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Peter Hambro Mining (POG)

  Print      Mail a friend       Annual reports

Tuesday 31 January, 2006

Peter Hambro Mining

Million Ounce Target

Peter Hambro Mining PLC
31 January 2006



31 January 2006

            Million Ounce Target - Detailed Plan, Costs & Evaluation

Peter Hambro Mining plc ("PHM" or "the Group") has produced updated business
plans for the Pokrovskiy Flanks, Pioneer and Malomir deposits. The findings of
the reports support the Group's target of a million ounces of gold production in
2009 and provide more clarity as to the expected development and subsequent
relevant contribution of each asset. Based on these plans the Group intends to
further develop each of the primary assets and to invest the capital expenditure
required to meet the production targets. The economic evaluation of these four
deposits can be summarised as follow:

-----------------     ----------      -------    ------        ---------------
Project                     2009          NPV*      IRR*        2006-09 Capital
                      Production                                    Expenditure
                        ('000oz)        (US$m)       (%)                 (US$m)
-----------------     ----------      -------    ------        ---------------
Pokrovskiy flanks        330,000          380        51                    134
-----------------     ----------      -------    ------        ---------------
Pioneer                  250,000          204        46                     81
-----------------     ----------      -------    ------        ---------------
Malomir                  430,000          290        51                    112
-----------------     ----------      -------    ------        ---------------
Existing Pokrovskiy
Deposit                  170,000          149       n/a
-----------------     ----------      -------    ------
TOTAL                  1,180,000        1,023        71
-----------------     ----------      -------    ------

* Assumes gold price of US$450/oz, discount rate of PHM convertible bond coupon,
and other assumptions listed below. The valuations do not include any value for
other Group assets, e.g. Tokur, Yamal assets, Omchak JV, 31st December 2005
balance sheet items etc. See below for sensitivity analysis.

Each project has been the subject of a comprehensive business planning,
geological and engineering analysis the results of which are summarised below.
The Group expects that, based on current gold prices and the assumptions within
the business plans, the capital expenditure required for these projects can be
financed from the existing cash held by the Group, future production cashflows
and the use of the project finance markets.

Commenting on the announcement, Peter Hambro, Executive Chairman of the Group
said:-

"I am delighted that we can announce detailed plans for achieving our 2009
million ounce target. We are very proud of our record of delivering on all
previous Group production targets and today's announcement should provide our
investors with the necessary building blocks to analyse how we will fulfil our
2009 target.

Our preliminary analysis shows that using a gold price US$100/oz below the
current market as a base case, we will deliver a net present value of over a
billion dollars from these assets alone."

Conference Call

A conference call to discuss the announcement will be hosted by Peter Hambro, 
Executive Chairman of Peter Hambro Mining Plc, Jay Hambro, Business Development 
Director and Dmitry Chekashkin, Finance Director of Management Company PHM, on 
Tuesday, 31 January 2006 at 14:30 UK time. 

Details to access the conference call are as follows:

The Dial-in number in the UK will be: 0845 245 3471 and internationally will be 
+44 (0) 1452 542 300. Replay will be available after the call has finished for 
seven days on 0845 245 5205 in the UK and on +44 (0) 1452 55 0000 internationally 
with the access code in both cases 4725224 .

Enquiries:

Alya Samokhvalova, Director of External Communications   +44 (0) 207 201 8900
or Marianna Adams                                         www.peterhambro.com
Peter Hambro Mining

David Simonson or Tom Randell                            +44 (0) 207 653 6620
Merlin


Pokrovskiy Flanks

Summary

In 2004 the Group received an independent geological study on the area
immediately surrounding the existing Pokrovskiy mine and deposit. This study
encouraged the Groups geological team to invest its time and budget in the area
with the consequent result that the area is expected to generate approximately
three hundred and thirty thousand ounces of gold in 2009.

Geology

The Pokrovskiy deposit consists of a set of large, irregular but mostly
flat-lying ore bodies within a sequence of volcanic and sedimentary rocks of
Mesozoic age, lying above a thick dacite sill (shaped like an inverted bowl).
The ore bodies consist of gold disseminations that appear to be associated with
intense block faulting which characterises the geology of this region.
Significant mineralisation has yet to be found below the sill, which thus
currently forms a 'floor' to the deposit. Some of the fractures that intersect
the dacite sill are mineralised within the sill, and may represent the channels
through which the hydrothermal mineralising fluids travelled.

