One Of Largest Russian Gold Miners On Verge Of Bankruptcy

Tyler Durden's picture

A little over a year ago, we showed the average cost curves of gold and the cost per mine for one reason: with the forced selling in paper gold, extracting physical gold is increasingly unprofitable for gold miners.

And while some companies, those lucky few which have no debt on their balance sheet, have the option to mothball projects and wait for the lack of supply to catch up with demand and also price (at least in a world in which physical supply and demand still have some bearing on trading of paper gold) others, those who have creditors breathing down their neck, whose extraction cash costs are above the spot price and who aren't hedged, are essentially out of options.

One such company is Russian gold producer Petropavlovsk, which a few years ago was one of Russia's biggest companies and whose Pioneer mine produced 314,850 oz of gold in 2013, and is one of the largest gold mines in the Russian Far East.

As Siberian Times reports, founded by Eton-educated Peter Hambro, Petropavlovsk was valued at more than $3 billion four years ago and was a potential candidate to move into the coveted FTSE100. But today the firm is now worth just $60 million and is in a perilous financial situation, with speculation it may even default on $310 million in convertible bonds in February.

A statement from Petropavlovsk said: 'The company confirms it is continuing to talk to its senior lenders, bondholders, other stakeholders and third parties in order to complete a holistic refinancing of the group’s outstanding four per cent convertible bonds due February 2015."

Further details on the gold-miner's financial plight:

The Financial Times reported the consortium includes Russian Kirill Androsov, the managing partner of Altera Capital and former deputy chief of staff to Prime Minister Vladimir Putin. Shares in Petropavlovsk rose almost 20 per cent after news broke of the potential rescue deal, which has been put together by Amsterdam-based investment company Sapinda.

 

Petropavlovsk develops gold deposits in the Amur region at mines in Pokrovsky, Pioneer, Malomyr and Albyn. The company decreased gold production by four per cent to 741,000 ounces in 2013, and targets for 2014 are even lower at 625,000 ounces.

 

In the first half of this year the company did cut its net losses nearly 88 per cent to $95million, but was unable to post profits. The fall from grace for what was once one of Russia’s biggest companies is certain to be difficult for the man who built it up from nothing 20 years ago.

And yet for those hoping to see an avalanche of gold miner defaults, which would lead to a collapse in gold production just as demand for physical is surging, and an even greater imbalance between physical and paper prices, may have to wait: a bailout may be in the offing. Also from the Siberia Times: "Petropavlovsk is on the brink of a rescue package that could save the company following a turbulent period that saw billions wiped off its value. Directors of the firm, which commercially develops gold deposits in the Amur region of Siberia, have announced they are looking at 'all options' to stem the crisis."

The company added that "as part of this ongoing process, the company has also been in receipt of approaches by various potential third-party investors in recent months. The company continues to examine all its options and is working towards a solution in as expedient a manner as possible. No transaction has yet been approved or agreed."

Stressing that no deal has yet been done, in a statement they said they had received a number of proposals from third-party investors. The announcement came after the Financial Times newspaper said that consortium, of Russian, German and South African investors, was prepared to inject up to $250million in the company.

And while the future of the company's current owner, Peter Hambro is clouded and bondholders may soon get control of the company, a better question is whether the company may not be the latest one to feel some pressure for additional proximity, courtesy of the Kremlin:

Meanwhile, it was also announced that Mr Maslovsky, who has been a Russian senator for the past three years, is rejoining the firm as chief executive.

All it would take is a phone call from Putin to make it clear that Russia would provide some rescue funding in addition to a majority stake. And will Putin stop there, or will he make it a mission to do the same to all other Russian gold miners?

Finally, here is the soon to be insolvent gold miner in its natural habitat.

Petropavlovsk was valued at more than $3billion four years ago. Picture: stepbystep.ru

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Gold mining in Yakutia. Pictures: stepbystep.ru

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Consortium featuring Russian businessman line up bid to invest in mine which develops deposits in Siberia

Malomyr and Pokrovsky mines. Pictures: Petropavlovsk 

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LetThemEatRand's picture

And I wonder who is going to buy up companies like this for pennies on the dollar.  Surely it won't be the same guys short-selling gold options now.

