TIDMPOG
RNS Number : 7646D
Petropavlovsk PLC
28 April 2017
28 April 2017
Petropavlovsk PLC (the "Company" or, together with its
subsidiaries, the "Group")
Notice of Publication of Annual Report
The Annual Report for the year ended 31 December 2016 (the
"Annual Report 2016") is available to view and download from the
Company's website at www.petropavlovsk.net . A copy of the Annual
Report 2016 has also been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/nsm
The information contained in the Appendix to this announcement,
which is extracted from the Annual Report 2016, is included solely
for the purposes of complying with the Disclosure Guidance and
Transparency Rules (the "DTR") 6.3.5 and the requirements it
imposes on how to make public annual financial reports. The
Appendix should be read in conjunction with the Company's Annual
Results for the year ended 31 December 2016 issued on 26 April 2017
(the "Annual Results Announcement"). Together, these constitute the
material required by DTR 6.3.5 to be communicated to the media in
unedited full text through a Regulatory Information Service. This
material should be read in conjunction with, and is not a
substitute for reading, the Annual Report 2016.
References to page numbers and notes to the financial statement
made in the Appendix refer to page numbers and notes to the
financial statements in the Annual Report 2016. The information
contained in this announcement does not constitute the Company's
statutory accounts as defined in section 434 of the Companies Act
2006 (the "Act") for 2016 or 2015 but is derived from those
accounts. The auditors have reported on those accounts and their
report was unqualified, and did not contain statements under
section 498(2) of the Act (regarding adequacy of accounting records
and returns) or under section 498(3) of the Act (regarding
provision of necessary information and explanations). The statutory
accounts for the year ended 31 December 2016 have been approved by
the Board and will be delivered to the Registrar of Companies. A
copy of the statutory accounts for the year ended 31 December 2015
was delivered to the Registrar of Companies.
Neither the content of the Company's website, nor the content of
any other website accessible from hyperlinks on the Company's
website is incorporated into, or forms part of, this
announcement.
APPIX
1. Directors' responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the company and the undertakings included in the consolidation
taken as a whole;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the company's position and
performance, business model and strategy.
2. Principal risks relating to the Group
The most significant risks that may have an adverse impact on
the Group's ability to meet its strategic objectives and to deliver
shareholder value are set out below. The Group seeks to mitigate
these risk wherever possible, although some, such as political
risks, are largely beyond the Group's control. Summarised alongside
each risk is a description of its potential impact on the Group.
Measures in place to manage or mitigate against each specific risk,
where it is within the Group's control, are also described.
26. Related parties
Related parties the Group entered into transactions with during
the reporting period
PJSC Asian-Pacific Bank ('Asian-Pacific Bank') and LLC Insurance
Company Helios Reserve ('Helios') are considered to be related
parties as members of key management have an interest in and
collectively exercise significant influence over these
entities.
The Petropavlovsk Foundation for Social Investment (the
'Petropavlovsk Foundation') is considered to be a related party due
to the participation of the key management of the Group in the
governing board of the Petropavlovsk Foundation and their presence
in its board of guardians.
JSC Verkhnetisskaya Ore Mining Company ('Verkhnetisskaya') is an
associate to the Group and hence was a related party until 27 May
2016 when the Group disposed its interest in Verkhnetisskaya.
CJSC ZRK Omchak and its wholly owned subsidiary LLC Kaurchak
('Omchak') are associates to the Group and hence were related
parties until 29 April 2015 when the Group disposed its interest in
Omchak.
IRC Limited and its subsidiaries (Note 35) are associates to the
Group and hence are related parties since 7 August 2015.
Transactions with related parties which the Group entered into
during the years ended 31 December 2016 and 2015 are set out
below.
