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By John Helmer in Moscow

It hasn’t been a golden autumn for Peter Hambro (Petro) and Pavel Maslovsky (Pavlovsk) or their London Stock Exchange mining play, Petropavlovsk plc.

First, there was a problem with falling production – and falling share price. Then there was the refusal by the Hong Kong Stock Exchange listing committee to approve the application to spin off the iron-ore and titanium assets and sell shares of their new company called IRC Limited.

Peter Hambro, the chairman of Petropavlovsk, and co-founder of the predecessor business called Peter Hambro Mining (POG:LN) has admitted the first. “We got hampered by things out of our control. We’ve told the world that we think we will manage to achieve our target, albeit at the bottom end of it.” According to the latest report to the market, Petropavlovsk’s gold output for the first half was 166,300 ounces, down 26% on the same period of 2009. Despite the improved average gold sale price realized in the period, the company’s revenues fell 9% to $195.7 million. Instead of profit last year, Petropavlovsk is now running a half-year loss of $55.4 million. Grades in the company’s lead mine are falling, so it’s getting more expensive to dig, and costlier also to develop higher-grade ore bodies elsewhere. Debts are ballooning – from $19 million at the end of last December to $125.5 million on June 30.

The share price collapsed 29% between June and late August. It then recovered, only to start falling again last week:

The company also had to admit in its financial report on August 26 that a big Chinese backer for its efforts to develop a parallel iron-ore, titanium and ilmenite mining business has vanished. According to the company’s official report, “US$33.1 million attributable to impairment against the amounts invested in the Titanium Sponge Joint Venture and related assets due to its joint venture partner, Chinalco, advising that it no longer wishes to proceed with the project as a consequence the building of the plant has been postponed and thus there is uncertainty as to the eventual outcome of the project.”

For Hambro and his partner Pavlovsky to convince the Hong Kong Stock Exchange to accept a listing of that business when Chinalco – one of the largest of the state-owned metals conglomerates in China – had walked off was a tall order. The financial report acknowledged that into August the company had spent $2.4 million on “listing costs incurred in relation to the proposed listing of the Non-precious Metals Division in Hong Kong.”

Then someone close to Petro or Pavlovsk seems to have told Reuters that the Hong Kong Exchange had agreed to the listing. The Reuters report, appearing on September 10, claimed: “The miner planned to raise about $500 million to $600 million in the IPO, two sources close to the deal said on Friday. The group received approval from the Hong Kong Stock Exchange on Thursday, the sources said, adding that the company would kick off its IPO pre-marketing on Sept. 13.”

Scott Sapp, the spokesman for the Hong Kong Exchange, responded that nothing of the sort had happened. No listing approval was granted on September 9, nor at the following Listing Committee meeting on September 16. The Exchange has indicated that no stock code has been assigned to the proposed listing; and no prospectus – called a Web-Proof Information Pack in Hong Kong – has been issued publicly.

Another local newspaper was then told that “IRC Ltd, a non-precious metal unit of Russian gold miner Petropavlovsk PLC, plans to start its initial public offering on Sept 30, to become the second Russian company to list in Hong Kong after UC Rusal aiming to raise up to $600 million and make its trading debut on Oct. 14, according to market sources.”

Coming on the tail-end of Rusal in the Hong Kong market may not be every investor’s idea of a good deal. Officially, all the company has announced is that it “has reached an advanced stage in its preparations for a possible Hong Kong IPO of the Group’s Non-Precious Metals Division and has decided, subject to final approval from the Listing Committee of The Stock Exchange of Hong Kong Limited (“HKEx”) and market conditions, to proceed with an IPO of the Group’s Non-Precious Metals Division on the HKEx. As part of the proposed listing process, the Non-Precious Metals Division has been re-organised under a new subsidiary, IRC Limited (“IRC”). Subject to the listing proceeding, it is expected that IRC will become the listed entity on the HKEx during October 2010.”

The first version of Hambro’s comment, attached to this release, was: “The listing of IRC is subject to, among other things, the final approval from the Listing Committee of HKEx and the final decisions of the boards of Directors of the Company and IRC. There is no assurance that the listing will proceed or as to when it will take place.”

The current version of the same release has Hambro whistling another tune: ““With the progress we have made towards funding our larger projects, while producing and delivering our first iron concentrate from Kuranakh, a listing of IRC in Hong Kong is an important and significant further step for Petropavlovsk and for IRC.”

IRC, explains one of Petropavlovsk’s executives, is based on the Chinese name for the company, which is translated as Iron River Commodities Company Limited. The ideogram for river in the Chinese name also refers to the Black Dragon River; Heilongjiang, which runs down the middle of the company’s planned activities.