Arius's picture

w/ all these pictures, i am almost sure there will be some good samaritans to save those good christians over there in Yamakatia ... just sayin'

Publicus's picture

Nice, time for Russia to nationalize it.

kliguy38's picture

exactly and the same thing here

SWRichmond's picture

If it's still a viable mine, the Chinese will be happy to buy it.

OW My Balls's picture

Not to worry people. Carpetbagging jews will print themselves up some counterfeit money and take these eyesores off your hands for pennies on the sheckel.

 

Never let a crisis go to waste.

TruthInSunshine's picture

Whisper Rumor Turd Ferguson is already en route via G5 to bid on this facility.

0b1knob's picture

Isn't there a metric butt load of Canadian miners hanging on by their fingernails?  Not just gold but uranium, iron ore, etc etc.

walküre's picture

That's right. Who needs commodities anyway when all you need are bits and bytes.

I had a bowl of virtual granola this morning and didn't gain any weight!

MOB666's picture

You appear to be suffering from some sort of electronic lag.. give it time fatty.

 

Urban Redneck's picture

Peter Hambro started out with the Rothschilds and there are other linkages between Petropavlovsk plc and various Rothschilds entities.

This one is a bit more "complicated"... so unless a carpetbagging Jew is also a member of the "Friends of Vlad Club" (like Abramovich) I don't think they would be given the opportunity to acquire strategic assets for fiat sheckels.

trader1's picture

look who's behind Sapinda:

http://www.efinancialnews.com/story/2012-12-10/lars-windhorst-profile?ea...

When nine-year-old Lars Windhorst was asked to draw a picture of what he wanted to be when he grew up in art class at school in Rahden, Germany, the young boy drew a huge skyscraper and, alongside it, some trucks and container ships with his initials on them. Windhorst wanted to be an entrepreneur and build his own business empire from an early age.

Aged 14, he began ordering electrical components from suppliers in Asia, assembling them into computers and selling them in Germany. Windhorst said: “I got involved in electrical products not because I was interested in computers but because I was looking for opportunities to get involved in the wider game of business.”

This venture, Windhorst Electronics, had revenues of $50m in 1994, its first year of operation. Windhorst’s success earned him the admiration of the German press and he began appearing in newspapers and on talk shows, hailed as a “Wunderkind”. He dropped out of school aged 16 to focus on the electronics business.

The then German Chancellor Helmut Kohl embraced Windhorst as a protégé, and the young man began accompanying the politician on state visits. This allowed Windhorst to start developing relationships with international statesmen and businessmen. A photograph in Sapinda’s London office depicts one such visit – the fresh-faced Windhorst sits on a boat on the Saigon river, surrounded by south-east Asian luminaries.

Aged 20, Windhorst was the youngest member to be included in the “Global Leaders of Tomorrow” list at the World Economic Forum in Davos.

In 1995, Windhorst began to diversify the business, expanding into trading, investment, electronics, real estate and finance, and building an 800-person conglomerate. He moved to Hong Kong and his childhood dreams seemed within reach. Windhorst pushed ahead with plans to build a 55-story office tower in Ho Chi Minh City, Vietnam, called the Windhorst Tower.

Bunghole's picture

Is this a placer deposit or hard rock mining?

I see placer gold in the first pic but milling equipment in the last.

Hard rock gold is milled and then floated in a solution bath.  It wouldnt look anything like the first pic.

The Duke of New York A No.1's picture

It's probably both a Placer and Hardrock deposit.

TireBite's picture

Hard Rock - after it is liberated via solution bath they will use electrolysis commonly to get it out of the solution. It could be in flakes prior to making dore. Mines of size aren't placer mining.

Bunghole's picture

Thanks,

I toured Homestake Mine in Lead, SD back in 1991 and got to see the cyanide process but never got to the electrolysis portion of the plant, probably for good reason.

I do remember having to pass through a metal detector on the way out though.