OPERATIONAL RISKS
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PRODUCTION RELATED RISK - Failure to achieve the
Group's production plan
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Risk to The Group's assets Preventative Flooding and
production are located in maintenance unusually cold
from: the Russian Far procedures weather prevented
- Severe East, a remote are undertaken the Group delivering
weather area that can on a regular on the original
conditions. be subject to and periodic 2016 mine schedule
- The availability severe climatic basis to ensure resulting in
of suitable conditions. Severe that machines a lower average
machinery, weather conditions, will function processed grade
equipment such as cold properly under for 2016 and
and consumables. temperatures extreme cold lower production.
- Logistics in winter and weather conditions; However with
for the torrential rain, heating plants strong capital
delivery potentially causing at operational discipline and
of equipment flooding in the bases are dedicated cost
and services region could regularly control the
have an adverse maintained Group achieved
impact on operations, and operational TCC of US$660oz,
including the equipment improving the
delivery of supplies, is fitted Group margin
equipment and with cold per ounce.
fuel; and exploration weather options
and extraction which could The Executive
levels may fall assist in team and operational
as a result of ensuring that management responded
such climatic equipment well to the
factors. does not fail bad weather
as a result at Pioneer's
The Group relies of adverse Andreevskaya
on the supply weather conditions. deposit. A full
and availability impact assessment
of various services Pumping systems including detailed
and equipment are in place mapping, recording
in order to successfully and tested and monitoring
run its operations. periodically of rock fractures
For example, to ensure was carried
timely delivery that they out. Whilst
of mining equipment are functioning. any available
and jaw crushers mining fleet
and their availability Management was temporarily
is essential monitor natural utilised at
to the Group's conditions Pioneer's other
ability to extract in order to operating pits.
ore from the pre-empt any
Group's assets disaster and However the
and to crush in order that Company's overriding
the mined ore appropriate commitment to
prior to production. mitigating the safety of
Delay in the action can its employees
delivery or the be taken expediently. meant that delays
failure of mining The Group in production
equipment could aims to maintain at Pioneer were
significantly several months inevitable.
delay production of essential
and impact the supplies at Potential impact
Group's profitability. each site. - High
Equipment
The Group is is ordered Change since
dependent on with adequate 2015 - No change
production from lead time
its operating in order to
mines in order prevent delays
to generate revenue in their delivery.
and cash flow
and comply with The Group
the production has a number
and sales covenants of contingency
in certain of plans in place
its borrowing to address
facilities. any disruption
to services.
-------------------- --------------------------- ----------------------- -------------------------
EXPLORATION
RELATED
RISK
-------------------- --------------------------- ----------------------- -------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
The Group's Exploration activities The Group Defined within
activities are high risk, uses modern Petropavlovsk's
are reliant time-consuming geophysical substantial
on the and can be unproductive. and geochemical 20.16Moz JORC
quantity In addition, exploration Resource (7.95Moz
and quality these activities and surveying JORC Reserve)
of the often require techniques. is a 9.26Moz
Mineral substantial expenditure The Group refractory gold
Resources to establish employs a Resource (4.07Moz
and Ore Reserves through world class refractory Ore
Reserves drilling and team of geologists Reserve), with
available metallurgical with considerable under explored
to it. and other testing, regional expertise resource upside
determine appropriate and experience. within the highly
recovery processes They are supported prospective
to extract gold by a network 3,600km2 licence
from the ore of fully accredited areas.
and construct laboratories
or expand mining capable of The completion
and processing performing of the POX Hub
facilities. Once a range of will unlock
deposits are assay work the 9.26Moz
discovered it to high standards. refractory Resource
can take several which supports
years to determine The Group's Petropavlovsk's
whether Reserves exploration long term growth
exist. During budget is objectives in
this time, the fixed for doubling the
economic viability each asset average life
of production at the start of mine and
may change. As of each financial sustaining its
a result of these year depending production profile.
uncertainties, upon previous
the exploration results. During 2016
programmes in the Group continued
which the Group to explore the
is engaged in potential for
may not result further mine
in the expansion life extension
or replacement and production
of current production expansion.
with new Reserves
or mining operations. - At Malomir,
exploration
work has identified
several highly
prospective
satellite refractory
targets for
further exploration
work, including
Ozhidaemoe.
