Russian Gold Miner Petropavlovsk Working on Deal With Lenders

NEW YORK (The Deal) -- London-listed, Russian gold mining company Petropavlovsk plc said Thursday it is close to securing a relaxation of covenants on its senior debt, much of which is held by Russian banks that are the target of European and U.S. sanctions.

Petropavlovsk, Russia's No. 2 producer of gold, has been in talks with lenders for months as it seeks to renegotiate covenants governing its senior debt. The mining company needs the new covenants in order to renegotiate or refinance about $310 million of convertible bonds due early in 2015.

"The senior debt has certain financial covenants that need to be revised or waived for the period ended 31 September this year," CFO Andrey Maruta told a call on Thursday, Aug. 28. "The group has received banks' agreement in principal."

Petropavlovsk is one of a handful of Russian-focused resource companies listed on the London exchange that have found themselves hostage to escalating economic sanctions linked to the ongoing conflict in Ukraine.

Russian lenders VTB Group and OAO Sberbank hold the bulk of Petropavlovsk's senior debt, alongside a third lender, Industrial & Commercial Bank of China Co. Ltd.

The European Union added VTB and Sberbank to its list of companies subject to sanctions on July 31. That move came 15 days after the U.S. targeted the Russian banks for their close links to the Russian government. The sanctions effectively exclude the banks from medium- and long-term financing by barring them from access to U.S. equity or debt markets for financing with maturity beyond 90 days.

Despite the problems for its lenders Petropavlovsk executives struck an upbeat note on Thursday, insisting that all three of its banks supported its debt restructuring plans. The mining company was less enthusiastic about its negotiations with its bondholders, which it said had been complicated by rapid trading of its bonds.

"The big question is our repayment of the convertible bonds," Chairman Peter Hambro said. "We have spent the last six months working on this, [and] have managed to identify a very large portion of the holders of our bonds but that is a moving target."

Hambro described talks with the bondholders as "meaningful" and said he hoped to "make a meaningful move forward" in the near future.

Petropavlovsk had net debt of $924 million at the end of June, including $64 million of cash. The company made a net loss from ongoing operations of $17 million in the first half of 2014, and Ebitda of $139 million.

The fallout from the conflict in Ukraine may have one positive impact for Petropavlovsk. The company's costs are about 80% denominated in rubles, which declined to a record low against the dollar this week

Shares in Petropavlovsk traded Friday morning at 33.65 pence, down 0.85 pence, or just under 2.5% on their Thursday close. The company has a market capitalization of £66.5 million ($110 million).