28th Apr 2016 07:39
LONDON (Alliance News) - Petropavlovsk PLC Thursday said it remained in the red during 2015 after its operations produced losses in the year, as the miner unveiled it has agreed to acquire a gold company and signed a new joint venture agreement.
The gold miner operating in Russia reported a USD141.6 million pretax loss in 2015, widenening from the USD14.9 million loss that was booked in 2014.
That result came after its operations became uneconomical, delivering a gross loss of USD19.7 million in 2015 compared to the USD48.7 million gross profit reported a year earlier.
That gross loss came after its operating expenses of USD619.6 million outstripped its revenue of USD599.9 million in 2015, compared to expenses of USD816.2 million in 2014 with revenue of USD865.0 million.
Also contributing to the wider loss in the year was a USD60.4 million loss from its associates, which exacerbated the gross loss and caused Petropavlovsk to report an operating loss of USD80.1 million in 2015. In the previous year, the company made a USD3.0 million profit from its associates and made an operating profit of USD51.7 million.
On the positive side, Petropavlovsk significantly reduced its costs during the year and also managed to lower its net debt by 34% to USD610.0 million from USD930.0 million, and has fallen further to USD596.0 million at the end of the first quarter of 2016.
Following the revised strategy and refinancing that was previously launched in 2015, gold production in 2015 amounted to 504,100 ounces and production in the first quarter of 2016 amounted to 92,100 ounces.
Petropavlovsk is expecting full year production to be between 460,000 to 500,000 ounces - meaning the company is expecting production to be lower this year than it was in 2015. However, the 13% reduction in total cash costs made in 2015 is set to continue and fall further this year to around USD700.0 per ounce.
Longer term, the company said gold production should rise by between 10.0% to 20.0% per year between 2017 and 2020, which will lead to a sustained increase in profitability at the current gold price.
In a separate statement Thursday, Petropavlovsk said it has agreed to acquire Amur Zoloto LLC, a gold company with production and development assets in the Far East of Russia, in an all-share deal worth around USD144.0 million.
Petropavlovsk will settle that payment by issuing a huge amount of shares equal to 30.3% of the company's enlarged share capital to Russia's Alliance Mining Group and Lexor Group SA. The 1.43 billion new shares to be issued are priced at 6.89 pence each.
Importantly, both Alliance Mining and Lexor Group are ultimately controlled by Musa Bazhaev and his associates and the company is signing a relationship agreement to ensure it can "be capable of carrying on business independently" of the new shareholders.
Amur Zoloto has non-refactory reserves of 1.6 million ounces of gold and resources and reserves of 2.2 million ounces of gold.
Petropavlovsk's longer term guidance between 2017 and 2020 is reliant on the deal being completed, as Amur Zoloto is aiming to increase its own production to 127,000 ounces of gold from the current 70,000 ounces in that period.
In a third statement, Petropavlovsk said it has entered into a conditional agreement to create a joint venture with GMD Gold in order to finance the completion of the construction and commissioning of Petropavlovsk's Pressure Oxidation Hub project at the Pokrovskiy mine.
The Hub will be capable of processing refractory gold concentrates sourced from the company's Malomir and Pioneer mines and concentrates produced at GMD Gold affiliates' operations, as well as third parties' gold bearing concentrates.
GMD Gold will contribute USD120.0 million to the project, which should be enough to to bring the project to completion and commissioning, Petropavlovsk said in a statement.
"The POX joint venture, which is a game-changer for Petropavlovsk because it helps to unlock the considerable value in our refractory ores, could potentially boost our gold production in two years' time with little or no financial outlay from our balance sheet, thus fitting perfectly with our strategy," said Chairman Peter Hambro.
"To understand the importance of this transaction, one must remember that almost half of the group's mineral reserve and resource base is in refractory ores, located mainly at our active Malomir and Pioneer mines," he added.
Petropavlovsk shares were up 2.7% to 8.06 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
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