Petropavlovsk [LSE:POG], a London-based gold mining company with operations in Russia, after months of uncertainty, has filed for administration at the London High Court last week.
Petropavlovsk, formerly known as Peter Hambro Mining plc, was established in 1994 as an Anglo-Russian venture to develop a highly prospective, under-developed gold project in Russia’s Amur region. The miner had a market cap of in excess of GBP1bn.
Despite its key mines located in the Russian Far East operating without disruption since the start of the Ukraine crisis in February, Petropavlovsk was forced to call in the administrators as it could not service its debts because it was prohibited from doing so by the sanctions regime against Russia.
Shares on the London Stock Exchange were suspended at 1.2p. The board additionally requested the suspension of share trading on the Moscow Exchange, as well as the USD500m 8.125% Guaranteed Notes due in 2022 from the Irish Global Exchange Market.
Caught up in Russian sanctions
Sanctions have made it impossible for the company to operate and waivers allowing it to sell its gold elsewhere came too late to act as a lifeline. In particular, sanctions on its major lender Gazprombank meant that Petropavlovsk was unable to repay a USD201m loan from Russia’s third largest lender, which demanded immediate repayment. Alongside this, the group has also been unable to withdraw cash from its Russian subsidiaries.
As of 30 June 2022, Petropavlovsk had assets of USD1.6bn; liabilities of USD1.bn; and net liabilities of USD84m. Any form of refinancing will be challenging in these circumstances, and while Petropavlovsk is looking to sell and has already received an offer, there is no guarantee that shareholders will get their money back.
Danni Hewson, financial analyst at AJ Bell explained that: “even if a buyer can be found the temperamental climate in which Russian businesses operate would suggest that a buyer would be able to snap up any assets at a bargain price. Then there’s the liabilities to consider and a long line of caps stretched out for a few pennies, all in the queue ahead of shareholders. The company has been brutally honest, this process will hurt but realistically this was always the way this was going to end.” Petropavlovsk’s external auditor, MHA MacIntyre Hudson resigned this month too.
Petropavlovsk – a cautionary tale
“Anyone still invested in Russian businesses will be nervous and there are plenty of questions about how the next twelve months will play out,” added Hewson. Meanwhile Petropavlovsk, unlike some other Russian businesses, has no diversification opportunities. Even Evraz, which had its shares suspended in March, has mining operations outside Russia which could potentially be hived off into a separate company.
Hewson: “Mired in debt this company has fallen a long way since the heady days of 2009 when there was a flurry of speculation that it might just be promoted to join the FTSE 100. Gold is alluring and it has made a lot of money but there have been questions about how transparent its operations are, how much interference there’s been behind the scenes and the little question of why its co-founder is still languishing in a Russian jail. It’s the kind of story that Netflix could make a killing off but for investors it’s more of a cautionary tale. Russia might have been seen as an opportunity, but great reward often carries great risk, and many western businesses and investors are now paying the price.
The High Court hearing has been scheduled for Monday 18 July 2022.