Overcoming the Russian discount: How Polyus leveled up its IR outreach

Jul 15, 2021
Russian gold miner built internal capabilities to target specialist mining investors

The ‘Russian discount’ – where domestic companies trade at lower values than international peers – is a well-known phenomenon. Investors cite corporate governance concerns, a lack of transparency and geopolitical risk as some of the principal reasons for the mark-down. As a result, Russian IR teams know they have to work extra hard to get their message across to the buy side.

That’s one reason why Polyus decided to build out its internal investor targeting and corporate access capabilities, says Victor Drozdov, director of business communications and IR at the Russian gold miner, in an interview with IR Magazine. He felt that if Polyus were to attract the investors it deserved, the IR team would need to take more control over its engagement activities.

The hard work appears to have paid off. ‘Last year, we finally started to trade on par with our global gold peers – and at a premium to Russian metals and mining companies,’ says Drozdov.

He was speaking two days after the company’s virtual capital markets day in June, where the miner laid out production guidance for the next three years and discussed the much-anticipated Sukhoi Log deposit in Siberia – estimated to be the world’s largest undeveloped gold reserve.

‘I think we’ve been successful in reinforcing our investment case, especially in an environment where there was a gradual depletion of the gold reserve base globally,’ Drozdov says. ‘We still managed to provide the market with some further growth opportunities in terms of production. We’ve announced some additions to our product pipeline. On top of that, we’ve provided some additional comments on this huge greenfield, which we are going to start developing really soon.’

Aside from the Russian discount, there are other reasons why Polyus wanted to level up the IR function.

Gold miners don’t always get a lot of attention from sell-side analysts and salespeople, who need to focus on companies with a larger market cap and therefore higher trading volumes, says Drozdov. To illustrate this, he explains that the combined market cap of the world’s eight largest gold producers is still slightly below the size of resources giant BHP.

‘I’m not talking about the quality of sell-side research,’ he says. ‘I’m talking more about the time they are able to allocate to coverage of the gold mining industry compared with some other industries.’

In addition, Mifid II has made it harder for sell-side firms to play matchmaker. The European directive, implemented in 2018, complicated the ability of brokers to invite investors to roadshows and conferences. ‘The only way to make sure investors hear your voice is to talk to them personally,’ says Drozdov.

In response to these challenges, Polyus has recreated new IR roles inspired by investment banking processes. ‘We have people specifically responsible for corporate access, market research and all the discussions with sell-side analysts – it helps a lot,’ Drozdov adds.

On targeting, the company draws market data from several different sources and then analyzes it using an internal model to identify good investors to speak with. It also normally conducts non-deal roadshows on its own, whether they be virtual or, pre-pandemic, in person.

‘We’ve been able to knock on the doors of specialized investors, focusing on metals and mining for gold in particular, rather than generalists focusing on emerging markets,’ says Drozdov. ‘That’s helped us to justify the valuation multiples at which we are trading right now.’

He points out, however, that the role of IR is not to achieve a certain valuation, but to educate investors so they can make their own decisions.

The company also looks at where it can add greater depth to its disclosure. One example from this year is the release of Polyus’ first water report, a deep dive into how the miner manages water use across its facilities. Underlining the efforts being made by Polyus on sustainability, the company took the gong for best ESG materiality reporting at the IR Magazine Awards – Europe 2021 in June.

On both ESG issues and investor outreach, Polyus must always strive to do more, says Drozdov: ‘We need to develop constantly, always thinking of additional pieces of information we can provide to the market.’

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