Peter Hambro, descended from a wealthy line of Anglo-Danish bankers, recalls receiving a bottle of whisky as a gift from his mother’s gardener.
It was a token of thanks after seeing a good return on his investment in Hambro’s Russian gold mining business. “I’ve made so much money, the least I can do is give you a drink,” Hambro, 70, remembers the gardener saying at the time.
Those days are long gone.
Petropavlovsk Plc, once worth more than $3 billion as the price of gold it dug in the Russian Far East soared, has lost 99 percent of its value in the past five years. For anyone who has hung on from the start, it has been an astonishing ride as the stock rocketed more than 10-fold from its listing price in 2002, before losing all of those gains and more. The company is forecast to post a third straight annual net loss for 2014.
Banks and fund managers squeamish of the risks have fled.
Retail investors now own about 80 percent of the business by Eton-educated Hambro’s reckoning. He needs them to back a rescue plan, while acknowledging the anger some may harbor for past losses.
Management proposes to sell bonds and about $235 million of shares at a deep discount to the market price to reduce debt and fend off default at Russia’s third-biggest gold producer. Even the announcement of the plan on Dec. 8 sent the stock into a tailspin, with shares ending the day down a record 30 percent.
Diluted Interest
The refinancing will cut Petropavlovsk’s debt by more than $200 million, and by producing as much as 12 percent more gold this year at $200 an ounce cheaper than in 2014, the miner will make further inroads, it says.
Shareholders will have the option to take up more than 15 new shares at 5 pence (7.7 cents) a piece for each one they already own. Those that decline the offer of new stock will face a near homeopathic dilution of their interests.
Still, there’s no cost to agreeing to the rescue at a vote scheduled for Feb. 26 as owners of the stock have no obligation to subsequently take up any new shares, according to Hambro. A “no” vote on the other hand puts the company’s future in doubt.
“The people who vote no are completely mad,” Hambro, who is chairman as well as founder, said in an interview. “If you vote no, or don’t vote, you could lose the lot. It’s a really stupid thing to do to take your anger out on me by not voting.”
Garden Agreement
While managing potentially irate shareholders may be one of Petropavlovsk’s problems, its immediate issue is the sheer number of people it needs to contact before the vote.
“We have identified at least 8,000 private investors,” Hambro said. “It’s really hard to get to them, to persuade them to vote. A single negative vote negates a lot of positives.” He needs approval from 75 percent to get the rescue passed, using a newspaper and web advertising campaign to try to reach them.
It’s a long way from the company’s founding 20 years ago in the garden of Hambro’s English home, where he agreed to invest $5 million in a Siberian mine near the Chinese border. That became Peter Hambro Mining Plc, renamed Petropavlovsk in 2009.
From such beginnings the stock’s fortunes went from rise to fall and rise again, then fall again. At its peak in 2006, it reached 1,750 pence in London, before crashing to 156 pence in 2008, and rebounding to 1,370 pence a year and a half later.
‘Awful Lot’
Petropavlovsk was on the cusp of winning a place among the blue-ribbon names on London’s FTSE-100 Index of leading shares until a strategy to expand output by borrowing more than $1 billion in 2009 unraveled as gold prices sank. By Monday, the stock fetched 15.75 pence, even as gold stabilized this year.
Hambro and fellow founder Pavel Maslovskiy will partly underwrite the planned sale of new shares, contributing as much as $10 million each. Should Hambro, who owns about 7 percent of the company, fully subscribe to his rights and pay the maximum underwriting figure, he could end up investing more than $40 million. “A lot of cash, an awful lot of cash,” he said.
There is no alternative.
“If the vote fails, it is very difficult to see how the business continues as a going concern,” he said.
Hambro hasn’t yet drunk that gift of a bottle of whisky. If the worst comes to the worst, at least he’ll have that.
