TIDMPOG
RNS Number : 3057X
Petropavlovsk PLC
26 April 2019
26 April 2019
Petropavlovsk PLC (the "Company" or, together with its
subsidiaries, the "Group")
Notice of Publication of Annual Report
The Annual Report for the year ended 31 December 2018 (the
"Annual Report 2018") is available to view and download from the
Company's website at www.petropavlovsk.net . A copy of the Annual
Report 2018 has also been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/nsm
The information contained in the Appendix to this announcement,
which is extracted from the Annual Report 2018, is included solely
for the purposes of complying with the Disclosure Guidance and
Transparency Rules (the "DTR") 6.3.5 and the requirements it
imposes on how to make public annual financial reports. The
Appendix should be read in conjunction with the Company's Annual
Results for the year ended 31 December 2018 issued on 24 April 2019
(the "Annual Results Announcement"). Together, these constitute the
material required by DTR 6.3.5 to be communicated to the media in
unedited full text through a Regulatory Information Service. This
material should be read in conjunction with, and is not a
substitute for reading, the Annual Report 2018.
References to page numbers and notes to the financial statement
made in the Appendix refer to page numbers and notes to the
financial statements in the Annual Report 2018. The information
contained in this announcement does not constitute the Company's
statutory accounts as defined in section 434 of the Companies Act
2006 (the "Act") for 2018 or 2017 but is derived from those
accounts. The auditors have reported on those accounts and their
report was unqualified, and did not contain statements under
section 498(2) of the Act (regarding adequacy of accounting records
and returns) or under section 498(3) of the Act (regarding
provision of necessary information and explanations). The statutory
accounts for the year ended 31 December 2018 have been approved by
the Board and will be delivered to the Registrar of Companies. A
copy of the statutory accounts for the year ended 31 December 2017
was delivered to the Registrar of Companies.
Neither the content of the Company's website, nor the content of
any other website accessible from hyperlinks on the Company's
website is incorporated into, or forms part of, this
announcement.
Nominations Committee
The Company also confirms that Mr Damien Hackett, Independent
Non-Executive Director was appointed as a member of the Company's
Nominations Committee on 24 April 2019. The Committee now comprises
of Sir Roderic Lyne, Chairman, Mr Robert Jenkins, Mr Harry
Kenyon-Slaney and Mr Damien Hackett, Independent Non-Executive
Directors and Dr Pavel Maslovskiy, Chief Executive Officer.
APPIX
1. Directors' responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the company's position and
performance, business model and strategy.
2. Principal risks relating to the Group
A table summarising Principal Risks is provided below. The risks
set out in the table should not be
regarded as a complete or comprehensive list of all potential
risks and uncertainties facing the Group which could have an
adverse impact on its performance. Additional risks which are
currently believed to be immaterial could turn out to be material
and significantly affect the Group's business and financial
results.
OPERATIONAL RISKS
PRODUCTION RELATED RISK - Failure to achieve the Group's production plan
Risk Description and potential Mitigation/comments/ Potential
impact 2018 Progress impact/
change
since 2017
Risk to production The Group's assets Preventative maintenance procedures Potential
from: are located in the are undertaken on a regular and impact
i) Weather Russian Far East, periodic basis to ensure that - High
ii) Delivery a remote area that machines will function properly
of equipment can be subject to in extreme cold weather conditions; Change
iii) Stripping severe climatic conditions. heating plants at operational since 2017
ratios Severe weather conditions, bases are regularly maintained - No change
such as cold temperatures and operational equipment is
in winter and torrential fitted with cold weather protection
rain, potentially to assist in ensuring that equipment
causing flooding does not fail as a result of
in the region could adverse weather conditions.
have an adverse impact
on operations, including Pumping systems are in place
the delivery of supplies, and tested periodically to ensure
equipment and fuel; that they are functioning.
and exploration and
extraction levels Management monitor natural conditions
may fall as a result in order to pre-empt any disaster
of such climatic and in order that appropriate
factors. mitigating action can be taken
expediently. The Group aims to
The Group relies maintain several months of essential
on the supply and supplies at each site.
availability of various Equipment is ordered with adequate
services and equipment lead times in order to ensure
in order to successfully timely delivery of equipment.
run its operations. The Group has a number of contingency
Delay in the delivery plans in place to address any
or the failure of disruption to services
mining equipment In October 2018, mining in the
could significantly first underground stopes of the
delay production main high-grade orebody at -5m
and impact the Group's MSL level caused unusually high
profitability. water inflow into the +55m MSL
sublevel and all work in the
The Group is dependent North East Bakhmut 3 area at
on production from Pioneer's underground mining
its operating mines operations had to be stopped
(both open pits and until the flooding was under
underground) and control. Ore mining at North
from POX in order East Bakhmut resumed in January
to generate revenue 2019.
and cash flow.