- At Pioneer,
refractory targets
have been identified
south of the
main Pioneer
orebody zone.
The Alexandra
zone and Sosnovaya
licence are
also expected
to provide further
refractory resource
upside.
Potential impact
- High
Change since
2015 - Decreased
risk
-------------------- --------------------------- ----------------------- -------------------------
PROJECT RELATED RISKS - Failure to deliver various
construction and development projects The Group's
long-term strategy relies on the successful commissioning
of the POX Hub and the delivery of the underground
mining project.
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
1. Pressure If the Group The Group - During 2016
Oxidation is unable to has entered the Company
(POX) Hub. commission POX into a management renewed key
within the projected contract with contracts with
budget and timeframes Outotec a Outotec.
this may have world leader
an adverse impact in the design - As part of
on the Group's and construction the recommencing
growth plans of pressure of the POX Hub
and its future oxidation development
profitability. and flotation Outotec (alongside
plants. Outotec the Company)
will oversee ran checks on
the manufacture, the major equipment
installation in situ and
and commissioning commenced work
of the equipment on the automation
and has guaranteed and control
certain operating systems.
parameters.
- Tests at the
The Group's pilot plant
pilot plant continued.
in Blagoveshchensk
during 2013-2015 Under the refinancing
confirmed agreements with
the feasibility VTB and Sberbank
of POX processing (see page [--]),
for Malomir the Group is
and Pioneer required to
concentrates. complete the
construction
POX has a of POX out of
special procurement its free cash
process with flow.
a separate
budget and Potential impact
expenditure - High
schedule,
monitored Change since
and signed-off 2015 - No change
by the CEO,
COO and CFO
based on the
approved budget.
-------------------- --------------------------- ----------------------- -------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
2. The If the Group The Group - An experienced
underground is unable to employed a firm of contractors
mining deliver underground Russian engineering commenced the
project. mining production firm to undertake underground
within the agreed a pre-feasibility mining works
budget and timeframes study and at Pioneer working
this may have mine design closely with
an adverse impact on underground the Group's
on the Group's mining. The in-house underground
growth plans study concluded operations team.
and its future that underground
profitability. mining should The Executive
be technically Committee and
feasible and the Board closely
economically monitor both
viable. the POX
and underground
mining projects.
Potential impact
- high
Change since
2015 - No change
-------------------- --------------------------- ----------------------- -------------------------
FINANCIAL RISKS
-----------------------------------------------------------------------------------------------------
FUNDING AND LIQUIDITY RELATED RISKS
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Lack of The Group needs Detailed annual On 20 December
funding ongoing access budgets are 2016 the Group
and liquidity to liquidity approved by completed the
to allow and funding in the Board refinancing
the Group order to (i) and monthly of US$430 million
to: refinance its forecasts of its debt
existing debt provided. with its lending
i. Support as required, A successful banks Sberbank
its existing (ii) support cost reduction and VTB.
operations; its existing programme
ii. Invest operations and was undertaken The approved
in and (iii) invest to offset terms include
develop in new projects the effect a revised maturity
its exploration and exploration. of a reduction profile from
and underground There is a risk in the gold May 2018 to
mining that the Group price. September 2022
projects; may be unable (inclusive of
iii. Complete to obtain the The Group an option to
the construction necessary funds continues extend the 2019
of the when required to progress maturity payment
POX Hub; or that such its internal to 2022 subject
iv. Extend funds will only KPI to reduce to certain conditions
the life be available total cash being satisfied)
and capacity on unfavourable costs by 50% and an effective
of its terms. The Group during the average interest
existing may therefore period 2013-2018. rate of c.8%.
