Disposal

17 September 2013 

Sale of Non-Strategic, Alluvial Assets

for cash consideration of US$25 million

Petropavlovsk PLC ("the Company" or, together with its subsidiaries, "the Group") announces that it has today signed a share purchase agreement ("SPA") relating to the sale of its entire interest of 76.62% of the issued shares in OJSC Berelekh ("Berelekh"), a company which holds licences to mine and explore alluvial operations, to OJSC Susumanzoloto ("Susumanzoloto") for a total cash consideration of US$25 million.

The transaction is conditional upon (i) the approval of the Federal Antimonopoly Service of Russia and (ii) (a) approval by the shareholders of the Company which is expected to be required under the Listing Rules of the UK Listing Authority ("Resolution") or (b) the provision of a notice by the Company to Susumanzoloto confirming that no Resolution or other regulatory approvals are required for the completion of the sale. A further announcement will be made in due course.

About Berelekh

Total 2012 annual production from Berelekh was 52,500oz, representing 57% of the Group's total alluvial gold production and 7% of the Group's total attributable gold production for 2012. The total cash costs of production at Berelekh in 2012 were US$1,400/oz. During H1 2013, Berelekh produced 13,800oz; its total 2013 gold production is expected to be at a similar level to 2012 production. 

Due to the timing of the transaction, it is expected that production from Berelekh during September and October 2013 will be included in the Group's 2013 production therefore the transaction will not have a material effect on the Company's 2013 production target.

All of Berelekh's operations are located in the Magadan region of Russia; it is the only producing asset of the Group located outside of the Amur Region, the Group's core strategic geographic area. 

As at 30 June 2013 Berelekh had gross assets of c.US$77 million and net assets of c.US$35 million. Profit before tax for the year ended 31 December 2012 was c.US$6 million. Should this transaction be completed in the year ending 31 December 2013, it is expected to result in an estimated accounting loss on disposal of c.US$15 million to be recognised in the Group's consolidated results for the year ending 31 December 2013. The actual result on disposal may vary depending on the operational results of Berelekh for the period up to the date of completion of the transaction.

As at 1 January 2013, Berelekh held 549Koz of C1 and C2 reserves and resources estimated in accordance with the Russian Classification System. The Group's total mineral resources and ore reserves in accordance with the JORC Code (2004) are unaffected by this transaction.

None of the Group's outstanding hedging arrangements in 2014 relate to production from Berelekh.

Transaction details

The total cash consideration for the sale is US$25 million payable in two tranches. The first payment of US$5 million is payable not later than 10 business days from the date of the SPA with the balance of US$20 million payable within 10 days following the latter of the receipt of the approvals/confirmation referred to above. The consideration will be used to reduce the Group's net debt. Should the transaction not proceed to completion, the first payment of US$5 million is repayable to the purchaser, subject to certain exceptions.

Berelekh is being sold to Susumanzoloto, in which Mr Khristov, who is a director of both Susmanzoloto and Berelekh, holds an aggregate 79.57% interest.

Commenting, Chairman, Peter Hambro said:

"The Board's decision to focus on balance sheet optimisation, taken earlier in the year in response to a volatile gold price environment, has already resulted in us being able to double year-on-year our net cash flows in H1 2013 and reduce net debt from its peak in March this year.

This was achieved due to a comprehensive programme of optimisation launched by our team in May resulting in significant cost cutting, working capital reduction and capital expenditure optimisation.

The disposal of Berelekh is the next logical step in this direction. Berelekh is the only producing asset of the Group which is not located in the Amur region - the region of our current strategic focus - and its disposal is in line with the new strategy of the Group of focussing on our four hard-rock gold mines. The relatively high cash-cost base of these operations also means that we do not expect this transaction to make a big 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 even further and to focus on the development of our highly prospective hard-rock mines in the Amur region."

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