| Key Data | | EPIC | HMB | | Share Price | 1.675p | | Spread | 1.65p - 1.7p | | Total no of Shares | 979.72 million | | Market Cap | £16.41 million | | 12 Month Range | 1.6p - 5.625p | | Website | www.hambledon-mining.com | | Market | AIM | | Sector | Mining | |
Contact
| Charles Zorab, Corporate Development - 020 7233 1462 | |
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Final results from Kazakhstan based miner Hambledon Mining have just been announced for 2011 which cover a year when underground mining began at its Sekisovskoye mine. Development work is creating a sustainable operation with a potentially long mine life which looks likely to transform the company over the coming years. In the year to 31st December 2011, poured gold was 8% lower at 20,851 ounces due to a falling grade and higher stripping ratio as the open pit comes to the end of its economic life. Problems at tailing dam 3 resulted in a charge of $7.8 million resulting in a loss after taxation from continuing operations in 2011 of $9.4 million. The spill from this tailings dam has not caused any long-term pollution but seems to have taken investors' attention away from the obvious progress that the company has made in commencing underground mining operations in November 2011. Capital expenditure increased years on year from $4.9 million to $14.4 million as the mine goes underground. However, the company ended the year with cash of $1.8 million and with a loan facility of $2 million still available to use, plus a European Bank of Reconstruction and Development (EBRD) loan of $15 million being completed. It does go to show the improving status of Hambledon in that a lender and investor of the stature of EBRD is providing financial backing.
Development work, coupled with mining over the next four years at Sekisovskoye should allow annual gold production to climb from 20,851 ounces per annum in 2011 to 100,000 ounces. The board is seeking to expand the company's gold interests in Kazakhstan and make use of the team's skills in not only mining in the country but also dealing with the associated red tape. In September 2011, the board announced an agreement to acquire 100% interest in Akmola Gold which owns two precious metals projects in central Kazakhstan with combined resources of 440,000 ounces of gold plus silver and other metals. So far no funds have been advanced to the vendors as this acquisition has not yet been completed and the expected completion date of 30 March 2012 has been passed because certain permits and waivers from the Kazakhstan authorities have not yet been received and so the conditions cannot be met. The waters have been muddied by the state mining company Tau-Ken Samruk notifying the company that it is seeking to exercise it's pre-emption rights in Akmola Gold. This has disappointed the market which has hit the share price. Discussions are continuing with the vendors of Akmola Gold to amend the terms of the agreement given the delay to the acquisition completion date; and at the time the final results were announced, it was reported that this acquisition remains conditional upon certain approvals from the Government of Kazakhstan. Sekisovskoye continues to perform satisfactorily, with the mineral processing plant operating at record levels of throughput in 2011 and such progress has continued into the current year. The 1Q 2012 production update brought news that year-on-year gold production in the first quarter increased by 9.4% with 4,870 ounces of gold recovered following an 18% increase in the mined tonnage which has been helped by the winterisation programme that was completed during 2011. Certainly 1Q 2012 demonstrated encouraging performance and reliability in what is always a challenging quarter due to the severe weather conditions. The mill is benefiting from the refurbishment of the infrastructure last year. At the same time the open pit mine and the attendant machinery fleet was upgraded which has allowed for the removal of considerable waste and production to increase. The construction of Tailings Dam 4 and changes to effluent deposition are well advanced. Despite these advances the operations continue to be high cost due to processing low grade ores in 2011 which resulted from having to remove significant quantities of excess waste in the open pit. The beginning of underground mining marks what will be a 3 year transition from open pit to underground mining which will see the mining of higher grade material which should allow gold production expected to climb to 100,000 ounces per annum. The board believe that the expansion of the underground mine in 2012 should see Hambledon attain its target of increasing gold production. The development of Hambledon's gold mining interests in Kazakhstan is a compelling story that has already netted over £30 million in placings