Petropavlovsk shares crash

RESULT: A $108m hit to profits spooks investors in Russia-focused gold and iron ore mining group Petropavlovsk, causing the share price to slump 18 per cent post results

August 23, 2012

by Julian Hofmann

Shares in Petropavlovsk crashed 18 per cent after the Russia-focused gold and iron ore mining group reported a $108m charge that caused underlying operating profits to slump by a third to $92.2m (£58.5m) despite reporting record half-year revenues. A collection of depreciation charges on existing assets, higher interest payments on borrowings (that have more than doubled to $1.1bn in the past year) and foreign-exchange losses on a devalued rouble were all behind the collapse in profits.

IC TIP: Hold at 395p

The paradox is that Petropavlovsk's gold operation, which makes up the majority of group revenue, seems to be doing well; management reiterated its 2012 gold production target of 700,000 ounces (oz), up 11 per cent on last year, with the bulk (420,000/oz) of production coming in the second half. In addition, the average realised gold price in the latest six-month period was $1,639/oz, around 13 per cent higher than the same period last year. And, despite inflationary pressure, cash costs (excluding the Albyn mine) were held in check and only rose by 6 per cent to $697/oz. The Albyn mine is in its ramp-up phase and cash costs of $1,251/oz should fall quickly.