Petropavlovsk downplays debt worries as output soars again

Petropavlovsk pulled out of the tail-spin it has been in since the start of February after the company announced a sharp increase in gold production in the first quarter.

Attributable gold production in the first three months of 2012 amounted to 120,800 ounces (oz), up 60% on the first quarter of last year. The increase was due to a strong performance and higher grades at Pioneer, the group's flagship mine, and increased capacity at the Malomir mine.

"The first quarter of the year is always challenging for us because of the low winter temperatures that we experience and so it is particularly satisfying to be able to report a sixth consecutive quarter in which we have beaten our production target," said Peter Hambro, chairman of the company.

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The group said it remains on track to achieve its target of 680,000oz of attributable gold production in 2012. This target does not include the effect of planned expansion at its Albyn and Pioneer mines.

As per usual, production will be weighted towards the second half of the year, due to additional output from alluvial and heap leach operations.

The company sold 129,900 ounces of gold during the three month period, up 5% on the corresponding period of 2011. The average realised sale price was $1,690 per ounce, up 22% year-on-year.

The group, which signed a new $200m six-year borrowing facility with a Russian bank last month, said capital expenditure is budgeted to reduce significantly to $354m in 2012, leaving ample headroom within the group's financing facilities.

"Now that we have passed our peak capital expenditure on existing projects and the POX [pressure oxidation] plant, with the recently announced finance facility from a Russian bank in place, we are confident that our planned production ramp-up can be achieved comfortably within our existing capital resources," Hambro said.

"Our team is working hard on cost control measures, the results of which were demonstrated by a 7% quarter-on-quarter decrease in Q1 [first quarter] 2012 cash costs, achieved in spite of a strong rouble during the period," Hambro noted.

Shares in the company rose to 522p, up 20.5p, in the first two hours of trading, but are still well below the 813p level the shares hit on February 2nd, shortly after the company's full-year results for 2011 were announced.

Broker Nomura claimed in February that the Russian gold miner was under-appreciated by the market, and attributed the aversion to Petropavlovsk to "high net debt, execution risk of the pressure oxidation hub being developed at the Pokrovskiy mine and persisting Russia risks."

JH