TIDMPOG
RNS Number : 0993F
Petropavlovsk PLC
15 May 2017
Petropavlovsk announces appointment of new Chairman as part of
Board development
LONDON, 15 MAY 2017:
Further to the announcements on 12 May 2017 and the succession
planning referred to in its Annual Results, London-listed
Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together
with its subsidiaries, the "Group"), a leading gold producer in the
Russian Federation, provides the following comments on its proposed
Board changes and the recently received requisition requests:
Summary
-- Andrew Vickerman to become independent interim non-executive
chairman following conclusion of AGM; Peter Hambro to step down as
Chairman but to remain with business as it completes its
turnaround
-- Company commits to appointment of permanent non-executive
Chairman and fourth independent non-executive director as part of
continuing work to refresh and strengthen the Board and focus on
best practice governance
-- Board opposes appointment of requisitioning shareholder
nominees as directors as not in the interests of shareholders as a
whole and urges shareholders to vote against their proposals at
AGM
Commenting on the announcement, Peter Hambro said:
"Our proposal for moving to an independent Non-Executive
Chairman and the addition of a fourth Non-Executive Director
reflects our commitment to our shareholders and to maintaining
corporate governance best practice. Retaining the current Board and
adding a further Non-Executive Director provides vital continuity
and strong leadership combined with independent oversight as
Petropavlovsk moves into its next phase of growth. We have always
recognised that, in order to grow, companies must evolve and we
have taken this decision in adherence to the corporate governance
standards required of a modern and forward thinking company. Our
immediate priority is to ensure that our recent operational and
financial successes continue.
With respect to the requisitioned resolutions from Renova Asset
Holding Ltd, Sothic Capital European Opportunities Master Fund
Limited and M&G Debt Opportunities Fund II Limited
(shareholders of the Company) it is my belief that replacing the
Non-Executive Directors and myself on the Board with their own
nominees, is not in the interests of shareholders as a whole.
Accordingly, we will recommend in our AGM circular to shareholders,
that the existing Board should be re-elected to implement the
Company's growth plan and the requisitioned resolutions should be
voted down by shareholders who want to ensure the Directors, as
custodians of their investment, are working for all
stakeholders."
Petropavlovsk PLC Board
Board proposal for independent Chairman and fourth independent
Director
As part of its consideration of Board succession which has
already been announced, Petropavlovsk announces that it intends to
appoint Andrew Vickerman, currently an independent Non-Executive
Director of the Company, as independent Non-Executive Chairman of
Petropavlovsk, taking over from the current Executive Chairman,
Peter Hambro, who would remain an Executive Director. Assuming the
existing Board are re-elected, this will take place immediately
following completion of the forthcoming Annual General Meeting
("AGM") on 20 June 2017. Mr Vickerman's appointment is intended to
be for an interim period pending conclusion of an already initiated
process for appointing a permanent independent Non-Executive
Chairman of Petropavlovsk. The Board has engaged recruitment
specialists to assist it in this process.
The Company is also continuing its process to appoint a fourth
independent Non-Executive Director.
Although currently fully compliant for a company of its size,
following these changes, the Board structure will be in line with
best practice corporate governance requirements for larger
companies as well.
Board and management continuity - building on the successes of
the last two years
All the existing Directors intend to stand for re-election at
the AGM. Information on the Directors is set out in the
Appendix.
Executive Directors
On the basis of the Board's proposed changes, if re-elected:
Dr Pavel Maslovskiy will remain as Chief Executive, Andrey
Maruta will remain as Chief Financial Officer and Peter Hambro will
remain an Executive Director.
Non-Executive Directors
As part of the Company's 2015 debt restructuring process (the
"2015 Restructuring"), and the dialogue at that time between the
Company and its leading bondholders (including M&G Debt
Opportunities Fund II Limited ("M&G") and Sothic Capital
European Opportunities Master Fund Limited ("Sothic")), in 2015 the
Company appointed the current Non-Executive Directors (Andrew
Vickerman, Robert Jenkins and Alexander Green) to ensure rigorous
independent scrutiny of the executive members of the Board.
