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Petropavlovsk to raise US$300 mln through convertible bond issue

Petropavlovsk (LSE: POG) is set to raise US$300 million through the issue of senior unsecured convertible bonds due 2015, paying a coupon of 4%, to institutional investors. The bonds will be convertible into Petropavlovsk shares representing approximately 7% of the company’s issued share capital.

The company intends to use the proceeds to progress its exploration and development projects and provide flexibility for future corporate activity.

The board believes that despite the potential dilution, the convertible bond issue is in the best interests of shareholders as enables the company to fund the next stage of its development at a relatively low cost. On the London Stock Exchange the company’s shares were down 6%, trading at £9.77 per share on Friday afternoon. Petropavlovsk had dropped to an intraday low of £9.50 earlier today.

The bonds conversion price has been set at £12.9345, representing a 32.5% premium to the volume weighted average price between launch and pricing. The conversion of bonds representing more than 5% of the current issued share capital will only be physically settled if approved by shareholders at an extraordinary general meeting in February.

Petropavlovsk said it decided to increase its financial flexibility, due to recent corporate activity and significant development opportunities.

The precious metals miner reduced its net debt to US$24 million as at 31 December 2009 from US$389 million at the end of 2008. Yesterday, the company announced its 2009 capital expenditure guidance to US$200 million. Petropavlovsk said its development programme is central to maintaining an increasing production profile.

Disclosure: The author holds no positions in the company