The Russian gold miner, Petropavlovsk has updated investors on its relations with Gazprombank and its corporate options earlier on Thursday which led shares to sink 20% to 2.3p.
The Petropavlovsk Board of Directors announced an additional update on the implications for the group of Gazprombank’s (GPB) entry on the UK Sanctions List and its designation for an asset freeze under the Russia Regulations 2019.
Concerning the Regulations, the company is aware of reports of potential Russian legislation that would make refusing to interact with counterparties based on the Regulations a criminal offence.
If such legislation is passed, the Board may not be able to verify that its Russian subsidiaries follow the rules.
As previously stated, the firm and Bank GPB have a $200m committed term loan and $86.7m in revolving credit facilities (RCFs) made available by GPB to several of the company’s Russian subsidiaries.
On 25 March 2022, a $560,000 interest payment was due under the term loan, which the firm was and is still forbidden from performing under the Regulations.
Furthermore, the rouble equivalent of $9.5m became repayable under the RCFs on 28 March 2022 but was not paid as a result of the Regulations.
GPB will operate as an off-taker of 100% of the group’s gold production, as previously indicated, as a condition of the RCFs and the term loan.
The group’s status under the Regulations prevents it from selling gold to GPB in the future.
The mining company is still looking into selling its gold, also looking for other potential buyers, pending permission from GPB.
Furthermore, the price at which the Russian Central Bank acquires gold, thus limiting the prices given by commercial buyers, is set daily at levels that are generally lower than the London fixing ($1,660/oz as of 13 April 2022), potentially affecting the group’s free cash flow.
Outside of Russia, the group’s cash reserves are low. In Russia, there are legal constraints on the firm’s ability to move money out of the country.
The Board is aware that an interest payment of approximately $12.36m is due on 14 May 2022 in correlation with the $500m 8.125% guaranteed notes 2022 issued by Petropavlovsk 2016 Limited, of which $304m is still outstanding and that the notes are set to mature in November 2022.
The Board believes that refinancing the notes will be extremely difficult under the current conditions.
Payments on the notes and the guaranteed convertible 8.25% bonds due 2024 were issued by Petropavlovsk 2010 Limited, who is the guarantor for the payments.
AlixPartners UK has been recruited by the group to help the Board as it considers its alternatives and determines the best course of action for all stakeholders, including shareholders and creditors.
The sale of the company’s whole interest in its functioning subsidiaries as soon as practically possible is one of these choices.
It is currently unclear what, if any, return shareholders including holders of bonds and notes may receive as a result of this process.