TIDMPOG
RNS Number : 5049O
Petropavlovsk PLC
01 June 2020
1 June 2020
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 2019 (the
"Annual Report 2019") is available to view and download from the
Company's website at www.petropavlovsk.net . A copy of the Annual
Report 2019 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 2019, 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 2019 issued on 27 May 2020
(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 2019.
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 2019. 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 2019 or 2018 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 2019 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 2018
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.
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 2019 Progress impact/
change
since 2018
Risk to the The global COVID-19 The Group has Potential
Group's employees pandemic could significantly implemented measures impact
and operations impact on the Group's in each of the - High
from COVID-19 employees and could jurisdictions
result in the suspension in which it operates, in New Risk
of some or all, of line
the Group's mining with published guidance,
operations. in order
to protect employees and
the
Group's operations.
- The formation of an
emergency
response team to limit
the spread
of COVID-19 at the Group
companies.
Members of the response
team
will work in
co-operation with
the local authorities
when and
if required. The team
includes
representatives from
each Group
enterprise in Russia;
and
- Coordinators
responsible for
the control and
counteraction
against the spread of
COVID-19
have been appointed at
each location.
The Group's assets Preventative maintenance High
Risk to production are located in the procedures
from: Russian Far East, are undertaken on a Risk
a remote area that regular basis Unchanged
(i)Weather can be subject to to ensure that machines
(ii) Delivery severe climatic conditions. will
of equipment Severe weather conditions, function properly under
such as cold temperatures extreme
in winter and torrential cold weather conditions;
rain, potentially heating
causing flooding plants at operational
in the region could bases are
have an adverse impact regularly maintained and
on operations, including operational
the delivery of supplies, equipment is fitted with
equipment and fuel. cold
Exploration and extraction weather options which
levels may fall as could assist
a result. in ensuring that
The Group relies equipment does
on the supply and not fail as a result of
availability of various adverse
services and equipment weather conditions.
in order to successfully Pumping systems
run its operations. are in place and tested
Delay in the delivery periodically
or the failure of to ensure that they are
mining equipment functioning.
could significantly
delay production Management monitor
and impact the Group's natural conditions
profitability. in order to pre-empt any
The Group is dependent disaster
on production from and in order that
its operating mines appropriate
(both open pits and mitigating action can be
underground) and taken.
from the POX plant The Group aims to
in order to generate maintain several
revenue and cash months of essential
flow. supplies
at each site. Equipment
is ordered
with adequate lead time
in order
to prevent delays in
delivery.
The Group has
contingency plans
in place to address any
disruption
to services.
2019
In July 2019, the
Company announced
that heavy rainfall had
impacted
underground development
works
at Malomir which is in a
remote
region where heavy
rainfall events
are not uncommon during
the summer
months. The Company is
well equipped
to deal with such issues
as they
arise including employee
welfare
and safety. The
situation was
well managed. Malomir
produced
180.3koz of gold
doré in
2019, including from
concentrate,
compared with 77.6koz in
2018.
EXPLORATION RELATED RISK
Risk Description and potential Mitigation/comments/ Potential
impact 2019 Progress impact/
change
since 2018
The Group's Exploration activities The Group uses core Potential
activities are speculative, drilling impact
are reliant time-consuming and combined with modern - High
on the quantity can be unproductive. geophysical Change
and quality In addition, these and geochemical - Reduced
of the Mineral activities often exploration and
Resources require substantial surveying techniques.
and Ore Reserves expenditure to establish The Group
available reserves through employs a world-class
to it. drilling, metallurgical team of
and other testing, geologists with
to determine appropriate considerable
recovery processes regional expertise and
to extract gold from experience.
the ore and to construct They are supported by a
or expand mining network
and processing facilities. of fully accredited
Once deposits are laboratories
discovered it can experienced in
take several years performing a range
to determine whether of assay work to high
reserves exist. During standards.
this time, the economic
viability of production Group Mineral Resource
may change. As a and Ore
result of these uncertainties, Reserve estimates are
the exploration programmes prepared
in which the Group by a team of qualified
is engaged may not specialists
result in the expansion following the guidelines
or replacement of of JORC
the current production Code 2012, which is one
with new reserves of the
or operations. most recognised
reporting codes.
