Peter Hambro: An encounter with Mr Goldfinger

The mining boss explains why he exports the precious metal from Russia with love
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The Independent Online

If Peter Hambro had his way, we would all swap our money ("paper promises" as he calls it) for gold bars.

But where would we put these - under our beds? "Why not?" he replies, deadly serious. "You can put the gold anywhere you like. If you put it in a vault, it's hard to get at and the bank may not give you a key."

As executive chairman and founder of Peter Hambro Mining (PHM), a gold mining company operating almost exclusively in Russia, he is hardly likely to say, "Don't buy gold". But his forbears, who founded two merchant banks that carry the family name, might have raised an eyebrow at the thought of keeping it at home.

The Old Etonian seems to have an almost religious fervour about the yellow metal (and you won't catch Hambro calling it that). "I believe in gold. You couldn't be in it if you didn't believe," he says. Could you imagine Lord Browne, the chief executive of BP, saying the same about oil? Or Philip Bowman of Scottish Power saying, "I believe in electricity"? Obviously not: oil and electricity are useful, while gold - what's the point of that?

In fact, Hambro is not alone in his enthusiasm. Gold prices are at a 25-year high (at over $640 per ounce). It has soared by more than $100 in the past six months alone, helping PHM shares to treble in value in a year. But doesn't he worry that all the jewellers in India and elsewhere (who make up around 75 per cent of the demand for gold) may one day start selling, say, copper instead and that the price of gold will plummet?

"I have incontrovertible proof!" Hambro declares before leaving the boardroom of the company's Hyde Park Corner offices. Meanwhile Alya Samokhvalova, his director of external communications, helpfully explains that copper jewellery is unlikely to catch on.

"Here it is!" Hambro triumphantly exclaims as he re-enters the room, slamming down a 2,000-year-old Roman gold coin from Belgium. "The fact people were doing it 2,000 years ago suggests to me it isn't going to change that much."

He also displays a motley collection of French promissory provincial bank notes dating from the First World War, which belonged to his grandfather, a general. "They're completely valueless as the promises were broken. But that gold coin is still worth what it was."

Hambro agrees that the main reason for the surge in the gold price is global financial uncertainty, primarily caused by America's record current account deficit (over $800bn, or £450bn, more than 6 per cent of its GDP) and trade deficit. This borrowing is unsustainable, Hambro says. Private Swiss banks have recently increased their gold holdings - traditionally a hedge against the dollar or inflation - from 3 per cent of their assets to 7 per cent. "These are smart people. There must be a reason."

It's not just the US government that is mortgaging itself to the hilt. Gordon Brown is at risk of increasing public spending to unsustainable levels, Hambro says. "I'm old enough to have seen it before. It's similar to the Harold Wilson administration. Now, half the people are working for the Government. I don't think you can go on promising."

And he puts forward a highly practical reason to favour gold over money: it cannot be eaten by ants. He recounts a story of a deal his father did in the Middle East with a Bedouin who insisted on being paid in cash. "Vast amounts of money was printed in the UK and shipped out. But it was all eaten by white ants."

Apparently, gold also helped the Allies win the Second World War. Britain seized the reserves of Vichy France, which the French had shipped to the island of Martinique to keep out of the Nazis' grasp. The French gold helped pay for the Lend Lease programme that supplied US military equipment to Britain. "It definitely hastened the end of the war as we got America in much earlier than Churchill could," Hambro says.

He does not offer any crystal ball predictions on the gold price, but thinks "the best way to predict the price is to know where it was". He quotes from A Random Walk Down Wall Street, the book, he says, taught him options theory. "If you were trying to find a drunk in a field in the middle of the night, the best place to look for him is where you last saw him." If gold prices fall, PHM will just cut production, he says. "You can turn the tap off tomorrow." Gold prices would have to fall a long way for the company to make a loss: its costs are $125 per ounce. It reported profits last week of $13.3m for 2005 (this was down on 2004, but mainly because of accounting changes and higher costs). The company aims to increase production to one million ounces per year by 2010 from 249,000 ounces last year. Its shares are at an all-time high.

Unlike many other Western companies operating in Russia, PHM has not been ripped off by local partners. Earlier this year, Celtic Resources, another UK-based gold mining company, gave up trying to win back its stake in a gold field it had pledged as security to a Russian bank for a loan. There are many other similar examples of British firms coming a cropper.

Hambro says that PHM is different because, rather than taking Russian partners, it has incorporated Russians into the company, with senior managers also becoming shareholders.

Hambro has the air of a slightly old-fashioned, affable City gent. If he weren't running the company, he says, he would be in his house in Norfolk painting watercolours. But gold is a subject he takes seriously. Describing his enthusiasm for it, he tells me: "You'll go home and think, either this guy is completely mad or..." He tails off. The choice is yours.

BIOGRAPHY

BORN 18 January 1945

EDUCATION Eton College

CAREER

1964: Spicer & Pegler, accountants

1966: Hambros Bank

1967: Smith St Aubyn, discount brokers and bankers. Became joint managing director

1980: head of bullion trading, Marc Rich Group

1983-90: Mocatta & Goldsmid. Became deputy managing director

1992: Peter Hambro Mining (formerly Zoloto Mining). Chairman since 1994. Production started in September 1999 and the company floated on AIM in 2002

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