mining be unable to
operations; develop and/or The Group is
v. Refinance/repay meet its operational currently completing
the Group's or financial the final documentation
debt as commitments. for the Sberbank
it falls US$100m commodity
due; and The Group's borrowing linked loan
vi. Complete facilities include facility. Once
the construction a requirement this has been
of the to comply with completed the
POX Hub certain specified Group's entire
out of covenants in bank debt of
its free relation to the c. US$530m will
cash flow. level of net have been refinanced.
debt and interest
If the cover. A breach The financial
operational of these covenants and operational
performance could result covenants were
of the in a significant renegotiated
business proportion of during 2016
declines the Group's borrowings as part of the
significantly becoming repayable refinancing
the Company immediately. of the Group's
may breach total debt.
one or
more of Potential impact
the financial - High
and production
covenants Changes since
as set 2015 - Decreased
out in risk
various
financing
arrangements.
-------------------- --------------------------- ----------------------- -------------------------
GOLD PRICE RISK
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
The Group's The Group's financial The Executive In order to
operational performance is Committee increase certainty
results highly dependent constantly in respect of
may be on the price monitors the a significant
affected of gold. A sustained gold price proportion of
by changes downward movement and influencing its cash flows,
in the in the market factors on the Group entered
gold price. price for gold a daily basis into a number
may negatively and consults of gold forward
affect the Group's with the Board contracts during
profitability as appropriate. 2016. Forward
and cash flow contracts to
and consequently The Group sell an aggregate
its ability to has a hedging of 134,545oz
fund the construction policy and of gold matured
of the POX Hub. hedges a portion during the year
The market price of production and resulted
of gold is volatile as the Executive in US$(8.5)
and is affected Committee million net
by numerous factors and Board settlement paid
which are beyond deem appropriate. by the Group.
the Company's
control. Forward contracts
to sell an aggregate
of 50,006oz
of gold at an
average price
of US$1,303
per oz were
outstanding
as at 31 December
2016.
During 2017
the Company
has continued
to hedge a portion
of its gold
production in
order to protect
itself from
volatility in
the price.
Potential impact
- High
Changes since
2015 - Decreased
risk
-------------------- --------------------------- ----------------------- -------------------------
FX RISK
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Currency The Company reports The Group The Group does
fluctuations its results in has adopted not undertake
may affect US Dollars, which a policy of any foreign
the Group. is the currency holding a currency transaction
in which gold minimum amount hedging although
is principally of cash and this is kept
traded and therefore monetary assets under review.
in which most or liabilities
of the Group's in non US The Russian
revenue is generated. Dollar currencies Rouble depreciated
Significant costs and operates against the
are incurred an internal US dollar during
in and/or influenced funding structure 2016, with an
by the local which seeks average exchange
currencies in to minimise rate for 2016
which the Group foreign exchange of 67.18 Rouble
operates, principally risk exposure. per US dollar
Russian Roubles. compared with
The appreciation 61.30 Roubles
of the Russian per US dollar
Rouble against during 2015.
the US Dollar
tends to result Potential impact
in an increase - High
in the Group's
costs relative Change since
to its revenues, 2015 - No change
whereas the depreciation
of the Russian
Rouble against
the US Dollar
tends to result
in lower Group
costs relative
to its revenues.
In addition,
a portion of
the Group corporate
overhead is denominated
in Sterling.
Therefore, adverse
currency movements
may materially
affect the Group's
financial condition
and results of
operations.
In addition,
if inflation
in Russia were
to increase without
a corresponding
devaluation of
the Russian Rouble
relative to the
US Dollar, the
Group's business,
results of operations
and financial
condition may
be adversely
affected.