Mineral Resource and Ore
Reserve
estimates are subject to
regular
independent reviews and
audits.
The last full audit was
completed
in April 2017 by Wardell
Armstrong
International.
In addition, as a part
of compliance
with The Subsoil Law,
the Group
also prepares reserve
estimates
following Russian GKZ
guidelines.
These estimates are
subject to
GKZ audits. Where
possible, the
Group reconciles GKZ and
JORC
estimates which provides
additional
assurance about the
Company's
Reserve estimates.
The Group employs a team
of qualified
mining engineers to
undertake
mine planning, detailed
open
pit and underground mine
design
and production
scheduling.
The successful
commissioning
of the POX Hub unlocked
the economic
potential of the Group's
12.99Moz
refractory resources
which support
the Group's long-term
growth
objectives. The Group
continues
to explore the potential
for
further mine life
extension and
production expansion and
has
identified several
prospective
satellite refractory
targets
at Malomir and Pioneer.
In February 2020, the
Group acquired
exploration assets at
Mariinskiy
comprising two adjacent
exploration
licences. Our
exploration geologists
believe these assets
have the
potential to contain
substantial
gold resources, of a
similar
scale and to known
orebodies
at Malomir including its
satellites.
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 2019 Progress impact/change
since 2018
The POX Hub, POX is a new and complex The smooth ramp-up Potential Risk:
together with metallurgical facility of High
the associated which brings added challenges. the POX Hub in 2019
flotation If there is a failure is a record for the Change: Reduced
plants at in the POX process it industry. The POX
Malomir and could lead to lower production Hub
Pioneer, sits and/or higher costs which exceeded the Group's
at the heart may have a detrimental most optimistic
of Petropavlovsk's impact on the Group's expectations,
strategy and operating and financial with 193.2koz of
is the principal condition. gold
driver of Radioactive isotopes are recovered from
future value used in monitoring the refractory
for the Group. POX process. Failure to concentrates during
use this equipment correctly its first 12 months
A mechanical could result in contamination. of operations. Of
or metallurgical this
failure of amount, 132.0koz
the POX Hub, came
including from concentrates
failure to produced
reach expected at Malomir, leading
recovery rate to an increase of
or high levels 132%
of 'preg robbing' in gold produced at
could result Malomir compared to
in lower production a year ago.
and/or higher Gold recoveries from
costs, thus Malomir concentrates
impacting increased steadily
the Group's at
Strategy. the POX plant
through
2019 to reach above
design during the
fourth
quarter.
Productivity
and capacity
utilisation
for key equipment
exceeded
design rate and all
four autoclaves have
tested at stable,
full
capacity.
The Group's
expertise
in pressure
oxidation
is guided by RDC
Hydrometallurgy,
a scientific
research
centre based in St
Petersburg
with a POX pilot
plant
located in
Blagoveschensk.
Using its scientific
strengths, RDC is
now
focussing on ways to
process more complex
refractory ores.
Stringent safety
standards
governing licensing
and use of nuclear
isotopes
are second only to
the
space industry.
Employee
training for such
activity
is undertaken at the
Novosibirsk
Institute
for Advanced
Studies.
FINANCIAL RISKS
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2018
Liquidity The Group may need ongoing In the event that Potential
Risk access to liquidity and the impact
funding in order to: Group requires - High
additional Change -
(i) Refinance its existing finance for shorter Reduced
debt; term liquidity
(ii) Support its existing purposes,
operations and extend including for
their life and capacity; capital
and expenditure
(iii) Invest to develop purposes,
its refractory ore concentrate the Group may access
production, including forward gold sales
construction of flotation funding.
plants, underground mining This may be
projects and exploration. advantageous,
depending upon the
There is a risk that the Group's
Group may be unable to access or otherwise
obtain the necessary funding to debt or equity
when required or that finance
such funding will only and the terms on
be available on unfavourable which
terms. these may be
The Group may therefore available.
be unable to meet its No forward contracts
business development objectives to sell gold were
or financial commitments. outstanding
as at 31 December
2019
(31 December 2018:
200,000
ounces of gold at an
average price of
US$1,252/oz).
