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Petropavlovsk gears up for AGM showdown

With the gold miner's board in the crosshairs of a group of shareholders, which side should retail investors take?
May 26, 2017

Petropavlovsk (POG) will this week urge shareholders to block a bid to oust four board members including executive chairman and founder Peter Hambro, ahead of the gold miner's annual general meeting (AGM) on 20 June.

IC TIP: Hold at 7.5p

A fortnight ago, 15 per cent shareholder Renova Asset Holding, alongside funds managed by Sothic Capital and M&G, informed the company they would vote against the re-election of Mr Hambro and non-executive directors Robert Jenkins, Alexander Green and Andrew Vickerman. In their place, the shareholders have nominated four new directors, who will automatically fill the roles if Mr Hambro and his fellow board members fail to garner sufficient votes at the upcoming AGM.

The gold miner has already proposed that Mr Vickerman take over as chairman following the AGM, with Mr Hambro remaining as an executive director as the business "completes its turnaround" over the next three years. In a bid to head off criticism of its corporate governance - which it says was under review before the intervention - Petropavlovsk has also committed to appoint a fourth independent non-executive director.

The shareholders' complaints centre on leadership. Renova Asset Holding, a subsidiary of Russian conglomerate Renova Group, has told the miner it believes the current board "lacks the requisite focus on corporate governance and does not endorse principles of good corporate governance that should be followed by a public company". The shareholder has proposed two corporate lawyers, Renova Group project director Vladislav Egorov and Chelsea FC chairman Bruce Buck - who works at a US law firm that has advised various Renova Group companies - replace existing directors.

Renova Group, which is controlled by Viktor Vekselberg, declined to comment.

M&G and Sothic Capital provided more detail on their plans to vote against the directors' re-election. In a joint statement to the miner, which the IC obtained prior to the publication of the AGM circular, M&G and Sothic said: "We believe that there have been multiple strategic mistakes made by Petropavlovsk over the course of 2014, 2015 and 2016, which have significantly destabilised the business and delayed its recovery. Disappointingly, it appears to us that these mistakes are partially attributable to inadequate corporate governance controls within the company."

The pair also implied that Petropavlovsk's "current phase of transformational growth" was unsupported by the existing board's oversight, but did not explain how or what corporate governance controls failed investors. The miner's growth targets include higher production and construction of its pressure oxidisation hub.

M&G and Sothic have nominated Ian Ashby, a former president of BHP Billiton's (BLT) iron ore division who this week joined the board of Anglo American (AAL), to step in as independent chairman. Gulf Keystone Petroleum (GKP) director Garrett Soden has also been proposed as a non-executive.

Mr Hambro acknowledged his company had made mistakes, including a failure to hedge against the gold price at the beginning of the decade, and its decision to issue a convertible bond. As the gold price fell, Petropavlovsk's debts - including those owned by Sothic and M&G - climbed to an unsustainable level, precipitating its near collapse and financial restructuring in 2015. But Mr Hambro, who founded Petropavlovsk in 1994, has questioned the timing of the intervention.

"Why do they want to change us now? Maybe it's because we made those mistakes in the past," he told us. "Since then, we've turned the company around, and it takes a hell of a lot to do that." He also said he had no qualms with the technical abilities of the four nominee directors, but questioned their independence and said the move amounted to a "scatter gun approach" to changing the direction and leadership of the business. Asked whether he saw the intervention as a prelude to a takeover, Mr Hambro said anything short of a premium bid would be "just not fair" to smaller shareholders.