as well as smaller retail shareholders is two-fold. First, they are hearing two sides of the story: one that says Kamchatka Gold is the magic bullet for Petropavlovsk’s growth, and one that says it’s won’t take the company in the right strategic direction. Second, and perhaps of greater concern to M&G or Sothic, is that Renova look like they’re flip-flopping.
If shareholders are going to vote for new management at the AGM later this month, they are well within their rights to know what its management style will be. A flood of assets into Petropavlovsk and an improved market cap sounds like great news for shareholders, but with less than a month to go, flip-flopping on a major acquisition will hardly fill shareholders with confidence particularly when the asset in question remains shrouded in so much mystery. So, I may have got Renova’s LSE bid right, but it’s anyone’s guess how this AGM and the months after it will play out.