Petropavlovsk Plc.

Published : May 02nd, 2016

Agreement to acquire Amur Zoloto

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Agreement to acquire Amur Zoloto

28 April 2016

Petropavlovsk PLC

Agreement to acquire Amur Zoloto

Petropavlovsk PLC ('Petropavlovsk' or the 'Company' and, together with its subsidiaries, the 'Group') today announces that it has entered into an agreement (the 'Agreement') with Russia's Alliance Mining Group ('AMG') and Lexor Group S.A. ('Lexor' and, together with AMG, the 'Contributors') to acquire Amur Zoloto LLC ('AZ'), an established gold company with production and development assets in the Khabarovsk region in the Far East of Russia.

Under the terms of the Agreement, Petropavlovsk will issue, as consideration for the acquisition, 1,434,303,624 new shares to the Contributors, which are ultimately controlled by Mr Musa Bazhaev and his associates (which new shares will represent approximately 30.3% of the Company's enlarged issued share capital). Based on an agreed issue price for the new Petropavlovsk shares of 6.89 pence per share, and the current US:GBP exchange rate of 1.4537:1, the aggregate value of the gross consideration payable on closing is approximately US$144 million. In addition, AZ currently has approximately US$16 million of net debt which will be assumed by the Group upon closing.

The Agreement is subject to the fulfilment of certain conditions, including the completion of due diligence by Petropavlovsk. AZ is currently undergoing a restructuring and, prior to completion of the proposed acquisition, will be ultimately 100% beneficially owned by the Contributors.

Transaction highlights

• AZ adds significant scale to Petropavlovsk's reserve and resource base in the Far East of Russia;

• AZ has non-refractory reserves of 1.55 million ounces and resources (including reserves) of 2.16 million ounces as at 31 December 2015 (in accordance with the JORC Code 2012);

• AZ average feed grade at processing plants is 6.49 g/t and at heap leach is 1.1 g/t;

• Targeting AZ production increase from 70,000oz to 127,000oz between 2017 and 2020, at an average cash cost of around US$640/oz of gold;

• AZ is currently operating Yubileiny processing plant at a capacity of 100,000 tpa and expects this to increase to 200,000 tpa in 2019; and

• The Contributors' proposed 30.3% equity stake, the anticipated entry into the Relationship Agreement between the Company and the Contributors, and the potential addition of one representative of the Contributors to the Board of Petropavlovsk reflect a shared conviction in the future growth potential and prospects of the Company.

Peter Hambro, Chairman of Petropavlovsk commented:

'This transaction has significant strategic value for us and brings an attractive portfolio of assets into the Petropavlovsk Group.

I am also very pleased to be entering into this strategic partnership and our shared belief in the growth potential of Petropavlovsk is reflected in the equity stake that our new partners are taking.

The enlarged group will be well-positioned to take advantage of further consolidation opportunities in Russia and Pavel Maslovskiy and I look forward to working together to unlock further value for all stakeholders.'

Musa Bazhaev commented:

'Both Petropavlovsk and AZ are strong teams with robust assets and great growth potential. Considering the many synergies between us, I believe the deal will truly elevate both companies. For me personally, it is a strategic investment and I am confident that together we will unlock our full potential in the interests of all stakeholders'

Information on AZ

AZ holds and operates a number of gold mining (both hard rock and alluvial), as well as exploration, assets in the Khabarovsk region of the Russian Federation.

AZ's hard rock assets include:

· Yubileiny Complex: Krasivoye and Ulun underground mines and Yubileiny processing plant with current a capacity of 100,000 tpa and a planned extension in capacity to 200,000 tpa in 2019;

· Perevalnoe open pit mine and concentration (gravity and flotation) facility with a capacity of 100,000 tpa;

· Malutka open pit and proposed 2,000,000 tpa heap leach facility;

· Tas-Yurakh Complex with a capacity of 200,000 tpa; and

· Gold placers washing with a capacity of 1,000,000 m3 per season.

The Yubileiny Complex comprisesKrasivoye and Ulun underground mines and Yubileiny processing plant. Krasivoye is an existing high grade, underground gold mine with the Yubileiny processing facility nearby. The mine opened in 2004, initially as an open pit, and then switched to underground in 2010. The mine was closed in 2012 following a fire at the processing plant but, following the recommencement of mining last year, 40,000 tonnes of ore mined has been stockpiled since August 2015. The ore reserve is currently estimated as 230koz (1.13Mt of ore at 6.41g/t average grade), although this is limited by the lowest access audit whilst mineralisation continues further down dip. Therefore, an immediate potential exists to increase ore reserves by exploring the down dip extensions.

Ulun is a gold deposit adjacent to Krasivoye and is to be developed to a production rate of 100,000 tpa from 2019.

Yubileiny processing plant formerly had a processing capacity of 200,000 tpa. One line has been reconstructed to provide a crushing capacity of 100,000 tpa and the gravity and flotation section has a capacity of 200,000 tpa. The second crushing line will be commissioned when the Ulun deposit is started in 2019 and the concentrate from Krasivoye, Ulun and Perevalnoye will then be leached in the Yubileiny leach circuit.

Perevalnoye isa new open pit mine with a processing plant currently under construction. All the major equipment is already on site and plant commissioning is scheduled for 2016. The process plant will produce concentrate which will then be leached at Yubileiny process plant. Perevalnoe comprises several very high grade zones grading up to 40g/t and a lower grade halo which is planned to be mined and processed selectively, with the low grade treated at a heap leach. 20,000 tonnes of ore has been mined since November 2015 and stockpiled at an average grade of 37.8 g/t.