In general, away from the central Pokrovskiy area where the dacite sill is at
its shallowest depths, instead of flat-lying ore bodies there are more steeply
dipping veins and mineralised zones, controlled principally by the distribution
of faulting, within the same sequence of Mesozoic sedimentary and volcanic rocks
that host the main Pokrovskiy ore deposit.

There are also alluvial placer deposits along most of the surrounding stream
valleys. To the south-west of the central Pokrovskiy area there is potentially a
very large area in which gold-bearing fanglomerates occur. These are thick
flood-deposited sediments derived from erosion of the Pokrovskiy area, and the
natural separation processes (similar to the 'hushing' ore concentration methods
used since Roman times) makes these in themselves a very large and attractive
exploration target.

As reported in the Group's 2004 Annual Report, the deposit is estimated to
contain the following reserves and resources:

Area                             Category      Ore       Gold Content
                                 (C or P)    ('000t)         (kg)     ('000oz)
Flanks of Pokrovskiy Deposit
Reserves in flanks                 C1         1,563        1,197           38
                                   C2        13,624       15,956          513
Exploration Areas                  P1+P2     92,922      217,368        6,989
Total for flanks of Pokrovskiy              108,109      234,521        7,540

In order to create a "mineable reserve" for the purpose of business planning
only, the PHM geological and engineering team apply the following assumptions:
-         Assume all material is to be addressed by open pit mining
-         Assume 100% of C1 & C2 is mineable
-         Assume 75% of P1 & P2 is mineable
-         Assume mining losses of 3%
-         Assume mining dilution of 11%

The result of this process is a business planning "mineable reserve" of 94.2m
tonnes of ore at an average grade of 1.9g/t containing 5.6m ounces.

Mining & Processing

It is expected that the mining and processing operations and facilities already
in place at Pokrovskiy will be expanded and developed to exploit the Pokrovskiy
Flanks. It is expected that a new plant facility will be constructed within the
Pokrovskiy processing unit area with an annual processing capacity of 4mtpa in
2009 increasing to 8mtpa in 2010 and 9mtpa from 2013.

On the basis of experience at the Pokrovskiy deposit the following mining
equipment is planned to be used on the Pokrovskiy deposit flanks:
• Excavators with a bucket capacity of 10m3;
• 45 tonne capacity dump trucks;
 (The efficiencies of larger excavators and trucks are being considered);
• Atlas Copco drill rigs;
• Other relevant specialist ancillary equipment.

There is already a mining equipment repair workshop at Pokrovskiy and in the
interest of economising it is not necessary to provide additional repair
facilities.

It is expected that full scale mining of the deposit will commence in 2009 with
9m tonnes of material being moved. Of this material 3m tonnes are expected to be
high grade ore for the RIP plant.

As with mining, the processing technology is expected to be very similar to that
already used at the Pokrovskiy resin in pulp plant. In summary: direct
cyanidation of the grinded ore with subsequent adsorbtion on resin, desorption
of the gold bearing matrix and gold sedimentation through electrowinning. This
technology is currently used for ore treatment at the Pokrovskiy deposit and
according to pilot tests has proved to be optimal for ores at the flank deposits
as well.

Equipment requirements for the new resin in pulp processing facility are:
• Crushing and grinding circuit;
• Wet grinding line;
• Classifier;
• Thickener;
• System of conveyers and pumping machinery;
• Adsorption and disorption complex.

The grade of gold mined and recovery rate of gold processed is assumed to remain
similar to that currently experienced at Pokrovskiy. The average grade over the
life of the mine is expected to be c.3g/t. The new plant is expected to have a
recovery rate of c.90%.

