LONDON (Alliance News) - Gold miner Petropavlovsk PLC Thursday said it swung to a pretax profit in the first half of the year, as cost cutting and higher production more than offset a drop in its average realised gold price and last year's impairment charges weren't repeated.
Like peers, the company was hit hard by the fall in the gold price last year, and it started restructuring and cutting costs in an effort to return to profitability.
Those efforts paid off as it reported a USD8.3 million pretax profit for the six months to June 30, compared with the massive USD615.4 million pretax loss it reported a year earlier, even though revenue dropped to USD453.0 million, from USD505.1 million.
It cut its average cash costs by 26% on the year to USD853 an ounce, and its central administration costs by 16% to USD22.9 million. Gold production, meanwhile, rose to 306,400 ounces, from 294,700 ounces, while it sold 310,700 ounces, up from sales of 297,100 ounces in the first half of 2013.
Still, revenue declined as its average realised gold sales price was USD1,386 an ounce, down from USD1,579 an ounce a year earlier. It managed to boost this year's figure by securing forward contracts to sell gold.
It had booked USD409.0 million of impairment charges in the first half of 2013 related to the steep gold price fall.
"The backbone of our performance lies in operational efficiencies, which ultimately resulted in a circa 4% year-on-year increase in total gold production, in spite of a continuing decline in the contribution from the mature Pokrovskiy mine and weaker performance at Pioneer. These factors were offset by the almost doubling of production at the Albyn mine, which is now delivering on its original production targets," the company said in a statement.
It maintained its full-year production target at 625,000 ounces, but said its cash costs per ounce are expected to be at the lower end of guidance of between USD900 an ounce and USD950 an ounce. This accounts for a forecast increase in seasonal, higher-cost, alluvial gold production in the second half of the year, it said.
It also kept its capital expenditure programme for the year as a whole at about USD100 million, after cutting first-half expenditure to USD70.2 million, from USD168.8 million a year earlier.
Petropavlovsk isn't paying an interim dividend as it focuses on reducing net debt, which stood at USD924 million on June 30 compared with USD948.4 million at the end of last December. Its cost cutting helped net cash from operating activities rise to USD104 million in the half, up 53% on the year.
It said it is still targeting net debt of about USD850 million by the end of this year, excluding any impact from the implementation of its refinancing plan.
"In line with its refinancing plan, the company has made contact with the majority of the holders of its convertible bonds and carried out preliminary consultations which are expected to form the basis of the group's final proposal in respect of a refinancing, which the company is currently developing, it said in its statement.
"The company has also made significant progress in discussions with its senior lenders on the relaxation of certain covenants in the group's banking facilities," it added.
Petropavlovsk shares were down 1.4% at 36.25 pence midday Thursday.
By Steve McGrath; stevemcgrath@alliancenews.com; @SteveMcGrath1
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