Over the last two years, the independent Non-Executive Directors
have developed an informed understanding of Petropavlovsk's
business and the challenges that it has faced, and, although all
will submit themselves for re-election at the AGM, none of them are
due for retirement under the corporate governance guidelines.
Before they were appointed to the Board, Andrew Vickerman and
Alexander Green's appointments were approved by certain major
shareholders including M&G and Sothic.
Significant achievements over the last two years
The Company's performance reflects significant achievements in
the key areas of its business since the 2015 Restructuring. This is
further reflected in the performance of the Company's share price,
which has risen by around 50% since the 2015 Restructuring, which
was conducted at an issue price of 5 pence per share.
Petropavlovsk returned to profitability in 2016, aided by a
continuing focus on both cost control and profitable ounces. This
was achieved in the context of the operational challenges of
increased stripping ratios and declining grades at certain mines
ahead of the development of its planned Pressure Oxidisation
project ("POX Hub"). The implementation of the POX Hub will enable
higher-grade refractory ores to be processed and allow
Petropavlovsk to unlock the value from its large gold reserves and
resources. Higher-grade ore will also be accessed through the
Company's development of underground mining, which is already
underway and is also expected to increase profitability.
Petropavlovsk's 2016 Annual Results Release included the
following financial highlights:
- Underlying EBITDA of US$200.1m, a 16% improvement on 2015
primarily due to contribution from mines as a result of higher
realised gold price achieved and improvement in total cash costs
("TCC").
- Group TCC of US$660/oz, outperformed the Company's guidance
and was a 12% improvement on 2015, due to cost optimisation
measures and the positive effect of Rouble depreciation.
- Group all in sustaining cash costs ("AISC") were in line with
guidance at US$807/oz, an 8% improvement on 2015.
- Average realised gold price of US$1,222/oz (including
US$(21)/oz effect from hedging), an increase of 4% on 2015. Gold
sales of c.400,000oz, 17% lower than 2015.
- The Group had forward contracts to sell 50Koz of gold at an
average price of US$1,303/oz and 547Koz of gold at an average price
of US$1,253/oz as at 31 December 2016 and 26 April 2017,
respectively.
- Net profit of US$31.7m (EPS: US$0.01), compared to a net loss
of US$297.5 million for 2015, which reflects improvement in
underlying EBITDA, substantially lower losses from IRC and deferred
tax credit (mostly due to Rouble devaluation).
- Capital expenditure of US$29.4m, a reduction of 10% from 2015.
- Successful refinancing of c.US$430 million of the Group's bank
debt, including a revised maturity profile to match the Group's
production profile until September 2022 subject to certain
conditions being satisfied.
- Reduction in the year end Net Debt to US$598.6m vs US$610m as
at 31 December 2015. Bringing a 15% improvement in the Net Debt/
EBITDA ratio to 3:1 in comparison with the full year 2015.
As highlighted in the Company's Q1 2017 Production Results,
Petropavlovsk has achieved a strong start to FY2017 with production
of 118,046 ounces in Q1 2017, an equivalent 18% increase on Q1 2016
and trending towards the top end of the Company's 2017 gold
production guidance range of 420,000 - 460,000 ounces.
Other operational highlights in Q1 2017 include:
- Pioneer underground development is on schedule for first production in Q2 2017.
- Malomir underground first production remains on schedule during Q2 2017.
- POX Hub construction is progressing on schedule and on budget.
Shareholder requisitions
As already announced, the Company has received requisitions and
notifications of current voting intentions from certain of its
major shareholders. The principal reasons cited by the three
shareholders for proposing new directors and stating their
intention to vote against the re-election of the Executive Chairman
of the Company and each of the Independent Non-Executive Directors
is the perceived lack of requisite focus on corporate governance by
the existing Board. Their full statements and information on their
proposed directors will be included in the AGM circular. The Board
considers such claims and concerns as being without foundation. The
independence of the existing Non-Executive Directors was a key
criterion in their selection, and this has also been confirmed in a
recently conducted independent board external evaluation. They have
highly relevant experience as Board members of a listed mining
company operating in Russia and they conduct themselves to the
highest standards in the execution of their fiduciary duties. The
Board as a whole and the Group's management are highly focussed on
good corporate governance, appropriate oversight of management, and
financial and operational performance.
