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Alexei Mordashov’s steelmaker Severstal has finally gained control over Canada’s gold mining company Crew Gold, which operates in Guinea (west Africa). The deal, which cost Severstal roughly USD 200m in total, has enlarged the company’s gold mining business by over a third.

As Crew Gold announced yesterday, Severstal Gold N.V., Severstal’s subsidiary, purchased 209.4m shares in Crew Gold on the over-the-counter market at EUR 0.26 per share for a total of nearly EUR 54.5m. As a result, Severstal Gold’s share in the Canadian gold producer rose from 40.4 to 50.17 percent.

Severstal embarked on building its stake in Crew Gold in January 2010, and by April 2010, it had already consolidated 26.59 percent. The company was preparing to make an offer to buy out the remaining shares when it ran into opposition from Crew Gold’s major shareholder, Endeavour Financial Corp., which also harbored plans to obtain control over the gold mining asset. In order to outstrip its competitor, the Russian company won over the support of minority shareholders and, having initiated a reelection of its board of directors, placed three of its own representatives on the board. No plans to hold another reelection have been divulged by Severstal.

Likewise, the company provided no comment on whether or not it was currently in talks with Endeavour over the latter’s share in Crew Gold. Severstal is under no obligation to extend an offer to repurchase shares to other shareholders in connection with its latest deal. According to Olga Okuneva from Deutsche Bank, there is no further need for Severstal to increase its share in Crew Gold at any cost. “At this point, Severstal can already consolidate its performance figures,” Dmitry Smolin from Uralsib added. As another reason for this, he cited the fact that Severstal itself showed a high net debt of USD 4.2bn as of the end of 2009.

By and large, the Crew Gold stake cost Severstal roughly USD 200m. For reference, its current capitalization is estimated at USD 635m. Yet, the most recent deal resulted in Severstal paying a premium of 23 percent for the controlling stake. As Okuneva pointed out, Russian gold mining companies are now trading at roughly USD 225 per ounce of reserves. Meanwhile, Severstal paid some USD 67 per ounce of Crew Gold’s reserves (3m ounces according to unconfirmed data). The deal effectively put Severstal in the second position among Russia's gold miners.

Crew Gold is incorporated in Canada, with its headquarters in London, and conducts production and prospecting operations in Guinea. Its Q1 2010 revenue stood at USD 57.5m, with roughly 58,000 ounces of gold produced.

Analytical department of RIA RosBusinessConsulting