Peter Hambro Mining (POG)
04/25/2005
 Last week Peter Hambro Mining (POG) released results for the year ended 31 December. Turnover increased 58 percent to US$85.5 million while operating profit rose an impressive 65 percent to US$22.7 million. In our opinion the latest result emphasises Peter Hambro's position as a low cost gold miner, with a rising production profile, and significant leverage to the price of bullion.
The highlight of the result was a 40 percent increase in gold production to 209,000 ounces. A robust operating performance along with strength in bullion combined to boost liquidity, with net operating cash flows rising 74 percent to US$20.5 million.
Production at Peter Hambro's core Pokrovskiy mine increased by 27 percent to 154,000 ounces. Higher volumes at the mine have been driven by last October's 50 percent capacity upgrade which has increased through-put potential to 1.5 million tonnes per annum. The company is planning a further plant upgrade which will raise annual through-put to 2.2 million tonnes per year from 2006. This year the group expects gold production to rise by 15 percent to 176,800 ounces.
Excellent progress continues to be made at Peter Hambro's 10 million ounce deposit at Pioneer. Management reports that the quality of ore grades from trial mining has been very promising. Encouragingly the company is confident that the deposit can achieve recovery rates similar to Pokrovskiy.
We remain impressed by the ability of Peter Hambro to secure quality exploration licenses in highly prospective areas. In February, POG was successful in the auction of the Malomir gold property in the North East of the Amur region. POG paid around US$790,000 for the license which is estimated to contain 4.5 million ounces in resources. The deposit will be a key development target with a feasibility study planned for early 2006.
In the interim we look forward to the completion of full feasibility studies at Pokrovskiy and Pioneer. Management believes that capacity upgrades could boost annual output to 1 million ounces of gold by 2009. Nearer term the company is targeting 2005 attributable gold production of 271,000 ounces.
We continue to have a bullish view of gold prices and as such we regard Peter Hambro's valuation fundamentals as undemanding. Currently POG trades on a 2005 price earnings multiple of 18 times and yields 1 percent.
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