TireBite's picture

Cyanide heap leaching is still very common and cost effective method. Lots of CN being produced in the Nevada desert.

I work in mining for an OEM heavy equipment supplier. People are shitting their pants over commodity prices - mines and supporting industries. Use caution buying this industry.

Paveway IV's picture

Nationalize it? That would cause a nuclear war for sure. 

It's essentially a London-based arm of Rothschild Banksters (and a cabal of British-Israeli interests). They simply use Russian slaves to dig the gold while they have been draining the equity from the company. 

I absolutely EXPECT them to go bankrupt. It's free money to them stolen from equity holders. Another arm of Rothschild will buy it up again for pennies on the dollar in a year or two.

Bonus for Rothschild parasites: Russia probably either buys up or wants to buy up much of the production for their own reserves. Go bankrupt and kick the workers out and nobody gets to buy the gold. Yeah, production is only like 20 tons a year. A drop in the bucket, but every little bit counts when your a greedy banker trying to control the disobedient, non-compliant Russian population that refuses to give you their money.

The Soviets are long gone, but the Bolshevik bankers and oligarchs never left.

agent default's picture

If this is the case it will definitely be nationalized and many senior execs have a good chance of spending ten years in Siberia.

SAT 800's picture

NO. It's an excellent opportunity to demonstrate Capitalism with a Russian face, to coin a phrase. The Russian Central financial authority should just pay off this Bond; and re-issue a not e to the company in Rublies; de-Americanifying the Company. The Debtor is always at the mercy of t he Creditor; but if the operation of the enterprise is in the interest of the State, which it probably is; than it should be insulated from foreign "financial hit men".

SAT 800's picture

they alreadyl tried that; they're a little tired of State Industries; it didn't work out all that well last time around. thre are other remedies.

Quinvarius's picture

No one.  I suspect that on the flip side, the rules will be changed.  Mines will be nationalized and made inactive to preserve the wealth.  The bankers just want that industry to die after they get all the gold.  Only they should be allowed to create more monetary units.  Unmined gold will be as good as gold in Ft Knox anyway.

NotApplicable's picture

"unmined gold" = "deep storage"

Kirk2NCC1701's picture

I've been harping on the same meme for over a year now: 

1. Gold will REMAIN in SIDEWAYS/BEAR Market for as long as TPTB decide to keep it there, regardless of what Gold Bugs and Shills proclaim.

2. As PM prices reach or go below Mfg costs, expect industry consolidation in PM mining:  BIG FISH EAT LITTLE FISH.

Nothing's more predictable than the Laws on Nature, Math and Human Nature.  Hedge, plan and act accordingly.

walküre's picture

Big fish are broke and have exhausted all leverage.

Small fish will prevail and maybe scoop up claims from big fish for pennies.

Big sharks (banks) may come down hard on big fish and devour the carcasses

css1971's picture

1. Gold will REMAIN in SIDEWAYS/BEAR Market for as long as TPTB decide to keep it there, regardless of what Gold Bugs and Shills proclaim.

Nope. Price controls cause shortages. If they continue to suppress the price, producers will go out of business and those who know the value of gold will continue to purchase at faster rates at the suppressed price. At some point there will be a catastrophic discontinuity in the market and the game will be up. They are driving this process.

Paveway IV's picture

"...Price controls cause shortages..."

Nope. I'm on Kirk's side: there are no price controls and there will never be a shortage (unless the Western central banker cabal wants one several years from now).

"...If they continue to suppress the price, producers will go out of business..."

Or if the price is dropping because demand is dropping, the producers will go out of business. Same difference.

"...and those who know the value of gold will continue to purchase at faster rates at the suppressed price..."

So you're going to front-run the banks? They got more staying power than you do. They inflated the price the last 12 years and they can damn well let it drop for a decade if they want. They sell high and buy low. What could you possibly know that they don't? 

"...At some point there will be a catastrophic discontinuity in the market and the game will be up...."

Yeah, sure.... the banks never thought of that.

