Polymetal has agreed to acquire two gold deposits in Magadan suitable for providing feed for the Kubaka mill. It will acquire a 100% interest in Rudnik Kvartsevaya (RK), the owner of the Sopka and Dalniy mining licences for 10 million Polymetal shares. RBC Capital Markets views the proposed transaction as positive as the projects will provide substantial synergies and more high grade feed for Polymetal’s existing Kubaka mill complex in Magadan.

The Sopka deposit has JORC reserves of 530,000 oz Au and 12 Moz Ag (1.4Mt at 12 g/t Au and 260 g/t Ag). The Dalniy deposit has Russian C1 and C2 reserves of 152,000 oz Au and 3.9 Moz Ag. (0.8Mt at 5.9 g/t Au and 152 g/t Ag).

The total consideration of 10 million Polymetal shares values the deal at $67 million, based on Polymetal’s last closing price of $6.67/share. The transaction consideration of $67m equates to a purchase price of $73/oz gold-equivalent reserves. RBC Capital Markets views this as fair value considering the location and strategic importance of the deposits to Kubaka, in addition to gaining RK’s mining fleet.

Both projects are located 180 km from the Kubaka mill. Polymetal plans to use the Sopka and Dalniy deposits as feed for the existing Kubaka processing plant and expand the concept of Kubaka as a regional processing hub. The ores are free-milling and high grade.The Kubaka package was acquired from Kinross Gold in 2008. In addition to the licences, RK owns a substantial mining fleet and other associated infrastructure.

Polymetal expects to update reserves and release a new development plan in Q1 2010. This will focus on the four assets (Birkachan, Oroch, Sopka, Dalniy) which are intended to feed the Kubaka mill, with production from Sopka starting in 2011. RBC Capital Markets believes that the projects could sustain an 80-100,000 oz/y operation at Kubaka although RBC Capital Markets awaits the release of the new development plan. RBC Capital Markets estimates that Kubaka could add $0.30/share to the cmpany’s NAV in 2010. RBC Capital Markets’ NAV estimate for Kubaka is $100 million based on a 90,000 oz/y, 10-year operation.