Petropavlovsk Slumps in London as Debt Woes Concern Investors
Petropavlovsk Plc (POG), the year’s second-worst performer on the FTSE All-Share Mining Index, fell the most in four months in London after scrapping its dividend and amid concern the gold producer may struggle to cut debt.
The stock dropped as much as 20 percent, the most on an intraday basis since April 15. It retreated 16 percent to 106.75 pence by 12:45 p.m. local time, bringing this year’s slump to 70 percent. New World Resources Plc (NWR) is the worst-performer in the 23-member Mining Index this year, sliding 78 percent.
“Clearly the company remains highly geared and, with weaker gold prices, is exposed,” analysts at Investec Bank Plc wrote today in a note to clients.
Petropavlovsk is seeking to cut debt that has weighed on its stock just as gold prices posted their steepest quarterly drop in at least 90 years. Net debt peaked earlier this year at $1.2 billion and would fall below $1 billion by the end of 2013, the company said in a statement last month. It was $1.15 billion at June 30, it said today.
Gold for immediate delivery fell 0.3 percent to $1,412.96 an ounce at 12:56 p.m. in London, dropping for the first time in six days. Prices rallied to $1,433.83 yesterday, the highest since May 14.
“The biggest concern for the company remains its net debt,” Liberum Capital Ltd. analyst Ben Davis wrote today in a note to clients. “However, the absolute level of net debt is going in the right direction along with the rising gold price and falling ruble.” Petropavlosk’s operations are in the Amur region of Russia’s far east.
The company has enough cash and undrawn credit to run the business, Chairman Peter Hambro said today in a statement. It is working on refinancing a $380 million convertible bond due in 2015, Hambro said later in an interview with Francine Lacqua on Bloomberg Television’s “On the Move.”
“Some sensible hedging” of 219,400 ounces of future production at $1,664 an ounce will aid the company, Investec said.
Gold slid 16 percent this year amid speculation the U.S. Federal Reserve will begin cutting its $85 billion monthly bond-buying program, which helped the precious metal cap a 12-year bull run in 2012.
The company today reported a net loss of $742.2 million for the six months ended June 30 from a profit of $11 million a year ago. It scrapped its interim dividend “to help ensure the company maintains its liquidity position in the current environment,” Hambro said. The payout will be reviewed at the end of the year, the company said.
“Petropavlovsk is not alone in finding the current operating and financial environments a challenge, but we are demonstrating, nonetheless, a commitment to, and some early success in, dealing with these difficult circumstances,” Hambro said.
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