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Peter Hambro Mining (POG)

  Print      Mail a friend       Annual reports

Monday 11 February, 2008

Peter Hambro Mining

Future Production Forecasts

Peter Hambro Mining PLC
11 February 2008



11 February 2008



               Future production forecasts and project economics



Peter Hambro Mining PLC (the "Company") announces further details on its
production forecasts and projected economics to be included in the Analysts'
Workshop that it will conduct today.



These forecasts are based on internal expectations but are supported by the
Technical Report by Wardell Armstrong International ("WAI") that deals
specifically with the Company's production schedules. The full WAI Technical
Report can be found on the Company's website at www.peterhambro.com.



Highlights:

  • WAI has examined the operating and capital cost structure as projected by
    the Company for each of the principal assets and is satisfied that these
    budgets are appropriate and of the right order to allow proper development
    of each asset.
  • The Company expects that in 2010 its total attributable gold production,
    which includes its share from Joint Ventures, will be in the order of
    900,000oz and that it will exceed 1 million oz in 2011.
  • Based on exploration experience since 1994, the Company believes that the
    probability of maintaining exploration success sufficient to support such a
    production level beyond 2011 is high.  This belief is particularly supported
    by the fact that for certain assets that are not covered in the WAI report,
    such as Albyn, the Company has advanced production plans, as will be covered
    in the Workshop presentation.  These plans anticipate additional production
    of c.100,000oz in 2010 and 150,000oz in 2011.
  • The WAI Technical Report, which covers the Company's current fully
    evaluated assets, but excludes attributable production from Joint Ventures,
    forecasts production at the rate of c.835,000oz of gold per year in 2010 and
    c.755,000oz in 2011.
  • The principal differences between the Company's production forecasts and
    those of WAI are:

    o The Company's forecasts for Pokrovskiy are based upon improved recovery
      rates from primary ores achieved from recent changes to its processing 
      facility.

    o The Company expects to maintain higher grades in 2010 and 2011 than
      those forecast by WAI. The Company's views are supported by exploration 
      success since the completion of the WAI Report.

    o The Company's forecasts include its share of production from joint
      ventures and from assets not included in the WAI forecasts.

  • The Company believes that its assumptions are appropriate, given recent
    technological improvements in its recovery process and its knowledge of its
    resource base.  In support of the Company's view, the WAI's report states
    that:

    o Opportunities exist to increase the reserve base, and thus the
      production schedule, over and above the numbers stated in the WAI's   
      Report.

    o The Pioneer resource is significant in size and highly prospective for
      the discovery of additional ore columns and other zones of mineralisation.



Summary of production forecasts



For each project a comprehensive business planning, geological and engineering
analysis has been undertaken in order to estimate the expected production
profile. The Company's and WAI's estimates for the Group's attributable
production including attributable production from Joint Ventures are reflected
in the table below:




       Ounces              2008        2009        2010         2011
       Pokrovskiy
                    PHM     225,434     209,389     209,389      209,389
                    WAI     224,502     209,389     198,392      128,714
       Pioneer
                    PHM      72,026     281,582     372,752      370,109
                    WAI      72,026     281,576     303,408      279,968
       Malomir
                    PHM           -      92,283     261,029      329,582
                    WAI           -      92,283     261,029      263,666
       Yamal
                    PHM           -      16,624      36,141       46,109
                    WAI           -      16,624      36,141       46,109
       Placers
                    PHM      19,550      28,939      36,174       36,174
                    WAI      19,550      28,939      36,174       36,174
       JV's
                    PHM      41,801      41,801      41,801       41,801
                    WAI          -           -           -            -

       PHM Total            358,810     670,617     957,286    1,033,164
       WAI Total            316,077     628,810     835,145      754,630



It should be noted that the comparison only covers assets included in the WAI
report and the Joint Ventures and not Albyn, Tokur and other Group assets.



Explanation of the differences.

