Yuzhuralzoloto, owned by Konstantin Strukov, is the leading Russian gold mining and sales company, with sales of 451 thousand ounces in 2022. The company has a significant resource base, ensuring the possibility of mining for more than 50 years at the 2022 level.
The main assets are in the Chelyabinsk, Krasnoyarsk, and the Republic of Khakassia. Between 2001 and 2019, the company acquired new fields, mainly those part of the Siberian Hub.
Three projects are currently under active implementation: the Kurasan mine, the Vysokoye mine, and the expansion of the Kommunar mill, which covers the period from 2022 to 2025.
The company’s Board of Directors comprises 9 members who chair the Remuneration and Nomination and Audit and Risk Committees. Top management and the board of directors have more than 20 years of average industry experience and more than ten years of average tenure with the company.
Company Plans
The company, the sixth largest gold producer in Russia, plans a stable production growth of 15-20% annually from 2024 to 2027 through three development projects.
YuGK plans to increase the share of production in the main regions of its presence: Chelyabinsk and Krasnoyarsk. The share of production from the Siberian hub should grow from 45% in 2022 to 58% in 2027, while total group production will increase from 430koz in 2023 to almost 740koz in 2026 and 900koz in 2028.
On the global cash cost curve, the company occupies the bottom of the third quartile, slightly above average. The capacity expansion is not expected to affect YuGK’s position on the cost curve, and the EBITDA margin is expected to remain at 45-50% due to a moderate increase in the average gold grade. The company’s resource base allows it to produce gold for over 50 years at the 2022 level.
Corporate risks are under control. Unlike larger companies, Polyus and Polymetal, YuGK is not subject to sanctions from the EU and the US, although the majority shareholder is under UK sanctions.
The risk of broader restrictions against the owner and/or companies is mitigated because all of the company’s assets are in Russia, it does not use Western equipment, and its seven licenses allow it to export gold at minimal discounts to global standards.
YuGK’s corporate structure is transparent, and for the minority stake in Petropavlovsk plc (29%), acquired in 2020, a decision was made to recognize an impairment of RUB 28 billion after it was placed on the UK sanctions list, resulting in a default.
The dividend policy may move to cash flow in the future. The October 2023 dividend policy update identified 50% of net income as the minimum level of dividends payable twice a year. We estimate this corresponds to dividends of R0.04 per share for 2023 and 2024 and R0.06 for 2025.
Growing operating cash flow and lower investments under the current dividend policy will lead to full repayment of net debt by 2028. In the future, SSC does not rule out a switch to free cash flow payments, which could result in dividends of more than RUR 0.1 per share in 2025, RUR 0.14 per share in 2026, and RUR 0.19 per share in 2027 in the absence of new projects.