Hambledon Mining set to hack into the black

Developing gold projects in the central Asian republic of Kazakhstan has proved a rocky road for Hambledon Mining. But Nick Bridgen, the company’s dogged chief executive, can now look forward to declaring its first annual profits at the end of 2010, six years after floating Hambledon on AIM with ambitions to create a significant mid-tier producer of the beguiling metal.

After a succession of technical problems and other setbacks which dogged Hambledon’s progress and kept it losing money, the company slashed annual losses 96 per cent to £245,000 last year and is confidently expected by the stock market to embark on a series of accelerating profits from now on. A buoyant gold price hovering a few dollars below $1,200 an ounce and a weak pound are doing their bit to help.

Last year’s production from Hambledon’s flagship Sekisovskoye open-pit mine was up 60 per cent to 20,050 oz. That is still paltry compared with an ambitious target of 300,000 oz a year by 2012 declared by Bridgen four years ago, but output is gaining momentum.

Since the heady days of the mid-2000s mining boom, when Bridgen’s optimism saw the shares more than quadruple from a 5p flotation price to 21.75p in 2007, obstacles ranging from extreme weather conditions to ruptured boilers had repeatedly delayed progress. As it is, another gold project, at Ognevka, has not lived up to earlier expectations and was kept on care and maintenance throughout 2009, while the Ognevka plant will be liquidated this year.

Even now, weather can still be a problem. In the first quarter of this year, which analysts expect to bring a 25 per cent production increase to 25,000 oz of gold, the company produced only 2,579 oz, a shortfall Bridgen blames on ‘exceptionally cold winter weather’ in Kazakhstan.

He says conditions have improved since late March and Hambledon, which has taken new steps to cope with bad weather, produced 2,048 oz in April. The market now sees the company more than doubling production next year to almost 52,000 oz, with 76,000 oz on the cards for 2012.

This is, of course, a far cry from the 300,000 oz once confidently set as a goal. But Hambledon watchers argue even this production increase could generate pre-tax profits of £2.3 million this year, rising to £14.8 million in 2011 and reaching £22.7 million the year after.

As it was, Hambledon turned a £7 million operating loss into a maiden operating profit of £42,000 last year. The company received an average price for gold sold up 15.4 per cent at $974 (£636) an ounce, while silver production almost doubled to 46,050 oz.

Crucial to Bridgen’s plan is a move from open-pit to underground mining, where grades should be significantly higher than the 1.28 grammes of gold per tonne of ore achieved so far in the open pit. Nearly two-thirds of Sekisovskoye’s reserves of 634,348 oz are underground, as is the majority of the mine’s total indicated and inferred resource estimate of 2.1 million oz.

Hambledon, which raised £2.7 million net at 6p in September and ended 2009 with £1.5 million cash, sees the first underground extraction from Sekisovskoye late next year. Funding will clearly be an issue, though the company has renewed a $2 million loan facility from Russia’s Alfa Bank until December 2012.

Meanwhile, Hambledon has added to its revenues in 2009 by processing ore from third-party miners lacking the necessary equipment. Advisers suggest that the volume of this third-party ore could increase from 10,000 tonnes to 60,000 tonnes this year.

After a dismal long-term performance, Hambledon shares have lately perked up from a 3.88p low to 5.25p. If the underground move is successful, they could now reward a brave punt over the medium to long term.