The principal differences between the Company's internal production schedule and
that of WAI are as follows:



Pokrovskiy Rudnik



Recovery rates



The WAI model uses 86% recovery rates through the RIP plant taking into account
the fact that the Company is moving into deeper levels in the Pokrovskiy pit and
will start processing primary ore through the mill from 2008; as opposed to a
mixture of oxidized and primary ore in the previous years. During the last
several years the Company has carried out test metallurgical works on primary
material in order to improve the technological process and thus the recovery
rate at the plant.  The result of these works suggested that the Company should
use 91% recovery rates in its projections.  In addition, during the 4th quarter
of 2007, one of the milling circuits was converted to include a new
gravitational stage.  This enabled extraction of the most refractory material
which is then treated by intensive cyanidation.  As a result, in December and
January, 91% recovery rates were achieved while processing a composition of ore
containing 60% of primary material.  It is planned to introduce a gravitational
stage into the other two circuits at the plant during the first half of 2008 to
expand this capability as the pit deepens.



Additionally PHM took into account resources containing oxidized material at the
borders of the existing pit, which are under constant detailed exploration.  For
example, in 2007 50,000oz at 5.2g/t of such resources were converted by the
Group into reserve category C1. This work is ongoing.



Grades (reserves of high grade ore)



In its projections WAI reduced the head grades through the mill from c.4.0g/t in
2008 to 2.4g/t in 2011. This is due to the fact that, using JORC methodology,
some high grade resources of the deposit at the deeper levels of Pokrovskiy pit
are not included by the WAI production model. However, PHM's Micromine model,
calculated using a gold price of $750/oz, provides for sufficient high grade C2
material to sustain head grades of 3.8g/t until 2012.  Moreover drilling at the
deeper levels of Pokrovskiy ore body showed that high grade mineralization is
continuous even deeper to horizon 80 below sea level.



Pioneer



Grades

The Company's forecast uses 10% higher average grades at Pioneer than WAI's
forecast because WAI does not account for the uplift in the average grades to be
realised from high grade ore columns.  Recent bulk sample reconciliation from
Bakhmut (Apophasis 1) show that exploration drilling understated gold grades by
10-15%.  As an example, the reserve model forecast 8.39g/t whereas 9.32g/t was
mined.  These columns are presently not explored on a drill spacing close enough
to convert resources in these areas into reserves.  The Company's experience of
processing gold from ore columns of Bakhmut and Promezutochnaya zones during
metallurgical tests showed average uplift of 15% to the grades calculated purely
by exploration work.



Reserves of rich ore at Andreevskaya

WAI's model does not recognize the P1 resources from this extremely high grade
area whereas they are included in the Company's model.  The Company's rationale
for this is its long term experience of working at the deposit and the high
quality of the exploration work. Historically at this deposit the Group has had
a very high coefficient of translating P1 resources into C1 and C2 reserves.
For example, after the September 2007 data cut off for the WAI report, 350,000oz
of gold was converted from P1 into C2 categories.  This was not included in the
WAI report.  Similar works are ongoing.



Malomir

At Malomir, WAI also excluded high grade P1 resources from its model.  However,
as a result of ongoing geological exploration works at Malomir part of the P1
resources - 250,000oz which were not included in WAI model - has been converted
into C1 and C2 reserves.  Currently there are still at least another 10 million
P1 tonnes of ore at Malomir at surface with average grades 3.0g/t, varying
between 1g/t and 15 g/t at ore intersections, potentially available for
conversion.



Summary of WAI Report



Based on the existing production and exploration data, WAI reviewed the
Company's asset exploitation schedule to determine the suitability of its
projections.  WAI is of the opinion that PHM can expect to produce in the range
of 629k oz and 835k oz of gold per year, for the three years 2009 to 2011. This
determination is based on the current operational methodology and the current
estimated mineralisation grade and morphology.