Gold contracts
during
2018 and 2019
provided
the Group with
flexibility
during the POX plant
ramp up period.
In June 2019, the
Company
successfully
refinanced
the Group's US$100
million
9% Convertible Bonds
due March 2020 by
the
placement of US$125
million 8.25%
Convertible
Bonds due 2024 (the
'New Bonds')
significantly
de-risking the
Group's
balance sheet. In
addition,
funds from the New
Bonds
have been used to
advance
construction of a
new
flotation facility
at
the Pioneer mine,
enabling
the Group to grow
its
production by
unlocking
the value embedded
in
its refractory
reserves
via the Pressure
Oxidation
(POX) Hub.
In August 2019,
Fitch
Ratings upgraded the
Group's Long-Term
Issuer
Default Rating and
senior
unsecured rating to
'B-' from 'CCC' with
a Positive Outlook
due
to 'a significant
strengthening
in Petropavlovsk's
liquidity
position due to the
refinancing of the
convertible
bond, repayment of
US$57
million bridge loan
by affiliated iron
ore
producer IRC Limited
and the increased
visibility
for production due
to
the launch of the
POX
Hub in November
2018.
Risk Description and potential Mitigation/comments/ Potential
impact 2019 Progress impact/
change since
2018
The Group's The Group's financial The Chief Financial Potential
result of performance is highly Officer constantly impact
operations dependent on the gold monitors - High
may be affected price. The gold market the gold price and Change - no
by changes is cyclical and sensitive influencing change
in the gold to changes in the economy factors and consults
price and numerous factors which with the Board as
are beyond the Group's appropriate.
control. The Group has a
A significant continuous hedging
decline in the gold price policy and hedges a
would negatively affect portion of
the Group's profitability production
and cash flow and consequently as the Chief
its ability to develop Financial
its business. Officer and Board
deem
necessary. As at 31
December 2019 the
Group
was unhedged.
Exchange rate The Company reports its The average Potential
fluctuations results in US Dollars, year-on-year impact
which is the currency depreciation of the - High
in which gold is principally Russian Rouble Change - no
traded and therefore in against change
which most of the Group's the US Dollar was
revenues are generated. approximately
Significant costs are 3.2%, with the
incurred in and/or influenced average
by the local currencies exchange rate for
in which the Group operates, 2019
principally Russian Roubles. being RUB64.69 :
An appreciation of the US$1
Russian Rouble against compared to RUB62.68
the US Dollar tends to : US$1 for 2018.
result in an increase
in the Group's costs relative The Group's policy
to its revenues whereas is
the depreciation of the to keep under review
Russian Rouble against possible options for
the US Dollar tends to exchange rate
result in lower Group hedging.
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; and
* 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 RISK
FUNDING AND LIQUIDITY RELATED RISKS
Risk Description and potential Mitigation/comments Potential
impact 2019 Progress impact/change
since 2018
Risk that: As at 1 January 2019, - On 18 December Potential
* funding may be demanded from Petropavlovsk under a Petropavlovsk had provided 2018, Impact:
guarantee provided in relation to a project finance a guarantee against a K&S signed two new High
facility provided to K&S, a wholly owned subsidiary US$340 million project broadly
of IRC. loan facility provided identical facility Change: Reduced
to K&S by ICBC to fund agreements
the construction of IRC's with Gazprombank
* K&S will not be able to service the interest and meet iron ore mining operation (the
the repayments due on its loan due to insufficient at K&S, of which c.US$169 'Facility
funds arising from a decrease in the iron ore price million was outstanding Agreements')
or operational issues at the K&S site. as at whereby Gazprombank
1 January 2019. would provide K&S
In the event that K&S with
defaulted on its loan, a US$240 million
Petropavlovsk may have facility
been liable to repayment for the purposes of
of the outstanding loan repaying in full the
under the terms of the outstanding project
guarantee and other Group finance facility K&S
indebtedness may have had with ICBC and
become repayable under repaying
cross-default provisions. the two bridge loans
Due to actions taken by provided by
IRC and the Company during Petropavlovsk
2019 (see Mitigation/Comments) to IRC (the
this risk has substantially 'Gazprombank
reduced. Facility').