Renova Asset Holding Ltd ("Renova"), who currently hold
483,992,984 or 14.76% of the total voting rights, have
requisitioned the addition of resolutions to be put to shareholders
at the Company's AGM on 20 June 2017 for the appointment of Bruce
Buck and Vladislav Egorov as nominee Directors. They have also
stated their current intention to vote against the re-election of
Peter Hambro, Robert Jenkins and Alexander Green if they stand for
re-election at the AGM.
Sothic and M&G, who currently collectively hold 513,931,814
or 15.66% of the total voting rights, have requisitioned the
addition of resolutions to be put to shareholders at the AGM for
the appointment of Ian Ashby and Garrett Soden as Directors.
Collectively, both the Renova and M&G and Sothic requisitions
originally proposed resolutions to remove each of Peter Hambro and
all three independent non-executive directors. Subsequently, at the
request of the Company, in order to ensure clarity about the
resolutions to be proposed at the AGM, Renova, M&G and Sothic
confirmed to the Company that the resolutions relating to the
removal of the directors do not have to be proposed to shareholders
at the AGM. Renova, M&G and Sothic have subsequently stated
their current intention is to vote against the re-election of Peter
Hambro and all three independent Non-Executive Directors if they
stand for re-election at the AGM.
As stated above, short CVs of the individuals whose election as
Directors is the subject of these additional resolutions, as
provided by the requisitioning shareholders, will be included in
the AGM circular.
If at the AGM the resolutions to re-elect the current Chairman
and all the existing independent Non-Executive Directors are not
passed and the resolutions for the proposed new Directors are all
passed, as the requisitioning shareholders currently propose, this
would have the effect of removing all of the Company's current
independent Non-Executive Directors, as well as the Executive
Chairman, and replacing them with four appointees of the
requisitioning shareholders. The Board considers that if Mr Egorov
(one of Renova's nominated proposed Directors) were to be
appointed, he would not be an independent Non-Executive Director
because he is currently a Renova employee. The Board also questions
the independence of the remaining nominees given their relationship
and/or engagement with companies in which the requisitioning
shareholders have invested.
The Board considers that the proposed change of two thirds of
its composition being put forward by certain shareholders, at a
time when the Company is in the process of completing its
operational transformation through the successful development of
underground mining, the POX Hub implementation and the development
of its latest gold discovery, is not in the best interests of the
Company or of its shareholders as a whole.
Since the 2015 Restructuring, the Board of Petropavlovsk (some
of whom were approved by those now seeking to have them removed)
have delivered a successful cost reduction programme, favourably
re-financed the Company's bank debt and delivered strong
operational and production metrics at the same time as positioning
the Company for sustainable growth. The Board believes that this
turn-around is set to transform the financial performance of the
business in the coming years. It is in this context that the Board
of Petropavlovsk regards the timing and co-ordinated nature of the
actions of M&G, Sothic and Renova seeking to change a majority
of the Board particularly troubling and wholly unjustified. The
Board remains willing to continue discussing its Board
restructuring proposals with the requisitioning shareholders.
AGM Notice
As noted above, the proposed resolutions, as well as the
statements and proposed Director CVs as provided in the
requisitioning communications from Renova, M&G and Sothic and
the Company's recommendations to shareholders in relation to the
resolutions to be put to the AGM will be provided in the
forthcoming AGM circular to be issued by the Company.
Commenting on the announcement, CEO Pavel Maslovskiy said:
"I am confident that, thanks to the hard work of the team and
the support of all of our stakeholders since the 2015
restructuring, the Company is on the threshold of an operational
and financial transformation. The focus of the entire Company and,
in particular, the Executive Team will be on ensuring we deliver
sustainable operations with a stable balance sheet and be in a
position to return to a dividend paying status in 2020."
Commenting on the announcement, Proposed Chairman Andrew
Vickerman said:
"The move to an independent non-executive Chairman reflects the
Board's commitment to further enhance our corporate governance
procedures as part of a process we had begun some time ago. This
move, together with the appointment of an additional independent
Non-Executive Director, will ensure that the Board will have the
strong leadership and independent oversight required to progress
through Petropavlovsk's next phase of growth."
