Lack of gold can give Hambro a lift

Anybody shorting Petropavlovsk may slip up, say Mark Leftly and Jamie Dunkley

Peter Hambro was unimpressed by the blindly dogmatic nature of nearly one-fifth of his own company's shareholders: "I think it's purely a doctrinaire vote."

These were the investors who in June voted against the Eton-educated sexagenarian's re-election as chairman at Petropavlovsk, the gold group he founded in 1994 as the rather less immodest Peter Hambro Mining. They felt that for a chairman he had too much dominance over a company which had, to that point, seen nearly 70 per cent wiped off its share price in a year.

"My role as chairman is more executive than it would be if the geographic set-up of the business was different," he argued.

This refers to the fact that chief executive Sergei Ermolenko is based in Russia, where Petroavlovsk is one of the biggest precious metals producers, while he runs operations in London.

However, Mr Hambro would be wrong to assume it's just the shareholders who have doubts about Petropavlovsk. A good chunk of the market is betting against the group's fortunes, with 14.7 per cent of its shares being shorted – an 870 per cent rise since the start of the year.

Short selling happens when a hedge fund or large investment bank takes the view that shares in a particular company are set for a fall. The investor then borrows the shares from someone who owns them – such as a large pension fund or insurance company – and sells them in the market.

Once the shares have fallen in value, the investor buys them back at the lower price and returns them to the lender having pocketed a pretty penny.

Petropavlovsk is, by some distance, the most shorted stock on the stock exchange.

As Mr Hambro sits with Russian friends sipping vodka, he must be wondering why his country- men in London are so against a company that has achieved 10 consecutive years of increased gold production.

The main reason is the gold price, which collapsed from $1,900 (£1,215) per ounce two years ago to barely $1,200 last month before a recent rally. Gold, so often the safe haven of global downturn, was perceived as a bubble waiting to burst, particularly as cracks emerged in the economy of commodities-hungry China.

A City source says: "As well as the gold price, Petropavlovsk has £1.1bn of debt on its balance sheet and there has been speculation about how this might be financed. Although a lot of the shares are out on loan it doesn't necessarily mean hedge funds will make a profit, though, as there is value in the company."

That could prove to be correct, given recent analysis that there is now possibly a physical shortage of gold.

In a note published on Friday, Peel Hunt analysts said: "Current developments are historically unprecedented and should bode well for gold prices and gold miners."

A day earlier, the World Gold Council noted that "recent falls in the gold price have generated significant increases in demand" in recent months which should lead to a continued revival.

Ian Cockerill, the chairman at Liberian gold group Hummingbird Resources said last week that "the doomsayers talking gold back to below $800 per ounce are in cloud cuckoo land".

Maybe it's best, then, to not bet against a man whose own doctrinal faith in gold could again pay off.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
News
news
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Sport
SPORT
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick