Petropavlovsk cuts costs to mitigate volatile gold prices

Petropavlovsk plans to make cash savings and cost cuts in response to volatility in gold prices.

The Russia-focused miner said it has approved adjustments to its business plan this year including estimated cash savings of $160m to strengthen its financial position against falling commodity prices.

As part of the plan, a comprehensive cost-cutting programme has been implemented to reduce annual operating and central administration costs by about $10m to $15m.

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The group is extending the development period of the pressure oxidation (POX) hub and the related flotation plant at Malomir, in the Amur region, by 12 to 18 months. It will defer $150m in capital expenditure that would have been incurred this year.

The company reiterated its 2013 gold production forecast of 760,000 to 780,000 ounces and expects similar output in 2014.

Exploration this year will focus on upgrading oxide resources into reserves for fast-tracking into the 2014 and 2015 production plans.

Petropavlovsk also announced the appointment of Dmitry Chekashkin as Chief Operating Officer and Executive Director. He was previously the Group Head of Precious Metals and sat on the executive committee.

"We said in April that we were undertaking a review of capital and operational expenditure as a consequence of the volatility in the gold price," said Chairman, Peter Hambro.

"That review has concluded that we should delay the start-up of our POX Hub and the Malomir flotation plant and reduce our operating and administrative expenses.

"By promptly taking these important steps, we have ensured the group remains on a sound financial footing. The group expects, at current gold price levels, a reduction in its net debt position at the end of the current year on successful implementation of these measures."

Gold prices fell in Monday's European trading hours. Gold for June delivery dropped $8.60, or 0.6%, to $1,428 an ounce.

Shares in Petropavlovsk rose 0.48% to 146.80p at 11:26 Monday.

RD