Petropavlovsk Open to Merger With Vekselberg’s Gold Unit

  • Gold’s advance encourages consolidation, CEO Maslovskiy says
  • No talks have been held with billionaire Viktor Vekselberg

Petropavlovsk Plc’s chief executive officer expects higher gold prices to encourage mergers in the industry and sees “big potential” for the Russian miner to consolidate with billionaire Viktor Vekselberg’s bullion unit.

"The market is starting to welcome mergers,” Pavel Maslovskiy, CEO and co-founder of Petropavlovsk, said in an interview in Moscow. “While gold prices were low that was on the backburner, but it’s coming to the fore again now.”

Most gold mining stocks rose this year as the metal rebounded on expectations that U.S. interest rates would remain low. The number of deals in the industry globally had already started rising, climbing 23 percent in 2015 from a six-year low, data compiled by Bloomberg show. Maslovskiy said he’s “positive” on the idea of a merger with Zoloto Kamchatki JSC, which is owned by Vekselberg’s Renova Group. The unit, which also mines in Russia’s Far East, has “interesting assets,” he said.

Renova’s press service declined to comment.

There have been no talks with Vekselberg or offers made, Maslovskiy said. Zoloto Kamchatki increased gold output by 38 percent last year to 2.54 metric tons. It holds nine licenses for deposits with more than 14 million ounces in the Russia’s Far East, where Petropavlovsk and Amur Zoloto also operate.

Petropavlovsk Expanding

Petropavlovsk, founded by Maslovskiy and Chairman Peter Hambro in 1994, tapped shareholders for emergency funds in early 2015 after its stock slid 99 percent in five years as gold slid and it needed to cut debt. With bullion recovering from a five-year low, the miner is now seeking to expand and in April agreed to buy Amur Zoloto LLC.

Petropavlovsk rose as much as 3.5 percent and was up 0.6 percent by 12:14 p.m. in London, where it’s based. The producer, up 27 percent this year, is valued at $392 million and was once worth more than $3 billion. Zoloto Kamchatki is a private company and doesn’t disclose financial results.

Vekselberg, Russia’s third-richest man, has a fortune of $13 billion, according to the Bloomberg Billionaires Index. He became the biggest investor in Petropavlovsk in 2015 after his firms consolidated about 20 percent of votes.

Maslovskiy hopes to complete the deal for Amur Zoloto this summer, he said. The company already spent $200 million to build a facility to help process refractory ore at its Pokrovskiy mine and has found a partner to invest another $120 million to finish construction, he said.

Investment Plans

The producer aims to spend as much as $60 million on other projects and is in talks with state lenders Sberbank PJSC and VTB Bank about easing covenants to allow it to finance projects from cash flow, the CEO said. The miner is also considering issuing as much as $500 million of eurobonds to refinance debt if that allows it to cut interest repayments, he said.

To boost production, Petropavlovsk also plans to start building an underground mine in the summer, with the first ore possible in 2017, Maslovskiy said. The initial investment may total about $9 million, he said.

Higher gold prices should enable Petropavlovsk to invest in more projects, Maslovskiy said. The metal, up 18 percent this year, could reach a record of $2,000 in the next few years, he said.

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