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The presence “Of [severstali]” as the final owner “[Buryatzolota]” is positive factor for the minority shareholders
25.11.09 13:20
Commentary
Analysts [BD] “To [yuniti] [Trast]”.
A swift increase in the prices of gold forms significant interest inthe gold-prospecting active memberships. But if besides gold miningafter the investment history cost the specific expected corporateevents, then active membership becomes interesting doubly. To suchactive memberships we carry and [Buryatzoloto], company, created in1991 for the purpose of the association of the gold-prospecting activememberships in the republic Of [buryatiya].
[Buryatzoloto] develops two mines - [Kholbinskiy] and [Irokinda],manages license for gold mining in The [novofirsovskom] ore field inthe Altai edge. Also into the composition Of [buryatzolota] enters thegeological survey subdivision Of [buryatgeologorazvedka]. Provenreserving Of [kholbinskogo] exceed 11,5 t of gold, potential - 13additional tons; [Irokindy] has the confirmed reserves 7,8 t of gold,potential 15 additional tons. Also enterprise deals the outputs ofloose gold in the 2nd sections - [Andreevkiy] with [kochey] and[Tsipikanskiy] range, and in 2009 begins planning the mining enterprisewith the open method of output in The [novofirsovskom] gold- silver orefield.
Investors [nastorozhenno] related to the company because of the absenceof an increase in the output and resource base, and also high debtload. This was correctly with the previous shareholders. But now incompany appeared new strategic investor - [Severstal]- resource. Itacquired control block of shares of the Canadian company Of high Ofriver Of gold, and the latter, in turn, managed 85% Of [buryatzolota].All mining enterprises Of [severstali] are united into the battalion[Severstal]- resource.
The presence Of [severstali] as final owner [Buryatzolot] is positivefactor for the minority shareholders. First of all new strategicshareholder indicates investments into the resource base and output,the solution of problems with the debts. But furthermore, as showexamples with other active memberships Of [severstali] in the miningsector, [Severstal] as a rule consolidates its active memberships andwill bath the portions of minority shareholders, in this case on thesufficiently high prices, even in the case of the forced ransom ofactions. If we look to the history of such transactions, then let ussee, that in the Karelian pellet, [Olnegorskom] [GOKe], [Vorkutaugle],mine Of [vorgashorskoy] all voluntary ransoms except the latter werepassed [s] grow prettier by reward to the market.
The substantial argument in favor of this ransom - this is the need for[Severstali] consolidating all its gold-prospecting active memberships.And how we understand strategy of the management of [Severstal]-resource, into the plans Of [severstali] enters the association of thegold-prospecting companies -, first of all, belonging to her High Ofriver Of gold and Celtic Of resources with her subsequent isolationinto independent structure. The united company will be able to occupythe 2nd place in Russia by the volumes of [zolotodobychi].
In the plans of management the listing of the united company in Russianot only in [RTS], but also to [MMVB], or listing on AIM, what is alsothe very important factor of an increase in the capitalization Of[buryatzolota]. In its time something similar made nornickel when itderived on the market pole gold.
It must be noted, that [Severstal] as the new owner Of [buryatzolota]is sufficiently opened in the contact with the investors, are conductedpress conferences, the plans of development are explained. Therepresentatives of new shareholders in the person of the head of the[Severstal]- resource of Nikolai [Zelenskiy] and new Director-GeneralVeniamin [Baltsat]'s [Buryatzoloto] are sufficiently optimistic, inspite of existing by the acknowledgement of management itself problems.Basic problem from the point of view of management was almost thehighest prime cost of the output of the ounce of gold in Russia.Another - the confirmed reserves it remained for 2,5-3 years of work.