Expenditure

Capital expenditure estimates have been generated using the Group's previous
experience of acquiring and using equipment for the main Pokrovskiy deposit.
Total project capital expenditure is targeted as follows:

Item                                                           Amount US$ '000
Further exploration                                                      7,000
Infrastructure construction                                              2,000
Construction of tailings dam                                             6,000
Mining equipment and waste stripping                                    34,500
Processing plant construction                                           84,500
Total project capital expenditure                                      134,000

Economic Evaluation

The project is expected to generate a post tax net present value of c.US$380m
and an IRR of c.51%. This analysis makes the following assumptions:
-         Valuation period to 2018;
-         Reserves and a resources as described above;
-         Discount rate of 7.125% (the interest rate of PHM's convertible bond);
-         Income tax rate of 24% and royalty rate of 6% as is currently applicable;
-         Capital expenditure estimates and mining costs are in line with current 
          levels experienced by the Group;
-         Gold price of US$450/oz flat for the period; and
-         This is an ungeared cash flow and before the effect of the Group's 
          unaudited net cash balance of US$133m at 31/12/05.

Pioneer Deposit

Summary

The Group obtained the Pioneer licence in 2001 and has subsequently been active
in exploring and developing the deposit area. Currently the deposit hosts a
large exploration camp with advanced infrastructure to facilitate a sizable
trial mining operations. Studies on the deposit have implied that it is amenable
to economic exploitation through a large scale mining operation combined with a
mix of high grade ore processing at a plant similar to that at Pokrovskiy and a
large heap leach operation. The deposit is located approximately 30km from
Pokrovskiy and is expected to benefit from a degree of shared infrastructure
which is enhanced by the expectation that the deposit will be mined and ore
processed using methods similar to that used at Pokrovskiy currently.

Geology

The Pioneer deposit consists of a series of mineralised fracture zones cutting
sedimentary and igneous rocks of Mesozoic age. The whole area has been subject
to block faulting, with faults and fractures of several different orientations.
This major fracturing has provided channels for hydrothermal mineralising
fluids. The faults and fractures which are mineralised trend N-S and NE-SW. The
principal mineralisation so far found is concentrated along and around several
kilometres length of one such fracture. Within these zones, at regular intervals
of about 400m which appear to coincide with intersections of fractures, there
are major enrichments which take the form of steeply dipping ore shoots or
columns, in which gold occurs within veinlets and stockworks as well as within
the main fracture zones.

As reported in the Group's 2004 Annual Report and the July 2005 Pioneer update,
the deposit is estimated to contain the following reserves and resources:

Area                        Category          Ore     Gold Content
                            (C or P)       ('000t)           (kg)     ('000oz)
Pioneer Deposit
Bakhmut & Promezhutochnaya* C2              30,367         65,566        2,108
Other zones^                C2                 614          3,900          125
                            P1               7,227         11,400          367
                            P2             118,158        195,300        6,280
Total for Pioneer                          156,366        276,166        8,880
* from 2004 Annual Report
^ from July 2005 Pioneer Update

In order to create a "mineable reserve" for the purpose of business planning
only, the PHM geological and engineering team apply the following assumptions:
-         Assume all the C2 material and 50% of the P1 & P2 material is to be
          addressed by open pit mining. The further 50% of P1 & P2 may be exploited 
          at a later date but is not included in the analysis.
-         Assume 100% of C1 & C2 is mineable
-         Assume 75% of P1 & P2 is mineable
-         Assume mining losses of 2%
-         Assume mining dilution of 7%
The result of this process is a business planning "mineable reserve" of 84.9m
tonnes of ore at an average grade of 1.6g/t containing 4.5m ounces.

Mining & Processing

It is expected that the mining and processing operations and technologies
already in place at Pokrovskiy will be adopted at Pioneer. It is expected that a
substantial heap leach operation will be constructed at Pioneer with an annual
processing capacity of 5mtpa available by 2009. The initial operation is
targeted to be able to process 1mtpa in 2007 and 3mtpa in 2008. The ore
extracted from the high grade sections at Pioneer will be treated at Pokrovskiy
- with 1mtpa being processed from 2009-2012 at the new Pokrovskiy Flanks mill
and 2mtpa thereafter at the current Pokrovskiy mill.

