St. LOUIS (ResourceInvestor.com) -- Peter Hambro Mining [LSE:POG] stock slid nearly 14% today on the London bourse as news emerged that Russia's resource watchdog, Rosprirodnadzor - the Federal Service for the Oversight of Natural Resources - intends to revoke five of the U.K.-based mining company's permits at its operations throughout the country.
Rosprirodnadzor's deputy head, Oleg Mitvol, said that Peter Hambro's subsidiaries either did nothing to develop mineral deposits, did not meet the terms of the licensing provisions or failed to meet environmental standards, Russian sources reported.
"This is one of those companies that simply take licenses to keep them on their balance sheet, thus increasing capitalization, but in reality they do not develop the deposits."
Mitvol said that Rosprirodnadzor is focused on revoking two gold licenses and three chrome licenses at two sites, the Novogodone-Monto and the Toupugol-Khameisholrsky deposits. Mitvol added that 21 of the 30 provisions at the Novogodone-Monto deposits have yet to be fulfilled and said that no gold was being produced.
"...based on the zero natural resource production tax paid from this deposit, no gold production is taking place, although forecasted reserves of gold amount to 29 tonnes there."
The company's Novogodnee-Monto deposit - located at the northern end of the Urals, on the Yamal peninsula has resources of 300,000 ounces of gold as classified under the Russian P1 system (similar to measured) and 340,000 ounces of C1 and C2 Au (similar to proven and probable), making it one of the company's largest.
Peter Hambro currently holds nearly 50 mining licenses in Russia through 12 subsidiaries that allow for the exploration and mining of gold, titanium and other precious metals.
Cracking the Whip
The Russian government receives fees through extraction taxes and from export duties on commodities and thusly, president, Vladimir Putin, has ordered the country's Natural Resources Ministry to scrutinize mining, oil and gas ventures - of which exports last year amounted to $175 billion, or more than 20% of Russia's GDP.
Over the past two months Rosprirodnadzor has accused major oil and gas operators working in the country of noncompliance with environmental rules, including BP [NYSE:BP; LSE:BP] and Shell [NYSE:RDS-B; LSE:RDSB] with its Sakhalin-2 oil and gas project - that has caused an alleged $50 billion in environmental damage.
"The Sakhalin-2 production sharing contract says that, when the company recovers all its expenses, Russia will get 10% of the profit. Why in other countries the investor gets 30% and the state 70%, while in Russia the state gets 10% and the investor 90%?" Mitvol was quoted as saying.
In an emailed statement from the Natural Resources Ministry today, it said that checks of other PHM mining licenses and the company's subsidiaries are to begin "soon."
PHM Response
Peter Hambro Mining released a press statement today saying that it is aware of Rosprirodnadzor's remarks, and said that it welcomes "any and all" official inspections of the company's operations. The release also stated that the company was not aware of "any material environmental or health and safety regulatory infractions."
"The Company did not receive any prior notification whatsoever on this matter and its representatives are in discussion with the Ministry and the relevant authorities seeking clarification on these comments," said Executive Chairman Peter Hambro.
Buy Rating
Seymour Price analysts today upgraded its PHM rating from "outperform" to "buy," reducing the target price from 1,505 pence to 1,380 pence - adding that the reduction reflects "a decline in the sector valuation multiples." The analysts added that PHM's current mining operations are unlikely to be affected should the 5 mining licenses be revoked.
Numis Securities said that it had not included the licenses in its previous valuation of PHM and added the potential revocation of the licenses would not alter it - and also said license revocation was unlikely.
However, Numis analysts did say that the news could cause a reassessment of a 12% discount rate used to value the company's gold mines in the region - and stated the necessity to be alert for further action against PHM and its subsidiaries by the Russian government.
According to the Numis report, current regulations in Russia oblige the agency to provide a time period of 3-6 months for a company to fix violations before a final conclusion is reached on license annulment. Numis changed the status stock from buy to hold at a target price of 1,507 pence.
On the LSE, shares of PHM were down 13.87% or 165 pence to 1,025 pence.