The London-listed mining company Petropavlovsk has warned investors they may be wiped out though a potential sale, as it struggles to regain its footing after UK sanctions against a key Russian client.
The miner said it was facing financial pressures due to UK government restrictions on Gazprombank, which is one of Petropavlovsk’s main customers and buys all of its gold. Gazprombank, which processes most payments for the Russian oil and gas sector, has been subject to UK sanctions since 24 March.
Petropavlovsk said it had appointed the restructuring expert AlixPartners to aid the board “as it explores its options and determines the company’s course of action in the best interest of all stakeholders, including creditors and shareholders”.
“These options include the sale of the company’s entire interests in its operating subsidiaries as soon as practically possible. It is not currently clear what return, if any, may be secured for shareholders or the holders of the bonds or notes as a result of this process,” it warned.
Last month, the Russian billionaire Sergey Sudarikov, who part-owns the sanction-hit Credit Bank of Moscow, bought a 29% stake in Petropavlovsk from its biggest shareholder, Konstantin Strukov, who owns the Russian gold miner UGC.
Petropavlovsk was founded as Peter Hambro Mining in 1994 but its eponymous founder was ousted in 2017 after a boardroom coup.
The FTSE 250 company said it was exploring whether it could sell gold to other buyers, though that would require Gazprombank to grant a waiver on existing contracts. However, it noted that Russia’s central bank has set gold purchase prices below London rates, which could impact its cashflows, assuming another Russian firm were to commit to purchasing its precious metals.
Petropavlovsk has also run into trouble on its loans, since it is barred from making payments to Gazprombank. The miner has a $200m (£152m) loan from the lender, including a $86.7m revolving credit facility, but was barred from paying a $560,000 interest payment last month after the lender was put on the UK sanctions list.
Russia is rumoured to be preparing laws that would make it a criminal offence for companies to refuse to deal with local companies because of foreign sanctions. “If such legislation is enacted, the board may not be able to ensure that its subsidiaries will comply with the regulations in Russia,” Petropavlovsk said.