- Pursuant to the
Facility
Agreements,
Petropavlovsk
was to guarantee the
obligations of K&S
up
to an initial amount
of US$160 million
through
a series of five
guarantees
over the life of the
Gazprombank
Facility.
These guarantees
were
entered into by the
Company and
Gazprombank
on 15 February 2019,
with the
effectiveness
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 fully drawn
down and has enabled
IRC to:
- Repay in full the
sum of approximately
US$169 million
outstanding
under the ICBC
Facility;
- Repay
Petropavlovsk
the Rouble
equivalent
of approximately
US$57
million, in addition
to any accrued
interest
and fees, as full
repayment
of the two bridge
loans;
and
- Pay Petropavlovsk
approximately US$6
million
in fees owed by K&S
and IRC to
Petropavlovsk
in respect of the
guarantee
provided under the
ICBC
Facility.
- 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
- It 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$160 million as
at the date of this
Annual Report.
However,
in certain
circumstances
the Company could
have
a maximum liability
of the full amount
outstanding
to Gazprombank by
K&S.
As at 31 December
2019,
the Group has
guaranteed
the outstanding
amounts
IRC owed to
Gazprombank.
The outstanding loan
principal was US$225
million as at 31
December
2019.
Preliminary
Agreement
for the Proposed
Termination
of IRC Guarantees
and
the Disposal of
29.9%
of the Company's
interest
in IRC
On 18 March 2020,
the
Company entered into
a preliminary
agreement
with Stocken Board
AG,
setting out the
non-binding
terms on which
Petropavlovsk
would sell to
Stocken
a 29.9% shareholding
in IRC Limited,
subject
to certain
conditions
precedent being met,
including the
release
of the Group's
obligation
to guarantee IRC's
loan
facilities with
Gazprombank.
Risk that Due to the guarantees IRC announced its Potential
further issues provided by the Company 2019 Impact:
delaying the to Gazprombank, the Group's full year results on High
ramping up going concern status remains 27 March 2020. This Change: Reduced
of the K&S sensitive to IRC's ability confirmed that K&S
facility and/or to comply with covenants had
a decrease within the new facilities operated at 81% of
in the iron and generate sufficient capacity
ore price cash flows from its K&S during 2019 whilst
could result mine. it
in a decrease was currently
in the value operating
of the Group's at c.95%. However,
shareholding the
in IRC. IRC Board noted the
potential negative
impact
of COVID-19 on IRC's
performance.
HEALTH, SAFETY AND ENVIRONMENTAL RISK
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2018
The Group The Group's employees Health & Safety Potential
operates potentially are its most valuable management impact
hazardous assets. The Group recognises systems are in place - Medium/High
sites such that it has an obligation across the Group to Change - no
as the POX to protect the health ensure that the change
Hub, open of its employees and that operations
pits, underground they have the right to are managed in
mines, exploration operate in a safe working accordance
sites, processing environment. Certain of with the relevant
facilities the Group's operations health
and explosive are carried out under and safety
storage facilities. potentially hazardous regulations
The operation conditions. Group employees and requirements and
of these sites may become exposed to where possible with
exposes its health and safety risks international best
personnel which may lead to work-related practice.
to a variety accidents and harm to The Group
of health the Group's employees. continually
and safety These could also result reviews and updates
risks. in production delays and its health and
financial loss 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.