The successful commissioning
of the POX Hub commenced in November
2018. POX is a proven technology
facilitating large scale, long
life projects and with a reasonable
cost profile.
During 2018 the Group delivered
production in line with its revised
guidance.
EXPLORATION RELATED RISK
Risk Description and potential Mitigation/comments/ Potential
impact 2018 Progress impact/
change
since 2017
The Group's Exploration activities The Group uses modern geophysical Potential
activities are speculative, and geochemical exploration and impact
are reliant time-consuming and surveying techniques. The Group - High
on the quantity can be unproductive. employs a highly qualified team Change
and quality In addition, these of geologists with considerable - Reduced
of the Mineral activities often regional expertise and experience.
Resources require substantial They are supported by a network
and Ore Reserves expenditure to establish of fully accredited laboratories
available Reserves through experienced in performing a range
to it. drilling and metallurgical of assay work to high standards.
and other testing,
determine appropriate Group Mineral Resource and Ore
recovery processes Reserve estimates are prepared
to extract gold from by a team of qualified specialists
the ore and construct following guidelines of JORC
or expand mining Code 2012, which is one of the
and processing facilities. most recognised reporting codes.
Once deposits are Mineral Resource and Ore Reserve
discovered it can estimates are subject to regular
take several years independent reviews and audits.
to determine whether The last full audit was completed
Reserves exist. During in April 2017 by Wardell Armstrong
this time, the economic International.
viability of production
may change. As a In addition, as a part of compliance
result of these uncertainties, with The Subsoil Law Group legislation,
the exploration programmes the Group also prepares reserve
in which the Group estimates following Russian GKZ
is engaged may not guidelines. These estimates are
result in their replacement subject to GKZ audits. Where
or expansion with possible, the Group reconciles
new Reserves after GKZ and JORC estimates which
their depletion from provides additional assurance
current production. about the Company's Reserve estimates.
The Group employs a team of qualified
mining engineers to undertake
mine planning, complete open
pit and underground mine design
and production scheduling.
The success of the POX Hub has
unlocked the Group's access to
the 12.33Moz refractory Resources
which support the Group's long-term
growth objectives in doubling
the average life of mine and
sustaining its production profile.
The Group continues to explore
the potential for further mine
life extension and production
expansion. Exploration work has
identified several prospective
satellite refractory targets
for further work at Malomir and
Pioneer. A successful exploration
campaign in 2018 yielded a 2%
increase (before depletion and
disposals) in JORC Mineral Resources
across the Group's assets. This
maintained the total Mineral
Resource at 20.52Moz despite
depletion of 0.49Moz
due to mining and the disposal
or surrender of several licences
containing 0.3Moz JORC resources
during the year. The increase
is mainly attributable to additions
at open pit and underground targets
at Pioneer, Malomir and Albyn,
including a 26% increase in resources
potentially suitable for underground
mining, from c.0.94Moz to c.1.19Moz.
Potential resources for underground
mining have been identified at
Pokrovskiy and Albyn.
Successful near mine exploration
identified a number of promising
targets that warrant further
exploration, which may result
in an increase in Mineral Resources
and possibly new Ore Reserves.
PROCESSING
Risk Description and potential Mitigation/comments/ Potential
impact 2018 Progress impact/change
since 2017
A mechanical POX is a new and complex The first two autoclaves NEW RISK
or metallurgical metallurgical facility which are the principal
failure of which brings added challenges. components of the POX
the POX Hub, Hub were successfully
including If there is a failure commissioned in December
failure to in the POX process this 2018, within the revised
reach expected could lead to lower production timeframe and have now
recovery rates and/or higher costs which been operational at
or high levels may have a detrimental design processing and
of preg-robbing impact on the Group's gold recovery.
could result operating performance
in lower production and financial condition. The Group's expertise
and/or higher in pressure oxidation
costs. The monitoring equipment is represented by RDC
used at the POX plant Hydrometallurgy, a
uses radioactive isotopes scientific
to monitor the processing. research centre based
A failure to use the equipment in St Petersburg with
correctly could result a POX pilot plant located
in contamination. in Blagoveshchensk.
