Peter Hambro Mining
05/10/2006
 With production rising, and un-hedged, Peter Hambro Mining (POG) offers excellent leverage to a robust gold market. Recent full year results confirm that the Russian miner is marching steadily towards an annual production target of 1 million ounces. Although costs are rising, we expect margins to grow as gold prices rise ever faster.
Peter Hambro's gold production rose nearly 20 percent to 249,000 ounces last year. Now a quarter of the way there, management are confident of achieving a one million ounce annual production target by 2009.
Although production rose markedly, profits were adversely impacted by an industry wide phenomenon - rising costs. Wages, fuel, energy and plant consumable bills all rose. The group also invested heavily in equipment. As a result pre-tax profit fell 8 percent to US$19.19 million, despite a 33 percent increase in turnover to US$114.5 million. Whilst inflationary pressures are unlikely to abate on the cost side, we are confident that margins will grow as the rally in gold continues.
The mainstay Pokrovskiy deposit remained Russia's most efficient major gold mine. Cash operating costs rose 17 percent, but remain impressive at just US$125 an ounce. Gold production increased 21 percent to 185,700 ounces on the back of higher ore quality and infrastructure improvements.
The Omchak joint venture produced 51,600 ounces last year. Production and reserves received a boost from the acquisition of two exploration and mining licences in the Chita region of Russia. Meanwhile, an independent audit of reserves and resources at the Pioneer deposit resulted in total estimates increasing 14 percent to 2.2 million ounces.
Exploration activity is showing much promise highlighted by the prospects in the Yamal region of eastern Russia. Mining consultants SRK believe the deposits contain more than 5 million ounces of gold.
With gold reaching fresh 25 year highs, a key attraction of Peter Hambro is a lack of forward hedging. This increases leverage to a rising gold price. As at year end reserves and resources stood at 102.3 million ounces. Fat Prophets retain a long term bullish outlook for gold, believing that the precious metal will trade beyond US$1,000 in time. This positive backdrop bodes well for Peter Hambro in the years ahead in our view.
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