Fourth-largest gold producer due for IPO

The biggest gold company you may never have heard of — may, because The Northern Miner did cover it at length two years ago — could be heading towards an initial public offering (IPO) in this year’s third quarter.

Navoi Mining and Metallurgical Co. produced 2.9 million oz. in 2023 and sits on a resource of nearly 150 million oz., although it’s not calculated according to Western standards.

Deep under the red sands of the Kyzylkum Desert in Uzbekistan lies Muruntau – what may be the world’s largest gold deposit. Even after 60 years of mining, 68 million oz. of indicated and 33 million oz. of inferred resource remains, along with probable reserves of 45 million oz., according to Navoi.

When we last spoke with Eugene Antonov, deputy CEO and chief transformation officer of the state-owned company, Navoi was making its first appearance at PDAC in 2023. It was adding another open pit mine to the dozen it already had across the Central Asia country and was testing the IPO waters in talks with Western banks.

London

Now, the shift for a London listing appears to be underway, at least according to an analysis by La Mancha Resource Capital, a private equity firm specializing in investments in the mining sector, particularly gold and battery metals, with a $1.5 billion fund. It is backed by Egyptian billionaire Naguib Sawiris and operates from Luxembourg.

Antonov declined to comment when reached by The Northern Miner. But La Mancha general counsel Matthew Fisher and managing partner Vincent Benoit offered their insights on what would be Uzbekistan’s first substantial IPO after the government put Navoi on the path in 2021.

If the IPO proceeds, potential investors will have a number of questions in mind. Take it away, Fisher and Benoit:

When will the IPO happen?

The deal was originally slated for 2022 or 2023, but the market-chilling effect of the conflict in Ukraine put paid to that timetable. With the capital markets now recovering, there are signs that Navoi is gearing up for an IPO this year. Most obviously, the latest presidential decree sets this year’s third quarter as a deadline. Beyond that, Navoi has already completed many tell-tale pre-IPO steps.

It has in recent years carved non-core assets out of the transaction perimeter by transferring out its uranium assets; secured financing from international banks via a $1.2 billion syndicated loan; and is bringing its reporting into line with international investors’ expectations by adopting Australian JORC-compliant resource and reserve estimates, overhauling its English-language investor website, and publishing its first audited International Financial Reporting Standard statements and environmental, social and governmental (ESG) report.

The final dress rehearsal for the IPO occurred in October when Navoi sold $1 billion of eurobonds to international investors. Everything points to a high level of preparedness for an IPO before the year is out.

Which exchange will Navoi choose?

To capitalize on the profile it built among investors with its eurobond listing, Navoi will almost certainly IPO on the same venue — the London Stock Exchange. That could be seen as a surprising choice: London has in recent years slipped to fourth place for mining listings and has struggled to attract IPOs more generally.

It has, however, kept a healthy roster of Central Asian issuers, especially miners, ever since the first Kazakh companies listed in 2005. Most relevantly, the Kazakh state uranium mining company chose London for its privatization IPO in 2018. Navoi will have precedents such as this in mind, and also be influenced by the Uzbek Ministry of Finance choosing to list all three of its sovereign bonds in London.

Of course, no sale of a national champion like Navoi would be complete without a local listing, so investors can also expect a simultaneous listing on the Tashkent Republican Stock Exchange.

What’s the transaction size?

Uzbek IPOs to date have been modest affairs attracting little interest even within Uzbekistan. For example, the UzAuto Motors IPO in 2023 — the country’s largest to date — was greatly undersubscribed and raised just $5 million.

An IPO of Navoi would be orders of magnitude larger. While the government was initially considering the sale of up to 15% of Navoi, that has since been tempered to 5%.

That still gives an estimated deal size of $550 million, based on an $11 billion estimate of the company’s market capitalization endorsed by the Uzbek government in 2020.

Which banks will advise Navoi?

Given the potential offering size, Navoi will unquestionably need the help of top international banks. JPMorgan, Citi and SocGen look like shoo-ins given they underwrote Navoi’s eurobond and Uzbekistan’s sovereign bonds.

As in most emerging markets deals, we’re also likely to see at least one local or regional bank to provide in-country coverage – perhaps Mashreq or First Abu Dhabi from the UAE, which were involved in recent Uzbek sovereign bond deals, or Kazakhstan’s Halyk Bank, who was a lender on NMMC’s syndicated loan.

The names we won’t see are the likes of VTB and Gazprombank. While the Russian banks were heavily involved in Uzbekistan’s initial foray into the capital markets, they are since the start of the conflict in Ukraine no longer able to participate in international capital markets transactions.

What to look out for in the prospectus?

The potential for government intervention is a key consideration. Revenues from Navoi make up almost 17% of Uzebkistan’s entire state budget, but as S&P notes, there is little to prevent the government from hiking dividends to extract even more cash from the company.

Even if dividends are sustainable, the recent announcement of a mining supertax in Kazakhstan raises concerns of a similar move in Uzbekistan. Navoi would be wise to include reassurances in the prospectus around its dividend policy, appointments of independent directors, and government tax policy.

Health and safety should also be top of mind. The eurobond prospectus discloses that Navoi’s practices “do not comply with international standards” and that between 2021 and 2023, 20 Navoi staff were killed at work. This compares unfavourably with Barrick Gold’s (NYSE: GOLD; TSX: ABX) 12 fatalities and Newmont’s (NYSE: NEM, TSX: NGT) single death in the same period.

While Navoi admits it has a “substantial journey ahead” when it comes to safety, ESG-conscious international investors will expect the IPO prospectus to demonstrate a clear downward trend in accidents and a roadmap to compliance with best practices.

Consider, too, the long-term robustness of Navoi’s business. In recent years around 70% of its gold production has been attributable to Muruntau. A major strike, permitting dispute, accident or disaster at the site could spell ruin for the company.

To address this, Navoi budgeted $64 million for exploration last year, more than double the amount it spent in 2021. Given this investment will not bear fruit for years, it remains to be seen what the IPO investors will make of this potential source of fragility.

What’s next?

Navoi is not the only mining company in Uzbekistan preparing for an IPO. The state copper miner, Almalyk, is expected to follow suit shortly thereafter.

With ambitions to increase production of gold by 50%, silver and uranium by 200% and copper by 250%, the government of Uzbekistan clearly hopes the bellwether IPOs of Navoi and Almalyk will establish the country as a serious mining jurisdiction and kickstart sustained investment by foreign capital. Investors would do well to give Uzbekistan a closer look.