Next year we'll officially be in a global depression and the markets will have tanked. Where is all this excess cash to buy bargain-priced gold going to come from? U.S. baby-boomers will be selling furniture to eat when they retire. I'm not expecting an army of stackers there. Under 40 debt slaves? Nope - no gold-buyers there. Chinese and Indian demand will plummet with their depressions and cratering prices. Everything is on sale in a depression precisely because nobody has any money. Except the central banks - they have the money of entire nations and can buy all the gold they want at that time.

"...They are driving this process..."

Agree 100%. Banks will raise rates next year guaranteeing a long, deep depression and wait for the price of gold to drop to a banker-approved level. Then they'll stuff their vaults to the gills.

BurningFuld's picture

Nope you are all wrong.

The Chinese will announce a gold backed Yuan and the USD will turn into toilet paper.

css1971's picture

Well yes, that's the other option. Lack of demand.

But copper, aluminium and steel have been in a bottoming process for 3 years now and don't look like they're going any lower. They might still tank, but otherwise they disagree with your depression thesis.

Paveway IV's picture

Agree. I certainly don't want a global depression. 

I never saw much info or discussion on basic metals leading into and during the Great Depression. You've piqued my curiousity - this is going to interfere with my porn-surfing time.

angel_of_joy's picture

Your "analysis" is crap. No Western company will own a resource based company in neither China nor Russia in the foreseable future. You shouldn't have given up your porn to start with...

HungryPorkChop's picture

@Paveway, I think the banks may hope for falling demand by mid or end of 2015 but for now they need to get out of 2014 alive otherwise they're going to have a Force Majeure.  People are backing up the truck at these prices and the U.S. Mint sold out of ASE's last week, Canadian Mint is rationing their siver maples, etc.  This is not good for those which continue to maniuplate the paper price downward.  We are deep, deep into negative GOFO rates and this should never happen.

I can only image what happens when silver hits $12 and gold is at $1,000 as they might as well bolt the doors shut since the demand will be off the charts.  There will literally be angry mobs at the mint's door demanding the open it up and sell to them at spot. 

We are already seeing large miners buckling and high grading, most of the juniors have already dried and withered away and speculative money for this industry is as rare as a Dodo Bird sighting.  Something tells me this doesn't end well no matter the outcome.

 

Paveway IV's picture

"...I think the banks may hope for falling demand by mid or end of 2015..."

Demand has been falling since the 2013 peak - that's what the pdf I posted shows. I don't know - I'm not a gold guy.

"...but for now they need to get out of 2014 alive otherwise they're going to have a Force Majeure..."

This I honestly don't understand. Paper can be hedged endlessly with more paper. Why would central banks be forced to do anything by the end of 2014 or any other time? Who is big enough to interfere with their fake paper market? If they can move 10x or 100x times the paper than the physical if needed, then nobody is going to be able to force them to do anything. Am I missing something?

"...People are backing up the truck at these prices..."

But retail and investment demand is down.

Central banks can move 1000s of tons a quarter behind the scenes. Gulf oil states (and probably Russia and China) have stopped buying. There's plenty of supply if the central banks restrain their buying.

I'm looking at the biggest players and what they're doing. I know the story the guy at the coin shop is feeding everyone - I just don't believe it applies to the gigantic (relative to retail) forces that move the market. 

"...the U.S. Mint sold out of ASE's last week, Canadian Mint is rationing their siver maples, etc. This is not good for those which continue to maniuplate the paper price downward..."

Silver is even more of a mystery to me. My caveman understanding is that it generally rose in sympathy with gold the last decade, but isn't anything the central banks touch. As such, it whipsaws around for a lot of other reasons and does not have the same supply/demand characteristics of gold. I don't know what to make of the shortage and you're right, someone may be about to get burned on paper - like a bullion bank or big players. There are no central banks going down because of silver, though. 

"...We are deep, deep into negative GOFO rates and this should never happen..."