Malutka is an open pit deposit where gold is planned to be recovered via heap leach.

Tas-Yurakh complex comprises of five distinctive zones two of which scheduled for open pit mining and three are scheduled for underground mining. Two of the underground mines are extensions of exhausted open pits so the infrastructure already exists.

There area number of small gold placers which together produce 15,000oz of gold per year.

AZ's production in 2016 is expected to amount to 38,000oz and thereafter is expected to rise steadily to 127,000oz in 2020, with other AZ hard rock mines coming into production.

The gross assets of AZ at 31 December 2015 amounted to US$42.2 million. For the year ended 31 December 2015, profit before tax amounted to US$0.2 million. This information is extracted from unaudited management accounts of AZ.

A shareholder circular will be prepared by the Company for the purposes of, among other things, seeking shareholder approval for the transaction and will include, among other things, the audited financial information of AZ for the three years ended 31 December 2015, prepared under IFRS and in accordance with the Group's accounting policies, and a Competent Persons' Report relating to the mining assets of AZ.

The Relationship Agreement

The new Petropavlovsk shares will represent approximately 30.3% of Petropavlovsk's issued share capital immediately following closing of the transaction (assuming no issues or cancellations of Petropavlovsk shares after the date of this announcement).

It is expected that Petropavlovsk and the Contributors will at closing enter into a relationship agreement ('Relationship Agreement') to regulate the relationship between the Group and the Contributors so that the Group will be capable of carrying on business independently of the Contributors and for the benefit of the shareholders as a whole. The agreement will be prepared in compliance with the Listing Rules.

Conditions

The acquisition is subject to a number of conditions which include, inter alia, the preparation of a combined circular and prospectus and its approval by the UKLA, the approval of the acquisition by the Company's shareholders, the completion of due diligence by Petropavlovsk, the approval by the independent shareholders of the Company of a resolution approving a waiver to be agreed by the Takeover Panel of the obligation to make a mandatory cash offer under Rule 9 of the City Code on Takeovers and Mergers and the receipt of all necessary Russian regulatory consents. As separately described in Petropavlovsk's full year results announcement released today, Petropavlovsk is in constructive discussions with its existing bank lenders regarding obtaining their consent to a relaxation of covenants, and to amend the maturity profile.

Enquiries

Petropavlovsk PLC

Alya Samokhvalova

Grace Hanratty

+44 (0) 20 7201 8900

Maitland

Neil Bennett

James Isola

+44 (0) 20 7379 5151

Disclaimer

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE A CIRCULAR, PROSPECTUS OR EQUIVALENT. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES BASED ON THIS ANNOUNCEMENT. THIS ANNOUNCEMENT MAY CONTAIN 'FORWARD-LOOKING STATEMENTS'. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING (WITHOUT LIMITATION) THE TERMS 'BELIEVES', 'ESTIMATES', 'ANTICIPATES', 'PROJECTS', 'EXPECTS', 'INTENDS', 'AIMS', 'PLANS', 'PREDICTS', 'MAY', 'WILL', 'COULD', 'WOULD', 'SHALL' OR 'SHOULD' OR, IN EACH CASE, THEIR NEGATIVE OR OTHER COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY, OBJECTIVES, GOALS, FUTURE EVENTS OR INTENTIONS. BY THEIR NATURE, FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES BECAUSE THEY RELATE TO EVENTS AND DEPEND ON CIRCUMSTANCES THAT MAY OR MAY NOT OCCUR IN THE FUTURE OR ARE BEYOND THE COMPANY'S CONTROL. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE BASED ON ONE OR MORE ASSUMPTIONS. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND THE OUTCOME OF ANY DEVELOPMENT PLANS MAY DIFFER MATERIALLY FROM THOSE SUGGESTED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNOUNCEMENT. SUCH FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNOUNCEMENT SPEAK ONLY AS OF THE DATE OF THIS ANNOUNCEMENT. EVEN IF THE COMPANY'S ACTUAL RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND THE OUTCOME OF ANY DEVELOPMENT PLANS ARE CONSISTENT WITH ANY FORWARD-LOOKING STATEMENTS, RESULTS OR DEVELOPMENTS MAY NOT BE INDICATIVE OF RESULTS OR DEVELOPMENTS IN SUBSEQUENT PERIODS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATIONS OR UNDERTAKING TO UPDATE OR REVISE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, UNLESS REQUIRED TO DO SO BY APPLICABLE LAW OR REGULATIONS.

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Petropavlovsk Plc.

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CODE : POG.L
ISIN : GB0031544546
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Petropavlovsk is a gold producing company based in United kingdom.

Petropavlovsk holds various exploration projects in Russia.

Its main assets in production are POKROVSKIY RUDNIK, OMCHAK JOINT VENTURE and PIONEER ( RUSSIA) in Russia and its main exploration properties are MALOMIR and TOKUR in Russia.

Petropavlovsk is listed in United Kingdom. Its market capitalisation is GBX 5.0 billions as of today (US$ 5.9 billions, € 5.2 billions).

Its stock quote reached its highest recent level on December 26, 2008 at GBX 99.98, and its lowest recent point on May 20, 2022 at GBX 1.50.

Petropavlovsk has 3 303 769 000 shares outstanding.

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