Petropavlovsk has been thrown into further turmoil after the Russian-focused gold producer was prevented from making a payment on one of its loans when the UK targeted its main lender with sanctions.
The London-listed miner said it was barred from making a $560,000 interest payment due on Friday after the UK froze the assets of its main lender Gazprombank.
“The company is urgently reviewing with its advisers the implications for the group’s business and financing arrangements resulting from the designation of Gazprombank for the purposes of an assets freeze,” the company said in a statement.
Petropavlovsk, which mines gold in Russia’s Far East and is headquartered in Moscow, has struck deals to borrow and sell gold with the banking arm of the state-controlled Russian gas giant.
These include a $200 million loan and an $86.7 million line of credit. In addition, Gazprombank also buys and sells all of its gold production, which last year exceeded more than 450,000 ounces.
Petropavlovsk said the sanctions prohibited the sale of gold to Gazprombank, adding that “restrictions on buying and selling gold in Russia could make it difficult to find an alternative buyer.”
Peel Hunt analyst Peter Mallin-Jones said freezing Gazprombank’s assets had effectively prevented Petropavlovsk from being “able to repay its outstanding debt” and had made it “significantly” more difficult to sell it. his gold.
“Petropavlovsk has just seen its operations become considerably more complex. This interrupts its ability to sell its gold and increases the material risks associated with the ability to refinance its November 2022 obligation,” he wrote.
There is just over $300 million of principal outstanding on the bond and analysts believe the company will be forced to refinance with Russian banks. But with Russian interest rates at 20%, this will be expensive and drain cash.
“With the Russian Central Bank having recently announced that it is willing to act as a buyer of Russian mined gold, it may end up being the buyer of last resort for gold from Petropavlovsk,” he said. writes Mallin-Jones.
Shares in Petropavlovsk have fallen nearly 90% since Russia invaded Ukraine on February 24, leaving the group with a market value of £70million. They were down 17% to 1.41p on Friday. At the end of June, the company’s net debt stood at more than $530 million. The company was also ejected from the FTSE 250 index.
Petropavlovsk’s largest shareholder, UGC, a Russian gold company, sold its stake earlier this month. It was taken over by a Russian billionaire who partly owns Credit Bank of Moscow, another sanctioned lender.
Petropavlovsk was founded in 1994 by Pavel Maslovskiy and Peter Hambro, descendants of the London banking dynasty.
He is best known for a succession of bitter shareholder squabbles involving Russian and Kazakh billionaires.
In the most recent episode, company co-founder Pavel Maslovskiy and several other directors were ousted from the board after UGC, which is owned by Russian businessman Konstantin Strukov, voted against them.
The boardroom coup saw a new management team parachuted in to run the company. It is run by Denis Alexandrov, former boss of Highland Gold, a Russian miner in which Roman Abramovich once had a significant stake.
Petropavlovsk’s most valuable asset is a state-of-the-art pressure oxidation plant, one of only two in Russia. Commissioned at the end of 2018, the so-called pox hub enables it to produce gold from refractory ore, which is difficult to process but abundant in Russia.
The story has been updated to show it was a loan repayment that had been blocked.
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