Petropavlovsk PLC 11 Grosvenor Place T +44 (0)20 7201 8900 London [email protected] SW1X 7HH www.petropavlovskplc.com ANNUAL REPORT 2020 UNLOCKING VALUE DRIVING IMPROVEMENT ANNUAL REPORT 2020 CBP00019082504183028 Designed and produced by Thoburns Communications www.thoburns.com Petropavlovsk Annual Report 2020 1 CHAIRMAN’S STATEMENT MR. JAMES W. CAMERON JR. Dear Shareholder a temporary adverse impact on the group’s These are the first set of annual results as financial position and operations. The actions the Chairman of your company and it has have however resulted in unnecessary delays obviously been an unusual and, at times, and unavoidable expense. The board has challenging year. I am pleased to say, that sought to address these. we are now in a significantly better place and able to focus on running the company Despite the challenges initially faced by the efficiently and providing improved returns for current board, I am pleased to report that shareholders. there has been a significant improvement in the situation, following key changes in the past CORPORATE TURBULENCE six months. During 2020, the company underwent a period of substantial corporate turbulence. At the RGM 84% of the votes cast were At the 2020 AGM, a majority of shareholders in favour of Resolution 19, which required voted against the election or re-election the board to commission an independent of seven out of the eleven members of forensic investigation into certain dealings by the board. This vote was an expression of the group’s management. As discussed in dissatisfaction among major shareholders with more detail below, the company has engaged the then current board and the company’s KPMG LLP to conduct this investigation and management. the board will update shareholders on the outcomes. On becoming aware that shareholders had voted against their remaining in office, the In December 2020, the company’s co-founder outgoing directors determined to appoint a and former Chief Executive, Pavel Maslovskiy, “ number of temporary directors, seemingly to was arrested in Russia on a charge of I am pleased to say, avoid the four directors whose appointment embezzlement widely reported as relating had been confirmed at the 2020 AGM to transactions involving certain assets of that we are now in a having control of the board. The validity of the group. These proceedings continue. We the temporary directors’ appointments, the have offered to cooperate with the Russian much better place. motivation for them, and whether the outgoing authorities in their investigation and will provide directors breached their fiduciary duties to such assistance as required. We are able to focus the company became the subject of litigation before the English courts and, at the request Despite the unprecedented action to prevent on improving the of the former Chairman, the Takeover Panel the proper exercise of shareholder rights and started to investigate the potential that parties the waste of the company’s valuable time company in all were acting in concert. In April 2021, the and resources which ensued, I am pleased Takeover Panel determined that there was to report that the company is in the process aspects, resulting in insufficient evidence to conclude that any of comprehensive strategic and governance parties were acting in concert. overhaul. These initiatives are intended to better returns for benefit all stakeholders and we anticipate that “ On 10 August 2020 at an RGM convened by they should demonstrate visible results in the stakeholders. the board under the control of the temporary near term. directors, the company’s shareholders rejected all resolutions designed to return directors MANAGEMENT CHANGES previously removed. As a consequence of the On 30 November 2020, we announced the RGM, the board was re-constituted to include appointment of Denis Alexandrov as CEO. only those four directors whose appointments He is ideally qualified and experienced for this had been confirmed at the 2020 AGM. demanding but rewarding role and we were James W. Cameron Jr., extremely pleased to recruit him. There is more From that point onwards during 2020, the on Denis’s appointment on pages 87, 97 and Chairman board encountered a lack of co-operation 100. from key employees and ex-employees. The company’s subsidiaries appeared to have Under Denis’s leadership, a number of key been instructed to withhold documents senior executive appointments have been and operational data and to disregard the made. These changes are critical to delivering board’s instructions. In addition, some of more efficient performance and an improved the outgoing directors had orchestrated the working culture. alteration of constitutional documents of key operating subsidiaries in Russia in a manner The new senior management and the board designed to impede the board’s control over have commenced a thorough review of the the group. The company’s efforts to rectify business. The review includes simplifying the these changes were obstructed by