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Petropavlovsk maintains guidance despite big drop in production

The Russian gold miner sees half-year earnings tumble on 40 per cent drop in sales
September 1, 2021
  • Processing shift and ore ramping up means miner has held on to full-year guidance 
  • First half-year numbers from new management team 

In the first set of half-year numbers under chief executive Denis Alexandrov, Petropavlovsk (POG) has said the first-half decline in production would be reversed for the full year and promised an upcoming asset review would “deliver improved returns” for shareholders. 

In this gold bull market, the Russian miner has struggled to make hay as it has gone through a production shift. Alexandrov was also brought in after the company’s third board coup in four years in 2020. 

Petropavlovsk sold 187,100 ounces (oz) of gold in the first half, a 40 per cent fall on 2020. Revenue was slightly protected by the higher gold price, but still fell by a third year on year. The lower sales knocked $82m (£60m) off the company’s underlying cash profit of $114m, a much bigger impact than the $29m increase provided by the higher gold price. 

“In the first half of the year, own-mine production continued the downward trend that started in 2020, however we are now observing that trend reversing and expect higher production in the second half, supported by the recent launch of the Pioneer flotation plant,” Alexandrov said. The company mines most of its own gold, but also buys third-party material for processing,  

Production guidance for the year is 430,000oz-470,000oz, while broker Peel Hunt expects the miner to hit the low end of this at 435,000oz. Petropavlovsk’s profitability is affected by its costs, which are higher than the other Russian miners. On an all-in sustaining cost (AISC) basis, the company is over $500 an oz more expensive than Polymetal (POLY) and over $700 an oz more expensive than Polyus (PLZL), although both companies operate on a much larger scale than Petropavlovsk. The miner forecasts full-year cash costs – which don’t include capital spending as the AISC measure does – to be about level with the half-year figure, but capital spending will rise in the second half, putting further pressure on earnings. 

Administration costs were also up significantly in the period, from $21m to $30m, which the company linked to “enhancing operational governance and improving management structure”.  The largest single increase was for “professional fees”, which went from $3.7m to $10m. 

Peel Hunt forecasts full-year cash profits of $306m, a 6 per cent drop on last year, but then sees this climbing well above $400m in 2022, as the company ramps up its processing capacity. 

Alexandrov and his new team have clearly spent this year getting to grips with the company, and have promised improvement by next year. Ideally the bull market won’t have passed them by. Sell. 

Last IC View: Sell, 25p, 18 May 2021

PETROPAVLOVSK (POG)   
ORD PRICE: 21pMARKET VALUE:£ 831m
TOUCH:21.1-21.2p12-MONTH HIGH:39.5pLOW: 17.8p
DIVIDEND YIELD:NAPE RATIO:29
NET ASSET VALUE:17.9¢NET DEBT75%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
202052316.5-1.0nil
202135269.11.0nil
% change-33+319--
Ex-div:-   
Payment:-   
£1 = $1.37