UPDATE:Severstal Plans London Listing Of Gold Unit In 4Q-Source

OAO Severstal (CHMF.RS), Russia's largest steelmaker, plans a London-listing of its gold unit during the fourth quarter of this year that would value the unit at $4 billion, a person familiar with the matter said Thursday.

Severstal is taking advantage of record-high gold prices to list a minimum of 25% to 35% of its gold unit's shares on the London Stock Exchange, the person said. Severstal will retain a majority stake in the gold unit after the listing, the person added.

Gold prices are hovering at a historic high of nearly $1,300 a troy ounce due to continued concerns about the health of the global economy, particularly in Europe and the US where unemployment is high and economic growth is fragile.

The person said Morgan Stanley (MS) is the lead advisor and sole sponsor for the listing. The bank is working together with Credit Suisse (CS) as joint global coordinator. The two banks are also working with Russia's Troika Dialog as joint bookrunner.

Morgan Stanley and Credit Suisse declined to comment. Troika wasn't immediately able to comment.

The deal could generate proceeds of up to $1 billion, the person familiar with the matter said. Part of the proceeds would be used to pay down debt owed by the gold unit to the parent company and part of the proceeds would be used to fund the gold unit's ambitious growth plans, including exploration projects and potential acquisitions, the person said.

Severstal's gold unit, Severstal Gold, germinated from a string of acquisitions that started in 2007 with the purchase of Celtic Resources and culminated in the acquisition of South America-focused gold exploration company Sacre Coeur Minerals Ltd (SCM.V) Thursday. Severstal Gold produced 529,000 troy ounces in 2009 and plans to produce 640,000 to 670,000 ounces in 2010, according to a company presentation on its website. Severstal plans to produce 1 million ounces from gold mines in Russia, Kazakhstan, and West Africa by 2013. The company currently has a resource base of 22 million ounces.

Severstal is not alone in trying to maximize value from its gold assets. International commodities trading house Glencore International is also considering a partial listing of its gold assets and Barrick Gold Corp (ABX) in March spun off African Barrick Gold PLC (ABG.LN) in what was at the time London's largest IPO since 2008.

Severstal is likely to extract more value from a share listing than keeping the unit in-house, equity analyst Vladimir Zhukov from Nomura said in a note.

Severstal trades at 3.5 times the Russian steelmaker's enterprise value over estimated 20011 earnings before interest, taxes deprecation and amortization or Ebitda, but does not get the full credit for its gold segment, which could fetch a valuation of as much as 8.0-10.0x EV/EBITDA, Zhukov said.

He values Severstal's gold unit at $3 billion to $3.6 billion.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

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