Petropavlovsk (MCX: POGR, LSE: POG) - British holding, owning a large gold miner with assets in the Amur Region, «Petropavlovsky». The company's depositary receipts have been traded on the London Stock Exchange since 2002., and with 2020 — at Moscow.
What's happened
"Petropavlovsk" quite cheerfully began trading on the Moscow Exchange: the start of trading was given 25 June 2020, price per depositary receipt was about 27 R, in a month it exceeded 40 R, and the trading volume on some days exceeded 3 billion rubles. Since mid-September, the company's depository receipts have been included in the Moscow Exchange index.
In the spring of 2022, disturbing news about the company began to appear: Previously, Petropavlovsk, under the terms of the loan and credit lines, sold all the gold to its major partner and creditor Gazprombank, but due to sanctions, imposed on the bank, sales, as well as servicing loans became impossible.
As a result, in April, Gazprombank demanded early repayment of a $201 million loan and $87.1 million in debt under a credit line., and also transferred the rights under the loan to the company "UMMC-invest".
In May, Petropavlovsk recognized, that cannot pay its obligations, as well as pay a coupon on convertible bonds, despite, that Gazprombank allowed the sale of gold not to him, and to third parties.
In June, Petropavlovsk reported, that it needs additional time to prepare and publish its annual and financial statements for 2021. At the end of the month it became known, that due to the problems of the company, its securities no longer meet certain listing requirements, due to which the Moscow Exchange transferred depositary receipts of Petropavlovsk from the first level of listing to the third, so the opportunity to invest in them is gone, in particular, from pension funds. As a result, Petropavlovsk was excluded from the Moscow Exchange index.
well and 12 July became known, that the company has filed an application with the court for the appointment of external managers and that trading in its securities on foreign exchanges has been suspended. Trading in depositary receipts was also suspended by the Moscow Exchange.
At the same time, in general, Petropavlovsk had not the worst prospects. The company's shares belonged to the defensive sector. The situation in the world economy and politics is rather nervous lately: strong rise in inflation and the complexity of geopolitics. This could become a trigger for investors to buy gold and shares of gold mining companies, but it didn't happen.
Despite business challenges, the company did not give up, developing production. Besides, she planned to present a new strategy for the next three years.
We will try to briefly analyze the business of Petropavlovsk, based on his latest published accounts, and understand, could the investor have, having studied them, assess the scale of risks.
What risk factors did the company have
Business was worse, than major competitors. The fundamental basis of Petropavlovsk's business was not the most attractive: the cost of production is quite high, production volume was declining and in 2022 the company's management did not expect its growth.
The company has three main fields: Pioneer, Malomyr and Albyn, the average production time of which is estimated at about 16 years. At the end of 2020, the reserves of Petropavlovsk were estimated at about 7 million ounces in gold equivalent, which is much less, than the company's competitors, included in the Moscow exchange index: Polyus and Polymetal.
Besides, "Petropavlovsk" was significantly inferior to them in terms of the quality of reserves: about 60% of which belonged to refractory ores, i.e. to the ores, from which it is quite difficult and costly to extract gold. This forced the company to actively invest in this area and incur significantly higher mining costs..
"Petropavlovsk" was inferior to the largest competitors in terms of production: in 2021 it was approximately 0.45 million ounces of gold, while Polyus and Polymetal produced 2,72 and 1.68 Moz respectively. At the same time, Petropavlovsk predicted production for 2022 even lower, than a year earlier, - 0.375-0.405 million ounces.
Petropavlovsk is generally a smaller and more diversified business, than its competitors from the Moscow exchange index: it has fewer deposits and less production. And the company did not shine with animators: ROE extremely modest, debt burden is higher, than competitors, while the estimate for P / E in the first half of 2021 is not that cheap.
Also, a cruel joke with Petropavlovsk was played by the lack of diversification by buyers.
Gold reserves of some public gold miners as of 2020, Moz:
- "Polyus" — 104.
- "Polymetal" — 28.
- "Petropavlovsk" - 7.
Gold production by some public gold miners in 2021, Moz:
- "Polyus" — 2,72.
- "Polymetal" — 1,68.
- "Petropavlovsk" - 0,45.
Cash costs of some public gold miners in dollars per ounce in 2020
| TCC | AISC | |
|---|---|---|
| "Pole" | 362 | 604 |
| "Polymetal" | 638 | 874 |
| "Petropavlovsk" | 1034 | 1312 |
Multipliers of "Petropavlovsk" by years
| 2017 | 2018 | 2019 | 2020 | 1п2021 | |
|---|---|---|---|---|---|
| P / E | 12 | 8,05 | 19,7 | Lesion | 14,7 |
| ROE | 3,8% | 7,5% | 4,5% | Lesion | 3,4% |
| Net debt / EBITDA | 3,44 | 2,93 | 2,03 | 1,46 | 1,9 |
Multiples of some public gold miners for the first half of 2021
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| "Pole" | 13,9 | 62,1% | 0,52 |
| "Polymetal" | 8,21 | 56,7% | 1,05 |
| "Petropavlovsk" | 14,7 | 3,39% | 1,9 |
The company showed not the best financial performance. Problems with rising costs and falling production, as well as changes in gold prices were translated into volatile financial results of Petropavlovsk and a gradually growing dynamics of net debt.
Also worth paying attention to, that the dynamics of revenue and net profit of Petropavlovsk did not always coincide, as non-monetary articles intervened: revaluation of mining assets and derivative financial instruments, with which the company hedges the price of gold and courses currency.
