29th Apr 2013 12:18
Petropavlovsk PLC (the "Company")
Notice of Annual General Meeting
Notice of Posting of Annual Report
The Company confirms that its Annual General Meeting will be held on 11 June 2013 at 11 Grosvenor Place, Belgravia, London SW1X 7HH, commencing at midday. A notice convening that meeting has today been posted to shareholders together with the proxy card. In compliance with Listing Rule 9.6.1, a copy of these documents has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm. The Notice of Annual General Meeting will shortly be available to view and download from the Company's website at www.petropavlovsk.net.
The Annual Report for the year ended 31 December 2012 (the "Annual Report 2012") has also been posted to shareholders today together with the above mentioned documents and a letter to shareholders from Sir Malcolm Field, Remuneration Committee Chairman. A copy of these documents will shortly be available to view and download from the Company's website at www.petropavlovsk.net. A copy of these documents has also been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm.
The information contained in the Appendix to this announcement, which is extracted from the Annual Report 2012, is included solely for the purposes of complying with the Disclosure Rules and Transparency Rules (the "DTR") 6.3.5 and the requirements it imposes on how to make public annual financial reports. The Appendix should be read in conjunction with the Company's Annual Results for the year ended 31 December 2012 issued on 28 March 2013 (the "Annual Results Announcement"). Together, these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material should be read in conjunction with, and is not a substitute for reading, the Annual Report 2012. References to page numbers and notes to the financial statement made in the Appendix refer to page numbers and notes to the financial statements in the Annual Report 2012.
The information contained in this announcement does not constitute the Company's statutory accounts as defined in section 434 of the Companies Act 2006 (the "Act") for 2012 or 2011 but is derived from those accounts. The auditors have reported on those accounts and their report was unqualified, with no matters by way of emphasis, and did not contain statements under section 498(2) of the Act (regarding adequacy of accounting records and returns) or under section 498(3) of the Act (regarding provision of necessary information and explanations). The statutory accounts for the year ended 31 December 2012 have been approved by the Board and will be delivered to the Registrar of Companies. A copy of the statutory accounts for the year ended 31 December 2011 was delivered to the Registrar of Companies.
Neither the content of the Company's website nor the content of any other website accessible from hyperlinks on the Company's website is incorporated into, or forms part of, this announcement.
Enquiries
Petropavlovsk PLC | +44 (0) 20 7201 8900 |
Alya Samokhvalova - Group Head of External Communications
Rachel Tuft - Investor Relations
Maitland | +44 (0) 20 7379 5151 |
Neil Bennett
George Trefgarne
Seda Ambartsumian
APPENDIX
1. Statement of Directors' Responsibilities
The following responsibility statement is repeated here solely for the purpose of complying with DTR6.3.5. This statement relates to and is extracted from page 118 of the Annual Report 2012. Responsibility is for the full Annual Report 2012 not the extracted information presented in this announcement and the Annual Results Announcement.
Each of the Directors, whose names and functions are listed on pages 78 to 79 of the Annual Report 2012, confirm that, to the best of their knowledge:
·; the financial statements prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
·; the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
2. Principal risks relating to the Group
The most significant risks that may have an adverse impact on the Group's reputation, its ability to meet its strategic objectives and to deliver shareholder value are set out below. Summarised alongside each risk is a description of its potential impact on the Group. Measures in place to manage or mitigate against each specific risk, where this is within the Group's control, are also described. The 'additional information' provides a cross-reference to further information that is available in the Annual Report 2012, specifically regarding the process and procedures that are undertaken to mitigate these risks in order that the Group can successfully deliver on its strategy.
The risks set out below should not be regarded as a complete or comprehensive list of all potential risks and uncertainties that the Group may face, which could have an adverse impact on its performance. Additional risks may also exist, that are currently unknown to the Group, and certain risks which are currently believed to be immaterial could turn out to be material and significantly affect the Group's business and financial results.