from well-known institutions, mostly at significantly higher levels to the current share price. Despite a reasonably buoyant gold price Hambledon is capitalised at such a low level due to disappointing the market with production figures on a number of occasions. Gold production began at the Sekisovskoye open pit in late 2007 and to date only 75,000 ounces have been mined from a large deposit which has a JORC resource totalling 1.93 million ounces. Underground mining has already begun ahead of schedule and although gold production is modest it is expected to climb steadily throughout 2012. Looking ahead the board plan that the rate of gold production from the underground mine will be targeted to hit 100,000 ounces a year by 2017. Meanwhile, the open pit is planned to continue production at a minimum 22,000 ounces a year until 3Q 2014; but during this period its cash flow will provide a lot of the capital expenditure necessary to develop the underground mine. Overall, this means production from Sekisovskoye could rise annually from 21,000 ounces in 2011 to 26,000 ounces in 2012 and 45,000 ounces in 2014 on the way to hitting the 100,000 mark in 2017. Sekisovskoye is well located, being just 40 kilometres away from the regional capital, and has an easy metallurgy along with an experienced local management. However, the mine has historically suffered from high operating costs. Certainly the arrival of Tim Daffen as CEO in 2010 brought in a man with the expertise to not only bring the new underground mine into production but also to reduce operating costs. Tim saw that too much gold was going to the tailings and that production was being hampered by power shortages, a lack of spares and key elements in the mill being of poor quality. Furthermore, operating in temperatures sometimes as low as minus 40ºC, the operation needed further protection against the elements to remain efficient. In March 2011, £9.1 million was raised at 4p to fund this raft of measures which were set to reduce the operating cost by $120 an ounce down to $800 an ounce from surface mining. Further improvements in recoveries to 95% are targeted over the coming years which, when coupled with the full production underground, could led to operating costs per ounce being brought down to the $700-800 range. Valuation The team at Hambledon are specialists in Kazakhstan. After so many years in the country, the management has first-hand experience of dealing with all the requirements and authorisations necessary to bring a mine into production. The board has sensibly played to their strengths in seeking to acquire Akmola Gold which wholly owns the Tellur and Stepok precious metals projects in central Kazakhstan. If this deal finally goes ahead, the Company will gain a combined resources of 440,000 ounces of gold plus silver. Tellur is a high grade underground gold mine which has the scope to become a 20,000 ounce per annum gold mine in 2014, while the ore could be trucked to Sekisovskoye for treatment in the company's existing plant. Stepok is an earlier stage project where a substantial drilling programme is planned ahead of a feasibility study. The resource here is equivalent to 300,000 ounces of gold to justify a one million tonne a year operation producing 30,000 ounces of gold and 40,000 ounces of silver annually, but the team believes there may be scope for 60,000 ounces gold per annum. Moving ahead with more than one mining operation would bring a diversification of risk and clearly demonstrate to investors that Hambledon has real growth prospects and may propel production not just to 100,000 ounces but far higher in the medium to long term. Sekisovskoye is a project where the existing operation has only just scratched the surface of a tremendous resource which is now being beginning to be mined on a larger scale by underground methods. Our analysis suggests a Net Present Value of $117.2 million (£73.2 million) for the Sekisovskoye which equates to 7.5p per share based on the current issued share capital of 979.2 million shares. It has to be pointed out that Akmola Gold with its Tellur and Stepok precious metals projects is a prize worth fighting for which could add additional production over future years; but at this stage it has been left out of the analysis. We recommend the shares as a Speculative Buy at 1.675p with a target price of 7.5p.
Financial record & forecasts Year to 30th Dec | Sales ($000) | Pre-tax Profit ($000) | Earnings per share (c) | Price Earnings Ratio (x) | Dividend (p) | Yield (%) | 2009A | £12,810 | (£189) | 0.01p | 180 | 0 | 0.0 | 2010A | 29,053 | 3,318 | 0.57c | 5.4 | 0 | 0.0 | 2011A | 33,325 | (10,579) | (1.15c) | NA | 0 | 0.0 | 2012E | 39,000 | (1,500) | (0.15c) | NA | 0 | 0.0 | Source: Growth Equities & Company Research 
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