Board level
oversight
of health and safety
issues occurs
through
the work of the
Safety,
Sustainability and
Workforce
Committee (SS&W
Committee).
The Committee is
chaired
by Mr Harry
Kenyon-Slaney,
Independent
Non-Executive
Director, who is
assisted
by his colleagues on
the Committee
namely,
Dr Pavel Maslovskiy,
Chief Executive
Officer,
Mr Damien Hackett
and
Mrs Katia Ray,
Independent
Non-Executive
Directors
and Dr Alya
Samokhvalova,
Deputy CEO. Mr
Kenyon-Slaney's
introduction to the
Sustainability
Report
is provided on page
89 of this Annual
Report.
Members of the SS&W
Committee visited
the
Group's operating
mines
in April 2019 and
met
with members of the
workforce and the
local
community.
Progress during
2019:
- As part of the
Company's
commitment to
environmental,
sustainability and
governance
(ESG) matters, the
Company
became a member of
the
UN Global Compact
Initiative
on corporate
sustainability.
This requires the
Company
to align its
operations
and strategies with
ten universally
accepted
principles in the
areas
of human rights,
labour,
environment and
anti-corruption;
- The Lost-Time
Injury
Frequency Rate
(LTIFR)
for 2019 of 1.61
accidents
per 1 million
man-hours
worked represented a
c.36% reduction
compared
to 2018;
- Greenhouse Gas
Emissions
were reduced from
1.01t
CO2e per ounce of
gold
in 2018 to 0.88t;
and
- The Company
recently
appointed an
experienced
Head of Sustainable
Business who will
assist
with the development
of the Group in this
area.
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 2018
Major pollution If the Group was involved The Company operates Potential
arising from in a major environmental a certified impact
operations event, potential impacts environmental - Medium/High
include: air could include fines and management system at Change - no
and water penalties, statutory liability all of its sites change
pollution, for environmental redemption which
land contamination and other financial consequences meet international
and deforestation. that might be significant. standards.
Accidental spillages of The Company has
cyanide and other chemicals implemented
may result in damage to a number of
the environment, personnel initiatives
and individuals within to monitor and limit
the local community. the impact of its
operations
on the environment.
Cyanide and other
dangerous
substances are kept
in secure storages
with
access limited to
qualified
personnel and
closely
monitored by
security
staff.
Country and Compliance Risks
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2018
The Group The Group's principal There are Potential
requires various activity is gold mining established impact
licences and which requires licences processes in place - Medium/High
permits in permitting exploration to Change - no
order to operate and mining in specific monitor the required change
areas in Russia. These and existing
licences are regulated licences
by Russian governmental and permits on an
agencies and if a material on-going
licence was challenged basis. Processes are
or terminated, this would also in place to
have a material adverse ensure
impact on the Group. compliance with the
In addition, various government requirements of the
regulations require the licences and
Group to obtain permits permits.
to implement new projects
or to renew existing permits.
Failure to comply with
the requirements and terms
of these licences may
result in the subsequent
termination of licences
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 Russian Potential
is subject or changes in economic, economic and banking impact
to Sovereign political, judicial, administrative, risk the Group - Medium/High
Risk taxation or other regulatory strives Change - no
factors or foreign policy to use the banking change
in the countries in which services
the Group operates or of several financial
holds its major assets institutions and not
could have an adverse keep
impact on the Group's disproportionately
business or its future large sums on
performance. Most of the deposit
Group's assets and operations with a single bank.
are based in Russia. The Group seeks to
Russian foreign investment mitigate
legislation imposes restrictions political and legal
on the acquisition by risk by constant
foreign investors of direct monitoring
or indirect interests of proposed and
in strategic sectors of newly
the Russian economy, including adopted legislation
gold reserves in excess in the countries in
of a specified amount which it operates
or any occurrences of and
platinum group metals. specifically in
The Group's Pioneer and Russia.