WAI considers the Pioneer resource to be significant in size and highly
prospective for the discovery of additional ore columns and other zones of
mineralisation within the planned pit outlines as well as peripheral to the main
zones already defined. WAI also believes that opportunities do exist to increase
the reserve base and thus production schedule over and above the numbers stated
in the report. The production projections by the Company take into account part
of the additional higher grade ore columns' potential which was not taken into
account in the WAI projections.



Initial indications are that continued exploration around the Pokrovskiy mine
may delineate further reserves, but this has not been considered by WAI at this
time as part of their production schedule. In addition to the principal assets
of Pokrovsky, Pioneer, Malomir and Yamal, WAI reviewed some other projects
belonging to the Group that are at various stages of assessment and development
from grass-roots targets, to active placer gold producers and more advanced
drilling projects. Earlier development of other assets such as Albyn and Tokur
may, in addition to the further prospective reserves described above, provide in
the longer term additional sustainable production. None of these were taken into
account in either the PHM or the WAI production schedules.



Highlights of specific deposits as stated in WAI Report

Pokrovskiy Rudnik and Pokrovskiy Flanks

  • Current production rate at Pokrovskiy will continue until 2012.
  • Post 2012 production will move to a series of smaller deposits termed
    Pokrovskiy Flanks.
  • Capital expenditure requirements at Pokrovskiy are relatively low with
    USD$4.0M committed to geological exploration over the next 2 years and
    USD$18M budgeted for capital replacement of the mining fleet plus lifting of
    the tailings dam in 2012.
  • Average total operating costs will remain relatively flat at the level of
    c.US$12/t.



Pioneer



  • Projected production from Pioneer in 2008 is at a rate of 872kt of ore,
    rising to 6.1Mt by 2010.
  • The average grade is expected to be 3.2g/t Au at the start of the mining
    life but will decrease to 1.7g/t Au by 2011.
  • Estimated mining costs at Pioneer are expected to be considerably lower
    than at Pokrovskiy due to reduced blending and re-handling of the ore and
    larger trucks and excavators used for waste mining.
  • The overall total operating cost estimated for Pioneer is c.US$9/t.  It is
    estimated that costs during the first 4 years of operation will average US$7
    /t.
  • Total capital expenditure requirements for the Pioneer mine are estimated
    to be in the region of US$160M, with US$116M to be spent within the next 4
    years.

.

Malomir



  • Production is planned to commence in late 2009 at a rate of 1.0Mt of ore
    per year increasing to 3.0Mt in 2010 and to 6.0Mt by 2012.
  • Production is estimated to continue until 2020 by which time an estimated
    60Mt of ore will have been mined, yielding 2.2Moz of gold metal at an
    average grade of 1.45g/t Au.
  • Operating costs for Malomir have been estimated at an average total
    operating cost of US$13/t.
  • Total capital expenditure requirements for the project are estimated to be
    in the region of US$110M,

Yamal



  • Two combined gold and iron ore projects Petropavlovskoye and Novogodnee
    Monto are under development.
  • Additional to the primary products, waste rock is planned to be sold as
    aggregate for the fast expanding oil industry and railroads in the region
    which will generate significant extra revenues for the projects.
  • Ore mining is planned to commence in 2009 producing 607ktpa at 1.12g/t Au
    with full capacity, of an expected 1,500ktpa, being reached in 2010/11.
  • In addition, the ore will average 41% Fe with a supplementary 3.5Mtpa of
    waste also to be sold as aggregate.
  • Total capital expenditure requirements for the project are estimated to be
    the region of US$192M.

Placer Deposits in Amur



  • It is planned to increase current annual placer deposits production of
    16,000oz of gold to 36,170oz of gold per year by 2010
  • The average total operating costs are estimated to be in the order of
    US$2.8 per tonne of ore.
  • The Company plans to invest US$20M in placer deposits over the next 3 to 4
    years



Assets not covered in the WAI/Company production schedules



Albyn



•  The Albyn licence was acquired in 2005 and covers 40km2.

