London — Three major shareholders are locked in a conflict over the control of Petropavlovsk, the company ranking in Russia's top five gold producers, putting its ownership and premium listing status at stake.
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The shareholders are: Prosperity Capital Management, which owns 20% of Petropavlovsk, Everest Alliance, with 7.5% stake, and Uzhuralzoloto Group of Companies, or UGC, which holds 22.7% of stake plus convertible bonds worth 5.97% ownership.
The suitors are circulating their appeals to Petropavlovsk's minority shareholders to vote for their nominees to be elected to Petropavlovsk's board at its extraordinary general meeting on August 10.
Prosperity Capital, which represents the interests of Petropavlovsk's founders and senior directors, said in a statement July 28 that it believes a group of self-interested shareholders, including Everest, are working behind the scenes to take over Petropavlovsk, without making an offer to other shareholders as required by law.
"These shareholders act in concert with one of Petropavlovsk's main competitors -- and its single largest shareholder -- Uzhuralzoloto (UGC)," Prosperity said in the statement.
UGC has recently announced its intention to increase its equity stake in Petropavlovsk to 27% through a bond conversion.
"Once this conversion is completed, Everest, UGC, and other related parties will own around 40% of Petropavlovsk's shares and are attempting to disenfranchise minority shareholders by taking control of the company without making a formal bid at a premium price," Prosperity said in the statement.
Prosperity has been frustrated with UGC's attempt to remove Petropavlovsk board directors, including the company's co-founder and CEO Pavel Maslovskiy.
"In their place, Everest and UGC installed their own hand-picked directors , creating a sympathetic Board designed to transfer control over the company to Everest and UGC," Prosperity said.
Concerns over shareholder returns
UGC's motivation for voting against several directors on the Petropavlovsk board was to primarily ensure the independence of the board and its focus on the core business and operational efficiency, a UGC spokesman said July 29.
Board composition changeover should help resolve the issues that have held Petropavlovsk back from achieving its potential, he said.
Petropavlovsk has some valuable assets but has historically underperformed with regards to cash returns and cost control, according to UGC.
UGC in 2019 generated $265 million operating cash flow versus Petropavlovsk's $95 million, the spokesman said, confirming UGC founder and CEO Konstantin Strukov's previous comments to Kommersant newspaper.
Comparing his company to Petropavlovsk, Strukov had said that UGC has lower production costs, although the company works with very low gold grades in ore, and has larger gold reserves.
"We have almost no debt load versus Petropavlovsk's $775 million debt including prepayments, and Petropavlovsk, being a public company, has never paid dividends in ten years," he said.
An Everest representative told S&P Global Platts that the alliance voted against certain Petropavlovsk board members as they were insufficiently focused on shareholder returns.
The gold company had been underperforming as the board had been pursuing the wrong strategy, said Everest.
The firm insisted that the management should be focused on making the company start paying dividends and taking it from FTSE 250 to FTSE 100 -- a share index of the 100 London Stock Exchange-listed companies with the highest market capitalization.
Everest has filed a complaint to the Panel on Takeovers and Mergers, a London-based regulatory body, concerning the behavior of Prosperity. Everest said it believes Prosperity is pursuing the purpose of keeping Petropavlovsk in the hands of its founders, even though the company's shareholders want them removed for performance related reasons.
Gold price invigorates merger interest
From the look of things, UGC may attempt a reverse takeover of Petropavlovsk, Artem Bagdasaryan at Moscow-based BCS Global Markets told Platts.
In a reverse takeover, a private company buys enough shares to control a publicly traded company. This type of merger enables the private company to become publicly-traded without resorting to an initial public offering, or IPO.
Gold price, which has this week reached an all-time high of $1,980/oz, also has a role to play in driving this pursuance of consolidation, Bagdasaryan said.
The merged company will be Russia's third largest gold producer after Polyus and Polymetal, he said.
"It is not clear what will happen with Petropavlovsk's assets though; we cannot say now whether the new owner will integrate them all in its business or sell some keeping mainly Petropavlovsk's most valuable facility -- the pressure oxidation, or POX, hub, in the Amur region in Russia's Far East," said the analyst.
UGC has previously failed twice to float its shares, blaming it on terms regarding discounting of Russian gold mining companies. The company had said that the share price expected through listings did not reflect the fair value of its business.