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. Last Updated: 07/27/2016

Severstal Raises Stake in Celtic to 26.6%

Severstal has raised its stake in gold miner Celtic Resources by 4.6 percent, fueling speculation that the steel firm will make a full bid for the London-listed company.

In a statement to the London Stock Exchange on Monday, Severstal, which is controlled by Alexei Mordashov, said its subsidiary Bluecove Limited now holds a 26.6 percent in the company. In August, Severstal acquired a 22 percent stake in Celtic Resources.

Analysts estimated the deal at about $12 million.

Sergei Loktionov, a spokesman for mining division Severstal Resurs, declined to comment on whether Severstal would make a full takeover bid, saying the company does not disclose its acquisition plans.

Last week, Celtic Resources said it had received a preliminary approach, which could lead to an offer for the company. Celtic did not provide any further details, but analysts speculated that Severstal would be the most likely suitor.

"It's a very good deal for Celtic Resources shareholders," said Andre Kroupnik, an analyst at RBC Capital Markets. "But we're a little bit puzzled about Severstal's reasons for the transaction. ... [Celtic Resources] doesn't have any really big valuable assets."

Marat Gabitov, a metals analyst at Aton brokerage, said he expected Severstal to make a full takeover approach for Celtic, while also seeking out other small gold plays.

"I think Mordashov has decided to pursue the gold story," Gabitov said, noting that based on current multiples, Celtic Resources is a relative bargain.

Mordashov said in early September that he was looking at setting up a separate gold mining company.

Mordashov's move on Celtic comes at a time when the gold price is nearing a 28-year high, hovering around $735 per ounce Monday. It has been buoyed recently by the weakening dollar and the ongoing uncertainty on financial markets. Goldman Sachs raised its gold forecasts Monday, predicting gold to trade up to $800 per ounce from a previous estimate of $715 on a six-month horizon.

"We believe that gold continues to gain support from the structural alignment in the relationship between gold and the U.S. dollar, driven mainly by rising consumer and central bank demand in the rapidly growing emerging markets," the bank said in a note to investors.

Gold miner Peter Hambro issued impressive results Monday, announcing operating profits of $35.3 million for the first half, up 75 percent from $20.2 million in the same period last year. At the same time, the Russia-focused miner said it was close to securing a $50 million syndicated credit from VTB Europe to provide a buffer amid the continuing turmoil on financial markets.

Gold production at Peter Hambro was up 24 percent, in line with expectations, to 134,300 ounces.

Highland Gold, the fourth-largest gold miner in the country, said revenues dropped 8 percent, while net profit fell 32 percent to $5.7 million from $8.4 million, according to unaudited results.

Operational difficulties at its main asset, the Mnogovershinnoye mine in the Khabarovsk region, and a halt in activity at its Darasun mine in the Chita region, where a fire last year killed 25 miners, have affected results, the company said.