Operational risks | ||
Risk | Description and potential impact | Mitigation |
Failure to complete various capital investment projects, including the execution of the commissioning of the Pressure Oxidation ("POX") Hub.
The Group is turning its Pokrovskiy mine into a regional 'hub' which will use POX technology to extract gold from refractory ores, which constitute approximately half of the Group's current gold reserves. The POX Hub is due to be commissioned in Q1 2014. Although this is proven technology it is new to the Group.
Additional information: Further information on the work conducted during 2012 and the remainder of the installation in 2013, prior to commissioning in Q1 2014 is detailed on pages 28 and 29.
Change in risk before mitigation: ↑ | There can be no certainty that the POX Hub can be delivered without any problems which could involve capital expenditure overruns and/or delays to its commissioning. Any delay in the commissioning of POX Hub, or inefficiency in the operation or the plant, may have a potential impact on the Group's gold production in 2014 and the cost of production and hence the profitability of the Group. Failure to deliver the POX Hub on budget may adversely affect the Group's financial results, cash flow position and increase capital costs.
| The design of the POX Hub was undertaken in conjunction with Outotec, a leading global provider of metals and minerals processing solutions
The Group retained leading global manufacturers for key items of equipment for the POX plant.
The Group has conducted test work on the materials used, design parameters and operating scenarios at is specialist R&D centres and the pilot POX plant.
All of the major equipment has now been delivered to site and the installation is well underway and is on schedule. The Group is intending to deploy leading external providers to install and test components. Bulk construction work is being conducted by the Group's specialist mine construction subsidiary, Kapstroi, which has extensive experience at delivering the Group's other mining projects to schedule. The POX Hub will incorporate the existing facilities at the Pokrovskiy mine, reducing the amount of construction work to be undertaken.
During the commissioning phase, the Group can draw on its experience in commissioning the pilot POX plant. Outotec will supervise and advise during the commissioning stage of the POX Hub.
The pilot POX plant runs on a similar system to the future POX Hub and is being used for staff training under the supervision of the Group's POX specialists and Outotec.
In addition c.90% of new JORC resources added in 2012 are non-refractory and are located at the Group's operational mines and hence are potentially suitable for processing in existing on-site resin-in-pulp plants or at the Group's heap-leach facilities and will therefore require minimum spend to develop them.
Change in risk after mitigation: → |
Delays in supply of, or failure of equipment/services.
Change in risk before mitigation: → | The Group relies on the supply and availability of various services and equipment in order to successfully run its operations. For example, timely delivery of mining equipment and jaw crushers, and their availability, are essential to the Group's ability to extract ore from the Group's assets to crush the mined ore prior to production. Delay in the delivery or the failure of mining equipment, could significantly delay production and impact the Group's profitability.
| Contingency plans are in place to address disruption to services.
The Group has high operational standards and maintenance of equipment is undertaken on a regular basis. Equipment is inspected at the beginning and end of every shift and sufficient stocks of spare parts are available.
Equipment is ordered with adequate lead time in order to prevent delays in the delivery of equipment.
Change in risk after mitigation: → |
Factors which impact output such as weather, equipment failures or lack of supplies.
Change in risk before mitigation: → | The Group's assets are located in the Russian Far East, which is an area that can be subject to severe climatic conditions Severe weather conditions, such as cold temperatures in winter, could have an adverse impact on operations, including the delivery of supplies, equipment and fuel, and exploration and extraction levels may fall as a result of such climatic factors. | Heating plants at operational bases are regularly maintained and operational equipment is fitted with cold weather options, which could assist in ensuring that equipment does not fail as a result of adverse weather conditions.
The Group aims to stock several months of essential supplies at each site.
Change in risk after mitigation:→ |
Financial risks | ||
Risk | Description and potential impact | Mitigation
|
The Group's results of operations may be affected by changes in gold and/or iron ore prices
Additional information: Chief Financial Officer's Statement on page 23. Directors' Report on page 80.
