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Hope of $250million rescue plan for gold producer Petropavlovsk

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07 November 2014


Petropavlovsk was valued at more than $3billion four years ago. Picture:

Russian gold producer Petropavlovsk is on the brink of a rescue package that could save the company following a turbulent period that saw billions wiped off its value. Directors of the firm, which commercially develops gold deposits in the Amur region of Siberia, have announced they are looking at 'all options' to stem the crisis.

Stressing that no deal has yet been done, in a statement they said they had received a number of proposals from third-party investors. The announcement came after the Financial Times newspaper said that consortium, of Russian, German and South African investors, was prepared to inject up to $250million in the company.

Founded by Eton-educated Peter Hambro, Petropavlovsk was valued at more than $3billion four years ago and was a potential candidate to move into the coveted FTSE100. But today the firm is now worth just $60million and is in a perilous financial situation, with speculation it may even default on $310million in convertible bonds in February.

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia 
Gold mining in Yakutia. Pictures:

The crisis comes amid an economic slowdown in Russia, a devaluation of the rouble, western sanctions following intervention in Ukraine and the plummeting price of gold. A statement from Petropavlovsk said: 'The company confirms it is continuing to talk to its senior lenders, bondholders, other stakeholders and third parties in order to complete a holistic refinancing of the group’s outstanding four per cent convertible bonds due February 2015.

'As part of this ongoing process, the company has also been in receipt of approaches by various potential third-party investors in recent months. The company continues to examine all its options and is working towards a solution in as expedient a manner as possible. No transaction has yet been approved or agreed'.

The Financial Times reported the consortium includes Russian Kirill Androsov, the managing partner of Altera Capital and former deputy chief of staff to Prime Minister Vladimir Putin. Shares in Petropavlovsk rose almost 20 per cent after news broke of the potential rescue deal, which has been put together by Amsterdam-based investment company Sapinda.

Petropavlovsk develops gold deposits in the Amur region at mines in Pokrovsky, Pioneer, Malomyr and Albyn. The company decreased gold production by four per cent to 741,000 ounces in 2013, and targets for 2014 are even lower at 625,000 ounces.

In the first half of this year the company did cut its net losses nearly 88 per cent to $95million, but was unable to post profits. The fall from grace for what was once one of Russia’s biggest companies is certain to be difficult for the man who built it up from nothing 20 years ago.

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Malomyr and Pokrovsky mines. Pictures: Petropavlovsk 

Indeed, the potential rescue bid brings into question the very future of Mr Hambro, who turns 70 next year. It was in 1994 that he and Russian business partner Pavel Maslovsky founded the firm and helped finance the development of gold deposits in the Amur Region. Then known as Peter Hambro Mining, it became a pioneer in 2002 when it listed on London’s Alternative Investment Market, with other Russian mining firms following suit.

At that time the company had a turnover of $23million and was producing fewer than 100,000 ounces of gold a year, but as the price of gold rocketed so did its fortunes. The firm quickly became the most valuable listed on the AIM and its name was changed to Petropavlovsk, with Hambro bullishly saying he wanted to create a Russian mining empire.

By 2012 it was producing 700,000 ounces of gold but with prices beginning to fluctuate, investors were growing more cautious of the industry.

Many speculated the company’s ties with Russia, particularly its change of name, hindered its growth while Mr Hambro’s own pay was criticised, with one in five investors voting against his re-election as executive chairman.

In his firm’s 2011 annual report he responded to signs of a downward trend by saying: 'It both saddens and perplexes me that the price at which the company’s shares change hands reflects neither [its] achievements nor the great potential that the group has. I must assume that the market is placing a far higher discount on mining assets in Russia than I, after about 30 years of involvement with Russia, deem necessary'.

Russia is on the brink of a recession, fuelled by the sanctions imposed by the West which have left the country with limited access to international markets.

Meanwhile, it was also announced that Mr Maslovsky, who has been a Russian senator for the past three years, is rejoining the firm as chief executive.

Comments (2)

Probably there is an Indian or Chinese millionaire interested in buying the company using imported labor and technology to develop its mines.
Enrique, Spain
12/11/2014 01:43
Ridiculous market cap for this company. As regards imported technology, Petropavlovsk is a world leader and at the cutting edge of mining technology. More likely that the Chinese and Indians would look to replicate what they're doing.
Observingmen , Uk
25/11/2014 13:45

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