In early 2018, a decision
was made for RDC
Hydrometallurgy
to develop an advanced
engineering course
'Autoclave
Oxidative Leaching of
Gold-bearing Sulphide
Flotation Concentrates'
for the Group's
engineering
and technical personnel
and to install the only
pilot autoclave
installation
in Russia. This simulation
of the operator's
workplace
allowed trainees to
learn to monitor and
regulate all POX
parameters.
For six months, the
engineers and technicians
from Pokrovskiy, studied
the theoretical section
of the course at the
training centre of
Pokrovskiy
Mining College. They
then practised on the
simulator to be fully
prepared for the real-life
commissioning.
Safety requirements
for the use of nuclear
isotopes are exceeded
only by the space
industry.
Therefore, for successful
commissioning, it was
necessary to fulfil
a number of stringent
requirements and
conditions.
The Group had to obtain
a license to operate
radiation sources in
the POX Hub and
appropriate
training was organised
for employees.
FINANCIAL RISKS
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
Liquidity The Group may need ongoing In the event that the Potential
Risk access to liquidity and Group requires additional impact
funding in order to: finance for shorter - High
(i) Refinance or repay term liquidity purposes, Change -
its existing debt as required; including for capital Reduced
(ii) Support its existing expenditure purposes,
operations and extend the Group may have access
their life and capacity; to forward gold sales
and funding. This may be
(iii) Invest to develop advantageous, depending
its refractory ore concentrate upon the Group's access
production and underground otherwise to debt or
mining projects and exploration. equity finance and the
terms on which these
There is a risk that the may be available.
Group may be unable to
obtain necessary funding In December 2018,
when required or that Petropavlovsk's
such funding will only liquidity position was
be available on unfavourable significantly strengthened
terms. after entering into
a number of gold sales
The Group may therefore contracts with
be unable to meet its Gazprombank,
business development objectives for sales of c.175Koz
or financial commitments. in 2019-2020. These
arrangements allow the
Company to receive advance
payments for 70% of
gold with shipment to
Gazprombank over a period
commencing six months
following receipt of
an advance by the Company
and ending no later
than December 2020.
Theses sale contracts
have provided the Group
with flexibility during
the POX plant ramp up
period.
Risk Description and potential Mitigation/comments/ Potential
impact 2018 Progress impact/
change since
2017
The Group's The Group's financial The Chief Financial Potential
result of performance is highly Officer constantly impact
operations dependent on the price monitors - High
may be affected of gold. A sustained downward the gold price and Change - no
by changes movement in the market influencing change
in the gold price for gold would negatively factors on a daily basis
price affect the Group's profitability and consults with the
and cash flow and consequently Board as appropriate.
its ability to develop
its business. The market The Group has a hedging
price of gold is volatile policy and hedges a
and is affected by numerous portion of production
factors which are beyond as the Chief Financial
the Group's control. Officer and Board deem
necessary.
In order to increase
certainty in respect
of a significant
proportion
of its cash flows, the
Group entered into a
number of gold forward
contracts during 2018.
Forward contracts to
sell an aggregate of
200,000oz of gold at
an average price of
US$1,252oz were
outstanding
as at 31 December 2018.
A higher gold price
environment may allow
the Group to consider
other hedging arrangement
options in 2019.
Exchange rate The Company reports its The average year-on-year Potential
fluctuations results in US Dollars, depreciation of the impact
which is Russian Rouble against - High
the currency in which the US Dollar was Change - no
gold is principally traded approximately change
and therefore in which 7%, with the average
most of the Group's revenues exchange rate for 2018
are generated. being RUB62.68:US$1
Significant costs are compared to RUB58.32
incurred in and/or influenced : US$1 for 2017.
by the local currencies
in which the Group operates, The Group's policy is
principally Russian Roubles. to keep under review
An appreciation of the possible options for
Russian Rouble against exchange rate hedging,
the US Dollar tends to although it currently
result in an increase has not entered into
in the group's costs relative any such transactions
to its revenues whereas
the depreciation of the
Russian Rouble against
the US Dollar tends to
result in lower Group
costs relative to its
revenues.
In addition:
* A portion of the Group corporate overhead is
denominated in Sterling. Therefore, adverse exchange
rate movements may materially affect the Group's
financial condition and results of operations.
