About the risk of loss of license for Sukhoi Log is said in the prospectus for the placement of Polyus's Europonds, a copy of which was obtained by RBC (the planned amount of bond issuance is $500 million).  SL Zoloto, which is a joint venture of Polyus and Rostec, just a week ago, on January 26, won the auction for the right to develop the Sukhoi Log deposit in the Irkutsk region, offering 9.4 billion rubles.

"Despite the fact that SL Zoloto is not under Western sanctions and the current sanctions against Rostec do not interfere, in the opinion of Polyus, with further cooperation between the companies, the possible introduction of new sanctions against Rostec can lead to the disintegration of the joint venture and the loss of the right to develop Sukhoi Log," the document says.

The US imposed sanctions against Rostec along with other Russian state and some private companies after the annexation of Crimea by Russia and an exacerbation of the conflict in the east of Ukraine in 2014. The state corporation is also afflicted by the ban on new financing transactions and the provision of new loans for more than 30 days from US individuals and entities. Certain subsidiaries of Rostec and top managers were also under US and EU sanctions, which restrict fundraising.

In its prospect, Polyus recalls that some Western politicians were in favor of strengthening the anti-Russian sanctions. For example, in early January, the then-US President Barack Obamaextended sanctions against Russia for another year. "In addition, in January 2017 the United States government agency distributed a report on the attempts of the Russian authorities to influence the US presidential election. Following these statements, some well-known politicians of the country voiced in favor of the introduction of additional sanctions against Russia," says the document of Polyus. Despite the fact that politicians and experts expect the weakening and gradual lifting of sanctions against Russia from the new American president, Donald Trump, US senators recently prepared a new draft law on anti-Russian sanctions, which may relate to investment in the mining, construction of pipelines and civilian nuclear projects.

The representative of Polyus refused to clarify whether the company considered options to retain the license for Sukhoi Log, if Rostec is affected by new sanctions or SL Zoloto gets into the sanction list. The representative of Rostec declined to comment.

Polyus owns 51% of SL Zoloto, created in July 2016 in order to participate in the auction (SL stands for Sukhoi Log), the remaining 49% is owned by Rostec. Immediately after winning, Polyus reported to have received the right for five years to increase its stake in the joint venture to 74.9%: Rostec would receive $141 million for its 23.9%, while retaining a blocking stake (25.1%). The presence of state-owned companies or state-owned corporation with a share of at least 25% of the shareholders of the operating company is the condition of the auction for Sukhoi Log, as stipulated by the order of Premier Dmitry Medvedev. 

Five trenches

Polyus agreed to buy 23.9% of SL Zoloto from Rostec during five years for $141 million, transferring the funds in five tranches, according to the prospectus of Polyus. The first tranche of $21.1 million for 3.6% of the company should be listed before June 30, 2017. Another $28.2 million the gold miner will pay for three consecutive years, in 2019-2021 ($84.6 million in total). The remaining $35.3 million will be transferred in 2022, it follows from the document.

Kerimov has also received the right to redeem these shares of SL Zoloto ahead of schedule, reports its press office and confirms the representative of Polyus. Moreover, Polyus has the right to appoint the general director of SL Zoloto and get two out of three seats in its board of directors.

"The joint venture is the only way to ensure the requirement of state participation in the project," said in July Polyus CEO Pavel Grachev in an interview to Vedomosti.

Participation of Rostec in the JV predetermined the tender victory, analysts polled by RBC are sure. "This auction took place largely due to Rostec, which helped convince the state that the alliance of Rostec and Polyus will be structurally correct domestic project shareholder and experienced operator of major gold projects at the same time," said director of metallurgy and mining in Prosperity Capital Management Nikolay Sosnovski. 

But if because of new sanctions against Rostec, SL Zoloto will be deprived of the license for Sukhoi Log, the partners will not be able to return the money they have to pay into the budget by the end of the auction (as a deposit, the company has already transferred to the account of Rosnedra 8,5 billion rubles., and another 855 million rubles should be paid in the near future). According to the law "Concerning Subsurface Resources", a one-time payment (9.4 bln.) shall not be returned to the subsurface user in case of licence revocation, a representative of the Natural Resources Ministry told RBC. 

In terms of gold reserves, which the auditors estimated at 64 million troy ounces (troy ounce is about 31.1 grams), Polyus, according to JORC classification, ranks fourth in the world after Canada's Barrick Gold (92 million ounces), the American Newmont Mining Corp. (74 million ounces) and Australia's Newcrest Mining (69 million ounces). After obtaining a license for Sukhoi Log, Polyuses can be almost double that potentially will lead Kerimov's company in the first place: the State Commission for Mineral Reserves estimated its reserves at 62.8 million ounces. However, Sukhoi Log has not yet been audited in compliance with the JORC classification.