Change in risk before mitigation: → | A sustained downward movement in the market price for gold or iron ore may negatively affect the Group's profitability and cash flow. The market price of gold is volatile and is affected by numerous factors which are beyond the Company's control. These factors include world production levels, global and regional economic and political events, international economic trends, inflation, currency exchange fluctuations and the political and economic conditions of major gold-producing countries. Additionally the purchase and sale of gold by central banks or other large holders or dealers may also have an impact on the market price. | The Executive Committee monitors the position on a regular basis and consults with the Board as appropriate. In February 2013, the Group entered into financing contracts to sell a total of 399,000oz of gold over a period of 14 months ending in March 2014 at an average price of US$1,663/oz. These financing arrangements have increased the certainty of a significant proportion of the Group's cash flow whilst the Group continues its capital investment in POX and the further development of the Group's mining and processing operations at Malomir and Albyn. The Executive Committee will monitor the position going forward and will consult with the Board as appropriate regarding any further hedging arrangements.
The Group aims to minimise overhead costs on an ongoing basis and to operate and maintain low-cost and efficient operations in order to optimise the Group's returns.
On 17 January 2013, IRC Limited, the Group's iron ore producing subsidiary, entered into conditional subscription agreements with two new investors for up to approximately US$238 million. Assuming that total completion of the transaction occurs, the Group's interest in the share capital of IRC Limited would be reduced from 63.13% held at 31 December 2012 to 40.43% (see note 35 on page 167). The Group's exposure to the iron ore price would reduce accordingly.
Change in risk after mitigation: → |
Currency fluctuations may affect the Group.
Additional information: Chief Financial Officer's Statement On pages 17 and 22.
Change in risk before mitigation: → | The Company reports its results in US Dollars, which is the currency in which gold is principally traded and, therefore, in which most of the Group's revenue is generated. Significant costs are incurred in and/or influenced by the local currencies in which the Group operates principally Russian Roubles. The appreciation of the Russian Rouble against the US Dollar tends to result in an increase in the Group's costs relative to its revenues. In addition, a portion of the Group corporate overhead is denominated in Sterling, therefore, adverse currency movements may materially affect the Group's financial condition and results of operations.
In addition, if inflation in Russia were to increase without a corresponding devaluation of the Russian Rouble relative to the US Dollar, the Group's business, results of operations and financial condition may be adversely affected. | The Group has adopted a policy of holding an optimum amount of cash and monetary assets or liabilities in non US Dollar currencies and operates an internal funding structure which seeks to minimise foreign exchange exposure.
Change in risk after mitigation: → |
Lack of funding and liquidity to: i. Support its existing operations; ii. Invest in and develop its exploration projects; iii. Extend the life and capacity of its existing mining operations; and iv. Continue development of the POX Hub.
If the operational performance of the business declines significantly there is a risk that the Company breaches one or more of the restrictive covenants as set out in various loan agreements.
Change in risk before mitigation: ↑ | Adverse events or uncertainties affecting the global financial markets could affect the Group's ability to raise new debt or refinance existing debt facilities in the capital markets. It could also in future lead to higher borrowing costs.
The Group needs ongoing access to liquidity and funding in order to support its existing operations and invest in new projects and exploration. There is a risk that the Group may be unable to obtain the necessary funds when required or that such funds will be available on unfavourable terms. The Group may, therefore, be unable to develop and/or meet its operational commitments.
In addition, the Group's borrowing facilities include a requirement to comply with certain specified covenants in relation to the level of net debt and interest cover. A breach of these covenants could result in a significant proportion of the Group's borrowings becoming repayable immediately. | The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities and during 2012 the Group executed new banking facilities.
The Group reviews cash flow forecasts, debt profiles and funding options on a regular basis and specifically in respect of the Going Concern deliberations undertaken by executive management, the Audit Committee and the Board. During 2012 and early 2013, the Group also undertook a detailed working capital exercise for the issue of the Class 1 Circular to shareholders on 18 February 2013 for which Deloitte acted as reporting accountants.
