The Petropavlovsk (LSE: POG) share price has plunged 95% over the past 12 months, to just 1.175p, as I write. It’s all down to the Russian invasion of Ukraine, and the gold miner is now facing a horrible situation.
The gold price is buoyant as investors see it as a safety fallback against the worsening global economy. But that doesn’t help, as Petropavlovsk is reliant on Russian bank Gazprombank (GBP) in two different ways. And GBP is under UK and EU sanctions because of the war.
The company has around $300m of debt with the bank, but it can’t deal with it. It’s already missed payments as a result. It also has a contract to sell its gold to GBP, which it can’t under current sanctions.
Gold sales waivers
On the latter problem, GBP has issued waivers to allow Petropavlovsk to sell gold to other buyers. But that doesn’t help with the repayment of debt. In April, it demanded immediate repayment of around $200m under a term loan agreement, and has assigned the rights of the term loan to another organisation, JSC UMMC-Invest.
In its recent June update, the company told us it “is unable to repay the term loan at the present time and, for a number of reasons, the board considers it very unlikely that it will be able to refinance the term loan in the short term and has to date been unable to do so“.
It doesn’t help that the company has around $300m in outstanding guaranteed notes too, which it also can’t service. It has not paid the most recent coupon.
The way out?
Petropavlovsk has been saying for some months now that one of its options is to sell all its mining interests “as soon as practically possible.” What does this all mean for shareholders?
Firstly, it’s worth highlighting a warning from the company itself. A number of shareholders have been contacted by boiler room scammers offering some kind of deal over their shares.
The biggest individual scam recorded so far resulted in a loss of £6m. So investors should not respond to any unsolicited phone calls, emails or other communications. Other than reporting them to the police, that is.
Why are people buying?
As for the possible asset sell-off, the board said “it is highly unlikely that any return will be secured for shareholders as a result of that process given the level of the company’s indebtedness“.
It hardly seems likely that anyone is buying shares today in the hope of profiting from the sale, then. But investors clearly are still buying.
Perhaps it’s in the hope of an alternative solution? Maybe one that could save the Petropavlovsk share price from falling to zero? If the board can pull something off, might investors make a quick profit? I really don’t know.
All I am convinced of is that a company with a market-cap of under £50m, and at very low penny share prices, is always likely to be a risky investment.