* If inflation in Russia were to increase without a
corresponding devaluation of the Russian Rouble
relative to the US Dollar, the Group's business,
results of operations and financial condition may be
adversely affected.
FINANCIAL RISKS
FUNDING AND LIQUIDITY RELATED RISKS
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
Risk that: As at 31 December 2018, -In June and December Potential
* Funding may be demanded from Petropavlovsk under a Petropavlovsk had provided 2018, the Group provided impact
guarantee provided in relation to a project finance a guarantee against a IRC with bridge loans - High
facility provided to K&S a wholly owned subsidiary of US$340 million project totalling c.US$57m. Change -
IRC. loan facility provided These funds were used Reduced
to K&S by ICBC to fund by IRC to pay two schedule
the construction of IRC's payments to ICBC.
* K&S will not be able to service the interest and meet iron ore mining operation -On 19 December 2018,
the repayments due on its loan due to insufficient at K&S, of which c.US$169m K&S signed two new broadly
funds arising from a decrease in the iron ore price was outstanding as at identical facility
or operational issues at the K&S site 31 December 2018 (2017: agreements
cUS$234m). with Gazprombank (the
'Facility Agreements')
* Risk that further issues delaying the ramping up of In the event that K&S whereby Gazprombank
the K&S facility and/or a decrease in the iron price defaulted on its loan, would provide K&S with
could result in a decrease in the value of the Petropavlovsk may have a US$240m facility for
Group's shareholding in IRC. been liable to repayment the purposes of repaying
of the outstanding loan in full the outstanding
under the terms of the project finance facility
guarantee and other Group K&S had with ICBC and
indebtedness may have repaying the two bridge
become repayable under loans provided by
cross-default provisions. Petropavlovsk
to IRC (the 'Gazprombank
Due to actions taken by Facility').
IRC and the Company during -Pursuant to the Facility
2018 (see Mitigation/Comments) Agreements, Petropavlovsk
this risk has substantially was to guarantee the
reduced. obligations of K&S up
to an initial amount
However due to the guarantees of US$160m through a
provided by the Company series of five guarantees
to Gazprombank, the Group's over the life of the
going concern status remains Gazprombank Facility.
sensitive to IRC's ability These guarantees were
to comply with covenants entered into by the
within the new facilities Company and Gazprombank
and generate sufficient on 15 February 2019,
cash flows from its with the effectiveness
K&S mine. of each of the guarantees
being conditional upon
shareholder approval
being obtained at a
General Meeting. Such
Shareholder approval
was obtained on 12 March
2019.
-The Gazprombank Facility
has been drawn down
and has enabled IRC
to:
-Repay in full the sum
of approximately US$169m
outstanding under the
ICBC Facility; and
-Repay Petropavlovsk
the Russian Rouble
equivalent
of approximately c.US$57m,
in addition to any accrued
interest and fees, as
full repayment of the
two bridge loans.
-The Gazprombank Facility
will also enable IRC
to fully pay guarantee
fees of c.US$6 million,
owing to Petropavlovsk
in relation to the
guarantee
provided for the ICBC
facility (c.US$4.5 million
of which has been paid
to date).
-The risk of K&S
defaulting
on its loan, and hence
the risk that
Petropavlovsk
may be liable to repay
the outstanding loan,
has been reduced by
K&S entering into the
Gazprombank Facility
and repaying the ICBC
Facility because:
-The Gazprombank Facility
provides for a
significantly
more relaxed amortisation
schedule compared to
that under the ICBC
Facility; and
-Better aligns with
the proposed ramp up
of K&S and the revenues
that are anticipated
to be generated by it.
-The guarantee provided
by the Company has
decreased
to US$160m as at the
date of this Annual
Report. However in certain
circumstances the Company
could have a maximum
liability of US$240m
under the guarantees.