On the basis of experience at the Pokrovskiy deposit the following mining
equipment is planned to be used on the Pioneer deposit:
• Excavators with a bucket capacity of 10m3;
• 45 tonne capacity dump trucks
 (The efficiencies of larger excavators and trucks are being considered);
• Atlas Copco drill rigs;
• Other relevant specialist ancillary equipment.

There is already a mining equipment repair workshop at Pokrovskiy and in the
interest of economising it is not necessary to provide additional repair
facilities.

An all year road will be constructed at a cost of c.US$3m between the Pioneer
and Pokrovskiy deposits with construction commencing in 2006. It is possible
that the waste stripped from Pioneer and Pokrovskiy will be used for the
construction of the road which will further optimise the cost estimates.

It is expected that full scale mining of the deposit will commence in 2007 with
7m tonnes of material being moved. Of this material 1m tonnes are expected to be
ore for the heap leach.

As with mining, the processing technology is expected to be very similar to that
already used at Pokrovskiy. As discussed above, the new Pokrovskiy Flanks, where
the Pioneer high grade ore will be treated, will be similar to the Pokrovskiy
mill in technology. The proposed Pioneer heap leach operation will use a similar
crushing, stacking and treatment technology as used at Pokrovskiy. According to
pilot tests this process will prove to be optimal.

Equipment requirements for the new resin in pulp processing facility are:
• Crushing;
• Agglomeration;
• Stacking;
• System of conveyers and pumping machinery; and
• Adsorbtion and desorption complex.

The grade of gold mined and recovery rate of gold processed differs between the
two treatment processes. The high grade ore treated at Pokrovskiy has an average
grade ranging from 3 to 3.5g/t and a 90% recovery is expected to be achievable.
The lower grade ore sent to the heap leach is assumed to average c.1.6g/t at
outset lowering to c.1g/t from 2015. The Pokrovskiy heap leach recovers in
excess of 60% of the ore, this recovery rate has been assumed for Pioneer.

Expenditure

Capital expenditure estimates have been generated using the Group's previous
experience of acquiring and using equipment for the Pokrovskiy deposit. Total
project capital expenditure is targeted as follows:

Item                                                           Amount US$ '000
Further exploration                                                      7,000
Infrastructure construction                                              7,000
Construction of auxiliary and domestic infrastructure                   10,000
Mining equipment and waste stripping                                    35,000
Heap leach operation construction                                       22,000
Total project capital expenditure                                       81,000

Economic Evaluation

The project is expected to generate a post tax net present value of c.US$204m
and an IRR of c.46%. This analysis makes the following assumptions:
-         Valuation period to 2018;
-         Reserves and a resources as described above;
-         Discount rate of 7.125% (the interest rate of PHM's convertible bond);
-         Income tax rate of 24% and royalty rate of 6% as is currently applicable;
-         Capital expenditure estimates and mining costs are in line with current 
          levels experienced by the Group;
-         Gold price of US$450/oz flat for the period; and
-         This is an ungeared cash flow and before the effect of the Group's 
          unaudited net cash balance of US$133m at 31/12/05.

Malomir Deposit

Summary

The Group acquired the Malomir licence in February 2005 and has subsequently
been active in exploring and developing the deposit area. The acquisition of the
Malomir deposit has been part of a long-term development strategy of the Group.
An exploration licence for the area surrounding the deposit was obtained in 2003
at which time exploration on this area began.

Geology

The principal gold mineralisation at Malomir - known as the 'Diagonalnoye' ore
body - is in the form of hydrothermal veinlets, stockworks, and disseminations,
in a zone of crushed rock and breccias above a major thrust fault within a
meta-sedimentary sequence (largely black shales, with some sandstones and
limestones) of Carboniferous age. The thrust zone dips to the north-west, hence
the outcrop at surface trends south-west to north-east. There is a zone (up to
150m thick) of low-grade disseminated mineralisation, within which a number of
lens-shaped bodies of higher grade ore can be identified.

The known ore body is bounded laterally by N-S and E-W faults. There is also
gold mineralisation associated with the E-W Malomir Fault which defines the
northern end of the Diagonalnoye deposit. In particular there are granitic
igneous intrusions along this fault which are chemically altered and also
contain gold.

