Filed 16 January 2012, 15:54 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.
Nord Gold, the gold-mining business separated from the Russian steel producer Severstal, moved to list global depositary receipts on the London Stock Exchange. The route gave the company a London-traded, dollar-denominated instrument without reorganising itself as a UK entity, and gave international institutions a familiar security to hold in place of shares registered in Moscow.
The separation itself was the more consequential half of the story. A gold business inside a steel group is valued as part of a steel group: the market applies a single multiple, cyclical steel earnings dominate the reported figures, and the specialist gold investors who would pay most for the assets cannot buy them on their own. Spinning the business out and listing it addressed all three at once.
What a depositary receipt is
A depositary bank holds the underlying shares and issues certificates representing them, which trade on the foreign exchange in that exchange's currency and settle through its ordinary infrastructure. An institution buying the receipt gets economic exposure to the company without needing a custody arrangement in the home market, and the issuer gets access to that institution's money without a full foreign listing.
The trade-off is disclosure and governance. A receipt programme carries lighter obligations than a primary listing, which is exactly why it was attractive and also why some funds discount the instrument relative to shares. During the years this archive covers, several Russian resource companies used the route, and the pricing of those programmes is a reasonable record of how international capital assessed Russian mining risk before the sanctions period changed the question entirely.
The timing
The listing came near the top of the gold price cycle, with the metal above $1,600 an ounce and producer valuations reflecting an expectation that it would go higher. It did not. Gold broke in April 2013 and drifted to about $1,060 by the end of 2015, and gold-producer equities fell considerably further than the metal, the standard result of operating leverage, in which a producer's margin is the difference between a falling price and a largely fixed cost base.
Read alongside the mine-level dispatches in the mining section, this is the corporate half of a single story: 2011 and 2012 full of listings, expansions and feasibility studies; 2014 and 2015 full of write-downs, deferrals and shafts placed on care-and-maintenance.
The record
The company name appears in the archive in more than one form: the original headline reads "Nord Gold", and the corporate name has since been styled differently. The headline is preserved exactly as filed, because a record that quietly restyles the names in it is no longer evidence of what was published.
Questions about this dispatch
What is a global depositary receipt?
A certificate issued by a depositary bank representing shares it holds in a company's home market, tradeable on a foreign exchange in that exchange's currency. It let a Russian producer be priced and traded in London without becoming a UK company, and let international institutions hold the exposure without arranging custody in Moscow. The trade-off is lighter disclosure than a primary listing.
Why separate a gold business from a steel group at all?
Because the market values a conglomerate as one thing. Inside a steel group, gold assets are valued on a steel multiple, cyclical steel earnings dominate the reported figures, and specialist gold investors, who would pay the most for those assets, cannot buy them separately. A spin-out and listing fixes all three, which is why it was a recurring pattern among diversified resource groups in this period.
How did the listing perform?
It came near the top of the cycle. Gold was above $1,600 an ounce and fell to about $1,060 by December 2015, and gold-producer equities fell considerably further than the metal because a producer's margin is the gap between a falling price and a largely fixed cost base. This dispatch records the decision at the moment it was taken, not the outcome.
This page restores an item first published on 16 January 2012, 15:54 IST at the address below. Cite the publication date rather than the date you read it: the material is a 2011 to 2016 document, and the date is what makes it meaningful.
https://www.bullionstreet.com/news/russias-nord-gold-to-list-gdr-on-lse-soon/828