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The sale by Petropavlovsk PLC of its 29.9% shareholding in IRC Limited
In March 2020, Petropavlovsk PLC (“Petropavlovsk”), in which JSC Uzhuralzoloto Group of Companies (“UGC”) holds a 29.19% voting interest, entered into an agreement (the “Agreement”) with Stocken Board AG (“Stocken”), a Liechtenstein-incorporated investment company, which set out the terms on which Petropavlovsk would sell to Stocken a c.29.9% shareholding in IRC Limited (“IRC”) for U.S.$ 10 million, subject to certain conditions precedent being met (the “Proposed Transaction”).
According to one of the conditions precedent, following the consent of Gazprombank ("GPB") to the Proposed Transaction and the Agreement becoming binding, Petropavlovsk’s Board has to determine whether the Proposed Transaction should be approved by the holders of the Company's U.S.$500,000,000 8.125% Guaranteed Notes due 2022 (the “Bonds” and “Bond Holders”) or whether such approval is not required based on an independent expert opinion that the terms of the Proposed Transaction are fair from the financial standpoint (the “Opinion”). In May 2021, Petropavlovsk announced that GPB had consented to the Proposed Transaction and the Agreement had become binding. At the time the Agreement became binding the market value of the Company’s stake in IRC was worth significantly more than U.S.$10 million (and closer to U.S.$100 million).
UGC announces that it does not consider that completion of the Proposed Transaction is consistent with Petropavlovsk’s business interests and that Petropavlovsk should therefore seek the approval of the Proposed Transaction by the Bond Holders.
UGC believes that due to logistical benefits, the location of its production assets and the overall outlook on the iron ore market, IRC has a strong potential for growth, and that the U.S.$10 million cash consideration under the Proposed Transaction does not represent its fundamental value, especially given that the market value of the Petropavlovsk's stake in IRC around the time the Agreement became binding was worth more than U.S.$100 million.
It is also expected that, as a part of the consideration under the Proposed Transaction, Petropavlovsk would be released from its loan guarantees given to GPB under the facility agreements signed between Kimkano-Sutarsky Mining and Beneficiation Plant LLC (a subsidiary of IRC) and GPB in December 2018. According to UGC’s analysis, the improved financial performance of IRC and forecasted iron ore prices for 2021 should allow IRC to repay its debt on time under the facility agreements in Q4 2021. In that regard, the early release from the loan guarantee obligations cannot be regarded as material consideration for the sale of a strategic share in a financially viable company.
UGC believes that the Bond terms are ambiguous in relation to the terms on which the Opinion should be prepared. Therefore, even if Petropavlovsk were to receive an Opinion concluding that the Proposed Transaction is fair from a financial standpoint, UGC believes that this would not remove the obligation of the Board to seek the consent of the Bond Holders and that this remains the most prudent path that Petropavlovsk should follow.
There is currently no indication that Bond Holders will be consulted in respect to the Proposed Transaction. UGC therefore calls upon the directors of Petropavlovsk, the Bond Holders' Trustee and Bond Holders to convene a Bond Holders’ meeting to consider whether the Proposed Transaction is consistent with Petropavlovsk’s interests and should be completed.