Peter Hambro Mining PLC
31 March 2006
31st March 2006
Peter Hambro Mining Plc
2005 Trading Update
Further to the production update provided in January 2006 and in advance of the
Group's preliminary results announcement due to be released in April 2006, Peter
Hambro Mining plc ("PHM" or the "Group") is today issuing an unaudited trading
update for 2005.
Business and operating cost update
PHM is in a period of substantial expansion and the business remains on track to
achieve the 2009 "Million Ounce" target. PHM's estimate of the economic value
of the Group's operations remains substantially unchanged to that set out in the
January 2006 announcement. In relation to that announcement, PHM presented unit
cost estimates for the Pokrovskiy Flanks, Pioneer and Malomir deposits based on
actual costs experienced in the first eleven months of 2005 - these estimates
However as is common throughout the extractive industry globally, material and
input costs at Pokrovskiy mine and for our Omchak joint venture have experienced
upwards pressure from external factors. For Pokrovskiy, fuel, energy and plant
consumables prices have increased by 36%, 26% and 30% respectively.
The inflationary pressures that the Group continues to experience will have to
be balanced against the Rouble price of gold and economies of scale. The
balance of these factors will determine the long-term profitability of the
Group's assets. In this connection it should be noted that: the Rouble price of
gold has risen by c.38% since 1 January 2005. The Group is actively
implementing cost optimisation programmes and would hope to benefit from
economies of scale with the amount of material to be moved in 2009 expected to
be six times that moved in 2005.
As a result of tight internal cost control, the preliminary estimate of the 2005
Gold Institute Standard ("GIS") Cash Operating Cost for Pokrovskiy is c.US$125/
oz. - a rise of c.17% compared to 2004. The cash cost estimate is c.16% below
our previously reported cash operating cost per ounce for the first six months
Omchak suffered particularly from a rise in input costs since it is partly an
alluvial operator with c.40% of its costs are fuel and energy related. It also
experienced significant foreign exchange translation losses. Omchak's
preliminary GIS total cash costs are expected to have increased by c.17% to
c.US$360/oz for 2005.
Accounting and financial update
In previous years, the majority of costs incurred in delivering our expansion
programmes have been capitalised by the Group. In 2005, given that large scale
trial mining has commenced at Pioneer, certain costs will, however, be charged
against 2005 earnings as follows:
• US$2.5m increase in payroll expenses relating to staffing and training
for expansion projects (164 personnel active within Pokrovskiy but working
toward Pioneer, Malomir and the Pokrovskiy flanks development);
• US$2.3m cost of Pioneer trial mining (including c.US$1m of
depreciation of Pioneer assets); and
• US$0.5m cost of repair work to equipment utilised at Pioneer.
In addition, the debt service costs of the US$140m convertible bond, amounting
to c.US$4.2m, have had a negative impact on the Group's profit for 2005.
On the basis of current estimates the combined effect of the factors described
in this announcement is expected to lead to the reported net profit of the Group
for 2005 being c.15% below that of 2004. It is intended that the Group's
preliminary results will be published on Monday April 24th 2006.
Commenting on the announcement, Peter Hambro, Executive Chairman, said:
"The Pokrovskiy mine is reported to be Russia's lowest cost gold producing major
mine. 2005 has seen the commencement of PHM's large expansion programme leading
our million ounce gold production in 2009. Until 2005 the Group's unit
operating costs had remained relatively constant for the past 3 years, as
inflationary pressures were matched by cost optimisation programmes and
economies of scale.
However our preparation for further expansion, combined with significant input
cost increases for all key raw materials, have impacted the earnings of an
otherwise excellent year in which gross sales rose by c.33%.
Cost control and asset optimisation remain key priorities and unit costs in the
future will benefit as production levels increase towards our million ounce
Alya Samokhvalova or Marianna Adams +44 (0) 207 201 8900
Peter Hambro Mining www.peterhambro.com
Tom Randell or Maria Suleymanova +44 (0) 207 653 6620
This information is provided by RNS
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