Malomir licences have It also relies on
been included on the list the
of subsoil assets of federal advice of external
significance, maintained counsel
by the Russian Government in relation to the
("Strategic Assets"). interpretation
The impact of this classification and implementation
is that changes to the of
direct or indirect ownership new legislation.
of these licences may The Group closely
require clearance in accordance monitors
with the Foreign Strategic its assets and the
Investment law of the probability
Russian Federation. of their inclusion
into
the Strategic Assets
lists published by
the
Russian Government.
The Company's
Articles
of Association
include
a provision which
allows
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 Laws.
This risk cannot be
influenced by the
management
of the Company.
However,
the Group continues
to monitor changes
in
the political
environment
and reviews changes
to the relevant
legislation,
policies and
practices.
Loss of Personnel
Risk Description and potential Mitigation/comments Potential
impact impact/change
since 2018
The Company The loss of key personnel - During 2019, the Potential
is dependent to the Company may impact Executive impact
on Dr Pavel the morale of senior management, Committee has been - Medium/High
Maslovskiy, its workforce, the result strengthened Change - No
CEO and other of the Group's operations by the appointment change
long-serving and a delay in the delivery of
members of of projects. Mr Dmitrii
the senior Chekashkin,
executive Group Executive,
team. Business
Transformation and
Operational
Efficiency.
- During 2020, Mr
Danila
Kotlyarov was
appointed
as Chief Financial
Officer
and Executive
Director,
further
strengthening
the Board and the
executive
team.
- A revised
Remuneration
Policy will be
proposed
to shareholders for
approval at the
Company's
2020 Annual General
Meeting.
11. Subsequent events
On 13 April 2020 it was resolved that the principal subsidiary
of the Company would distribute a Russian Rouble denominated
dividend in the amount equivalent of US$45.6 million.
2 6 . Related parties
Related parties the Group entered into transactions with during
the reporting period
The Petropavlovsk Foundation for Social Investment (the
'Petropavlovsk Foundation') is considered to be a related party due
to the participation of the key management of the Group in the
board of directors of the Petropavlovsk Foundation.
IRC Limited and its subsidiaries (Note 3 3 ) are associates to
the Group and hence are related parties since 7 August 2015.
Transactions with related parties which the Group entered into
during the years ended 31 December 201 9 and 201 8 are set out
below.
Trading Transactions
Related party transactions the Group entered into that relate to
the day-to-day operation of the business are set out below.
Sales to related Purchases from
parties related parties
--------------------------------------- -------------------- ----------------- ---------
201 9 201 8 201 9 201 8
US$'000 US$'000 US$'000 US$'000
--------------------------------------- --------- --------- ----------------- ---------
Entities in which key management have
interest and exercise a significant
influence or control - - 4,046 764
IRC Limited and its subsidiaries 42 164 5,458 681
--------------------------------------- --------- --------- ----------------- ---------
42 164 9,504 1,445
--------------------------------------- --------- --------- ----------------- ---------
In March 2018, the Group entered into a transaction with the
member of key management personnel to purchase the office building
and land, which were subject to an operating lease arrangement. The
aggregate consideration paid was an equivalent of c.US$3.2 million.
The transaction was completed in February 2019.
On 13 December 2019, the Group entered into the sale and
purchase agreement with a seller (the "Seller"), a related party of
the Company, LLC GMMC. Pursuant to the sale and purchase agreement,
the Group agreed to purchase, and the Seller agreed to sell, a
helicopter for a consideration of RUB316.7 million (equivalent to
US$5.0 million). At 31 December 2019, the contractual balance
outstanding amounted to US$4.5 million.
During the year ended 31 December 201 9 , the Group made US$ 1.0
million charitable donations to the Petropavlovsk Foundation (201 8
: US$ 0.4 million).
The outstanding balances with related parties at 31 December 201
9 and 201 8 are set out below.
