Peter Hambro Mining
Peter Hambro Mining Plc is the second biggest gold producer in Russia, with attributable gold production in 2007 of c.297,300 ounces, and it one of the lowest cost producers worldwide with a cash operating cost of approximately US$143per ounce at the end of 2007.
The Group’s principal mining activities are located in the Amur Region. Other regions in which the Group is active include Yamal, Buryatiya, Magadan, Sakha, Chita and Irkutsk.
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There is never a dull moment for shareholders in Peter Hambro Mining
There is never a dull moment for shareholders in Peter Hambro Mining (LSE, POG). Having announced a merger with cash rich iron ore producer Aricom the company is poised for a move from the AIM to the Official List and the increased profile that goes with it.
If there was a time to be conducting an all-share merger with an iron ore company his would be it. Having seized on depressed asset prices Hambro has now become a key protagonist on the Russian mining scene. The addition of Aricom will enable the miner to implement its existing strategy of pursuing near term growth of gold production while allowing for the development of Aricom's large iron ore assets once project finance and iron ore markets recover.
Furthermore, the company is set for a move from the AIM to the Official LSE list on the 22nd April. In our view this can only be a good thing. The company will now be picked up on an increasing number of investors’ radars and the liquidity in shares will be increased.
However with the appeal of US Treasury bonds waning and quantitative easing (i.e the Fed’s purchase of US$300 billion Treasuries) kicking on, the threat of inflation and an accelerating gold price has never been so prevalent.
With this in mind, Hambro’s robust accelerating gold production levels provide reason to cheer in the immediate term.
Amidst all recent corporate activity, the company has managed to release expected gold production numbers for the period up to 2012. The company achieved a stellar 36 percent jump in production in 2009 and this could well be matched this year. Indeed, management are targeting 460,000 - 510,000 ounces for 2009.
Looking further ahead, the company has provided two production plan development scenarios for the years up to 2012. In the worst case or ‘low case’ the group anticipates production of 685,000 ounces in 2010, 793,000 ounces in 2011 and 855,000 ounces in 2012.
Meanwhile on the more positive side management have suggested these figures could be slightly higher at 769,000 ounces in 2010, 903,000 ounces in 2011 and 1,021,000 ounces in 2012. Give that management have the ‘knack’ of over achieving pre stated aims, this augurs well for the years ahead.
Russia has always carried with it potential pitfalls such as resource nationalism but in Peter Hambro we have an established player with elevated levels of corporate governance. Production is flying ahead whilst the company remain one of the lowest cost producers around at US$215 per ounce during the opening half of 2008.
From a valuation perspective, we see the prospective price earnings ratio of just over 4 times as highly undemanding and at a time when the appeal of keeping money on deposit is waning the shares are supported by a dividend yield of 3.3 percent.