APPIX - DIRECTOR AND PROPOSED DIRECTOR INFORMATION
Peter Hambro
Peter Hambro is Chairman of the Board at Petropavlovsk PLC, a
London-listed gold mining company co-founded in 1994 with Dr. Pavel
Maslovskiy. Peter started his career at a bank owned by his family,
later becoming a co-director of Smith St. Aubyn Holdings Ltd. He
then proceeded to work at Mocatta Group, the world's largest
bullion trader, before founding his own boutique mining finance
house in 1990 called Peter Hambro Ltd., of which he remains
chairman and the largest shareholder.
Pavel Maslovskiy
Pavel Maslovskiy is Chief Executive Officer of Petropavlovsk PLC
and together with Peter Hambro, co-founded the Company in 1994. Dr
Maslovskiy was Chief Executive Officer from the Group's inception
until December 2011, when he relinquished all remunerated positions
following his appointment as a Senator-Member of the Federation
Council (Upper House of the Russian Parliament). Dr Maslovskiy
retired as a Senator-Member in October 2014 and was re-appointed as
Chief Executive Officer in November 2014, having acted as the
Company's Honorary President during 2012 to November 2014.
Prior to embarking on his business career, Dr Maslovskiy was a
Professor of Metallurgy at the Moscow Aircraft Technology
Institute.
Andrey Maruta
Andrey Maruta was appointed to the Board as Finance Director -
Russia in January 2011, and promoted to the position of Chief
Financial Officer in 2012. Mr Maruta is a fellow member of The
Association of Chartered Certified Accountants having qualified at
Moore Stephens in 2001. Mr Maruta joined the Group in 2003 as Group
Chief Accountant and was promoted to the position of Deputy Finance
Director in 2005 and the position of Finance Director in 2006.
Andrew Vickerman
Andrew Vickerman spent 20 years with Rio Tinto, the last 10 as a
member of the Operations and Executive Committees. He is currently
a Non-Executive Director of Trafigura, a leading international
commodities trading group, and Director of Direct Nickel, an
Australian business that has developed technology for processing
nickel laterite deposits.
Robert Jenkins
Robert Jenkins has been associated with the company since 2014
and was appointed to the Board on 30 April 2015. Mr Jenkins, who is
a Russian speaker, also chairs the Audit Committee and is Senior
Independent Director. Mr. Jenkins has approaching 25 years of
Russia related investment experience. He has been CFO of two Russia
focussed natural resource companies, Eurasia Mining and Urals
Energy, and also a Director and Audit Committee Chairman of
Ruspetro plc and of Toledo Mining Corporation plc, including as
Senior Independent Director of the former.
Alexander Green
Alexander Green joined the Board on 27 August 2015 having been
selected by the Nomination Committee. He has two decades of
experience in the resources industry, including as a Marketing
Director at BHP Billiton. He was also a Non-Executive Director of
Torm A/S Copenhagen and is a member of the advisory board of Bahia
Mineração S/A and Board Observer with Fluidic Analytics
Limited.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) NO 596/2014.
Enquiries
For further information or to request additional comment, please
contact:
Sans Frontières Associates
Jerome Hasler
jhasler@sfassociates.ltd
+44 (0) 203 170 7469
+44 (0) 7824 553 795
Maitland
Neil Bennett
James Isola 44 (0) 20 7379 5151
Petropavlovsk-Maitland@maitland.co.uk
Petropavlovsk PLC
Alya Samokhvalova +44 (0) 20 7201 8900
teamIR@petropavlovsk.net
Notes to Editors:
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 currently rated as the one of the most
efficient gold mining companies when measured by its relative grade
adjusted Total Cash Costs. The Company is currently developing a
Pressure Oxidation hub for the treatment of refractory gold ore and
has recently started work on underground mining, following more
than 20 years of producing gold from open pit mines.
The Company's combined 3,605km2 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)
http://www.petropavlovsk.net/en/
BOAQELBFDEFBBBF
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