As reported in the Group's 2004 Annual Report, the deposit is estimated to
contain the following reserves and resources:

Area                            Category         Ore    Gold Content
                                 (C or P)      ('000t)        (kg)     ('000oz)
Malomir Deposit
Deposit                            C1          23,550       47,500      1,527
                                   P1          60,364      132,800      4,270
Total for Malomir                              83,914      180,300      5,797

In order to create a "mineable reserve" for the purpose of business planning,
the PHM geological and engineering team apply the following assumptions:
-         Assume all material is to be addressed by open pit mining
-         Assume 100% of C1 & C2 is mineable
-         Assume 80% of P1 is mineable
-         Assume mining losses of 3%
-         Assume mining dilution of 8%

The result of this process is a business planning "mineable reserve" of 77.6m
tonnes of ore at an average grade of 1.9g/t containing 4.8m ounces.

Location & Climate Conditions

The Malomir deposit is located in the Selemdzhinskiy district of the Amur
Region, 80km west of the regional centre of Yekimchan and 35km east of Stoyba.
The territory is located on the southern end of the Selemdzhinskiy ridge and
characterised by taiga landscape. Absolute elevation reaches between 700-971m
and relative elevation is between 150-200m. The slope gradient is between 15-20
degrees. The region has a continental climate with a maximum temperature of
+35degreesC in July and a minimum of -47degreesC in January. The deposit is
located in a continuous permafrost zone.

The deposit benefits from the following means of communication
-         Air transport - there is an airport in Yekimchan with direct links to 
          Blagoveschensk and a small aircraft landing strip in Stoyba. The airport 
          in Blagoveschensk has direct links to Moscow, Khabarovsk, Irtkutsk,
          Krasnoyarsk and other cities.
-         Road transport - the nearest town is Stoyba (35 km by road to the south, 
          from here it is possible to get to Yekimchan, Fevralsk and Svobodniy
          by road.
-         Rail transport - the railway passes through Fevralsk (BAM railway) and 
          Svobodniy (Transiberian railway). The distance from Stoyba to Fevralsk 
          station is 85km and to Svobodniy station is 240km.
-         Power supply - power supply is available in close proximity from the hydro 
          power electric station number 110kv (lines run from Yekimchan to
          Svobodniy).

Mining & Processing

It is expected that the mining and processing operations and technologies
already in place at the Group's Pokrovskiy mine will be adopted at Malomir. It
is expected that a new plant facility will be constructed within the Malomir
licence area with an annual processing capacity of 5mtpa in 2009. The mill is
expected to begin processing at 3.5mpta in 2008 and to be at full capacity of
7mtpa by 2011.

On the basis of experience at the Pokrovskiy deposit the following mining
equipment is planned to be used on the Pioneer deposit:
• Excavators with a bucket capacity of 10m3;
• 45 tonne capacity dump trucks
 (The efficiencies of larger excavators and trucks are being considered);
• Atlas Copco drill rigs; and
• Other relevant specialist ancillary equipment.

Technological research has been carried out on 15 assays of ore from the Malomir
deposit from primary ore and ore from the oxidisation zones. The recommended ore
processing scheme is flotation with subsequent cyanidation of the flotation
tailings. This process is targeted to provide gold recovery of c.90%.

Equipment requirements for the new processing facility are:
• Crushing and grinding circuit;
• Wet grinding line;
• Classifier;
• Thickener;
• System of conveyers and pumping machinery;
• Flotation complex; and
• Adsorbtion and desorption complex.

The grade of ore processed by the new plant is assumed to average c.3.8g/t at
the outset reducing to c.1.6g/t from 2015.

Expenditure

Capital expenditure estimates have been generated using the Group's previous
experience of acquiring and using equipment for the Pokrovskiy deposit. Total
project capital expenditure is targeted as follows:

Item                                                            Amount US$'000
Further exploration                                                      8,000
Infrastructure construction                                              4,000
Construction of auxiliary and domestic infrastructure                   10,000
Construction of tailings dam                                             7,000
Mining equipment and waste stripping                                    19,000
Processing plant construction                                           60,000
Other                                                                    4,000
Total project capital expenditure                                      112,000

Economic Evaluation

The project is expected to generate a post tax net present value of c.US$290m
and an IRR of c.51%. This analysis makes the following assumptions:
-         Valuation period to 2018;
-         Reserves and a resources as described above;
-         Discount rate of 7.125% (the interest rate of PHM's convertible bond);
-         Income tax rate of 24% and royalty rate of 6% as is currently applicable;
-         Capital expenditure estimates and mining costs are in line with current 
          levels experienced by the Group;
-         Gold price of US$450/oz flat for the period; and
-         This is an ungeared cash flow and before the effect of the Group's 
          unaudited net cash balance of US$133m at 31/12/05.