Amounts owed by Amounts owed to
related parties related parties
--------------------------------------- -------------------- ----------------- ---------
201 9 201 8 201 9 201 8
US$'000 US$'000 US$'000 US$'000
Entities in which key management have
interest and exercise a significant
influence or control - 1,556 759 -
IRC Limited and its subsidiaries 3,651 2,078 5,863 976
--------------------------------------- --------- --------- ----------------- ---------
3,651 3,634 6,622 976
--------------------------------------- --------- --------- ----------------- ---------
Financing transactions
Guarantee over IRC's external borrowings
The Group historically entered into an arrangement to provide a
guarantee over its associate's, IRC, external borrowings, the ICBC
Facility ('ICBC Guarantee'). At 31 December 2018 the principal
amounts outstanding subject to the ICBC guarantee were US$169.6
million. Under the terms of the arrangement the Group was entitled
to receive an annual fee equal to 1.75% of the outstanding amount,
which amounted to US$0.7 million during the year ended 31 December
2019 (31 December 2018: US$4.0 million).
In March 2019, IRC has refinanced the ICBC Facility through
entering into a US$240 million new facility with Gazprombank
('Gazprombank Facility'). The facility was fully drawn down during
the year ended 31 December 2019 and was used, inter alia, to repay
the amounts outstanding under the ICBC Facility in full, the two
loans provided by the Group in the equivalent of approximately
US$57 million and part of the ICBC Guarantee fee of US$6 million
owed by IRC to the Group. At 31 December 2019 t he remaining
outstanding contractual guarantee fee was US$5.0 million, which had
a corresponding fair value of US$4.4 million and is payable by IRC
no later than 31 December 2020 (31 December 2018: outstanding
contractual guarantee fee of US$10.3 million with a corresponding
fair value of US$6.8 million).
A new guarantee was issued by the Group over part of the
Gazprombank Facility ('Gazprombank Guarantee'), 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. If certain springing recourse events transpire,
including default on a scheduled payment, then full outstanding
loan balance is accelerated and subject to the guarantee. The
outstanding loan principal was US$225 million as at 31 December
2019. Under the Gazprombank Guarantee arrangements, the guarantee
fee receivable is determined at each reporting date on an
independently determined fair value basis, which for the year ended
31 December 2019 was at the annual rate of 3.07% for 2019 by
reference to the average outstanding principal balance under
Gazprombank Facility. The guarantee fee charged for 2019 was US$5.6
million, with corresponding value of US$5.0 million after provision
for expected credit losses.
On 18 March 2020, the Group announced a preliminary agreement to
dispose of its 29.9% out of 31.1% interest in IRC to Stocken Board
AG for a cash consideration of US$10 million, subject to certain
conditions precedent being met, including the release of the
Group's obligation to guarantee IRC's debt under the Gazprombank
Facility (note 31).
The following assets and liabilities have been recognised in
relation to the ICBC Guarantee and Gazprombank Guarantee as at 31
December 2019 and 31 December 2018:
31 December 31 December
2019 2018
US$'000 US$'000
------------------------------------------------------ ------------ ------------
Other receivables - ICBC Guarantee (a) 4,436 6,829
Other receivables - Gazpombank Guarantee (b) 4,981 -
Financial guarantee contract - ICBC Guarantee
(c) - 37,387
Financial guarantee contract - Gazprombank Guarantee 8,923 -
(d)
------------------------------------------------------ ------------ ------------
(a) The fair value of the receivable, comprising billed fee
receivable (31 December 2018: both billed and future fee
receivable), less provision for credit losses. Considered Level 3
of the fair value hierarchy which valuation incorporates the
following inputs:
- Assessment of the credit standing of IRC and implied credit spread;
- Share price and share price volatility of IRC as at 31 December 2019 and 2018;
(b) Amounts of guarantee fee for the period that are expected to
be received from IRC and calculated by applying annual rate of
3.07% for 2019 by reference to the average outstanding principal
balance under Gazprombank Facility for the period from 19 March
2019 until 31 December 2019, less provision for ECL.
