Petropavlovsk rocked by 91pc drop in profits

SHARES in London-listed Russian gold miner Petropavlovsk slumped 15.97 per cent in trading yesterday, as it posted a 91 per cent drop in profit for the first half of the year.

Interest payments, depreciation and foreign exchange costs were behind the sharp profit slump to $11m (£6.93m), from $108.2m last year.

Net debt ballooned to $1.12bn from $787m in the six months to 30 June, on the back of increased investment in new mines.

The $106.9m depreciation charge, up 132 per cent, was put down to the work on the mines commissioned last summer.

Three operations went online during this quarter, at the Russian Pioneer, Albyn and Malomir lines. It was this new investment that overstretched the balance sheet, Petropavlovsk said.

Capital expenditure came in at $262m for the first half, and Petropavlovsk said there will be further capital investment in the second half.

The miner said yesterday that interest rate costs will accelerate in the second half of the year, consistent with an increase in net debt, which is expected to peak in mid-2013.

Chairman Peter Hambro said yesterday: “We have a big charge for depreciation the moment we start operating new facilities. We’re in an investment-heavy period.”

Hambro added that second half profitability would be better than the first half.

Gold production during the second half is expected to be around 420,000 ounces, a 50 per cent year-on-year uplift thanks to the full expansion of two of Petropavlovsk’s gold sites. It reiterated its full-year production target of 700,000 ounces.

Cailey Barker of Numis Securities said: “While the operations continue to perform well, the miss on the financial extras is likely to disappoint.”