Revenue, net profit and net debt by year, billion rubles
| 2017 | 2018 | 2019 | 2020 | 1п2021 | |
|---|---|---|---|---|---|
| Revenue | 31,4 | 34,3 | 48 | 71,3 | 26,2 |
| Net profit | 1,54 | 2,47 | 1,74 | −3,30 | 3,31 |
| net debt | 39,5 | 33,7 | 34,7 | 37 | 38,8 |
The company often changed shareholders and scandals flared up.. The founders then left it with scandals, then returned, often disputes turned into criminal cases. All this should have alerted investors..
The company was founded in 1994 by Russian Pavel Maslovsky and Briton Peter Hambro.. In the first half of the 2010s, the securities of "Petropavlovsk" began to buy "Renova" Viktor Vekselberg, which by the end of 2016 increased its share to more than 25%.
The result of this was a corporate conflict.: Renova and several shareholder funds advocated a change in the composition of the board of directors, in particular for the departure of co-founder Peter Hambro from the post of chairman of the board of directors. As a result, in the summer of 2017, at a meeting of shareholders, this happened, following from the post of head of the company, Pavel Maslovsky also left.
But literally six months after these events, Renova sold its stake in Petropavlovsk to Kazakh businessman Kenes Rakishev. Following this, in 2018, Maslovsky and Hambro returned to the company again..
But the cycle of major shareholders of Petropavlovsk did not end there.: in the summer of 2019, Kenes Rakishev sold his stake to billionaire Roman Trotsenko, who, six months later, resold it to the Yuzhuralzoloto company of billionaire Konstantin Strukov.
In 2020, approximately simultaneously with the entry on the Moscow Exchange, "Petropavlovsk" plunged into another corporate conflict: the main shareholders of the company were against the candidates proposed by the board of directors for the board of directors, including against Pavel Maslovsky. At an extraordinary meeting of the board of directors in August, the situation repeated itself., at the same time, one of the shareholders of Petropavlovsk, the Prosperity fund, called what is happening a hidden takeover of the company Yuzhuralzolotom.
As a result, Pavel Maslovsky once again left the company, and the board of directors appointed Maxim Meshcheryakov as the interim head of Petropavlovsk, who quickly hit the news, because, According to him, his 10 days were not allowed into the Moscow office of the company's subsidiary.
Eventually 27 August, he managed to enter it “accompanied by a dozen and a half people of athletic build”. The result of this was the initiation of a criminal case against Meshcheryakov.
In December 2020, Pavel Maslovsky was arrested on charges of embezzlement. The company itself at the end of 2020 has a new management: the former head of Highland Gold Denis Alexandrov was appointed to the post of head.
The company postponed the promised events. In September 2021, the head of the company, Denis Aleksandrov, announced the announcement of a dividend policy as part of a new strategy in October. But the development of the strategy was delayed: later information appeared, that it will be published in the first quarter of 2022. The strategy never saw the light of day., as well as reporting for 2021.
Problems get worse in 2022. This happened due to British sanctions against Gazprombank.. "Petropavlovsk" lost the opportunity to sell its products and pay off its obligations. Generally, it ruined the company: she urgently needed to find new buyers for her gold and money to pay off obligations, which is clearly a problem.
However, it is worth bearing in mind, that many large Russian banks eventually fell under sanctions, and securities of several more companies with foreign registration are traded on the Moscow Exchange: for example, X5 Group, Globaltrans, "Mother and Child" and others. But catastrophic problems with the repayment of their obligations arose only at Petropavlovsk.
One explanation for this may be his British residence.. Although another gold miner, Polymetal, is also registered in British jurisdiction, on the island of Jersey, but at the time of writing, it is not known that he has problems of a similar magnitude. It is also worth mentioning the experience of the retailer Fix Price, which at the end of February 2022 decided to re-register from the British Virgin Islands to Cyprus.
The company is highly dependent on market conditions. In the Polyus review, we have already discussed in detail, that commodity stock prices often follow commodity prices, produced by them. Actually, the same "Polyus", being an industry leader and having a record low cost of production, lost a significant part of capitalization during the fall in gold prices. And "Petropavlovsk", having a significantly higher cost of production, had a noticeably smaller margin of safety - so that gold prices were even more critical for him.
What's the bottom line?
Petropavlovsk is a large gold mining company, which recently appeared on the Moscow Exchange, almost immediately entered the Moscow exchange index, but in the end, her story ended rather quickly with a strong drop in quotes and delisting due to the inability to pay off obligations.
The company's business was not in the best shape: due to the deterioration of the quality of reserves, Petropavlovsk had to switch to complex processing of refractory ores, which caused a decrease in operating performance and an increase in cost. But the company tried to deal with it: invested in production, opened and improved gold recovery factories.
Besides, Petropavlovsk has been in a state of corporate conflict more than once throughout its history, courts, change of leadership, major shareholders and in other not the most pleasant situations.
Finally, the company was undermined by sanctions, imposed on the main partner and creditor of the company - Gazprombank, and restrictions on the withdrawal of capital, interfering with Petropavlovsk because of its foreign residence permit.
One of the main lessons of the history of Petropavlovsk on the Moscow Exchange for investors should be that, that even the presence of the company's securities in the Moscow Exchange index does not guarantee, all is well with the company.
Basically, back in 2021, Petropavlovsk was seen as a rather risky story, which could be suitable for risky investors, counting on it, that the company will be able to overcome hard times.
It is unlikely that this story was suitable for investing in any stable gold mining company., to put a share of gold in a portfolio. Larger and more efficient competitors of the company were better suited for these purposes.. In 2022, it was enough for investors to inquire about the latest news from Petropavlovsk, to understand, that he has a lot of problems.