(c) Measured in accordance with ECL model: the amount of the
loss allowance equals to the lifetime ECL as it has been concluded
that the credit risk on the financial guarantee contract had
increased significantly since initial recognition, which reflected
declining credit status of IRC prior to the refinancing through
Gazprombank Facility completed in March 2019.
(d) Measured in accordance with ECL model: the amount of the
loss allowance equals to 12-month ECL as it has been concluded that
the credit risk on the financial guarantee contract has not
increased significantly since initial recognition (note 3.1.)
The results from relevant re-measurements of the aforementioned
assets and liabilities were recognised within Other finance gains
and losses and impairments of financial instruments (note 9 ).
Loans issued to IRC
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. The
loan was recognised net of lifetime ECL of US$0.5 million at
inception and further US$0.8 million impairment based on ECL model
was recognised during the year ended 31 December 2018. The loan was
fully repaid in March 2019 with consequent reversal of US$1.3
million previously recognised ECL (note 9 ).
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. The loan was recognised net of
lifetime ECL of US$1.9 million at inception. The loan was fully
repaid in March 2019 with consequent reversal of US$1.9 million
previously recognised ECL (note 9 ).
Other financing transactions
In March 2018, the Group entered into a loan agreement with Dr
Pavel Maslovskiy. At 31 December 2019, the loan principal
outstanding amounted to an equivalent of US$0.2 million (2018:
US$0.2 million). Interest charged during the year ended 31 December
2019 comprised an equivalent of US$0.01 million (2018: US$0.01
million).
In April 2019, the Group entered into a loan agreement with Dr
Alya Samokhvalova. At 31 December 2019, the loan principal
outstanding amounted to an equivalent of US$0.4 million. Interest
charged during the year ended 31 December 2019 comprised an
equivalent of US$0.02 million.
Investing transactions
In May 2019, the Group entered into the option contract to
acquire the remaining non-controlling 25% interest in the
subsidiary LLC TEMI from Agestinia Trading Limited, a
non-controlling holder of 25% interest in LLC TEMI, for an
aggregate consideration of US$60 million (adjusted to US$53.5
million if certain conditions are met). This represents a related
party transaction as it is over the equity of a subsidiary company.
The option premium payable is US$13 million, which was paid during
the year ended 31 December 2019. The exercise period of the option
is 730 days from 22 May 2019.
The Group employed an independent third party expert to
undertake the valuations of the underlying 25% interest in LLC TEMI
and the call option. As at 31 December 2019, the fair value of the
derivative financial asset was US$11.0 million reflecting a loss on
re-measurement to fair value of US$2.0 million and the initial
US$13 million cash payment (note 18).
There are no other related party relationships with Agestinia
Trading Limited present.
Key management compensation
Key management personnel, comprising a group of 14 individuals
during the period (201 8 : 1 6 ), including Executive and
Non-Executive Directors of the Company and members of senior
management, are those having authority and responsibility for
planning, directing and controlling the activities of the
Group.
201 9 201 8
US$'000 US$'000
-------------------------- -------- --------
Wages and salaries 5,794 7,761
Pension costs 62 136
Share-based compensation 157 404
-------------------------- -------- --------
6,013 8,301
-------------------------- -------- --------
Enquiries
Please visit www.petropavlovsk.net or contact:
Petropavlovsk PLC +44 (0) 20 7201 8900
Patrick Pittaway / Max Zaltsman / Viktoriya TeamIR@petropavlovsk.net
Kim
Peel Hunt LLP
Ross Allister / David McKeown / Alexander
Allen +44 (0) 20 7418 8900
Canaccord Genuity Limited
Henry Fitzgerald-O'Connor / James Asensio +44 (0) 20 7523 8000
Buchanan +44 (0) 20 7466 5000
Bobby Morse / Kelsey Traynor / Ariadna POG@buchanan.uk.com
Peretz
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
ACSQFLBBBQLZBBB
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June 01, 2020 02:44 ET (06:44 GMT)
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