PETER HAMBRO (right) and Pavel Maslovskiy, from the company's 2007 annual report.

PETER HAMBRO (right) and Pavel Maslovskiy, from the company's 2007 annual report.


Peter Hambro's Double Act

Issue 129, June 2015

When Peter Hambro and Pavel Maslovskiy walk into a sandwich bar, they halve the cost of the sandwiches, a friend of Peter Hambro's says. “They do everything fifty-fifty.”

It is an endearing insight into a friendship that has built Russia's third largest gold producer and one of London's best known names in gold.

Hambro, the archetypal City grandee, was introduced to Maslovskiy, a former professor in plastics, by an adviser to Russia's parliament in 1994. The company they co-founded, Petropavlovsk (an amalgam of both their names) was on the brink of the FTSE 100 by 2009.

But having stepped up investment and increased debt from $19m to $800m two years later, just as gold peaked in 2011, the company was forced into a financial restructure that blew-out its share count from 196m to 3.3bn.

“Things went against us,” chairman Peter Hambro says. “I think the most positive thing that I can say is that when we did run into rather stormy waters, I and my Russian colleagues put our hands very deeply into our pockets to make certain that the company would continue.”

“We had a massive vote in favour of us from the individual shareholders, so while the chatrooms on the internet were hoping to see my body float down the river, I think shareholders had a different view.”

Steady State

Petropavlovsk's production in Russia has remained remarkably steady throughout the restructure, oscillating between 620,000 and 740,000 ounces per annum, whilst its average mine-life has climbed to 10 years, despite the company shelving plans to expand into refractory ore.

Net debt has dropped to $707m (down from a peak of $930m), but with cash costs running below $700 per ounce, the figure now looks manageable, highlighting a bizarre dynamic gripping Russian exporters.

Investors have dumped Russian exposure since the US slapped sanctions on the country last year, yet miners in the country are enjoying a massive margin uplift, thanks to a collapse in the Russian rouble and a drop in the price of oil.

“The strange thing is that during the whole period, from a commercial point of view, the business was going really well,” Hambro says.

The Rouble

85 per cent of Petropavlovsk's operating costs are priced in roubles, whilst its oil contracts, salaries and wages are all fixed for the year, says Maslovskiy, speaking from the company's operations in the Far East of Russia.

Maslovskiy resigned as a Russian Senator to rejoin the company as chief executive during its restructure last year and expects a 10 per cent drop in costs for 2015, on top of the exchange rate. “There is definitely a contrarian case to be made," one London-based broker says...

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