MOSCOW (ResourceInvestor.com) -- Peter Hambro Mining [] announced plans to create a joint venture with Vladimir Potanin's gold producer Polyus at the end of last week, the gold mining subsidiary of Norilsk Nickel [NILSY].
The move comes after speculation that PHM was losing ground in Russia's far east after Polyus, the gold mining subsidiary of Vladimir Potanin's Norilsk Nickel, won an auction for the Bamskoye gold deposit in the region last Thursday. It was Polyus first foray into the mineral rich region.
"I am delighted that our friends from Polyus have recognized the gold mining opportunities within the Amur Region and look forward to working with them at Bamskoye," PHM's Chairman Peter Hambro said in a press release.
Polyus won the auction to develop the C1-C2 deposit with an estimated 14.2 tones of reserves with a Rb25m ($472,000) bid for the property.
PHM continues to pioneer collaboration with its biggest companies to exploit deposits rather than using formal equity sales favoured by its competitors. No equity has changed hands and the two companies will only cooperate on this one asset for now.
"The agreement is a further vote of confidence in PHM's ability as gold miner, developer and exploiter," says Jay Hambro, the company's vice president.
The group set up a similar cooperation agreement with Rio Tinto in 2003, which chose PHM as a partner for its first foray into Russian mining business at the Chagoyansk deposit.
The group has been highly successful in the region by following a strategy that shuns consultants' advice to bring in expensive foreign experts and equipment.
Instead it started life using less efficient Russian technology to mine 13 different gold deposits and significantly reduced costs. Collaborating with Russian companies is made easier by the fact that although chairman Peter Hambro is a big stake holder the company is to all intents and purposes a Russian company. And as the third biggest tax payer in the region is enjoys very good relations with the local administration.
While many of competitors like Highland Gold, Celtic, and TranSiberian have decided to sell equity stakes to major mining companies, PHM says that it believes this is not an attractive option during this fast growth phase in the company's life.
"[Selling equity] is too expensive for our shareholders as it removes some potential takeover premium, dilutes shareholders and removes a degree of control over cash flow. The board of PHM is promoting the idea of small joint ventures with partners where the two can benefit from the same synergies but at a much lower cost to its shareholders," says Jay Hambro.
PHM followed up their tie up with Potanin by announcing the acquisition of the Malomir deposit in the north east of the Amur region that rounds out its acquisition strategy for the region.
The group paid Rb22m ($790,000) for the license, which will add another 1.5m ounces of category C2 gold to the groups reserves. PHM already acquired the licesnse for two adjacent reserves in 2003 and exploration work began last year.
"Malomir has always been at the very top of our wish-list for the Amur Region - particularly given its geological similarities to several well-known deposits. For that reason we acquired exploration areas surrounding it last year, prior to this auction," said Peter Hambro in a statement.
"Now that we have the whole deposit, we have completed our acquisition strategy for the Amur North East belt. The addition of 1.45 million ounces of C2 reserves to our Group total is beneficial, especially since the Malomir deposit is at a relatively advanced exploration stage and relatively well served by transport facilities."
Malomir is located in one of the oldest and richest gold producing areas of the Amur Region and is in the same gold belt as PHM's other North East assets Tokur and Voroshilovskoye (known as the Verkhneselemdginsky region) and is part of the Mongolia- Okhotsk thrust system.
Analysts have upgraded their target prices for the company's stock to 792p on the back fo the two deals calling PHM the "FSU small cap gold developer of choice." The stock was trading at 580p on Friday.
