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Peter Hambro Mining Plays The Russian Game In Venezuela, With Rusoro On Board And Crystallex In Its Sights
NEWS
June 11, 2008
Peter Hambro Mining Plays The Russian Game In Venezuela, With
Rusoro On Board And Crystallex In Its Sights
By Charles Wyatt
Very rarely a deal comes along which is so logical that Minews kicks himself for not
thinking of it first. The only excuse is that Peter Hambro has always set himself up as
such a fan of Russia that it’s been difficult to visualise Peter Hambro Mining operating
elsewhere. In this case he is, in effect, using a bit of lateral thinking to take a bit of
Russia with him as he makes an US$80 million strategic investment in Rusoro Mining,
a Canadian-listed company run by Russians in Venezuela. This is Hugo Chavez
territory and he does not make it particularly easy for resource companies to operate
there, particularly those from North America. In fact he has made such a nuisance of
himself to Bush with what he calls ‘21st century socialism’ that at some moments it
appeared that the US might initiate a military intervention.
Russians, however, are a different matter and Mr Andre Agapov and his family, founders of
Rusoro, will confirm that relations with the Venezuelan government have always been cordial.
Last year Rusoro consolidated its position in the country by acquiring all of Gold Fields'
Venezuelan assets, including the producing Choco 10 mine situated only four kilometers down
the road from Rusoro’s own Increible 6 gold project. As a result of this deal Rusoro became a
producer and Gold Fields now has a 36 per cent equity interest in it. In total, at this time,
Rusoro has resources amounting to 12.8 million ounces under NI 43-101 mineral resource
classification, as well as a large land position in the Bolivar State. Last year Choco 10
produced a modest 9,671 ounces of gold, but Rusoro expects to increase that to 120,000
ounces by the end of this year and is carrying out a drilling programme to increase and
upgrade reserves to meet this level of production.
Bolivar State offers first class geology and gold potential within a setting almost identical to
some of the world's largest mining districts, including Ashanti in West Africa and Kirkland
Lake in Canada. The deal with Gold Fields also brought with it another 25,000 hectares of
highly prospective exploration properties in the El Callao region. Assets such as these do not
come cheaply and at the end of October last year the company announced that it had closed
a private placement in which Canaccord Adams acted as a lead underwriter for a syndicate
which included GMP Securities and PI Financial Corp and raised gross proceeds of C$225
million. It may have been this deal that brought the company to the attention of Peter
Hambro as it demonstrated that some North American institutions understand the potential of
Rusoro’s operations in Venezuela, but he’s not prepared to commit himself on that.
The deal with Peter Hambro involves a two year senior secured exchangeable loan with a 10
per cent coupon put together by a syndicate led by Peter Hambro Mining and consisting of
some of its bigger shareholders – Black Rock Investment Management International, GLG
Partners, Lansdowne Partners and Endeavour Mining Capital Corporation. This loan is
exchangeable into Rusoro shares at a price of C$1.25 and Peter Hambro Mining has a call
option on the shares underlying the other syndicate members’ portion of the loan at C$2.20
each. Not bad for a company whose shares were trading at C$1.00 yesterday compared with
C$1.30 a month ago, but good timing by Hambro and confirmation that nothing leaked out
from the advisers.
Rusoro’s operations in Venezuela, but he’s not prepared to commit himself on that.
The deal with Peter Hambro involves a two year senior secured exchangeable loan with a 10
per cent coupon put together by a syndicate led by Peter Hambro Mining and consisting of
some of its bigger shareholders – Black Rock Investment Management International, GLG
Partners, Lansdowne Partners and Endeavour Mining Capital Corporation. This loan is
exchangeable into Rusoro shares at a price of C$1.25 and Peter Hambro Mining has a call
option on the shares underlying the other syndicate members’ portion of the loan at C$2.20
each. Not bad for a company whose shares were trading at C$1.00 yesterday compared with
C$1.30 a month ago, but good timing by Hambro and confirmation that nothing leaked out
from the advisers.
This is obviously a very amicable arrangement as exemplified by the fact that Endeavour,
which is advising Rusoro, is part of the syndicate. Peter Hambro Mining will only get a four
per cent holding in Rusoro if its US$20 million loan is converted into shares, but this would
rise to 14.2 per cent on full exercise of the option agreement. The important point, however,
is that this is part of a long term relationship. Rusoro is going to use the loan for general
corporate purposes, but also for strategic acquisition opportunities. Peter Hambro steps
carefully around this when saying that “any investment outside Russia would have to have a
Russo-centric rationale, so we now have a strategic investment in a company with successful
Russian management, production and proven resources and reserves. It also takes us closer
to Gold Fields which might also prove useful.”
Mr Agapov also says something diplomatic about Peter Hambro Mining which he clearly
recognises as a sizeable Russian gold producer with proven Russian management, but which
also comes with the additional advantages of a listing, funding and promotion all
worked out of London. What neither of them want to speculate about is the next move for
the enlarged Rusoro. Minews would like to speculate that Crystallex Mining is in their sights.
This is a company listed on Toronto and AMEX which has been operating in Venezuela for the
last 16 years. Last year it produced 33,567 ounces of gold, but it has been locked in
argument with the Venezuelan authorities for a long time about bringing its Las Cristinas open
pit mine, also in Bolivar State, into production. Gordon Thompson must have reckoned he was
hitting his head against a wall and resigned as chief executive and president this month, so
the company is rudderless and the prize is big.
Las Cristinas is one of the largest undeveloped gold deposits in the world, boasting resources
of 16.9 million ounces of gold. If agreement can be reached with the Venezuelan government
it could be in production by 2010 at a rate of 252,000 ounces of gold mined at a cash cost of
US$258 per ounce. At the moment this doesn’t look likely, as company and government have
a bit of history between them. Step up a Russian company and things could look different,
especially as Chavez seems determined to become a shade more emollient, and is now
pressurizing the FARC guerrillas in Colombia, which he has backed in the past, to come in
from the cold.
Minews tested the Las Cristinas theory on Peter Hambro and the answer was “you may say
that, but I couldn’t possibly comment”. That makes it odds-on, and Hambro has left himself
plenty of flexibility as he can increase or decrease his holding in Rusoro at any time. What we
cannot foretell, unfortunately, is exactly when the move on Crystallex will be made.
The thing that really appeals to Minews is the fact that the Russians, and Hambro is included
as a Russian for this purpose, could be building a major gold operation in Bush’s back yard.
The demise of the Roman Empire started when Nero debased the currency and accelerated
when old enemies detected weakness. Bush is doing a similar job in the US and Chavez will
be only too happy to hammer a small nail in the coffin.
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