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Petropavlovsk PLC: THE INVESTMENT CASE

Petropavlovsk set for significant production boost from POX

Petropavlovsk's pending use of pressure oxidation processing technology will boost production significantly
Petropavlovsk set for significant production boost from POX
INVESTMENT OVERVIEW: POG The Big Picture
POX will boost production and reduce costs

2016 refinancing allows for major advances in 2017

 

“The banks are supportive,” says Peter Hambro, chairman of London-listed gold miner Petropavlovsk PLC (LON:POG). It’s an important statement to make because at one point Petropavlovsk appeared to be carrying an unsustainable debt burden.

But no longer. “We’ve now completed the two year reorganisation of the company,” says Hambro. “It has been a truly transformational time.”

“We’ve been dealing with the 2015 refinancing, and much more importantly with the restructuring of the Petropavlovsk debt profile, which has been extended to 2022.” This is all in line with a production profile that has been agreed with the banks.

 

Ongoing installation of advanced technology allows for the mining of more gold

 

One critical component of the supportive mood is the viability of plans to install a new pressure oxidation facility at the Pokrovskiy mine in Russia’s Far East. This will handle flotation concentrate from two of the company’s other major mines, Pioneer and Malomir.

Work on POX is now 65% complete and construction of the Malomir flotation plant 90% complete.

Allowing pressure oxidation to go to work on ores that were previously likely to be set aside as being hard to process will have a great impact on the business.

“POX unlocks 4 mln ounces of reserves, as already defined within our asset base, with further untapped exploration resource potential,”  says Hambro. Put another way, that means additional output of around 200,000 ounces per year. 

The banks arranged for two studies into the viability of POX, which is why they are, says Hambro, “comfortable,” and working together with Petropavlovsk as partners.

“The project has been substantially de-risked. And we know it works because it’s being done all over the world. Barrick has one. Polymetal has one. And Macraes Flats in New Zealand has one, and furthermore we have a one–of-a-kind POX pilot plant, which has been operating since 2011.”

Total pre-production capital expenditure for POX is likely to run to US$152 mln.

 

Current production focusses on maximising margins

 

In the more immediate term, Petropavlovsk is guiding for production of between 420,000 ounces and 460,000 ounces this year, with cash costs likely to be between US$650 and US$700, and all-in sustaining costs between US$800 and US$900.

“The cost profile is amazing,” says Hambro. “It is a solid achievement, allowing us to focus on maximising margins.”

In the coming year, the plan is to invest around US$100 mln on operations generally, of which 60 per cent will go into POX.

For some that won’t come soon enough, as the gold price looks to trend upwards.

“In this industry, much depends on the gold price,” says Hambro.

“We are cautiously optimistic. Gold looks more buoyant than it has done for a while with increasing macro uncertainty coupled with a diminishing supply of paper gold. Things are looking brighter.”

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