Full details of the
guarantees and the
associated
risks are contained
in the Company's Circular
to Shareholders dated
15 February 2018, a
copy of which can be
found on the Company's
website at
http://www.petropavlovsk.n
et/
wp-content/uploads/2019/02
/c114994CCL-pfp.pdf
HEALTH, SAFETY AND ENVIRONMENTAL RISK
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
The Group The Group's employees Board level oversight Potential
operates potentially are one of its most valuable of health and safety impact
hazardous assets. The Group recognises issues occurs through - Medium/High
sites such that it has an obligation the work of the Safety, Change - no
as open-pits, to protect the health Sustainability and change
underground of its employees and that Workforce
mines, the they have the right to Committee (SS&W Committee)
POX Hub plant, operate in a safe working which was constituted
exploration environment. Certain of on 12 November 2018.
sites processing the Group's operations The Committee is chaired
facilities are carried out under by Mr Harry Kenyon-Slaney,
and explosive potentially hazardous Independent Non-Executive
storage facilities. conditions. Group employees Director, who is assisted
The operation may become exposed to by his colleagues on
of these sites health and safety risks the Committee namely,
exposes its which may lead to the Dr Pavel Maslovskiy,
personnel occurrence of work-related Chief Executive Officer,
to a variety accidents and harm to Mr Damien Hackett,
of health the Group's employees. Independent
and safety These could also result Non-Executive Director,
risks in production delays and Mr Bektas Mukazhanov,
financial loss. Non-Executive Director
and Dr Alya Samokhvalova,
Deputy CEO. Mr
Kenyon-Slaney's
introduction to the
Sustainability Report
is provided on page
72 of this Annual Report.
Members of the SS&W
Committee visited the
Group's operating mines
in April 2019 during
which they met with
members of the workforce.
Health and Safety
management
systems are in place
across the Group to
ensure that the operations
are managed
in accordance with the
relevant health and
safety regulations and
requirements and where
possible with
international
best practice. The Group
continually reviews
and updates its health
and safety procedures
in order to minimise
the risk of accidents
and improve accident
response, including
additional and enhanced
technical measures at
all sites, improved
first aid response and
the provision of further
occupational, health
and safety training.
The SS&W Committee has
sought assurance from
management that
appropriate
health and safety
procedures
have been enacted
throughout
the Group's POX Hub,
not only to comply with
Russian health and safety
legislation but to adhere
to international best
practice, in recognition
of the inherent risks
within this new
technology.
The Group has provided
extensive safety training
to its employees on
the operation of the
POX process and in
relation
to its underground mining
operations.
The Lost-Time Injury
Frequency Rate (LTIFR)
for 2018 of 2.52 accidents
per 1 million man-hours
worked compared with
a LTIFR of 3.11 in 2017.
Regrettably this included
one fatality, a road
traffic accident involving
an employee
at Albyn who was being
transported to his place
of work from his
accommodation
at the time of the
incident.
Health & Safety targets
are included in the
annual bonus scheme
for Executive Directors
and the Executive
Committee.
The Remuneration Committee
may also consider the
Group's health and safety
performance during the
year when considering
bonus plan payments.
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
Major pollution If the Group was involved The Company operates Potential
arising from in a major environmental a certified environmental impact
operations event, potential impacts management system at - Medium/High
include: air could include fines and all of its sites which Change - no
and water penalties, statutory liability meet international change
pollution, for environmental remediation standards.
land contamination and other financial consequences
and deforestation. that might be significant. The Company has
implemented
Accidental spillages of a number of initiatives
cyanide and other chemicals to monitor and limit
may result in damage to the impact of its
the environment, personnel operations
and individuals within on the environment.
the local community.
Cyanide and other
dangerous
substances are kept
in secure storages with
access limited only
to qualified personnel,
with access closely
monitored by security
staff.
Loss of Personnel
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
The Company The loss of key personnel Succession Planning Potential
is dependent to the Company may impact is on the Agenda of impact
on Dr Pavel the morale of senior management the Nominations Committee - Medium/High
Maslovskiy, and the workforce, the and the Board. The Change -
CEO and other result Remuneration reduced
long-serving of the Group's operations Committee will ensure
members of and a delay in the delivery appropriate remuneration.
the senior of projects.
executive
team.
Country and Compliance Risks
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2017
The Group The Group's principal There are established Potential
requires various activity is gold mining processes in place to impact
licences and which require it to hold monitor the required - Medium/High
permits in licences which permit and existing licences Change - no
order to operate it to explore and mine and permits on an on-going change
in particular areas in basis and processes
Russia. These licences are also in place to
are regulated by Russian ensure compliance with
governmental agencies the requirements of
and if a material licence the licences and permits.
was challenged or terminated,
this would have a material
adverse impact on the
Group. In addition, various
government regulations
require the Group to obtain
permits to implement new
projects or to renew existing
permits.
Failure to comply with
the requirements and terms
of these licenses may
result in the subsequent
termination of licenses
crucial to operations
and cause reputational
damage.
Alternatively, financial
or legal sanctions could
be imposed on the Group.
