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1_01_Uzbekistan_IMF21

Eurobonds and IPO to help gold producer boost production

Kurbanmurat Taparov, Deputy General Director, Navoi Mining and Metallurgical Combinat - 1.jpg

GlobalMarkets: What progress has been made in the reform of Navoi Mining and Metallurgical Combinat (NMMC)?

Kurbanmurat Taparov, deputy general director, Navoi Mining and Metallurgical Combinat: NMMC is the largest enterprise not just in the industrial sector but the whole country. We account for 14% of all industrial products in Uzbekistan and contribute 22% of the state budget. In 2020, NMMC’s gold production reached 79.7 tonnes, ranking us 5th among the world’s largest gold producers. The government is keen to reform the metals and mining industry, and has passed three decrees in the last three years. These will introduce a modern corporate governance system, and most importantly create a favorable investment environment for foreign investors.

In line with the decrees, NMMC has become a joint stock company and transferred assets unrelated to gold mining to relevant organisations and local authorities. A ‘Big Four’ accounting firm carried out the valuation of all NMMC’s assets and liabilities. Separate state entities “Navoiuran” and “Fund of Navoi Mining and Metallurgical Combinat” were established to hold property and other non-gold related assets. The fund has been operating as a separate legal entity since June of this year.

GlobalMarkets: Is NMMC gaining any new assets as part of the reform?

Taparov: There are deposits that will be transferred to NMMC. The State Committee for Geology and Mineral Resources has prepared a list of deposits to be transferred and more than 22 were revalued in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). The revaluation work of an additional 10 deposits will be wrapped up this year.

GlobalMarkets: Can you outline some of the investment projects NMMC will be undertaking?

Taparov: In 2017, there was a specific decree to increase NMMC’s production of precious metals that covers the period through to 2026. There are 27 major investment projects, which will ultimately increase gold production by 30%. Gold production has already increased by 10% and silver by 45%. In 2020, we held the opening ceremony for the 7-Gidrometallurgical plant, which is part of this investment programme. The plant has the capacity to process 15 million tonnes of technological waste using technology unique in global processing. Capital expenditure on these various projects between 2017 and 2021 totalled $2.4bn. Foreign investment in NMMC is over three times what it was in 2016. According to the investment programme for 2022-2026, we plan to raise financing of just over $1.54bn. This will bring a further 20% increase in gold production.

GlobalMarkets: How will NMMC’s approach to financing change as a joint stock company?

Taparov: We plan to use different instruments such as loans from financial institutions and corporate bonds. That way, the funds remaining at NMMC’s disposal can be directed to the state budget and used to finance large-scale development projects including social programmes and infrastructure development programmes.

In order to help raise international financing we prepared an ESG development report in accordance with GRI (Global Reporting Initiative) standards with help from Deloitte. A new IFRS-standard accounting policy was developed with help from a ‘Big Four’ accounting firm, and a fundamentally new corporate structure designed in consultation with international experts.

It is worth noting that from 2020 NMMC’s investment projects have been financed through loans taken from international banks. We have entered into unsecured loan agreements totalling $850m with international banks. Raising international financing from banks has been made possible in part by moving to IFRS standard financial reports as part of the transformation process.

GlobalMarkets: What are the next priorities for reform?

Taparov: In the near future we plan to implement several important measures. The main stages of reorganising NMMC into a full-fledged joint stock company are scheduled to finish in October.

In order to increase operational efficiency and create a proper compliance system, we are auditing our procurement and management mechanisms, again with assistance from an international consultants. The combinat will soon introduce a new electronic accounting and financial reporting system that will help improve financial analysis and planning.

The appointment of foreign experts to our supervisory board has been approved, as part of a push to increase the number of qualified specialists. NMMC is working with recruitment consultants to attract additional foreign and local specialists to managerial positions.

We know that introducing modern methods of corporate governance makes the company more attractive to international investors. In addition, raising

financing through the placement of securities in order to further develop the company, expand production capacity and create additional job places is a key feature of joint stock companies. NMMC is considering the possibility of issuing Eurobonds in 2022, and next year, in case of favourable conditions and following the issuance, we may place shares through an IPO on an international stock exchange.

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