Mining giants Petropavlovsk and UGC explore merger

Via Yahoo Finance

Petropavlovsk, London’s best performing listed gold miner last year, is studying a potential merger with UGC in a deal that would catapult the pair into the upper echelons of the gold mining industry.

Discussions between the two mining giants are currently at an early stage, but the deal could “definitely happen”, Petropavlovsk chief Pavel Maslovskiy told The Telegraph.

Earlier this year, the privately-owned Russian gold miner UGC took a large stake in Petropavlovsk, which owns and operates four mines in Russia’s far east region. When asked if his company was looking at any potential acquisitions, Mr Maslovskiy said: “Recently, a 22pc stake moved to other hands, to UGC, which produces roughly what we produce.

“We’re similar in the size, but they are private, and we are looking at each other, I would say.”

There are banks who are pushing for the deal, Mr Maslovskiy said. “It can definitely happen, because the company is private, and it can happen fast.”

The pair are currently in the process of studying one another, after Petropavlovsk requested its bank’s view. 

“They require some more information on the counterparty, so it’s the beginning of the process,” Mr Maslovskiy said, adding: “But there is an understanding between the parties that it is worth studying.”

Petropavlovsk declined to comment further, while UGC could not be reached for comment.

Any deal would make the combined company Russia’s largest gold miner, and one of the most powerful producers of refractory gold in the world.

More than 40pc of Russia’s proven gold reserves are refractory ore, a type of gold that is harder to extract. Petropavlovsk is able to refine this ore using pressure oxidation technology and predicts that some 50pc of its production this year will come via this method.

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The company is one of the few Russian natural resources firms not owned by an oligarch with close ties to President Vladimir Putin, although the company has encountered turbulence in the form of board revolts in recent years. Two years ago, Viktor Vekselberg, former majority shareholder in Petropavlovsk and the largest owner of Faberge eggs in the world, led a boardroom revolt at the company that forced out two of its most senior executives. Following Mr Vekselberg’s departure, both executives returned to the company.

After a tumultuous couple of years, Petropavlovsk has recently seen its fortunes change, with the company reporting a large increase in sales in 2019, with further growth projected for this year. The group entered the FTSE 250 in March, and has been one of London’s best performing stocks in 2020, up 90pc since the start of the year.

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UGC, meanwhile, is owned by mining magnate Konstantin Strukov, one of Russia’s richest men. The Telegraph reported in February that Petropavlovsk was considering a dual listing in Moscow in an effort to locate new sources of funding, including Russia’s swelling retail investor base.

In an interview, Mr Maslovskiy confirmed that the company would proceed with the dual listing this year. “It is near completion, there were just some delays due to tax issues, specifically stamp duties,” he said, due to the relocation of some shares to a new register in Russia.

These concerns had been resolved in the past week, Mr Maslovskiy said, and the move was now not far from completion.

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Last week, the miner said that its chairman Roderic Lyne would step down following the company’s annual general meeting in June. He will be replaced by newly-appointed non-executive director Fiona Paulus, a veteran investment banker.