Peter Hambro: Company goes native with a name change
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Wednesday 11 July 2012
What's in a name? Well, if you are Peter Hambro and the scion of one of Europe's oldest banking families, it could be that your name is worth £1bn or more. Or so it seems.
When Peter Hambro changed the name of his Russian gold-mining group in September 2009 from Peter Hambro Mining (PHM) to the more indigenous Petropavlovsk, it didn't take long before the shares fell to earth with the most resounding thud. The banker turned gold miner had decided, along with his partner, Pavel (Paul in English) Maslovsky, and the PHM board, that the company's name should be changed to reflect the intrinsic Russian nature of the gold-mining business, and to attract local investors.
Mr Hambro explained: "In the early days of the business the company was a combination of me – and the capital I brought to the venture – and my Russian partner, Pavel. But as PHM – which listed on the London Aim market in 2002 – grew bigger and bigger we wanted to demonstrate it had matured into a Russian business with a London listing."
Petrovpavlovsk now employs 450 people at its Moscow headquarters, 25 in London – and 11,000 workers at the four gold mines: Pioneer, Malomir, Pokrovskiy and Albyn in the Amur region of far east Russia – not far from the Chinese border.
So Mr Hambro – chairman – and Mr Maslovsky, who was then chief executive, looked at name options: "Hamas was one; combining the first two letters of our surnames – but we realised that wouldn't be so clever," he laughed. "So we came up with the idea of combining our first names – hence Petropavlovsk – Peter and Paul."
They may have both been disciples but the combination of the two names hasn't been divine. Indeed, the day before the name changed on 23 September the shares closed at 915p; the next day, when the name changed they closed at 895.5p. But the shares gained strongly again in the October on the back of a record gold price – and the signing of a new memorandum of understanding to create a Russian investment fund with the Russian asset manager Leader.
By December, the shares hit 1316p and by June 2010 they were trading at 1,365p – helped by some new share issues – valuing the gold miner at £2.5bn. But since then the shares have slipped back along with most of the gold-mining sector through 2011.
Today the company's shares are trading at 452p. So how much is the name change to blame?
Hambro is circumspect: "It's not for me to say but maybe we should take another look. But there were other issues for which we take the blame; missing production targets over bad weather and equipment delays in 2010 was a big factor. Unfortunately, we didn't tell the market in time so it was our mistake. And we've been more than vilified for it."
But Andy Brough, fund manager at Schroders which owns 3.2 per cent, is less cautious: "Fund managers are simple folk; if you gave them £10 each they wouldn't be able to spell Petropavlovsk – Russian-sounding names are tricky. I've told Peter this, and told him to change the name back."
Mr Brough said the Russian factor doesn't help matters: "Every Saturday afternoon people sit down and watch TV; what do they see? Usually James Bond movies where the bad guy is always a Russian."
That's possibly unfair because the success of the Hambro gold venture is as much due to the excellent relations between the two partners and the way they built up a formidable business.
Mr Maslovsky, who owns 7.9 per cent of the gold miner, stepped down as chief executive last year after being elected as senator for the Amur region in the Federation Council, the upper house of the Russian parliament.
That Hambro has managed to do business in Russia where so many have failed is in itself an achievement.
"Doing business there is not as chaotic as it used to be and the rule of law is improving," he said. "There is a better understanding that Russia needs foreign investment, and to get it they must become more like Westerners.
"Pavel and I succeeded in bridging the gap between the new emerging Russia and the West; there was mutual education. Copious amounts of vodka and a sense of humour helped too."
The City's humour has not been so resilient, and the gold miner has fallen from grace. Most of the stock is held by the big institutional shareholders – Blackrock has 10.4 per cent, M&G has 5.2 per cent, Legal & General 3.2 per cent, while small investors have about 8 per cent and direct Russian shareholders just 1 per cent.
Mr Brough added that, as well as the name change, Petropavlovsk suffered after investors were spooked by the abrupt cut in production numbers and the missing of forecasts.
"They have also been caught up in the malaise of the mining sector. The oil price has gone down which should have been good for gold – it reduces the cost of production – but it hasn't helped them yet," he said.
Even so, it could be a good time for funds to look again, he says, at buying into gold miners again as a smart way into the rising gold price, forecast to hit $2,000 an ounce this year.
But Mr Hambro, 67, accepts there is still some way to persuade investors to come back onside.
"It doesn't help that there are a lot of professional day traders in the shares as the price is set by the marginal trade, as is the oil price," he said. "We've been through the tall poppy syndrome; and once that happens its difficult to change perceptions."
"But we will keep going – we've tightened up our corporate structure and have beaten production targets in the seven last quarters. Our aim is to keep producing the gold – it should be 700,000 ounces this year and we will deliver what we promised."
With a 4.7 per cent stake himself, he knows how small shareholders are hurting from the price fall.
"I do feel bad about this but I can't affect the market price," he said. "But what I can do is make sure we keep digging up cheap gold and selling it. We've reserves and resources of 24.6 million ounces of the stuff."
He's as confident as ever about the gold price – and has been right about the bull run of the last 18 years. For once, though, Mr Hambro isn't so elated by the inexorable rise,
"It means the global economy is going to get even worse," he sighed.
But there's another commodity he likes – iron ore – and Petropavlovsk has a 65 per cent share in IRC, an iron ore miner which also has ilmenite reserves – from which titanium is produced – about 100 miles away from the borders of China.
"Our new mines are 19,000 miles closer to China than its biggest supplier, which at the moment is in Brazil," said Mr Hambro. "Iron ore is all about logistics and we are the closest supplier to China which is a huge consumer.
"We've got a big new mine which will produce 3.2 million tons of the stuff by 2014," he added.
It so happens that IRC, which is listed on the Hong Kong stock market, is chaired by his son, Jay Hambro. Maybe it's time for IRC to change its name too.
A life in brief
Name Peter Hambro, chairman, Petropavlovsk plc
Born January 18,1945
Educated Eton; Aix-Marseilles Universities
Career Hambros Bank, managing director of Smith St Aubyn, the discount house, and deputy managing director of Mocatta & Goldsmid.
Family Wife, Karen, and three sons: Jay, Leo and Evy.
Lives Belgravia, Essex and Norfolk
Time off painting watercolours, golf and Hambros history
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