Polymetal: Precious Metal Panic Is Over

Polymetal, Russia's largest silver producer, said Thursday that "panic selling" of precious metal assets in the country because of the global financial crisis has run its course as the price of gold rises and the ruble falls.

"There are still very many assets for sale, but there is no panic like there was in October or November," chief executive Vitaly Nesis said at a conference organized by the Adam Smith Institute. "There are still many sellers who want to exit the business and who have problems with liquidity."

Mines in the country are "fantastically attractive" because of a 39 percent increase in the price of the metal since the crisis broke in October and a slump in the ruble that raised the local value of dollar-denominated gold sales. The company is looking at potential acquisition targets in Russia, Nesis said.

Polyus Gold, Russia's largest gold producer, is offering 0.423 of a share for one of KazakhGold Group, Kazakhstan's biggest miner of the metal, as it seeks to buy half of the company, KazakhGold said Dec. 29.

"Almost everything is for sale," said Polyus Gold chief executive Yevgeny Ivanov. Many companies made the mistake of financing their long-term projects with short-term loans and those assets are now for sale, he said. "Those companies whose financial position is steady and whose shares are still perceived as a reliable payment instrument should" buy assets.

The ruble devaluation adds 59 percent to companies' sales when revenues are converted into the currency, he said. Polyus is in talks over potential acquisitions in Russia and Commonwealth of Independent States, he added.

Gold has "very strong support" at about $600 an ounce as any drop below that level would result in the closure of 20 percent of the world's production capacity, Ivanov said. A 60 percent increase in mining costs in the last two years, because of rising oil, steel and machinery prices, pushed the cash cost of producing gold in Australia to $635 an ounce, he said.

"Below $600 an ounce, mining in South Africa and Australia becomes unprofitable," Ivanov said. The nations are the world's second- and fourth-largest producers of the precious metal, according to the U.S. Geological Survey.

Gold has averaged $790 an ounce in London in the last two years, falling as low as $606 in January 2007. It last traded below $600 in October 2006. Polyus Gold has set its budget for this year based on an average price of $800 an ounce. Polymetal's figure is $750, Nesis said.

Nesis said Thursday that his company does not plan to pay a dividend for 2008 and may use cash and shares for acquisitions.