-------------------- --------------------------- ----------------------- -------------------------
IRC Related RISKS - The Company has a 31.10% interest
in IRC, a Hong Kong Listed iron ore producer
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Currency Description and The Group The Group does
fluctuations potential impact has adopted not undertake
may affect The Company reports a policy of any foreign
the Group. its results in holding a currency transaction
US Dollars, which minimum amount hedging although
is the currency of cash and this is kept
in which gold monetary assets under review.
is principally or liabilities
traded and therefore in non US The Russian
in which most Dollar currencies Rouble depreciated
of the Group's and operates against the
revenue is generated. an internal US dollar during
Significant costs funding structure 2016, with an
are incurred which seeks average exchange
in and/or influenced to minimise rate for 2016
by the local foreign exchange of 67.18 Rouble
currencies in risk exposure. per US dollar
which the Group compared with
operates, principally 61.30 Roubles
Russian Roubles. per US dollar
The appreciation during 2015.
of the Russian
Rouble against Potential impact
the US Dollar - High
tends to result
in an increase Change since
in the Group's 2015 - No change
costs relative
to its revenues,
whereas the depreciation
of the Russian
Rouble against
the US Dollar
tends to result
in lower Group
costs relative
to its revenues.
In addition,
a portion of
the Group corporate
overhead is denominated
in Sterling.
Therefore, adverse
currency movements
may materially
affect the Group's
financial condition
and results of
operations.
In addition,
if inflation
in Russia were
to increase without
a corresponding
devaluation of
the Russian Rouble
relative to the
US Dollar, the
Group's business,
results of operations
and financial
condition may
be adversely
affected.
-------------------- --------------------------- ----------------------- -------------------------
RC Related RISKS - The Company has a 31.10% interest
in IRC, a Hong Kong Listed iron ore producer
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Risk that Petropavlovsk Mitigation/comments On 31 March
funding has provided The Board 2017, IRC announced
may be a guarantee against and the Executive that ICBC has
demanded a US$340 million Committee waived the obligation
from Petropavlovsk project loan maintain close of K&S to repay
under a facility provided communication all loan principal
guarantee to K&S by ICBC with instalments
in favour to fund the construction IRC's Executive. due in 2017
of ICBC of IRC's iron totalling
arising ore mining operation IRC and the US$42.5million.
from: at K&S, of which Company continue This amount
c.US$234million to consider will be spread
Inability is outstanding various options equally between
of K&S (2015: c.US$276million). available the five subsequent
to service This loan is to them, both repayment instalments
the interest supported by separately due under the
and meet Sinosure, the and jointly, project finance
the repayments Chinese export regarding facility.
due on credit agency. the restructuring
the ICBC In the event of IRC's debt In addition
loan due that K&S was and the potential K&S is successfully
to insufficient to default on removal of operating at
funds arising its loan, Petropavlovsk the guarantee. 75% production
from: may be liable capacity and
to repayment the iron ore
- Late of the outstanding price has increased
commissioning loan under the considerably
of K&S terms of the during 2017,
guarantee and rising to US$100
- Decrease other Group indebtedness per tonne in
in iron may become repayable March 2017.
ore price under cross-default Based on IRC's
provisions cost optimisation
A further analysis the
delay in Under the terms estimated unit
the commissioning of the Company's cash cost of
of K&S banking facilities K&S is c.US$34
and/or with Sberbank per tonne for
a decrease and VTB, the product delivered
in the Company is unable to the Chinese
iron ore to provide any border.
price could funds to IRC
result without the prior The above factors
in a decrease consent of these represent a
in the lenders. significant
value of reduction in
the Company's the risk that
shareholding there will be
in IRC. a claim on the
Company's guarantee
in the immediate
future and hence
represents a
significant
reduction in
the Company's
risk profile.
The Company's
interest in
IRC was valued
at US$36.140
million as at
31 December
2016
(2015: US$39.163
million).