Valuation Sensitivities

The net present values and the internal rates of return presented above are
generated from PHM's base case business planning assumptions. The realities are
subject to market forces and may represent significantly different variables -
for example the gold price is currently c.US$110/oz higher than as used in the
base case.

In order that the valuations may better reflect these differences the tables
below show how the base case NPV and IRR will move with different gold prices
and discount rates but all other assumptions unchanged:

NPV - Variable gold price and discount rates. Upside
                                 Gold Price Scenarios (US$/oz)
                                    450      500      550      600      650
           --------    -------- -------- -------- -------- -------- --------
     Discount Rates      0.000%   1,792    2,207    2,621    3,036    3,450
                         5.000%   1,202    1,490    1,779    2,067    2,355
                         7.125%   1,023*   1,273    1,524    1,774    2,024
                        10.000%     829    1,038    1,246    1,455    1,664
                        15.000%     585      741      897    1,054    1,210

NPV - Variable gold price and discount rates. Downside
                                 Gold Price Scenarios (US$/oz)
                                    450      425      400      375      350
           --------    -------- -------- -------- -------- -------- --------
     Discount Rates      0.000%   1,792    1,585    1,378    1,171      964
                         5.000%   1,202    1,058      913      769      625
                         7.125%   1,023*     898      773      648      523
                        10.000%     829      725      620      516      412
                        15.000%     585      507      429      351      272

IRR - Variable gold price and discount rates. Upside
                            Gold Price Scenarios (US$/oz)
                                450       500       550       600       650
     --------      --------  --------  --------  --------  --------  --------
                      IRR        71%*      86%      101%      117%      135%

IRR - Variable gold price and discount rates. Downside
                            Gold Price Scenarios (US$/oz)
                                450       425       400       375       350
     --------      --------  --------  --------  --------  --------  --------
                      IRR        71%*      64%       57%       50%       43%

* PHM Base Case

DISCLAIMER

Past performance of the Company or its shares cannot be relied on as a guide to
future performance.

Some statements contained in this release and the associated presentation or in
documents referred to in it are or may be forward-looking statements. Actual
results may differ from those expressed in such statements, depending on a
variety of factors.

Any forward-looking information contained in this presentation has been prepared
on the basis of a number of assumptions which may prove to be incorrect, and
accordingly, actual results may vary.  Investors must be aware that only
Pokrovskiy main pit and Pioneer reserves have been approved by the Russian
authorities as extractable. However the assumptions used in this presentation
are based on other reserves having been approved for extraction. No assurances
may be given that the Russian licensing authorities will approve any Group's
reserves for extraction.  Any mining, engineering and business plans prepared by
the Group are based on the Group's interpretation and understanding of the
current business, regulatory or political circumstances in Russia and in the
gold market and may be subject to change should any of these circumstances
change.

This presentation does not constitute, or form part of or contain any invitation
or offer to any person to underwrite, subscribe for, otherwise acquire, or
dispose of any shares in Peter Hambro Mining plc or advise persons to do so in
any jurisdiction, nor shall it, or any part of it, form the basis of or be
relied on in any connection with or act as an inducement to enter into any
contract or commitment therefore. No reliance may be placed for any purpose
whatsoever on the information or opinions contained in this document or on its
completeness and no liability whatsoever is accepted for any loss howsoever
arising from any use of this document or its contents otherwise in connection
therewith.

This press release and associated presentation has been prepared in compliance
with English law and English courts will have exclusive jurisdiction over any
disputes arising from or connected with this presentation.

The content of this press release has been approved by JP Morgan Cazenove as
nominated adviser to the Group.



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