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Petropavlovsk – financial and operational progress, Buy

By Tom Winnifrith & Steve Moore | Saturday 22 December 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Petropavlovsk (POG) has updated that the first stage of its plan to reduce its guarantee for 31.1% owned IRC Limited is completed and that “with the twin events of concluding the restructuring of the IRC Facility, and with the successful ongoing ramp up of Petropavlovsk's Pressure Oxidation Hub, the company is poised to generate returns for its stakeholders in 2019 and beyond”

The former is with IRC entering into a $240 million facility with Gazprombank, initially reducing Petropavlovsk's guarantee from $204 million to $160 million. This is though conditional on Petropavlovsk shareholder approval and in the meantime Petropavlovsk has agreed to provide a further bridging loan – this $27 million at 16% annual interest, with it also extending an existing bridge loan of circa $30 million to the later of new facility utilisation and 21st March 2019.

It is added that the new facility will provide IRC with an extended period to repay its debt finance, maturing in 2026 and, on more favourable terms than its existing facility, “is expected to alleviate the cashflow position of IRC” – and that Petropavlovsk’s “liquidity position significantly strengthened after entering into a number of gold sales contracts with Gazprombank and is sufficient to finance the second bridge loan to IRC and for general operational purposes. The arrangements are set up for the next 24 months and provide the group with the flexibility during the POX plant ramp up period”.

“successful ongoing ramp” of the POX hub is also particularly pleasing as we’ve noted the significance of an ability to process complex refractory ore. The shares have nudged higher towards 6p, but that’s still a relatively depressed level – indeed lower than on our noted prior update. We continue to see significant upside on further financial and, particularly POX hub, operational progress – and the stance thus remains buy.

This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian THIS WEEKEND click HERE

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