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Petropavlovsk (LON:POG) report: 3Q Production Results and IMS

Contributed by Daniel Stewart & Company

By Daniel Stewart & Co

- Petropavlovsk has had to quantify the extent of the production problems at its gold mines in Russia. In essence, it has had to cut its production forecast for 2010 for the second time – it now expects to produce between 510,000 and 530,000 ounces, down from a range of 670,000 to 760,000 ounces.

- The problems apparently stem from a combination of poor weather conditions and late delivery of various major items of mining equipment. However, the underlying reason appears to be a failure to manage the growth of the company – overpromising and under-delivering.

- The iron ore and other non-gold assets were split off into a new company, IRC, which was floated on the Hong Kong exchange during the period. The company claims that the float was a success, which in technical terms is correct. However, it had to be done at a price below the lower end of expectations and, critically, Petropavlovsk was unable to place any of its holding in IRC. It now has a 65.6% interest in IRC. The problem is that Petropavlovsk actually needs the cash that was to have been raised by placing its interest in IRC. 

- Guidance for 2011 is due to be issued in January.