Baker Steel Resources sells Prognoz Silver Mine – Baker Steel Resources Trust says that its largest investment, Polar Acquisition Limited has agreed to sell its 90% interest in Polar Silver Resources Limited to Polymetal International plc for US$72 million (to be satisfied in Polymetal shares).
In January 2017, Polar sold a 10% stake in its subsidiary Polar Silver to Polymetal, which committed to fund and undertake a pre-feasibility study on the Prognoz silver project in Russia. As part of that agreement Polymetal was granted an option to acquire the remaining 90% of Polar Silver in March 2019 for a price based on silver reserves and the silver price at that time. Following a successful field season in 2017, during which 37km of diamond drilling was undertaken, Polar and Polymetal have now agreed to accelerate the exercise of the option such that Polymetal will upon closing acquire Polar’s 90% interest in Polar Silver for US$72 million to be satisfied in new Polymetal shares. 90% of the consideration shares will be subject to a lock-up period of 180 days.
Polar Silver holds a 50% interest in Prognoz silver project which has JORC-compliant Indicated and Inferred Resources (estimated by Micon in 2009) of 292 million ounces of silver at a grade of 586 g/t.
Ongoing royalty
In order to retain exposure to Prognoz going forward, including the attractive exploration potential, Polar will receive a royalty of between 2% and 4% (pro rated by the net 45% stake being acquired) on future production from the mine. The royalty has been valued based on the current pre-development status of the Prognoz project and it can be expected to appreciate as the project moves towards production.
Taking into account the value of the Polymetal shares to be received by Polar and the valuation of the royalty, the Company’s carrying value of Polar can be expected to increase to approximately US$41 million at the next NAV date, a 25% increase on the carrying value at 31 January 2018. On a pro forma basis this transaction would have increased the Company’s NAV by approximately 9% had the agreement been signed prior to 31 January 2018. The company has invested a total of US$14.2 million over the past seven years into Polar, realised US$6 million in cash during 2017, resulting in a return on investment of in excess of 3 times.
Subject to the receipt of the required Russian regulatory approvals, the transaction is expected to close in during the first quarter of 2018.
Polymetal is a major gold company listed on the London Stock Exchange with a market capitalisation of approximately GBP3.5 billion. During 2017 it produced 1.43 million ounces of gold equivalent. In 2017, Polymetal paid out US$138 million in dividends, translating into a 2.7% dividend yield based on the average share price for the year.
BSRT : Baker Steel Resources sells Prognoz Silver Mine