Failure to secure new
licences or renew existing
ones could lead to the
cessation of mining at
the Group's operations
or an inability to expand
operations.
The Group Actions by governments To mitigate the Russian Potential
is subject or changes in economic, economic and banking impact
to risks associated political, judicial, administrative, risk the Group strives - Medium/High
with operating taxation or other regulatory to use the banking Change - no
in Russia. factors or foreign policy services change
in the countries in which of several financial
the Group operates or institutions and not
holds its major assets keep disproportionately
could have an adverse large sums on deposit
impact on the Group's with a single bank.
business or its future
performance. Most of the The Group seeks to
Group's assets and operations mitigate
are based in Russia. the political and legal
risk by constant
Russian foreign investment monitoring
legislation imposes restrictions of the proposed and
on the acquisition by newly adopted legislation
foreign investors of direct and adapt to the changing
or indirect interests regulatory environment
in strategic sectors of in the countries in
the Russian economy, including which it operates and
in respect of gold reserves specifically in Russia.
in excess of a specified It also relies on the
amount or any occurrences advice of external counsel
of platinum group metals. in relation to the
interpretation
The Group's Pioneer and and implementation within
Malomir licences have the Group of new
been included on the list legislation.
of subsoil assets of federal
significance, maintained The Group closely monitors
by the Russian Government its assets and the
("Strategic Assets"). probability
The impact of their inclusion into
of this classification the Strategic Assets
is that changes to the lists published by the
direct or indirect ownership Russian Government.
of these licences may
require obtaining clearance The Company's Articles
in accordance with the of Association include
Foreign Strategic Investment a provision which allows
law of the Russian Federation. the Board to impose
such restrictions as
the Directors may think
necessary for the purpose
of ensuring that no
Ordinary Shares in the
Company are acquired
or held or transferred
to any person in breach
of Russian legislation,
including any person
having acquired (or
who would as a result
of any transfer acquire)
Ordinary Shares or an
interest in Ordinary
Shares which, together
with any other shares
in which that person
or members of their
group is deemed to have
an interest for the
purposes of the Strategic
Asset Laws, carry voting
rights, exceeding 50
per cent. (or such lower
number as the Board
may determine in the
context of the Strategic
Asset Laws) of the total
voting rights attributable
to the issued Ordinary
Shares without such
acquisition having been
approved, where such
approval is required,
pursuant to the Strategic
Asset Law.
This risk cannot be
influenced by the
management
of the Company. However,
the Group continues
to monitor changes in
the political environment
including the impact
of any potential
sanctions,
and reviews changes
to the relevant
legislation,
policies and practices.
25. Related parties
Related parties the Group entered into transactions with during
the reporting period
PJSC Asian-Pacific Bank ('Asian-Pacific Bank'), LLC Insurance
Company Helios Reserve ('Helios') and Peter Hambro Limited were
considered to be related parties as members of key management had
an interest in and collectively exercise significant influence over
these entities until 22 June 2017 when the Group lost significant
influence over these companies.
The Petropavlovsk Foundation for Social Investment (the
'Petropavlovsk Foundation') is considered to be a related party due
to the participation of the key management of the Group in the
governing board of the Petropavlovsk Foundation and their presence
in its board of guardians.
IRC Limited and its subsidiaries (Note 32) are associates to the
Group and hence are related parties since 7 August 2015.
Transactions with related parties which the Group entered into
during the years ended 31 December 2018 and 2017 are set out
below.
Trading Transactions
Related party transactions the Group entered into that relate to
the day-to-day operation of the business are set out below.
Sales to related Purchases from
parties related parties
------------------------------------------- -------------------- --------------------
2018 2017 2018 2017
US$'000 US$'000 US$'000 US$'000
------------------------------------------- --------- --------- --------- ---------
Entities in which key management
have interest and exercise a significant
influence or control - 3 764 1,336
IRC Limited and its subsidiaries 164 85 681 2,062
------------------------------------------- --------- --------- --------- ---------
164 88 1,445 3,398
------------------------------------------- --------- --------- --------- ---------
During the year ended 31 December 2018, the Group made US$0.4
million charitable donations to the Petropavlovsk Foundation (2017:
US$0.2 million).
The outstanding balances with related parties at 31 December
2018 and 2017 are set out below.