Potential impact
- High
Change since
2015 - Decreased
risk
-------------------- --------------------------- ----------------------- -------------------------
HEALTH, SAFETY AND ENVIRONMENTAL RISK
-----------------------------------------------------------------------------------------------------
Risk that our employees or those visiting our operations
may be injured
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
Mining: The Group's employees Board level The Group operates
are one of its oversight a prompt incident
- is subject most valuable of health reporting system
to a number assets. The Group and safety to the Executive
of hazards recognises that issues occurs Committee and
and risks it has an obligation through the the Board. There
in the to protect the work of the were 34 lost
workplace health of its Health, Safety time accidents
employees and and Environmental during 2016
- requires that they have Committee with a Lost
the use the right to ('HSE') which Time Injury
of hazardous operate in a is chaired Frequency Rate
substances safe working by Mr Alexander ('LTIFR') for
including environment. Green, Independent 2016 of 2.64
cyanide Certain of the Non-Executive accidents per
and other Group's operations Director. 1 million manhours
reagents. are carried out Health and worked compared
under potentially Safety management with 36 accidents
hazardous conditions. systems are in 2015 and
Group employees in place across a LTIFR of 2.63.
may become exposed the Group
to health and to ensure There was one
safety risks that the operations fatality during
which may lead are managed 2016 (2015:
to the occurrence in accordance 1). This fatality
of work-related with the relevant was reported
accidents and health and immediately
harm to the Group's safety regulations to the Chairman
employees. These and requirements. of the HSE Committee.
could also result A full investigation
in production The Group of this incident
delays and financial continually was conducted
loss. reviews and by the Russian
updates its authorities
Accidental spillages health and which concluded
of cyanide and safety procedures that the Company
other chemicals in order was not at fault
may result in to minimise for the accident.
damage to the the risk of Records confirmed
environment, accidents that the individual
personnel and and improve concerned had
individuals within accident response, received all
the local community. including relevant training
additional from the Company.
and enhanced The HSE Committee
technical discussed this
measures at matter in detail
all sites, to identify
improved first whether any
aid response actions should
and the provision be taken or
of further further training
occupational, provided to
health and mitigate against
safety training. any reoccurrence
of a similar
Cyanide and accident. Action
other dangerous was taken by
substances the Group's
are kept in management and
secure storages H&S officers
with limited to reinforce
access only correct behaviour
to qualified to employees.
personnel,
with access At the request
closely monitored of the HSE Committee
by security the Group commenced
staff. a new 'health
and safety'
H&S targets campaign specifically
are included aimed at preventing
in the annual accidents involving
bonus scheme vehicles.
for Executive
Directors There were no
and the Executive accidents involving
Committee. cyanide or other
dangerous substances
during 2016.
Potential impact
- Medium/High
Change since
2015 - No change
-------------------- --------------------------- ----------------------- -------------------------
LEGAL AND REGULATORY RISKS
-----------------------------------------------------------------------------------------------------
Risks that legal or regulatory issues may impact
the ability of the Group to operate
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
The Group The Group's principal There are Potential impact
requires activity is the established - Medium/High
various mining of precious processes
licences and non-precious in place to Change since
and permits metals which monitor the 2015 - No change
in order require it to required and
to operate. hold licences existing licences
which permit and permits
it to explore on an on-going
and mine in particular basis and
areas in Russia. processes
These licences are also in
are regulated place to ensure
by Russian governmental compliance
agencies and with the requirements
if a material of the licences
licence was challenged and permits.
or terminated, Schedules
this would have are presented
a material adverse to the Executive
impact on the Committee
Group. In addition, detailing
various government compliance
regulations require with the Group's
the Group to licences and
obtain permits permits.
to implement
new projects
or to renew existing
permits.
Failure to comply
with the requirements
and terms of
these licences
may result in
the subsequent
termination of
licences crucial
to operations
and cause reputational
damage. Alternatively,
financial or
legal sanctions
could be imposed
on the Group.
Failure to secure
new licences
or renew existing
ones could lead
to the cessation
of mining at
the Group's operations
or an inability
to expand operations.