But what is going on in Hong Kong? Sources close to the proposed transaction say that Hambro and Pavlovsky ran into trouble with the Hong Kong regulator by promoting a pre-offering share placement to a group of investors in June. That was before the application to list on the HKEx had been filed – and before the name of the new company had been decided. According to the announcement by Petropavlovsk on June 7, $60 million worth of shares had been sold “into a new holding company (“NPMHoldCo”) for the non-precious metals division of Petropavlovsk. Asia Resources Fund (“ARF”) (through a wholly-owned subsidiary), a subsidiary of General Enterprise Management Services (International) Limited (“GEMS”) and CEF Holdings Limited (“CEF”) together the “Investors”, have agreed, subject to the entry into definitive documentation which is now being finalised and the conditions therein being satisfied (principally relating to a corporate re-organisation of Petropavlovsk’s non-precious metals interests), to invest US$50m and US$10m respectively into the non-precious metals division of Petropavlovsk in return for an equity stake in NPMHoldCo….This investment values the equity in the non-precious metals division of Petropavlovsk at US$860m following the investment.”

CEF is a joint venture the Canadian Imperial Bank of Commerce and Cheung Kong (Holdings) Ltd. Cheung Kong is owned by Li Ka-shing, one of the most powerful of Hong Kong’s magnates. Lest anyone suppose that he’d been given an inside track, he has had to sell back his stake. He is reported, however, as promising to buy it back again as one of IRC’s “anchor” investors.

Bank of America Merrill Lynch, UBS and Bank of China International are negotiating the listing with the Exchange. A source close to them has told Minesite that the $60 million sale was too close to the IPO. Either Hambro should make more private deals if he could, the Exchange let it be known. Or if he wanted approval to list his shares, he had to treat all potential buyers the same. Hambro then agreed with the Exchange to buy back the $60 million placement.

It doesn’t appear that inoculating IRC from Li Ka-shing has been enough of a remedy to satisfy the Listing Committee’s conditions; nor will the Exchange say what the remaining conditions are.

In the meantime, a survey of the Russian reporting of the 16-year history of Hambro’s and Pavlovsky’s goldmining partnership reveals a great many problems. These may — or then again they may not be disclosed and discussed in the HKEx prospectus. One Russian allegation that may be far-fetched is that Hambro has benefited from British foreign intelligence connections in his pursuit of Russian gold assets. If that were true, MI6 must have been much smarter in snatching Russian intelligence value under the ground than the secret service has proved to be on the surface.

A more serious set of allegations relates to the way in which Pokrovsky, the principal goldmine asset on which Hambro’s and Maslovsky’s fortunes have depended, was bought into Maslovsky’s mining vehicle Tokur Zoloto in the mid-1990s; absorbed by Hambro; and along the way, some of the investors in Tokur Gold lost their stakes to the bankruptcy of Tokur Gold in 1998-99. The 2002 prospectus issued by Peter Hambro Mining (PHM) for admission to the Alternative Investment Market (AIM) claims the right to mine Pokrovsky in the fareastern region of Amur was incorporated into PHM between 1994 and 1997. Before Maslovsky happened on Pokrovsky, he had been a professor at the Moscow Aviation Institute.

There are Russian press reports of the Tokur Zoloto bankruptcy; some reports likened it at the time to a pyramid scheme, but charges were never brought, and noone was ever prosecuted for wrongdoing. Maslovsky’s references to his previous business experience in the 2002 prospectus mention Open Joint Stock Company Tokur Zoloto, but there is no disclosure of what happened to that company and associated entities. When Maslovsky moved to Peter Hambro Mining, he was provided, the prospectus discloses, with 1.4 million in share options, $340,000 in annual salary; he gave a promise that for a year after listing, he wouldn’t engage in goldmining within 1,000 kilometres of the Pokrovsky prospect.

The prospectus adds that “certain representations and warranties” were made to Hambro by Maslovsky. The word bankruptcy, if it had happened, does not appear anywhere in the 88 pages of the AIM document.

In 2009, Hambro and Maslovsky issued a 363-page prospectus as they moved their company from the AIM to the bigger board of the London Stock Exchange. This time Maslovskiy spells his name differently; his salary is up to ₤430,513, but his biography remains the same. He says he has been “founding shareholder and Director of the Company and has been Chairman of Pokrovskiy Rudnik since 1994. He has been a director of Aricom since 2003. Dr. Maslovskiy is also a director of several subsidiary companies of the Enlarged Group. Prior to embarking on his business career, Dr. Maslovskiy was a Professor of Plasticity at the Moscow Aircraft Technology Institute.”

Tokur Zoloto is missing, though there are many references to the Tokur gold deposit. It is included in the company’s reserves count, and in its mining plan. Again, the word bankruptcy is not mentioned in relation to the history of the company. One of the risks in the Russian legal system is mentioned as “bankruptcy procedures that are not well developed and are subject to abuse.”

A more substantiated set of charges had emerged when Hambro and Maslovsky were challenged by the Russian mine licensing regulator, Oleg Mitvol, during 2006.

In December of that year, Mitvol warned Hambro that if his company wanted to enjoy a high share price, based on value projections from gold still buried in the ground, it should honour the legal and financial obligations it undertook when acquiring the licences. Mitvol made his warning explicit — if PHM could not afford to meet its obligations, it should lose the benefit it had been advertising to the market through its reserve figures; Mitvol attacked Hambro again in 2007.

These days Hambro and Maslovsky are still digging for gold and other minerals. But Mitvol was ousted from his mine regulatory job eighteen months ago, and then appointed Prefect in charge of a northern district of Moscow city. The history of their clash does not appear in the prospectus of 2009.

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