Petropavlovsk demonstrated unlikable 1H2010 IFRS as expected

Petropavlovsk’s 1H2010 IFRS numbers came out bleak on the financial side, as anticipated, due to low production volumes, and will not cause any cheer. We regard the operational underperformance as more of a timing issue and expect a build-up in output toward year end. Malomir was launched in a timely fashion, marking the fourth asset now commissioned by the company. We are constructive on the stock in light of the market’s current frustration, as we have previously pointed out.

EBITDA arrived at a meager $51.8 mln in 1H10, marking a 55% y-o-y decline from $110.7 mln in 1H09 but in line with our estimate of $49.3 mln. The poor results came on the back of only 155 koz of gold sold during the period. Low grades processed at Pioneer and Pokrovsky also pressured the cost line, which led to total cash costs spiking to $538/oz in 1H10, up from $250/oz in 1H09 and $303/oz in 2H09, but below our estimate of $552/oz. Petropavlovsk posted a striking net loss of $55 mln, but this was due to a write- off related to the titanium sponge JV ($33 mln) and a high tax charge ($22 mln).

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