-------------------- --------------------------- ----------------------- -------------------------
Risks that legal or regulatory issues may impact
the ability of the Group to operate
-----------------------------------------------------------------------------------------------------
Risk Description and Mitigation/comments 2016 Progress
potential impact
-------------------- --------------------------- ----------------------- -------------------------
The Group Actions by governments To mitigate This risk cannot
is subject or changes in the Russian be influenced
to risks economic, political, economic and by the management
associated judicial, administrative, banking risk of the Company.
with operating taxation or other the Group However, the
in Russia. regulatory factors strives to Group continues
or foreign policy use the banking to monitor changes
in the countries services of in the political
in which the several financial environment
Group operates institutions and reviews
or holds its and not keep changes to the
major assets disproportionately relevant legislation,
could have an large sums policies and
adverse impact on deposit practices.
on the Group's with a single
business or its bank. Potential impact
future performance. - High
Most of the Group's The Group
assets and operations seeks to mitigate Change since
are based in the political 2015 - No change
Russia. and legal
risk by constant
Russian foreign monitoring
investment legislation of the proposed
imposes restrictions and newly
on the acquisition adopted legislation
by foreign investors to adapt to
of direct or the changing
indirect interests regulatory
in strategic environment
sectors of the in the countries
Russian economy, in which it
including in operates and
respect of gold specifically
reserves in excess in Russia.
of a specified It also relies
amount or any on the advice
occurrences of of external
platinum group counsel in
metals. relation to
the interpretation
The Group's Pioneer and implementation
and Malomir licences within the
have been included Group of new
on the list of legislation.
subsoil assets
of federal significance, The Group
maintained by closely monitors
the Russian Government its assets
("Strategic Assets"). and the probability
The impact of of their inclusion
this classification into the Strategic
is that changes Assets lists
to the direct published
or indirect ownership by the Russian
of these licences Government.
may require obtaining
clearance in The Company's
accordance with Articles of
the Foreign Strategic Association
Investment law include a
of the Russian provision
Federation. which allows
the Board
to impose
such restrictions
as the Directors
may think
necessary
for the purpose
of ensuring
that no ordinary
shares in
the Company
are acquired
or held or
transferred
to any person
in breach
of Russian
legislation,
including
any person
having acquired
(or who would
as a result
of any transfer
acquire) ordinary
shares or
an interest
in ordinary
shares which,
together with
any other
shares in
which that
person or
members of
their group
is deemed
to have an
interest for
the purposes
of the Strategic
Asset Laws,
carry voting
rights, exceeding
50 per cent.
(or such lower
number as
the Board
may determine
in the context
of the Strategic
Asset Laws)
of the total
voting rights
attributable
to the issued
ordinary shares
without such
acquisition
having been
approved,
where such
approval is
required,
pursuant to
the Strategic
Asset Laws.
-------------------- --------------------------- ----------------------- -------------------------
Trading Transactions
Related party transactions the Group entered into that relate to
the day-to-day operation of the business are set out below.
Sales to Purchases from
related parties related parties
-------------------------------------- -------------------- ----------------- ---------
2016 2015 2016 2015
US$'000 US$'000 US$'000 US$'000
-------------------------------------- --------- --------- ----------------- ---------
Asian-Pacific Bank
Other 22 575 102 113
-------------------------------------- --------- --------- ----------------- ---------
22 575 102 113
-------------------------------------- --------- --------- ----------------- ---------
Trading transactions with other
related parties
Insurance arrangements with
Helios, rent and other transactions
with other entities in which
key management have interest
and exercises a significant
influence or control 66 1,182 3,514 5,716
Associates
IRC Limited and its subsidiaries 69 49 1,996 1,152
CJSC ZRK Omchak and its wholly 2 -
owned subsidiary LLC Kaurchak - -
135 1,233 5,510 6,868
-------------------------------------- --------- --------- ----------------- ---------
During the year ended 31 December 2016, the Group made US$0.2
million charitable donations to the Petropavlovsk Foundation (2015:
US$0.4 million).
The outstanding balances with related parties at 31 December
2016 and 2015 are set out below.