The Group maintains its available cash with several reputable major Russian and international banks and does not keep disproportionately large sums on deposit with a single bank. Strong relationships are maintained between the Company and existing and potential equity and debt providers.
The Group has adopted a strategy to focus on its core projects, thereby optimising its capital expenditure requirements and deleveraging its balance sheet. During 2012 the Group sold non-core assets for a total cash consideration of US$34.3 million (see note 29).
In addition, the Group has also negotiated the investment in IRC Limited (see note 36) which, following full implementation, will have the impact of deconsolidating IRC and its debt.
Change in risk after mitigation: → |
Funding may be demanded from Petropavlovsk under a guarantee in favour of ICBC
Additional information: Further information on the IRC transaction with General Nice and Minmetals is detailed in the Directors' Report on page 80.
Change in risk before mitigation:→ | Petropavlovsk has provided a guarantee against a US$340 million loan facility provided to K&S by ICBC to fund the construction of IRC's mining operations at the K&S mine. In the event that K&S were to default on their loan, Petropavlovsk may be liable to repayment of the outstanding loan under the terms of the guarantee. | The Group ensures constant monitoring of IRC's performance through (1) IRC presentations to the Petropavlovsk Board (2) attendance of IRC Chairman and CEO at Petropavlovsk Executive Committee meetings and (3) regular communication between the Group CFO and the IRC CFO.
On 17 January 2013, Petropavlovsk and General Nice entered into a preliminary agreement which will be effective until date of the Second Completion under which General Nice has agreed to use its best endeavours to assist Petropavlovsk to procure the release of the ICBC bank guarantee.
Subject to the issue by IRC of the General Nice Further Subscription Shares and Minmetals Subscription Shares (the "Second Completion") (see note 36), an indemnity entered into by the Company and General Nice on 17 January 2013 will come into effect (the "Indemnity"). Pursuant to the Indemnity, General Nice will, while the Indemnity remains in effect, indemnify the Company in respect of payments made by Petropavlovsk in respect of the ICBC guarantee or under the terms of a recourse agreement entered into between the Company, IRC and K&S on 13 December 2010 in proportion to their respective holdings in IRC. In addition, following the Second Completion General Nice and Minmetals have agreed to use their respective reasonable efforts to assist Petropavlovsk with the removal of the ICBC bank guarantee.
Change in risk after mitigation: ↓ |
Exploration for reserves can be costly and uncertain
Additional information: Exploration, Reserves & Resources Pages 38 to 49.
Change in risk before mitigation: → | Exploration activities are speculative and can be unproductive. These activities often require substantial expenditure to: establish reserves through drilling and metallurgical and other testing, determine appropriate recovery processes to extract gold from the ore and construct or expand mining and processing facilities. Once deposits are discovered it can take several years to determine whether Reserves exist. During this time, the economic viability of a production may change. As a result of these uncertainties, the exploration programmes the Group is engaged in may not result in the expansion or replacement of the current production with new Reserves or operations. | The Group's exploration budget is fixed for each asset at the start of each financial year depending on confidence in any previously received results During 2012 the Group focused its exploration programme on areas at, or close to, its operating mines and, in particular, on finding new, non-refractory resources. As a result, the majority of the 1.95Moz JORC Mineral Reserves added (after depletion, figures as at 1 January 2013) are non-refractory and are located at, or close to, the Group's processing plants, requiring minimal capital expenditure to develop them.
The Group is using modern geophysical and geochemical exploration and surveying techniques. The Group employs a world class team of geologists with considerable regional expertise and experience. They are supported by a network of fully accredited laboratories capable of performing a range of assay work to high standards.
Change in risk after mitigation: → |
Health, safety and environmental risks | ||
Risk | Description and potential impact | Mitigation |
Failures in the Group's health and safety processes and/or breach of Occupational Health & Safety legislation.
Additional information: Please see pages 52 to 63 of the Sustainability section of this Annual Report.
