21/05/17

Hambro hanging on by his fingertips (The Sunday Times)

Simon Duke

The Old Etonian made a debt-fuelled bet on his Russian mines at the wrong moment, writes Simon Duke. And now powerful shareholders scent blood

Gordon Brown was pilloried for selling off a large chunk of Britain's gold reserves in the late 1990s and early 2000s at a knockdown price.

But for disastrous timing it's hard to match Peter Hambro. The scion of the Anglo-Dutch banking dynasty borrowed more than $1bn in the early 2010s to expand his Russian mining venture Petropavlovsk. Unfortunately for Hambro, the bullion market soon went into freefall.

The legacy of this debt binge still haunts Hambro, who is on the brink of being ejected from the company he co-founded in 1994 during the disintegration of the Soviet Union.

"Mea culpa, I made a mistake," said the 72-year-old from his oak-panelled office overlooking the gardens at Buckingham Palace . "We should never have taken out a convertible bond it was the stupidest thing we ever did."

Hambro, who is executive chairman, is weeks away from being pushed out of Petropavlovsk. Earlier this month, a trio of powerful investors including the Ukrainian oligarch Viktor Vekselberg and blue-chip City investor M&G vowed to oust Hambro from his position at next month's annual meeting. The rebels want to remove the three non-executive directors and install four of their own nominees. Last week, Hambro said he would step down as chairman but vowed to remain as an executive director.

The odds are stacked against him. Renova, an investment fund controlled by Vekselberg, owns 15% of the shares. With M&G's distressed debt fund and Sothic, another investor, the rebels control about a third of Petropavlovsk. By contrast, Hambro and his co-founder Pavel Maslovskiy own just over a tenth of the company. That leaves the fate of the old Etonian in the hands of Petropavlovsk's small investors.

Given the miner's dismal recent record, Hambro cannot count on their support. The shares have plunged by more than 99% from their peak in 2010, when the company's market value topped £2bn and it was widely seen as a contender to break into the FTSE 100.

Back then, Hambro made some bold proclamations that, with the benefit of hindsight, can only be called hubristic. "Everyone should own a little bit of gold it's a wealth insurance," he said in a newspaper interview at the time. This proved a calamitous call.

To develop a large deposit of gold in eastern Russia, he built up a prodigious debt pile. But the market turned against him. The price of gold halved between 2012 and 2015, leaving Petropavlovsk unable to service its borrowings. Hambro and Maslovskiy were forced to pump $10m each into the company as part of a broader financial overhaul. According to Hambro, the company's position was destabilised further by a clutch of hedge funds that made "egregious" profits from the turmoil. Yet, these complaints ring hollow.

Hambro is a former bullion trader who once worked for the late Marc Rich, the controversial American financier who founded the commodities giant Glencore.

Hambro, whose patrician bearing stands in contrast to the grimy world of Russian mining, said he was the best man to revive the miner.

In a plea to small shareholders, he said the current management team was "bloody good at mining our mines" and had "come through the worst of it".

The rebel investors disagree, blaming him for the company's continuing woes. M&G said it had spent "several years" trying to improve corporate governance, and now felt "compelled" to act.

Hambro has raised questions over the independence of the four directors put forward by the rebel investors.

The best known is Bruce Buck, chairman of Chelsea football club since Roman Abramovich's takeover in 2003. Buck, a 71-year-old American lawyer, worked on the float of the now-defunct miner New World Resources. It is understood that M&G owned bonds in New World. Another of the proposed directors, Vladislav Egorov, is an employee of Renova.

According to Hambro, the renegades are trying to "pack the board with people who are, in effect, their nominees".

M&G argued that the two directors it has proposed Ian Ashby and Garret Soden were "independent", and would bring much-needed "corporate finance skills and mining industry experience".

Hambro insists that the rebels are trying to seize power by proxy. "My overriding concern is that all shareholders are treated fairly. If you want to take control, you should have to pay a premium," he said.

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