•  It is located 40km to the south-east of the Tokur licence areas and
   has been actively explored since 2006.

•  Three ore zones have been identified with grades between 0.6-38.9g/t,
   an average grade of 2.5g/t and an average thickness between 2.7m, 5.4m and 
   5.5m.


•  Two types of gold mineralisation: in metasomatic and tectonic zones.

•  A tectonic zone has been traced over a strike length of 4.5km from
   trenches spaced 80-320m apart.

•  A 2,600m section was certified by 117 drill holes down to 324m depth,
   in grids of 600-100 x 80-40m.

•  Ore zones are open in all directions.

•  An extensive upper ore body overlaps two lower lying ones.







Chairman's comments



Peter Hambro, Executive Chairman of Peter Hambro Mining plc, commented:



"Our objective in holding a workshop for analysts who cover the Company is to
give them a chance to look in detail at the forecasts we are making, to question
the assumptions and to enable them to understand the reconciliation between
these and the independent report by WAI.  We hope that by doing this our
investors will gain a clearer picture of what it is that the Company owns and
thus of its future production possibilities.



With all mining companies the state of their geological knowledge changes often
and it is particularly gratifying that the changes we are experiencing are
highly positive.  This is particularly true at Pioneer and we have encouraging
results too from the existing Pokrovskiy mine.  At the newly acquired Albyn
deposit the initial exploration results are also very positive.  Armed with this
knowledge and our 13 years of experience on the ground, our geologists and
economic forecasters are confident in the production forecasts that we are
confirming today.



In light of this it is reassuring to have the confirmation of WAI of our
existing resources and that these are both significant in size and highly
prospective for the discovery of additional ore columns and other zones of
mineralization.



The Company's objective remains to match a steeply rising production profile
with an increasing effort to prove up our resource base; but above all to
produce profitable ounces of gold.



I have every confidence in the ability of our team to deliver what we have
promised."



Peter Hambro





Analysts' Workshop

The Company will be holding today an Analysts' Workshop to discuss its
production schedules in the light of WAI's technical report. The workshop will
begin at 11:00 and will be held at the Company's office. A web cast will be
available on the Company website www.peterhambro.com. In attendance will be
members of Peter Hambro Mining Plc Board of Directors, members of Management
Company Peter Hambro Mining and a Director from WAI.

The full year results of the Group are expected to be published on 21st of April
2008. The full year results will incorporate the impact of mark-to-market
valuation of the derivative embedded into the Group's exchangeable gold bonds.

Enquiries:

Peter Hambro Mining Plc                                     +44 (0) 20 7201 8900
Alya Samokhvalova / Rachel Tuft

JPMorgan Cazenove                                           +44 (0) 20 7155 2828

Ian Hannam / Patrick Magee
Merlin                                                      +44 (0) 20 7653 6620
David Simonson / Tom Randell / Anastasia Ivanova

Disclosure

The contents of this announcement have been approved for release by Dr. P.
Newall, BSc, PhD, CEng, FIMMM, of Wardell Armstrong International. Dr. P. Newall
has consented to the inclusion of the material in the form and context in which
it appears.

This release has been reviewed by Dr. Stephen Henley, who is an independent
geological advisor to the Board of Directors of Peter Hambro Mining Plc. Dr.
Henley is qualified to act in the capacity of a Competent Person for the
purposes of this statement.

Dr. Stephen Henley holds a PhD in Geology (University of Nottingham, 1970). He
is a Fellow of the Geological Society, a Fellow of the Institution of Materials,
Minerals and Mining, and a Chartered Engineer. He is also a Charter Member of
the International Association for Mathematical Geology. He has been employed in
exploration, mining, academic and geological consultancy posts since 1970 and
has participated in Competent Person studies on a variety of different minerals
and types of deposit, including gold, polymetallic and chromite projects.

                                 - Ends -




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