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Petropavlovsk sweats over debt covenants

RESULT: Falling gold prices precipitated a major asset write-down for Petropavlovsk in 2013, but investors will be focusing on the company's attempts to refinance its debt.
April 30, 2014

Dismal full-year figures from Petropavlovsk (POG) were accompanied by news that the company was in talks with bankers to refinance its debt. The share price of the Russian gold miner duly tanked, as anxieties grew over a possible year-end breach of covenants for Petropavlovsk’s senior-debt facilities.

IC TIP: Sell at 72p

Despite record sales volumes through 2013, gross profits fell by 78 per cent to $56.4m (£33.6m) in 2013 due to the falling gold price. That also forced Petropavlovsk to book $679m in revaluation impairments and write-downs. The consequent net loss to shareholders of $713m ruled out any hope of a full-year dividend and switched the focus to Petropavlovsk’s ability to maintain its status as a ‘going concern’.

To its credit, Petropavlovsk reduced its net debt by $115m to $949m during the year, and plans are in place to cut that figure back by a similar amount in 2014. But the company will need to find $158m to meet this year’s commitments to lenders, while another $311m in convertible bonds mature next February.

To save cash, Petropavlovsk has postponed its plans to finish construction of a gold-processing plant, and will concentrate on production from its more readily accessible ore bodies. Despite a solid start to the year, production of 625,000 ounces is expected this year – 15 per cent lower than last year’s record.

PETROPAVLOVSK (POG)
ORD PRICE:72pMARKET VALUE:£143m
TOUCH:72-72p12-MONTH HIGH:157pLOW: 54p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:435¢NET DEBT:85%

Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
20090.5197987
20100.6691110
20111.336112412
2012 - restated1.240012 †
20131.2-523-259nil
% change-3---

† Includes 5p a share scrip dividend. £1=$1.68