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Conditional Sale of Non-Strategic Alluvial Assets

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RNS Number : 7761X
Petropavlovsk PLC
24 November 2014
 



24 November 2014

Conditional Sale of Non-Strategic Alluvial Assets

Petropavlovsk PLC ("the Company" or, together with its subsidiaries, "the Group") today announces that its subsidiary Peter Hambro Mining (Cyprus) Limited ("PHM Cyprus") has entered on 21 November 2014 into a conditional agreement relating to the sale of its 95.7% interest in OJSC ZDP Koboldo ("Koboldo") to Rosszoloto LLC (the "Purchaser") (the "Transaction") for a total cash consideration of RUB1.0 billion (c.US$21.8 million1) payable on completion of the Transaction ("Completion"), plus additional payments in respect of VAT repayments.

 

Koboldo's gold production is solely from alluvial operations located in the Amur region in the Far East of Russia. Its total 2013 annual production was 32,400oz, representing approximately 4.4% of the Group's total attributable gold production for 2013. The decision to dispose of this non-strategic asset will allow Petropavlovsk to decrease its net debt position further and to focus on the development of the Group's highly prospective hard-rock mines in the Amur Region. This is further to the disposal of the Company's 76.62% interest in OJSC Berelekh, which was approved by shareholders and completed in Q4 2013.

 

The Transaction is of sufficient size relative to the market capitalisation of the Company to constitute a Class 1 transaction for the purposes of the Listing Rules of the UK Listing Authority (the "Listing Rules"). Pursuant to the Listing Rules, a Class 1 Circular and Notice of General Meeting in respect of the Transaction is expected to be sent to the Company's shareholders in December 2014, at which point a further announcement will be made.

 

The Transaction is to be implemented in accordance with the terms of the share purchase agreement ("SPA") and is conditional upon, amongst other things, (1) the approval of the Federal Antimonopoly Service of Russia and (2) approval by the shareholders of the Company. 

Note 1:    Converted at the official exchange rate of RUB45.7926:US$1.0 set by the Central Bank of the Russian Federation on 22 November 2014, being the latest practicable date prior to the date of this announcement.

 

Details of the Transaction

Pursuant to a conditional loan agreement dated 21 November 2014 and as permitted under Russian law, Koboldo will, once most of the conditions precedent to the Transaction have been satisfied and immediately prior to Completion, lend the Purchaser RUB800 million (c.US$17.5 million1), which will comprise all or substantially all of Koboldo's cash, to fund, through a letter of credit, RUB800 million (c.US$17.5 million1) of the consideration payable at completion, with the balance being funded out of the Purchaser's own resources.

 

Effect of the Transaction on the Group

 

The estimated net proceeds of the Transaction (after related expenses) are approximately US$21.3 million), excluding the VAT repayments. Taking into account the estimated amount of intra-group debt to be repaid to Koboldo immediately prior to completion and the expenses of the Transaction, the net cash enhancement for the Group (excluding consideration in respect of the VAT repayments) is estimated to be approximately US$3 - 4 million.

 

Due to the timing of the Transaction, it is expected that production from Koboldo throughout 2014 will be included in the Group's 2014 production therefore the Transaction will not have any effect on the Company's 2014 production target. The relatively high cash-cost base of Koboldo's operations also means that, if implemented, the Transaction is not expected to make a significant impact on the Group's future profitability. Koboldo is not a party to the Group's outstanding hedging arrangements.

 

The Transaction is expected to result in an accounting loss on disposal of an estimated c.US$15 million to be recognised in the Group's consolidated results for the relevant financial year in which the completion of the Transaction occurs. The actual result on disposal may vary depending on the results of Koboldo for the period up to the date of completion of the Transaction, the official exchange rate of RUB to US$ at the date of completion of the Transaction and the consideration in respect of the VAT repayments.

As the assets held by Koboldo do not have any JORC-compliant Mineral Resources and Ore Reserves, the Group's total mineral resources and ore reserves in accordance with the JORC Code (2004) will be unaffected by the implementation of the Transaction.

About Koboldo

Koboldo's gold production is solely from alluvial operations located in the Amur region in the Far East of Russia. Total 2013 annual gold production from Koboldo was 32,400oz, representing c.38% of the Group's total alluvial gold production and c.4.4% of the Group's total attributable gold production for 2013. As at 30 June 2014, Koboldo had gross assets of c.US$43.6 million and profit before tax for the year ended 31 December 2013 was c.US$0.2 million.2

All the mineral licences held by Koboldo relate to the Company's alluvial projects, and therefore mineral resources and mineral ore reserves for Koboldo are reported in accordance with Russian Code for the Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves (the "NAEN Code"). As of 30 September 2014, Koboldo had c.500,000oz of total Mineral Resource and c.348,000oz of Mineral ore Reserves.

 

The individuals who are deemed key to the operations of Koboldo are the General Director and Chief Accountant (currently Mr Mikhail Korolev and Ms Tatyana Korol).

 

Note 2: As extracted without material adjustment from the consolidation schedules that underlie the audited consolidated financial statements of the Company for the financial year ended 31 December 2013 and the unaudited consolidated interim financial statements of the Company for the six months ended 30 June 2014.

 

 

About Rosszoloto LLC

 

Rosszoloto LLC is a company registered and existing in accordance with the laws of Russia with Company registration number 1082801009763. It is involved in gold mining in the Amur Region of Russia and is wholly owned by Mr Araik Khachatryan.

 

Commenting, Chairman, Peter Hambro said:

"The Board's decision to focus on balance sheet optimisation and on production and growth from the Group's four high margin hard-rock mines in the Amur Region, taken in May 2013 in response to a volatile gold price environment, has already resulted in Petropavlovsk being able to increase year-on-year net cash flows substantially and to reduce net debt from its peak of US$1.2 billion in March 2013 to approximately US$902 million as at 30 September 2014. This was achieved through a comprehensive cost cutting programme, working capital reduction and capital expenditure optimisation and disposal of certain non-core assets.

 

The disposal of Koboldo which follows the earlier sale of the Company's 76.62% interest in OJSC Berelekh, the high-cost alluvial asset in the Magadan Region - is the next logical step in this direction.

 

Koboldo as an operator of a number of alluvial assets in the Amur region does not represent a material part of the Group's assets and is considered as non-core to the Group. It represented just 4.4% of the Group's attributable gold production in 2013.

 

However, in the context of the Group's ongoing refinancing discussions and the associated recent fall in the Company's share price, the consideration for the Transaction represents more than a quarter of the Company's current market capitalisation.

 

The relatively high cash-cost base of these operations means that we do not expect this Transaction to make a significant impact on the Group's future profitability. The decision to dispose of this non-strategic asset will allow us to decrease our net debt position further and to focus management time and resource on the development of our highly prospective hard-rock mines in the Amur region."

Enquiries:

Petropavlovsk PLC

Alya Samokhvalova 

Rachel Mills

 

  +44 (0) 20 7201 8900

 

 

Maitland

Neil Bennett

George Trefgarne

Seda Ambartsumian

 +44 (0) 20 7379 5151

 

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.

 

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by the Listing and Disclosure and Transparency Rules, the Company is under no obligation to update the information contained in this release.

 

Past performance is not a guide to future performance.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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