OREANDA-NEWS. July 26, 2010. Petropavlovsk announced that it has won an auction for gold exploration and mining rights in the Amur region. The resource and reserve base of that region is estimated at about 3.5million ounces, with the sites located near the largest (Olimpiadninskoe) deposits of Polyus Gold, reported the press-centre of OTKRITIE Financial Corporation.

A license for the Pioneer site at the Petropavlovsk deposit in the Amur region was also secured.  A conditional agreement was entered into with Asia Resources Fund (through a wholly-owned subsidiary), a JV between Cheung Kong Holdings and the Canadian Imperial Bank of Commerce for an equity investment of \\$60m into the Group's non-precious metals division. Petropavlovsk’s Board of Directors continues to explore strategic options for its non-precious metals division, including a possible listing on the Hong Kong Stock Exchange.

View: We see this event as positive for Petropavlovsk stock. As forecast in an announcement in March 2010, due to planned pre-stripping works at Pioneer, 1H10 production was 35% lower YoY, dropping to 166,300 oz. However, management anticipates a rebound in output in 2H10.

Valuation and Action: At present, we do not cover this stock, which trades on a 2010 EV/EBITDA of 7x, compare to 9.8x for global peers. Petropavlovsk trades on a 2010P/E of approximately 11x, while global peers trade at 21x.