Petropavlovsk’s (POG) 2009 Full-Year Results and Iron Ore Project Funding from China

29th March 2010

Petropavlovsk Plc (POG) released their full-year results last Thursday. Positive figures drove their share price to a three month high. Last Tuesday there was another positive announcement, which, together with the full-year results bodes well for POG shareholders.

It was a fairy tale of positive figures for Petropavlovsk. Full year gold production rose in line with targets at 21 percent, 486,800oz.

Figures confirmed it is one of the lowest cost gold producers in the world with group total cash costs at US $309/oz.

The company’s net debt was reduced to US$19m from US$389 in 2008. The reduction of nearly 95 percent was mostly on the back of the acquisition of Aricom but the company’s balance sheet was also helped by issuing US$380m convertible bonds due in 2015. The company’s net debt is relatively low which could pave the way for further acquisitions and mining development in the future.

The Directors have targeted 2010 production to be between 670k ounces and 760k ounces. This puts them on track to overtake Randgold Resources.

In a year where the company resumed dividend payments and earnings per share have risen 263%, Petropavlovsk certainly looks like achieving the coveted FTSE 100 index listing in the summer.

At their flagship mine – Pioneer production rose 208% at a total cash cost of US$265 per oz. The leap in production was mainly due to the successful second milling processing line in September ’09.

Petropavlovsk’s iron ore prospects

We wrote a few weeks back about Petropavlovsks iron ore prospects. In recent weeks Peter Hambro has often repeated his concerns that the iron ore arm of Petropavlovsk is undervalued by analysts and not reflected in the share price for POG. Earlier in the month Pavel Maslovsky, the Chief Executive told Reuters that they needed long term bank loans, a stock-market quotation, or both for their iron ore projects. And last week Petropavlovsk secured a loan agreement with the Industrial and Commercial Bank of China (ICBC). This is a significant step forward.

On March 23rd the company agreed terms for a 10 year loan from Industrial and Commercial Bank of China for 85 percent ($340 million) of the funding for the first phase of its Kimkano-Sutarskiy (K&S) iron ore project in the Far East Russia.

The ICBC is China’s largest bank, and has become the largest bank in the world in terms of market value.

According to the RNS, the loan agreement was signed in Moscow in the presence of Mr. Xi Jinping, Vice President of the People’s Republic of China and First Secretary of the Secretariat of the Communist Party of China Central Committee and Russian Deputy Premier Aleksan dr Dmitriyevich Zhukov.

The first phase of the project "contemplates a 10mtpa (tonnes per annum) mining operation yielding c.3.2mpta of 65% iron ore concentrate with commercial production commencing in 2013."

Furthermore the China National Electric Equipment Corporation, has been brought in to act as engineering, procurement and construction contractors for Stages 1, 2 and 3 of the K&S and Garinskoye projects.

As the iron ore market continues to expand and the price for iron ore continues to increase, driven by demand from China, this tie in with Chinese industrial superpowers is a valuable demonstration of the importance of Petropavlovks’s iron ore arm.

Together with the excellent full-year results and projections for 2010, POG looks to continue in 2010 with a healthy outlook.

Despite this, however, it must be noted that their share price is subject to the wider swings in sentiment for the gold price and is also subject to the volatile nature of the stock market. Nothing can be taken for granted, especially as fears of the Euro zone debt problems play out in the markets. Continue to watch out for what happens next here.

Digger
Gold Price Today