Change in risk before mitigation: → | The Group's employees are one of its most valuable assets. The Group recognises that it has an obligation to protect the health of its employees and that they have the right to operate in a safe working environment. Certain of the Group's operations are carried out under potentially hazardous conditions. Group employees may become exposed to health and safety risks which may lead to the occurrence of work-related accidents and harm to the Group's employees. These could also result in production delays, reputational damage and financial loss.
| Health and Safety management systems are in place across the Group to ensure that the operations are managed in accordance with the relevant health and safety regulations and requirements.
The Group has an established health and safety training programme, under which its employees undergo initial training on commencement of employment and take part in refresher training on an annual basis.
The Group implemented a range of additional measures during 2011 in order to minimise the risk of accidents and improve accident response, including additional and enhanced technical measures at all sites, improved first aid response and the provision of further occupational, health and safety training. There were no fatalities during 2012.
The Group operates a prompt incident reporting system to the Executive Committee and the Board.
Board level oversight of health and safety issues occurs through the work of the Health, Safety and Environmental Committee.
Change in risk after mitigation:→ |
The Group's operations require the use of hazardous substances including cyanide and other reagents.
Additional information: Please see pages 53 and 61 of the Sustainability section.
Change in risk before mitigation: → | Accidental spillages of cyanide and other chemicals may result in damage to the environment, personnel and individuals within the local community. | Cyanide and other dangerous substances are kept in secure storages with access to only qualified personnel, with access closely monitored by security staff.
Change in risk after mitigation → |
Legal and regulatory risks | ||
Risk | Description and potential impact | Mitigation
|
The Group requires various licences and permits in order to operate.
Additional information: Please see pages 60 and 61 of the Sustainability section for further information regarding environmental matters relating to licences and permits.
Change in risk before mitigation: →
| The Group's principal activity is the mining of precious and non-precious metals which require it to hold licences which permit it to explore and mine in particular areas in Russia. These licences are regulated by Russian governmental agencies and, if a material licence was challenged or terminated, this would have a material adverse impact on the Group. In addition, various government regulations require the Group to obtain permits to implement new projects or to renew existing permits. Non-renewal of a permit may cause the Group to discontinue operations, reacquiring the permit and the imposition of additional conditions may cause the Group to incur additional compliance costs. | There are established processes in place to monitor the required and existing licences and permits on an on-going basis and processes are also in place to ensure compliance with the requirements of the licences and permits. Schedules are presented to the Executive Committee detailing compliance with the Group's licences and permits.
Change in risk after mitigation: →
|
The Group's Mineral Reserves and Ore Resources are estimates based on a range of assumptions.
Additional information: Exploration, Reserves & Resources pages 38 to 49.
Change in risk before mitigation:→ | The Group's Mineral Reserves and Resources are estimates based on a range of assumptions, including the results of exploratory drilling and an ongoing sampling of the ore bodies; past experience with mining properties; and the experience of the expert engaged to carry out the Reserve estimates. Other uncertainties inherent in estimating Reserves, include subjective judgements and determinations based on available geological, technical, contractual and economic information. Some assumptions may be valid at the time of estimation but may change significantly when new information becomes available.
Changes to any of these assumptions, on which the Group's Reserve and Resource estimates are based, could lead to the reported Reserves being restated. Changes in the Reserves and Resources could adversely impact the economic life of deposits and the profitability of the Group's operations. | The first stage of assurance of the accuracy of Reserves and Resources is by detailed analysis of geological samples in the Group's laboratories.
These laboratories are licensed by the Russian authorities and use multiple quality assurance and quality control procedures. The quality assurance and quality control procedures include the use of "standards", "blanks" and "duplicates" as well as cross checking a percentage of all samples analysed, in an independent laboratory in Ulan Ude, Republic of Buryatia, Russia.
The Resource and Reserve estimates for the hard-rock assets are prepared in accordance with the guidelines of the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geosciences and Minerals Council of Australia ("JORC Code (2004)"). The preparation of the Group estimates follows methodology set out by Wardell Armstong International, independent experts within the mining industry. The Group also engages the services of independent experts to review the Reserves and Resources statements for operating mines and development projects on a regular basis to provide additional external assurance.