Why shouldn't they? Gold forward rates tanked this year but never went negative. That would mean plenty of gold available to lend and few new people willing to borrow it to buy dollars. The reason for the gold/dollar swap is to get lower interest rates than simply borrowing dollars outright. With LIBOR scraping the bottom of the barrel, why bother borrowing gold first and selling it for dollars at essentially the same effective rates? If all the gold is either already lent out or otherwise committed and not availble, then the gold forward rates should rise (like they are now). That makes the gold/dollar swap useless - just borrow dollars outright at LIBOR if you need them. Negative GOFO rates don't mean anybody is taking them up on the offer - they're just the theoretical advantage (or disadvantage) you would get IF you did the swap.

"...I can only image what happens when silver hits $12 and gold is at $1,000 as they might as well bolt the doors shut since the demand will be off the charts..."

Normally, yes. But if the economy continues to decay, overall retail demand is going to continue to drop as it has for the last year. Yes, the lucky people that have cash to burn can buy at fire-sale prices. I don't think there's enough of them to put a dent in the central bank's longer-term efforts to keep the market well-supplied, enough so that prices will continue falling. It takes them a 'mere' 100 tons a quarter to allow prices to drift down now. That's chicken feed to them. 

"...We are already seeing large miners buckling and high grading, most of the juniors have already dried and withered away and speculative money for this industry is as rare as a Dodo Bird sighting..."

Yes, overall supply from miners is falling. That can be more than offset by central banks injecting their gold into the market. The supply will be high enough because of central bank selling that it will always outpace demand. Can they do that forever? No. Can they do this for ten more years? Sure. If there's a deeper recession or global depresson next year, then they will need less market-stuffing because global demand will dry up. 

Central banks are like the market makers for gold with huge house accounts. You never know what's going on by looking at the tape or supply/demand numbers because you don't know how much they are long or short at any given time. One can speculate on the amount of powder they have left, but I just assume they have more liquidity than anyone imagines. Nobody at that level gambles at anything - it's easy money and they have figured out a way to minimize risk. I would love if they got burnt, but that's not going to happen. If it does, they will be bailed out.

oddjob's picture

Barrick, your TPTB favourite gold 'miner', is in death throes. Hopefully having faith in TPTB works out for you.

Kirk2NCC1701's picture

I didn't junk you, but I assume you knew that "TPTB" does not refer to any gold miners, but to people MUCH higher on the foodchain.

I.e. people who are "Doing God's work", for example.

oddjob's picture

Maybe you should do a little history on Barrick.

pan's picture

Jacob Rothschild bitchez....

emersonreturn's picture

spot on LTER.  spot on oddjob.  i hope putin simply usurps ALL foreign holdings until sanctions are lifted.

tostaky06's picture

mine bitcoin now !

Bunghole's picture

Haha,

I saw a ad on CL this weekend for a BTC miner for $650.  The seller touted BTC mining as free money.

I asked the seller if BTC mining is so great, why is he selling.

Crickets

Groundhog Day's picture

The Gold industry will be going away.  3 Billion ppl that buy it year after year are just stupid

Seer's picture

Yeah, thank God for the Fed (and other central bankers) being able to look out for us all and create all the wealth that we could ever care for!

Silky Johnson's picture

I think you forgot the sarcasm tag there son, these people took you at your word.

Groundhog Day's picture

I did forget the /s

p.s.  If the banking cartel tells these 3 billion ppl that their gold is worthless they will probably just throw it away /S

CHX's picture

If each of 3 billion people bought ~35 dollars worth of gold, that's about global mine supply at current prices.

Coldcall's picture

Look at that beautiful plant, love the wallpaper!

CitizenPete's picture

and now for something completely different... bwah.

SEC's White: High Frequency Trading May Need New Rules

http://youtu.be/B0WV5Xrj0sk?t=1m30s

walküre's picture

The biggest gold miners have the highest production cost per oz.

I'm sure that's actually true for most of the biggest xyz manufacturers and service companies in any industry.

BIGGER IS NOT BETTER

The commodity industry just happens to suffer from paper shenanigans more than any other industry. The big banks are able to print more paper to solidify their balance sheets.

I give you ... the canary in the proverbial gold mine that will be the beginning of the end of paper shenanigans.