Nordgold/Alexei Mordashov: Bringing in Russian Bling
Reprinted from the FT – 04/06/2021
Promising returns await those who can tolerate political risks. Russian gold miner Nordgold is planning to list in London. The UK may block some foreign listings under mooted security provisions, the Financial Times reported last week. Companies from ex-Soviet countries would be among the targets. Alexei Mordashov, owner of Russian gold miner Nordgold, may be wise to press ahead with fresh plans for a London premium listing. The London Stock Exchange and UK listing authorities have had a habit of admitting debutantes they later regretted.
Kazakhstan’s ENRC and Indonesia’s Bumi spring to mind. But that should not deter investors from Nordgold, provided they can tolerate political risk. The gold miner, for its part, will have to show it can stick to tough UK governance standards. Gold prices would underpin Nordgold’s float better now than in 2011 when it was last seriously mooted.
Inflation gauges are blinking yellow, sending investors scurrying for commodity producers. Two Canadian gold miners, Yamana and Endeavor, already offer shares in London or hope to. Polymetal is the successful precedent. The share price of the premium-listed Russian gold miner has outpaced most peers. Nordgold stock may too. The group expects to grow its 1m ounces of production by a fifth in five years.
The sector’s average ratio of enterprise value to EBITDA is seven times. Apply that to Nordgold’s trailing earnings and it would achieve a $6bn valuation. The miner promises a minimum of $400m in dividends this year, a solid mid-digit yield. Its mines in Russia and Africa produce at under $1,000 per ounce, generating a free cash flow of about $500m in 2020. No new equity is needed.
The question investors need to level at Mordashov’s representatives is why is he selling at all? The float would feature a secondary offering of stock from the chair of steel group Severstal, Nordgold’s original parent. One risk is that, unlike Samuel Johnson, the oligarch will tire of London, particularly if UK relations with Russia fray further. He and his family would likely retain a 75 per cent stake. Severstal itself has listed depositary receipts in London since 2007. But various other ex-Soviet tycoons have withdrawn from the UK stock market. Bearing that risk in mind, Nordgold offers promising returns.