In addition, the Company publishes its Reserves and Resources estimates based on gold prices which are lower than the current market price of gold.
Change in risk before mitigation:→ |
LEGAL AND REGULATORY RISKS | ||
Risk | Description and potential impact | Mitigation |
The Group is subject to risks associated with operating in Russia.
Change in risk before mitigation:→ | Actions by governments or changes in economic, political, judicial, administrative, taxation or other regulatory factors or foreign policy in the countries in which the Group operates or holds its major assets could have an adverse impact on the Group's business or its future performance. Most of the Group's assets and operations are based in Russia.
Russian foreign investment legislation imposes restrictions on the acquisition by foreign investors of direct or indirect interests in strategic sectors of the Russian economy, including in respect of gold Reserves in excess of a specified amount or any occurrences of platinum group metals.
None of the Group's assets are currently included on the list of subsoil blocks of federal significance, maintained by the Russian Government ("Strategic Assets"), and on the basis of the Russian foreign investment law and the related legislation now in force, it is not currently expected that any of the Group's assets will be classified as Strategic Assets.
However, if the legislative framework (or judicial interpretation thereof) changes in the future, so that some assets of the Group become Strategic Assets, the Group entities holding licences in respect of such deposits may, themselves, become strategic. In this case, such Group entities' rights in relation to such assets may be limited or even terminated (with the compensation of incurred expenses in the course of the exploration of such deposits) under the procedure set out by the Russian Government. If the relevant Group entities are allowed to continue exploring such assets, direct or indirect acquisitions of interests in such entities may require clearance under the Russian foreign investments law.
Fluctuations in the global economy may adversely affect Russia's economy. Russia's economy is increasingly dependent on global economic trends and is more vulnerable to market downturns and economic slowdowns elsewhere in the world, as well as to reductions and fluctuations in the prices of hydrocarbons and minerals. | To mitigate the Russian economic and banking risk the Group strives to use the banking services of several financial institutions and not keep disproportionately large sums on deposit with a single bank.
The Group seeks to mitigate the political and legal risk by constant monitoring of the proposed and newly adopted legislation to adapt to the changing regulatory environment in the countries in which it operates and specifically in Russia. It also relies on the advice of external counsel in relation to the interpretation and implementation within the Group of new legislation.
The Group closely monitors its assets and the probability of their inclusion into the Strategic Assets lists published by the Russian Government.
Change in risk after mitigation: → |
Human resources risk | ||
Risk | Description and potential impact | Mitigation |
The Group depends on attracting and retaining key personnel.
Additional information: Corporate Governance Report on pages 86 to 87. Directors' Remuneration Report on pages 94 to 111.
Change in risk before mitigation → | The Group's success and growth is closely aligned to the experience, abilities and contributions of certain of its key senior managers, and in particular the Group's Chairman.
The Group's growth and profitability may be adversely impacted by the loss of the services of these key senior managers or its inability to attract additional highly-qualified and experienced people. | Succession planning is an important item on the agendas of both the Nomination Committee and the Board.
Regular reviews of reward structures and incentive plans are carried out in order to attract, retain and incentivise key employees.
Change in risk after mitigation: → |
Lack of skilled labour
Additional information: Details of the various educational and developmental programmes are set out in the Sustainability section on pages 58 and 59.
Change in risk before mitigation → | The Group seeks its skilled labour within the geographies in which it operates, avoiding the need for higher expatriate labour costs. As the scale of the Group's operations increases, it may experience a shortage of skilled labour, which may make it difficult to execute its business plans and/or lead to operational inefficiencies. | The Group has a long standing programme of investing in education in the regions in which it operates to ensure a constant supply of highly qualified specialists for the Group's operations.
Additional investment continues to be made in training, particularly with respect to the Pokrovskiy Mining College, and recruitment to improve operational efficiencies.
The Group has conducted training at its pilot POX plant.
