The gold producer, listed in London, will invest $800 million through 2015 to increase reserves from 8.2 million ounces now and boost output almost 60 percent to about 1.2 million ounces, Chief Executive Officer Nikolai Zelenski said.
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Nordgold NV. CEO Zelenski
Nikolai Zelenski, chief executive officer of Nordgold NV.
Nikolai Zelenski, chief executive officer of Nordgold NV. Photographer: Andrey Rudakov/Bloomberg
“We don’t have an immediate goal to become a top-10 company, but we don’t rule out any large merger in the future,” Zelenski, 38, said in an interview in Moscow. While existing reserves are sufficient to ensure future output, organic growth is “only the base case,” he said.
Severstal, the steelmaker controlled by billionaire Alexey Mordashov, created Nordgold from scratch, buying gold assets in Russia, Kazakhstan and Africa. The Gross deposit in Russia’s Yakutia region and Bissa in Burkina Faso in West Africa are set to start producing next year.
About $470 million of the investments are planned for this year, mostly on construction at new mines and geological studies. Output is forecast to climb 13 percent to 850,000 ounces this year from 754,000 ounces last year.
Nordgold will spend its own funds on capital expenditures during the next four years and doesn’t plan to raise debt beyond the $400 million debt it owes Severstal, Zelenski said.
“We’re in talks with Russian and international banks on refinancing this debt as soon as possible and we think we will be able to get a lower rate than the 7 percent we are now paying to Severstal,” Zelenski said.
Emerging-Market Acquisitions
Nordgold will consider acquisitions from “early greenfields” to producing assets, Zelenski said. “We are mostly interested in high quality deposits in emerging markets such as Russia, Africa, Latin America and South-east Asia,” Zelenski said. It is hard to find good assets in the U.S., Canada and South Africa at attractive prices, he said.
More that 63 percent of Nordgold’s output may come from outside Russia in 2013, compared with about 57 percent last year, according to Nordgold estimates. “We are absolutely confident in all our overseas investments and we have good working relations with all of the governments,” Zelenski said.
Higher Value
In Guinea, where Nordgold has its largest mine, the government proposed a rule last year that would allow it to gain as much as 35 percent of any mining company. “The code hasn’t come into effect, and we haven’t held any discussions with the government recently on selling” a stake in Crew Gold, the unit that operates the LEFA mine, Zelenski said.
The miner is looking at ways to boost its the number of shares trading and its share price, Zelenski said. The possibilities include swapping stock with minority shareholders in its Toronto-listed subsidiary High River Gold Mines Ltd. (HRG); acquiring a London- or Toronto-listed “small player with interesting assets” or a share sale, he said.
In April Nordgold is having its reserves re-assessed, which will be needed to value its shares if a swap is offered to High River shareholders, Zelenski said. A swap may boost Nordgold’s free float to about 20 percent, he said. The company has a free float of about 10 percent, compared with a targeted 17 percent when Severstal announced the spinoff.
Moving to London
Nordgold trades at a discount of as much as 54 percent to peers in the former Soviet Union and Africa, even while generating “solid” output growth and one of the highest margins on earnings before interest, taxes depreciation and amortization, said Dmitriy Kolomytsyn, an analyst at Morgan Stanley in Moscow. The Ebitda margin was about 50 percent for 2011.
Nordgold may also consider redomiciling for a primary listing in London and inclusion in the FTSE-100 index, Zelenski said, following last year’s move by Polymetal International Plc (POLY), a silver and gold miner, and Evraz Plc (EVR), a steelmaker. The company has yet to study the tax or financial outcome of such a move, which “isn’t a priority for 2012,” he said.
The mining company’s shares have fallen to $6.75, a decline of about 13 percent since Jan. 19, the first day of trading in London, cutting its market value to $2.4 billion. Randgold Resources Ltd. (RRS), which produced 696,023 ounces of gold in 2011, has a market value of 6.6 billion pounds ($10 billion).