19th Jul 2016 07:36
LONDON (Alliance News) - Petropavlovsk PLC Tuesday said production for the full year will now be at the lower end of expectations after severe flooding hit operations and contributed to a 22% drop in production in the first half.
The miner, which primarily operates in Russia, said gold production fell to 187,400 ounces of gold in the period compared to 240,200 ounces a year earlier with all four producing mines reporting year-on-year declines.
Petropavlovsk said severe flooding and the planned processing of lower grade ore caused the fall in production, warning the impact of the flooding has already hit production in the second half that began this month.
Full year production is now expected to be at the lower end of the guidance range of 460,000 to 500,000 ounces of gold.
Gold sales in the half of 195,400 ounces outstripped production but was still down from the 229,700 ounces sold last year. The average gold price in the period was USD1,194 per ounce, which includes the company's hedging programme.
Petropavlovsk, at the end of June, had a further 119,000 ounces of gold hedged at a price of USD1,269 per ounce.
To put that into perspective, Petropavlovsk said its "preliminary" total cash cost in the first half was USD690 per ounce, a huge fall from USD767 per ounce last year. The target for the full year remains unchanged at USD700 per ounce.
The miner said reducing its debt pile remains a top priority as it brought net debt down to USD598.0 million at the end of June, a minor reduction from USD610.0 million at the end of last year. Gross debt at the end of June fell to USD616.0 million from USD638.0 million.
Based on a gold price of USD1,200 per ounce, Petropavlovsk said net debt at the end of this year should be about USD570.0 million, which would be 6.6% year-on-year reduction if delivered.
Petropavlovsk said capital expenditure this year will still be around USD70.0 million, with only USD10.0 million of that budget being spent on exploration.
Elsewhere, Petropavlovsk said a competent persons report has been published after an evaluation of the assets held by Amur Zoloto was conducted. Petropavlovsk is acquiring the gold company with production and development assets in the Far East of Russia.
The report said the assets hold measured, indicated and inferred resources of 1.86 million ounces of gold, of which 1.35 million ounces are ore reserves. The post-tax net present value of the assets is estimated to be around USD170.0 million based on a gold price of USD1,100 per ounce.
Importantly, the previous ore reserve estimate of 1.55 million ounces was higher than the new estimate.
Shareholders still need to approve that acquisition before it can be completed, with Petropavlovsk acquiring the company for USD144.0 million in an all-share deal.
Petropavlovsk also said it is still discussing the potential acquisition of Kamchatka Gold, which are Renova's assets in Russia. Renova is the company's largest shareholder.
Petropavlovsk shares were down 0.1% to 7.60 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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