Peter Hambro
12/15/2004
 Gold miner Peter Hambro Mining (POG) has seen its shares re-rated over the past three months in response to the surging gold market. The company's operations focus on Russia where it owns the Pokrovskiy mine, in addition to a large portfolio of exploration assets and joint ventures. We regard Hambro as a low cost and well reserved gold miner, offering investors significant leverage to the rising price of bullion. The miner has reserves totalling 55 million ounces, with further upgrades pending.
The company has performed impressively in 2004 with gold production at Pokrovskiy, rising by 26 percent in the first six months of this year, while cash costs fell by 5 percent. We are pleased that Pokrovskiy remains on target to produce 144,000 gold ounces in 2004 with a 50 percent capacity upgrade due to be fully operational by mid 2005.
We are heartened that POG is investigating further capacity upgrades to take advantage of the significant gold reserves at Pokrovskiy and the nearby Pioneer deposit. These two deposits will be instrumental if POG is to reach a massive annual production target of 1 million gold ounces by 2009.
The company is actively assessing the full potential of the Pioneer mine. We believe the grade and reserve potential at the deposit may substantially improve after recent encouraging drilling intersections. In our opinion, Pioneer will develop into a high grade, strongly reserved, stand-alone operation. Hambro has already transported the first batch of high grade ore from Pioneer, to the Pokrovskiy mine for processing. We expect this will allow Pioneer to contribute around 24,000 gold ounces to group production in the 2004 year.
The company's 50 percent share of gold production at the Omchak mine increased 12 percent to 12,540 ounces in the fist half of the year. Second half production is expected to be significantly stronger with Hambro's forecasted share of production for the full year at 36,000 ounces
POG also controls a number of other highly prospective Russian gold deposits (Ametistovoye, Chagoyansk, Malomir, Novogodnee Manteau, Tokur and Voroshilovskoye). This effective land bank gives POG substantial exposure to the improving profile of the Russian gold industry and a rising gold price. We are pleased with the partnerships POG is developing in the region through various joint ventures. Looking forward to 2005 we expect Peter Hambro to become an increasingly active participant in the consolidation of the local gold sector.
Gold recently breached US$450 an ounce, the highest level since June 1988. Gold strength has been driven by geopolitical tension (as investors revert to defensive assets) along with a weakening US dollar (with which gold has historically moved inversely). Although the price has since fallen back below US$450, we believe the key factors behind gold price strength will drive further gains in 2005. In our view gold is in the early stages of a bull market, and we believe strongly reserve miners such as Peter Hambro stand to benefit significantly.
We believe that capacity upgrades at Pokrovskiy and the strong likelihood of a standalone operation at Pioneer will drive robust earnings growth from 2006-2009. We are also heartened by a recent report from independent consultants that Hambro's current reserve estimates at Pokrovskiy are conservative. At current levels we do not regard Hambro's valuation fundamentals as excessive, with a 2004 price earnings multiple around 18 times along with a 1 percent yield.
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