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The Moscow Times: Mitvol’s Comments Spook Edgy Market

Monday, December 4, 2006. Issue 3553. Page 8.
By Simon Shuster
Staff Writer

What looked like a random threat from a bellicose official spooked many investors this week, but a strong ruble and rapid growth should quickly bring them back around, analysts said Friday.

Oleg Mitvol, the deputy head of the Natural Resources Ministry’s environmental agency, told Interfax on Wednesday that Peter Hambro Mining (POG.LN), the biggest foreign player in Russia’s gold market, had breached environmental codes in several parts of Siberia. He pledged to investigate five of the company’s 50 Russian licenses.

By the end of trading Thursday, the company’s stock had taken a nosedive of 23.9 percent, despite the fact that Mitvol had offered no supporting evidence of his claims and had filed no official complaints against the company.

“One of the problems with life is that agencies such as this don’t realize the knock-on effects of what they’re doing,” said CEO Peter Hambro by telephone from London on Friday. “When they say something like this, thinking it will make the Moscow evening news … they don’t realize it will knock half a billion dollars off the value of the company.”

Hambro said he learned of the accusations from the press and has received no word from Mitvol’s agency. “We have no anxieties about our compliance with these laws,” he said.
On Friday, his company’s stock made a partial recovery of 11.4 percent, just under half of the week’s losses. But the damage to investor confidence had been done, some analysts said, especially because Mitvol’s attack was not an isolated incident.

The Shell-led Sakhalin-2 project was the first to come under fire this fall from Mitvol’s agency over purported damage to the environment. A string of similar complaints followed against foreign and Russian oil and gas firms, including ExxonMobil, Total, TNK-BP, LUKoil, Rosneft and most recently Gazprom.

Peter Hambro Mining was the first company outside the oil and gas sector to face these charges, and the prospect of the metals industry being next on Mitvol’s list troubled some observers.

“The modus operandi of [Mitvol’s] department is not at all clear,” said Rob Edwards, metals and mining analyst at Renaissance Capital. “This gives it a randomness that makes people very uncomfortable.”

Alfa Bank analyst Vladimir Zhukov agreed, saying that Mitvol’s apparent crusade “creates instability and risks in the [gold] industry throughout Russia.”

But Hambro said the hype would be short-lived. He attributed the drop in his firm’s stock to the fact that Mitvol’s comments coincided with the media frenzy following the death of Alexander Litvinenko, who was poisoned last month in what many Western observers suspect is a Kremlin conspiracy.

Hambro summed up the reaction of British investors to Mitvol’s comments as, “Oh my God, what are the Russians doing now?”

Hours before Mitvol’s comments on Wednesday, Alfa Bank strategist Erik DePoy said the growing strength of the ruble against the euro-dollar basket would make Russian stocks attractive.

“Now is the time to put money into the developing markets rather than the United States,” DePoy said.

On Friday, he reiterated this view, saying that Mitvol’s comments would not dampen domestic growth.

Zhukov also said the long-term impact would be minimal, even in the metals industry. “Speculators might be spooked … but not experienced investors,” he said. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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