employees corporate structure, improving operational and ex-employees who launched litigation in efficiency, introducing new management and various courts in Russia, which had no legal financial systems and a fundamental review basis. The senior employees involved in this of the group’s culture, human resources and litigation in Russia have now left the group and sustainability. It is likely that as part of the all proceedings have been concluded in the review we will reset many of our metrics, group’s favour. targets and standards during 2021. The outcome of this review is expected to be Overall, the events of autumn 2020 had only published later in the year. 2 Petropavlovsk Annual Report 2020 STRATEGIC REPORT BOARD AND GOVERNANCE and only minor disruptions to supply and benefit of higher gold prices, over which we We have previously committed to expanding logistics, most visibly in the supply of third- have no control. the board which was not an appropriate party concentrate. size for a FTSE-350 company listed on the During 2021 we will continue to focus on London Stock Exchange. We were delighted COVID-19 has however had a significant strengthening the group’s balance sheet, to announce the appointment of Mr. Malay impact on how we work, including changes to both reducing debt and reducing the cost of Mukherjee in August 2020 and of Mr. Mikhail shift patterns, quarantining for employees and debt. Management has indicated that they Irzhevsky in April 2021. We now have a visitors from other regions, the consequent will seek to settle the outstanding gold pre diverse and experienced board of six, three of need for additional accommodation, frequent pay contracts, which stood at c.US$64 million whom have been appointed since the August testing and, more recently, the roll-out of a at year end, converting these to a standard 2020 RGM and, including me as Chair, an vaccination programme. credit line. Work has also commenced to independent majority. refinance the US$500 million of 2022 notes The CEO has set some key tasks for 2021 with the aim of reducing the size and servicing Our company bridges the differing systems, including an improvement in working and cost of the group’s debt. cultures and traditions of the United accommodation conditions for employees Kingdom and the Russian Federation and and a fairer and more transparent The board acknowledges the importance of has responsibilities in both jurisdictions. remuneration system. This has the board’s dividends as the primary source of returns Petropavlovsk is one of a small number of full support, recognising the continuing to shareholders. Having achieved a stronger Russian-based companies with a listing on commitment of our 8,860 employees and financial structure, the board is committed the London Stock Exchange and Moscow ensuring they remain appropriately rewarded to maintaining an appropriate balance Exchange and stands apart from many and incentivised. between cash returns to shareholders and Russian natural resources companies by the investment in the business, with the intention diversity of its shareholder register. We have respect for the environment in of maximising long-term shareholder value. which we operate and the communities As mentioned above, in November 2020 the impacted by our operations. We recognise Going forward, at the end of each financial board appointed KPMG as an independent our responsibility to minimise any impact period, the board hopes to be able to forensic investigator, relating to Resolution on biodiversity by ensuring wildlife and local determine an appropriate total level of ordinary 19. KPMG’s investigation into transactions habitats are protected through all stages of dividend per share. This will take into account with related parties is ongoing, occasionally mine life. In addition, we fully acknowledge the results for the financial year, the outlook slowed by difficulties in obtaining access to the impact of carbon emissions on climate for gold, the board’s view of the long-term relevant records and data sources. Their change and the need to address this on growth prospects of the business and the early work suggests that there appears to a global scale, and are putting systems company’s objective of maintaining a strong have been a broad acceptance of individuals in place to manage and reduce our GHG balance sheet. personally benefiting from corporate emissions. Further details are provided in the transactions, which was assisted by weak sustainability review on pages 37-38. SUMMARY controls and an accepting corporate In our Interim Results, I mentioned that we culture. KPMG and management have The period since the RGM has been a believe Petropavlovsk has historically failed already identified a number of potentially challenging one, combining continued to deliver value to its shareholders and concerning arrangements, with a value of at governance disruption and the COVID-19 employees, despite excellent assets and least US$134 million, involving undisclosed pandemic.