Change in risk after mitigation: → |
3. Related parties the Group entered into transactions with during the reporting period
OJSC Asian-Pacific Bank ("Asian-Pacific Bank") is considered to be a related party as Mr Peter Hambro and Dr Pavel Maslovskiy have interests and, collectively, exercise significant influence over Asian-Pacific Bank.
The Petropavlovsk Foundation for Social Investment (the "Petropavlovsk Foundation") is considered to be a related party due to the participation of the key management of the Group in the governing board of the Petropavlovsk Foundation and presence in its board of guardians.
OJSC Krasnoyarskaya GGK ("Krasnoyarskaya GGK") is considered to be a related party due to this entity's minority interest and significant influence in the Group's subsidiary Verhnetisskaya GRK.
Odolgo Joint Venture was a joint venture of the Group and hence was considered to be a related party until it was disposed in May 2011.
LLC Uralmining was an associate of the Group and hence is a related party until it was acquired and became a subsidiary to the Group in April 2012.
CJSC ZRK Omchak and its wholly owned subsidiary LLC Kaurchak ("Omchak"') became an associate to the Group on 4 December 2012 (note 29) and hence are related parties since then.
Transactions with related parties the Group entered into during the years ended 31 December 2012 and 2011 are set out below.
Trading Transactions
Related party transactions the Group entered into that relate to the day-to-day operation of the business are set out below.
Sales to related parties | Purchases from related parties |
| |||
2012 US$'000 | 2011 US$'000 | 2012 US$'000 | 2011 US$'000 | ||
Asian-Pacific Bank | |||||
Sales of gold and silver | 1,484 | 168,578 | - | - | |
Other | 383 | 281 | 1,124 | 1,064 | |
1,867 | 168,859 | 1,124 | 1,064 | ||
Trading transactions with other related parties | |||||
Rent, insurance and other transactions with other entities in which Mr Peter Hambro and/or Dr Pavel Maslovskiy have a controlling interest or exercise a significant influence | 121 | 229 | 9,993 | 6,093 | |
Entities controlled by key management | - | - | 92 | 113 | |
Joint ventures and associates | 4 | 562 | - | - | |
125 | 791 | 10,085 | 6,206 | ||
During the year ended 31 December 2012, the Group made US$2.6 million charitable donations to the Petropavlovsk Foundation (2011: US$3.4 million).
The outstanding balances with related parties at 31 December 2012 and 2011 are set out below.
Amounts owed by related parties at 31 December | Amounts owed to related parties at 31 December |
| |||
2012 US$'000 | 2011 US$'000 | 2012 US$'000 | 2011 US$'000 | ||
Other entities in which Mr Peter Hambro and/or Dr Pavel Maslovskiy have a controlling interest or exercise a significant influence | 1,386 | 60 | 584 | 1,713 | |
Joint ventures and associates | 485 | - | 824 | - | |
Asian-Pacific Bank | 2 | 7 | - | - | |
1,873 | 67 | 1,408 | 1,713 | ||
Banking arrangements
The Group has current and deposit bank accounts with Asian-Pacific Bank.
The bank balances at 31 December 2012 and 2011 are set out below.
2012(a) US$'000 | 2011 US$'000 | ||
Asian-Pacific Bank | 14,054 | 19,972 |
(a) Including US$8.3 million presented within assets classified as held for sale as at 31 December 2012 (note 28).
-Financing transactions
During the year ended 31 December 2012, the Group received US$0.8 million under interest-free unsecured loan arrangements from Krasnoyarskaya GGK. As at 31 December 2012, the loan principal outstanding amounted to US$2.8 million ( 31 December 2011: US$2.0 million).
As at 31 December 2012 the Group had an interest-free unsecured loan issued to LLC Kaurchak. Loan principal outstanding amounted to US$1.0 million.
During the year ended 31 December 2011 the Group invested US$0.7 million in the associate through equity.
Key management compensation
Key management personnel, comprising a group of 22 (2011: 23) individuals, including Executive and Non-Executive Directors of the Company and members of senior management, are those having authority and responsibility for planning, directing and controlling the activities of the Group.