Amounts owed Amounts owed
by related to related
parties parties
at 31 December at 31 December
------------------------------------- --------------------- ---------------- ---------
2016 2015 2016 2015
US$'000 US$'000 US$'000 US$'000
Helios and other entities in
which key management have interest
and exercises a significant
influence or control 1,383 1,328 1 450
Asian-Pacific Bank 1 -
IRC Limited and its subsidiaries 14,502(a) 2,023 1,704 1,233
15,886 3,351 1,705 1,683
------------------------------------- ---------- --------- ---------------- ---------
(a) Including US$12.5 million advanced to IRC in December 2016.
This balance was fully repaid in January 2017.
Banking arrangements
The Group has current and deposit bank accounts with
Asian-Pacific Bank.
The bank balances at 31 December 2016 and 2015 are set out
below.
2016 2015
US$'000 US$'000
--------------- --------- ---------
Asian-Pacific
Bank 629 3,208
---------------- --------- ---------
-
Financing transactions
The Group has charged a fee for the provision of the guarantee
to IRC (note 14), equal to 1.75% on the outstanding loan amount
under the ICBC Facility Agreement and which amounted to US$4.5
million during the year ended 31 December 2016 (31 December 2015:
US$2.2 million). The Guarantee fee principal outstanding amounted
to an equivalent of US$3.4 million (31 December 2015:US$nil).
The Group had an interest-free unsecured loan issued to
Verkhnetisskaya. Loan principal outstanding amounted to an
equivalent of US$2.8 million as at 31 December 2015.
During the year ended 31 December 2015, the Group received a
number of loans from Asian-Pacific Bank. Loan principal outstanding
as at 31 December 2016 was US$nil (31 December 2015: an equivalent
of US$2.7 million). During the year ended 31 December 2016,
interest charged on loans received from Asian-Pacific Bank
comprised US$0.03 million (31 December 2015: US$0.5 million).
Key management compensation
Key management personnel, comprising a group of 15 (2015: 18)
individuals, including Executive and Non-Executive Directors of the
Company and members of senior management, are those having
authority and responsibility for planning, directing and
controlling the activities of the Group.
2016 2015
US$'000 US$'000
-------------------------- -------- --------
Wages and salaries 6,103 7,231
Pension costs 182 357
Share-based compensation 610 280
6,895 7,868
-------------------------- -------- --------
33. Subsequent events
In February - March 2017, the Group has entered into forward
contracts to sell an aggregate of 549,994oz of gold during the
years 2017 - 2019 at an average price of US$1,252/oz.
About Petropavlovsk
Petropavlovsk is one of Russia's leading gold mining companies.
As at 31 December 2016, the Company had produced approximately
6.3Moz of gold.
Petropavlovsk is in the construction phase of a state of the art
pressure oxidation facility to process the Company's substantial
refractory resource base. The Company's combined 3,605km(2) license
holding has untapped resource potential. The Company is a leading
employer and contributor to the development of the local economy in
the Amur region, Russian Far East, where it has operated since
1994.
Petropavlovsk is a shareholder (31.1%) of IRC Limited and is the
guarantor of the US$340 million project finance facility (US$234
million principal outstanding, as at 31 December 2016). IRC is a
vertically integrated iron ore producer and developer in the
Russian Far East and North Eastern China. IRC is listed on the Hong
Kong Stock Exchange (Ticker: 1029.HK).
Petropavlovsk is listed on the Main Market of the London Stock
Exchange (Ticker POG:LN)
Enquiries
For more information, please visit www.petropavlovsk.net and
www.ircgroup.com.hk or contact
Petropavlovsk PLC
Alexandra Carse
Grace Hanratty
+44 (0) 20 7201 8900
TeamIR@petropavlovsk.net
Maitland
Neil Bennett
James Isola
+44 (0) 20 7379 5151
Petropavlovsk-Maitland@maitland.co.uk
The company news service from the London Stock Exchange
END
ACSEVLFLDZFLBBE
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April 28, 2017 11:27 ET (15:27 GMT)
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