Peter Hambro Mining: New Gold Star?

The Times December 28, 2005

Pillar of British Establishment strikes gold investing in Russia
By Peter Klinger
Peter Hambro, head of the eponymous miner, is unfazed by political uncertainty in the former Soviet state



IT HAS been an exceptional Christmas for Peter Charles Percival Hambro, scion of the eponymous City banking family and co-founder of Peter Hambro Mining (PHM), Britain’s biggest home-grown gold producer.
The world gold price traded above $540 an ounce for the first time in 24 years this month. PHM’s shares followed suit, peaking at a record 899½p, valuing the company at £710 million. Around the same time, Hambro was appointed a non-executive director at SG Hambros, the private bank founded by his forebears in 1839 and now owned by Société Générale, of France.



Finally, a pair of Hambro’s watercolour paintings — a hobby — sold for £4,500 at a charity auction during PHM’s Christmas party two weeks ago. Admittedly, the buyer was from Canaccord Capital, one of PHM’s house brokers.

An Old Etonian, a regular at Royal Worlington & Newmarket Golf Club, member of White’s Club and a keen hunter, and with offices overlooking Buckingham Palace’s garden, Hambro thrives on his Establishment roots. Speak to people who know or have dealt with him and they will invariably describe a man of immense energy; a lover of the limelight; a born marketer; gregarious; self-confident, if not arrogant; sometimes pompous, yet at home swilling vodka with mine workers in far-eastern Russia.

Undisputed, however, is that Hambro has succeeded in building the third-biggest gold producer in Russia. It is one of the most valuable companies listed on the Alternative Investment Market. Hambro is as at ease in Blagoveschensk, the regional capital of Russia’s Amur state, where PHM has most of its assets, as he is in the City, where blue-chip investors, including Merrill Lynch Investment Managers, Artemis Investment Management and Threadneedle Investments, have been keen supporters.

The surge in the gold price over the past four months has helped, but investors have also reacted to PHM’s ability to deliver on its promise, unlike its AIM-listed, Russia-focused rivals such as Highland Gold Mining or Celtic Resources. Charles Kernot, an analyst at Seymour Pierce, rates PHM as his top AIM gold tip. John Meyer, at the rival broker Numis Securities and one of the most bullish followers of PHM, has a £10.45 share price target.

PHM’s shares have dipped below 860p over the past few weeks, in line with the profit-taking that has sapped gold’s strength and seen bullion fall to $500/oz.

However, Hambro remains undeterred. Having already seen his 2004 forecast of gold above $500/oz come true, he is now expecting $650/oz within the next two years. “There’s no simple answer, but there are a number of factors that will affect prices, including a lack of gold production and uncertainty about economic stability; not just literal economic stability, but factors such as avian flu or terrorism that influence world conditions,” he says.

Gold traditionally is seen as an investable hedge either against the US dollar or inflation. Commentators increasingly are describing gold as a hedge against issues that need to be hedged.

PHM is a pure gold producer, traditionally the preserve of South African or North American producers such as AngloGold Ashanti or Newmont Mining. Its most distinctive achievement is that this London-based company has made a success out of investing in Russia.

At a time when political uncertainty remains the biggest stumbling block for prospective investors in Russia, PHM has demonstrated an ability not only to operate in geographically difficult conditions — the flagship Pokrovskiy mine is more than seven hours’ flight east of Moscow — but also to allay investor fears that land title to its numerous assets is under threat.

Like the few other Westerners who claim to have cracked the problems of investing in Russia, Hambro’s philosophy is to find a Russian partner — in this case, Pavel Maslovsky, a former university professor who has embraced capitalism — to work closely with local authorities and abide by local rules. Amur’s deputy governor is a close ally. Not surprisingly, Hambro is dismissive of the risk issue and believes that the country should be treated no differently from an investment standpoint than South Africa.

“I put my money in 11 years ago and I have just put in a bunch more,” Hambro, who spends more than a month a year in Russia, said.

The new “bunch” of money went into iron-ore prospects, also in the Amur region, that were acquired by Hambro and Maslovsky. The duo have invested heavily in Amur, not just through PHM (Hambro’s 6.6 per cent PHM stake is worth about £45 million and Maslovsky’s 23.5 per cent holding is worth £160 million), but also in a personal capacity, which has seen them pick up timber assets, a former military fuel depot and a titanium dioxide project, the basis of the AIM-listed Aricom. Other Russian assets include a share in a regional bank network and commercial property.

Hambro has had his critics since since he floated PHM on AIM in April 2002 at 130p. As one observer said: “It’s one thing to name the company Hambro Mining, but Peter Hambro Mining raised a few eyebrows. I mean, what’s wrong with Far-East Gold, or Amur Mining or something more generic?” There are also continued concerns about corporate governance at PHM. Four of PHM’s eight directors are from the Hambro and Maslovsky families. Hambro is executive chairman, while Jay, one of his three sons, is business development director. Another son, Evy, is a fund manager at Merrill Lynch, one of PHM’s biggest shareholders, while Leo is trying to float his father’s timber assets. Maslovsky is deputy chairman and his son, Alexei, is executive director and treasurer.

Another observer said: “I know a fund manager who really likes PHM’s assets, but won’t invest because of the board set-up.”

An unrepentant Hambro points to the presence of Sir Rudolph Agnew, once chairman of Consolidated Goldfields, as his senior non-executive director. PHM’s investors seem unperturbed, no doubt delighted at the strong share price performance.

Hambro’s work with PHM is far from done. The company is expected to produce about 246,000 ounces of gold this year, at a cash cost of about $150/oz, and remains on track to reach its target of a million ounces a year by 2009. As one of PHM’s corporate advisers puts it, that is about $500 million (£290 million) of gold produced in one year if the 2009 target is met.

Rudimentary, maybe. Possible, certainly.

Steppes on a pioneer path from the City

PETER HAMBRO has spent most of his working life in the City, starting with Hambros Bank in 1966 before joining Smith St Aubyn & Co, the discount broking and banking firm.

In 1983 Hambro joined Mocatta & Goldsmid, the world’s biggest gold bullion traders, and rose through the ranks to become deputy managing director.

When he left Mocatta & Goldsmid in 1990, he set up Peter Hambro plc as a mining finance house.

The collapse of the Soviet Union presented exciting opportunities for Hambro, who had established a business network through previous roles in the region.

His real break came in 1994, when he meet Pavel Maslov-sky, a former professor at the Moscow Aircraft Technology Institute. Maslovsky owned the Pokrovskiy gold deposit in the Amur region of Russia. Hambro took an equity stake, with a promise to develop Pokrovskiy into a mine and list the resultant company in London.

Pokrovskiy’s big, opencast goldmine sits amid a largely barren landscape, surrounded only by pockets of birch trees, which are felled to provide building materials and fuel.

The huge Pioneer gold deposit is just over 30km (18.6 miles) from Pokrovskiy. At this time of year the temperature can fall as low as -30C.