Amounts owed by Amounts owed
related parties to related
parties
------------------------------------------- ---------------------------- ---------------
2018 2017 2018 2017
US$'000 US$'000 US$'000 US$'000
Entities in which key management
have interest and exercise a significant
influence or control 1,556 236 - -
IRC Limited and its subsidiaries 2,078 2,099 976 527
------------------------------------------- --------- --------- ------------ ---------
3,634 2,335 976 527
------------------------------------------- --------- --------- ------------ ---------
In March 2018, the Group entered into a transaction with the
member of key management personnel to purchase the office building
and land, currently subject to an operating lease arrangement. The
aggregate consideration payable is US$3.5 million, of which US$1.5
million of advance payments were paid by the Group as at 31
December 2018.
Financing transactions
The Group has charged a fee for the provision of the guarantee
to IRC under ICBC Facility, equal to 1.75% on the ICBC outstanding
loan principal (note 14), which amounted to US$4.0 million during
the year ended 31 December 2018 (2017: US$4.1 million). The
guarantee fee contractual balance outstanding amounted to US$10.3
million (2017: US$6.4 million) which corresponding fair value was
US$6.8 million (2017: US$10.5 million).
In June 2018, the Group provided a Rouble denominated unsecured
loan to IRC in the amount of RUB1,878 million (an equivalent of
US$29.75 million). The loan carried interest of 12% per annum and
was repaid on 21 March 2019. The loan was recognised net of
lifetime ECL of US$0.5 million at inception. The Group recognised
further US$0.8 million impairment based on ECL model.
In December 2018, the Group provided a dollar denominated
unsecured loan to IRC in the amount of US$27.0 million. The loan
carried interest of 16% per annum and was repaid on 21 March 2019.
The loan was recognised net of lifetime ECL of US$1.9 million at
inception.
In March 2018, the Group entered into a loan agreement with Dr
Pavel Maslovskiy. At 31 December 2018, the loan principal
outstanding amounted to an equivalent of US$0.2 million. Interest
charged during the year ended 31 December 2018 comprised an
equivalent of US$0.01 million.
Key management compensation
Key management personnel, comprising a group of 16 individuals
during the period (2017: 13), including Executive and Non-Executive
Directors of the Company and members of senior management, are
those having authority and responsibility for planning, directing
and controlling the activities of the Group.
2018 2017
US$'000 US$'000
-------------------------- -------- --------
Wages and salaries 7,761 6,285
Pension costs 136 176
Share-based compensation 404 136
-------------------------- -------- --------
8,301 6,597
-------------------------- -------- --------
30. Subsequent events
Refinancing of the ICBC Facility
Following the approval by the Company shareholders at a General
Meeting held on 12 March 2019, to guarantee the obligations of
K&S under the Gazprombank Facility, the refinancing of the ICBC
Facility has been completed.
IRC entered into a new US$240 million facility with Gazprombank.
In March 2019, IRC drew down an aggregate of US$228.9 million on
the Gazprombank Facility that were used to repay the amounts
outstanding under ICBC Facility of approximately US$169 million in
full, the two loans provided by the Group in the equivalent of
approximately US$57 million in full and to finance the K&S
Project's working capital of approximately US$3 million. The
remaining proceeds from the Gazprombank Facility are to be used to
repay part of the guarantee fee of US$6 million owed by IRC to the
Group in respect of the guarantee of the ICBC Facility with the
remaining guarantee fee outstanding of approximately US$5 million
payable no later than 31 March 2020. In April 2019, IRC has further
drawn down US$4.5 million on the Gazprombank Facility.
A new guarantee was issued by the Group over part of the
Gazprombank Facility, the guarantee mechanism is implemented
through a series of five guarantees that fluctuate in value through
the eight-year life of the loan, with the possibility of the
initial US$160 million principal amounts guaranteed reducing to
US$40 million within two to three years, subject to certain
conditions being met. For the final two years of the Gazprombank
Facility, the guaranteed amounts will increase to US$120 million to
cover the final principal and interest repayments.
Enquiries
For more information, please visit www.petropavlovsk.net and
www.ircgroup.com.hk or contact:
Petropavlovsk PLC Buchanan
Patrick Pittaway Bobby Morse
Max Zaltsman Ariadna Peretz
+44 (0) 20 7201 8900 +44 (0) 207 466 5000
TeamIR@petropavlovsk.net POG@buchanan.uk.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACSEQLFLKZFEBBL
(END) Dow Jones Newswires
April 26, 2019 11:57 ET (15:57 GMT)
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