How Peter Hambro Built Russia's Second-Largest Gold Miner

Date 15/07/2008

The Right Side

Erin-And-Isabel

Russia contains so much of the world’s unexploited mineral resources. All resource companies want to be there. Some manage, some don’t. Often it comes down to whether or not they remember the old proverb: He who sups with the Devil should have a long spoon!

BP’s Peter Sutherland must cry his heart out when he looks at Peter Hambro. The chairman of the world’s third largest global energy company is being forced to watch the Russians turn its Russian joint venture, TNK-BP, into a patsy. Yet the equally foreign Peter Hambro seems to find building his group into Russia’s second largest gold miner a doddle. Not only that, but the family is turning into a positive dynasty! Hambro’s son Jay is also successfully operating a Russian miner — quoted iron ore company Aricom. Investors have to ask what is going on here!

"What I say to people is that you have to remember where you are now, where you want to be and how you hope to get there," the tall, patrician old Etonian Hambro was recently quoted as saying. The important bit is the last one — how!

Hambro’s long spoon

What Hambro has done is find his long spoon, in the form of Dr. Pavel Maslovskiy. Before Maslovskiy, Hambro was not having such success.

Hambro has a long history in Russia. Yet, officially, company history begins when Maslovskiy formed OAO Pokrovskiy and obtained a licence for its exploration and exploitation in 1994. Right from the start he was a founding shareholder and a director of the gold miner.

During the 1990s and the early 2000s the company obtained more licences, an AIM flotation and a Western shareholder list. It successfully fought off an attempt by Russia’s unofficial watch-dog — Oleg Mitvol, the state environmental inspector with a reputation for aggressive campaigns against foreign companies — to challenge its legitimacy.

Smooth operator

Maslovskiy is described — very accurately — as the "chief operating officer."

He is indeed an operator!

Maslovskiy is a former Professor of Plasticity at Moscow Aircraft Technology Institute. Nowadays he has the ear, and support, of the Kremlin.

That’s because Maslovskiy comes from deep inside Russia’s powerful military industrial complex. Hambro might be executive chairman as far as the outside world is concerned. But inside Russia, Maslovskiy calls the shots.

Maslovskiy owns nearly a quarter of the shares and is based in Moscow. What he does is makes sure the Kremlin knows that Peter Hambro Mining understands the rules of the game. Its shareholders may be making profits from mining, but the resources belong to the motherland.

It’s a stark contrast with the BP experience

He is doing a better job for shareholders than are BP’s partners in their Russian joint venture. Rather than being a long spoon, they’ve turned into a dagger that is being stuck right between BP’s shoulder blades.

As Russian confidence and sensitivity grows, Maslovskiy has just gone a step further. The spoon has got even longer...

Taking with them their shareholders and assets, all the Hambro dynasty companies are now under one — Russian — roof. A new holding company, Petropavlovsk Group of Companies (PGC) has been formed.

No complaints from the Kremlin. PGC is pledged to invest over $5bn over the next five or six years.

So far no complaints from shareholders, either - the returns look good.

Keep mining

Erin and Isabel.

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