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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (36612)	5/6/2009 9:53:54 AM
From: LoneClone	Read Replies (1) \| Respond to of 195650

The Newly Completed Merger Between Peter Hambro Mining And Aricom Makes Sense In Both Russia and China By Charles Wyatt minesite.com The Russians should really give Peter Hambro the Order of Lenin, or whatever the highest Russian honour is these days. He's spoken up for the country through thick and thin. It goes without saying that Russia is not the easiest country in which to operate as both Highland Gold and Celtic Resources found to their cost. Highland Gold suddenly discovered, a few years ago, that most of its underground equipment was being claimed by a Russian entity, while Celtic Resources was acquired by Severstal after a long drawn out campaign that certainly did not conform to the Queensberry rules. Throughout all that time Peter Hambro Mining has soldiered on, but from early on the company has had the advantage of a Russian partner with enough muscle to keep the oligarchs and bureaucrats at bay. Back in 2004 Peter Hambro Mining spun-off Aricom - again with the same Russian partner involved - onto the AIM market. At that time the company’s only asset was the Olekma titanium project. Since then Aricom, under the guidance of Jay Hambro, has grown apace so that its assets now include the Kuranakh titanomagnetite project where mining has started. It also has two advanced iron ore projects – K & S where a pre-feasibility study has been carried out which demonstrates both the ability of the project to operate and its economic potential, and Garinskoye where a scoping study estimates approximately US$2 billion of net present value. Now Aricom and Peter Hambro are coming back together again. The deal is an all-paper transaction and the enlarged Peter Hambro Mining will advance from the AIM market to the Official List of the London Stock Exchange. This move will have two immediate advantages. First, its size will gain respect from the Russians and it is unlikely to encounter much interference with its operations and second, the FTSE index committee is expected to enter the company on the FTSE 250 index at its meeting scheduled for June. The market capitalisation combined with good liquidity and sufficient free float for a full weighting should bring in some new institutional investors. Ironically, therefore, this merger with a non-gold company should help to increase the visibility of the new company in the gold sector as it is already in the prestigious FTSE Gold Mines Index. And that is the sector, thanks to the chaos in the world’s finances and China’s very sensible plan to buy ever more gold assets, which looks like flourishing for some time to come. Simultaneously with the completion of this deal Peter Hambro Mining announced its preliminary results for 2008 which showed production increasing by 36 per cent to 393,600 ozs gold, at the upper end of the target given earlier in the year of 350-400,000 ozs. It may seem a little snide at this stage to remind readers that back in January 2004 Peter Hambro and his Russian colleagues ran a workshop for analysts at which a target was set to reach production of 1 million ounces by 2009. It seemed ambitious at the time given that production at the time was 250,000 ozs, but a week earlier a number of analysts from institutions including JP Morgan, Citibank and Merrill Lynch visited the Pokrovskiy operations. “They were very happy with what they saw“, said Peter Hambro, “and appeared satisfied that the target would be reached.” Perhaps this gave an insight into analysts being told what they wanted to hear and a promoter wanting to raise the bar for any mid-tier producer contemplating a bid. In some ways the 2008 results were a bit of a disappointment to investors as the final dividend was cut. The reason for this was the need to conserve cash, which is fair enough and the pill was sweetened with assurances that Peter Hambro and Pavel Maslovskiy would take a 50 per cent cut in their bonuses. It also reflected the fact that although EBITDA rose by 53 per cent to US$136 million, earnings took a hit from non-cash items and other costs totaling US$98 million and fell from US47.6 cents to US27.1 cents. These non-cash items consisted of foreign exchange losses, higher depreciation and a fair value adjustment of derivatives, while other costs rose due to higher wages and increased interest payments. Not too much should be read into all this as it is usual to give the stable a fair old clean out at the time of a deal such as this. Looking ahead there is plenty of room for encouragement. In 2008 the average gold sales price was US$845/oz, whereas this year the price has been well into the US$900s, and even the more pessimistic analysts in the annual competition run by the London Bullion Market Association reckon it should average US$881/oz for the year. In addition to this production is bound to rise as operations at the Pioneer mine enter their second stage this year, adding to that from Pokrovskiy. Meanwhile at Malomir the recent discovery of non-refractory ore means that the anticipated spend on a recovery system is postponed while early production from the Quartzitovoye ore body continues. As to costs, benefits from a weaker rouble, lower energy prices and a slowdown in inflation were being felt toward the end of 2008 and should continue this year. From a car on the way to the airport to return from Moscow, Peter Hambro points out that there is another bit of logic behind the deal which the market does not seem to appreciate. Aricom was not on the Chinese radar screens, but the enlarged Peter Hambro Mining certainly is. This was borne out during a recent visit to Beijing when it was made clear that off-take agreements and help with development funding were now on the table. Aricom’s iron ore deposits are close to the Chinese border - much, much closer than the ports on the north coast of Australia.