2012 | 2011 | |
US$'000 | US$'000 | |
Wages and salaries | 14,763 | 14,347 |
Pension costs | 549 | 325 |
Share-based compensation | 6,519 | 2,869 |
21,831 | 17,541 |
4. Subsequent events
Issue of shares by IRC Limited
On 17 January 2013, IRC Limited entered into conditional subscription agreements with each of General Nice Development Limited ("General Nice") and Minmetals Cheerglory Limited ("Minmetals") for an investment by General Nice and Minmetals in new shares of IRC Limited for up to approximately HK$1,845 million (approximately US$238 million) in aggregate (the "Share Issue Transaction"). In addition, IRC Limited has also entered into a long-term offtake arrangement ("Offtake Arrangement") with General Nice and Minmetals in respect of IRC's products. Details are set out below.
(i) General Nice Subscription
General Nice has conditionally agreed to subscribe for a total of 851,600,000 new shares of the Company at the price of HK$0.94 (approximately US$0.12) per new share, of which 817,536,000 new shares will be allotted and issued upon General Nice initial subscription completion. The remaining 34,064,000 new shares will be allotted and issued upon, among other things, the allotment of General Nice Further Subscription Shares (as defined below).
In addition, IRC Limited has also granted General Nice a right to subscribe for 863,600,000 new Shares ("General Nice Further Subscription Shares"), which may be exercised at General Nice's discretion within six months after the General Nice initial subscription completion date.
Assuming total investment completion occurs, the General Nice will, in aggregate, hold approximately 31.43% of the issued share capital of IRC Limited as enlarged by the Share Issue Transaction.
(ii) Minmetals Subscription
Minmetals has conditionally agreed to subscribe for a total of 247,300,000 new shares of IRC Limited at the price of HK$0.94 (approximately US$0.12) per new share. The Minmetals subscription completion is conditional upon, among other things, the completion of the General Nice Further Subscription.
Assuming total investment completion occurs, Minmetals will hold approximately 4.53% of the issued share capital of IRC Limited as enlarged by the Share Issue Transaction.
(iii) Offtake Arrangement
Under the Offtake Arrangement, which applies to all of the existing and future iron ore projects of IRC (other than the Kuranakh project and other specified types of projects) and in respect of products with an iron content of 32% or greater, (i) IRC Limited shall sell and General Nice and Minmetals shall purchase product which is nominated by IRC Limited to be sold through the seaborne market; and (ii) General Nice and Minmetals shall assist the IRC in developing its sales and marketing capacity in the dry port market (i.e. product to be exported by rail crossing rather than by sea) and in the identification of customers for its products which are not sold through the seaborne market to the General Nice and Minmetals, for which IRC Limited shall pay General Nice and Minmetals a marketing commission.
The above transactions have been approved at the Company's Extraordinary General Meeting on 7 March 2013 and the Extraordinary General Meeting of IRC Limited on 11 March 2013.
The Directors expect that the General Nice initial subscription will take place in April 2013 and further, expect the subscription in relation to the General Nice Further Subscription Shares and Minmetals Subscription to take place within six months from the General Nice Initial subscription completion date in April 2013. Assuming total investment completion occurs, the Group's interest in the share capital of IRC Limited would be diluted from 63.13% held at 31 December 2012 to 40.43%. A pro-rata indemnity from General Nice in relation to the Company's guarantee under the ICBC Facility Agreement (note 28) will be then implemented.
Hedging agreements
In February 2013, the Group has entered into financing contracts to sell a total of 399,000 ounces of gold over a period of 14 months ending in March 2014 at an average price of US$1,663 per ounce.
Final dividend
On 27 March 2013, the Board of Directors resolved to recommend a final dividend comprising a cash payment of £0.02 per Ordinary Share together with an entitlement to new shares with an attributable value of £0.05 per Ordinary Share.
Forward-looking statements
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 cannot be relied on as a guide to future performance.
Related Shares:
POG.L