Over the short term long term the management Of [severstali] primarytask considers a reduction in the prime cost of gold obtained bycompany. This will make it possible to work profitably even in theconditions of the absence of an increase in the output and with thesharp jumps of prices of gold. As an example of reduction in theexpenses new management gave the following - the cost of thetransportation of the ton of ground to one kilometer on the truck theUrals was equal to 9 rub, on the truck [Volvo] - 3 rub. If[Buryatzoloto] conveyed hundreds of thousands of tons of ground tohundreds of kilometers in the Urals, then the task of new management -to transport to [Volvo] (which by the way they were already in the[Severstal]- resource), thus reducing the prime cost of ounce. Asimilar revision of the effectiveness of work is conducted in eachsection of production. In this case, that significantly against thebackground rigid relation to the optimization of expenditures the newshareholders do not plan the reductions of personnel, intention topreserve personnel appears it optimistically and confirms the tendencyof new shareholders to develop gold-ore business over the prolongedlong term.
Over the medium term C[everstal] is intended to solve the problem ofthe limited reserves of metal on The [buryatzolota] layers both due tothe licenses of [Severstali] itself in [Buryatii] and due to thesubsequent consolidation of active memberships. At the same time underthe conditions of increase in the prices of gold and control overexpenses task in a notable increase in the volumes of output now it ispossible even not to consider most urgent actual, it will besufficiently simple the retention of the current level on the output.The reserves of mines are until today evaluated by new management for2,5-3 years of work. Will be during this period realized plans withrespect to the geological survey, which practically was not conductedwith the previous shareholders. Around the basic mines - [Irokinda] and[Kholbinskiy] - there are the promising sections, which can completereserves.
Now [Buryatzoloto] appears by one of the most underestimated activememberships among the Russian representatives of the sector of preciousmetals. In this case the company already succeeds in sufficientlyeffectively reducing expenditures for output per the unit of output. Itis possible to calculate which in the new sections will succeed inattain the effect of scale, which will make it possible still better tocontrol expenses. Let us add to this failure of the less profile activememberships (in particular copper direction). The realization of theselected plans must return the lost confidence and increaseattractiveness in the eyes of investors. This must increase estimationand reduce the discount of company to the analogs CIS and emerging ofmarkets on the multipliers. Under the conditions an increase in theprices of gold on the World Market [Buryatzoloto] deals unjustifiablycheaper than analogous companies on the market.
We assume that during 4-6 quarters we as will see an increase in theoperating financial indices, so also we will obtain information aboutthe intentions Of [severstali] relative to minority shareholders.
In 2009 the volume of [zolotodobychi] will remain at the level of lastyear, in this case the mean price of sale will be above last year's. Itis possible to expect that on the sums of 2009 the company will be ableto produce order 145-150 thousand ounces and it will remain in thenumber of leaders of branch. In 2008 [Buryatzoloto] obtained 145,7thousand ounces with the expenses 513 dol. for the ounce. Also companyplans to in 2009 increase its reserves by 25%!
The financial indices of enterprise were improved very rapidly for last9 mo., in this case the profitability was tall by the anticipatingrates. An increase in the indices on the sums of 2009 is expected thateven more impressing. Gain will comprise more than 4,6 billion rub, to35% it is more than in 2008. But, which more importantly, with thearrival of the new owners of company actually was possible to reach theprogress in optimization and reduction of expenses. As a result cleanprofit in January - September 2009 2,6 times exceeded the index of theanalogous period of 2008. By basic factors, that influenced thedynamics of profit, steel both the increase in the prices of gold onthe World Market and effective control over expenses.
As consequence we is expected the impressive increase in theprofitability. Thus, profitability on Ebitda in 2009 will grow from 29%to 45%. More rapid than the gain grows on the essence, theprofitability, that appears greatly grow prettier by tendency, also,according to this index [Buryatzoloto] now output to the level of suchleaders of the mining branch as pole and nornickel.
Situation with the debts simultaneously was improved. If at the momentof arrival into [Buryatzoloto] Of [severstali] were debts on the wagesand unpaid payment on the credit in the size of 15 million dollars (inall debts on the credits they are 30 million dollars), then at thepresent time new owner paid credit, and this allowed [Buryatzolotu] toavoid bankruptcy. Now in company very low debt load - forecast cleandebt at the end of the year is less than 3 million dol.
We recommend the BUYING of the usual and privileged actions[Buryatzoloto] with the potential of increase in 115% and 143,5%respectively (it follows to consider that the liquidity of [prefov]below). The calculated price of one usual action is 51,1 dol., by oneprivileged by 41,4 dol