Sanctions push Russian gold miner Petropavlovsk to the brink

Russian miner Petropavlovsk plans to file for administration after sanctions on Gazprombank, its main lender and the sole buyer of its gold, left it unable to repay loans and placed it among the first listed companies to face collapse because of the Ukraine war.

Petropavlovsk will seek a hearing on the administration application at the High Court in London in the coming days, it said.

On the Moscow Exchange, its shares had crashed by 44% by 1115 GMT to a record low. In London, its shares were suspended on Tuesday, July 12, at its request.

The miner’s extensive commercial and financial relationship with Gazprombank has made its situation particularly challenging since Russia invaded Ukraine on February 24.

“Petropavlovsk had all of its eggs in a very unstable basket and when the war erupted, its whole operation came crashing down,” Hargreaves Lansdown analyst Susannah Streeter said in an email.

“Although Gazprombank issued waivers in May allowing the company to sell its gold elsewhere, it seems it was too little too late.”

The invasion, which Moscow terms “a special military operation,” led to Western sanctions that made doing business in Russia more difficult.

Several Western companies have either left Russia or announced plans to do so, while others face difficulty in servicing their debt because of the sanctions.

Google’s Russian subsidiary in May announced plans to file for bankruptcy after authorities seized its bank account.

Petropavlovsk has explored a sale and said it had received an offer from one party and an expression of interest from another to buy its subsidiaries. It did not name the interested parties.

Talks with both were ongoing, it said on Tuesday, but that it was “highly unlikely” there will be any return to shareholders, if a sale occurs, because of its indebtedness.

From Peter and Pavel to Petropavlovsk

Founded nearly three decades ago by British businessman Peter Hambro and Russian businessman Pavel Maslovskiy as Peter Hambro Mining – and renamed Petropavlovsk in 2009 – the miner became one of the largest gold producers operating in the Russian Far East.

It was a constituent of London’s midcaps index until Britain removed Russian-based companies’ listings from London’s stock indices after the war began in Ukraine, but Petropavlovsk continued to trade on the London Stock Exchange.

Following boardroom battles and other setbacks, Petropavlovsk’s London-listed stock had collapsed from a peak of 596 pence in 2006.

Its share closed at 1.2 pence in London on Monday, July 11, after having fallen around 90% since the Ukraine invasion.

The company said it would also request that trading of its shares in Moscow be suspended but did not specify when.

In April, Gazprombank demanded Petropavlovsk repay about $201 million due under a term loan. The miner could not and said it considered it “very unlikely” that it will be able to refinance the loan in the short term.

Sanctions-hit Gazprombank assigned all its rights under the term loan to Russian metal producer UMMC-Invest.

UMMC was considering buying Petropavlovsk’s assets, the Kommersant business daily reported in May.

Petropavlovsk plans to appoint Allister Manson, Trevor Binyon, and Jo Rolls of Opus Business Advisory Group as administrators of the company.

Petropavlovsk said it has other debt obligations, including $304 million in outstanding notes. – Rappler.com