Hambro aims to beat crunch with gold pegged bond
Peter Hambro Mining has found an ingenious way to beat the credit crunch, raising $150m (£73.5m) with a rare form of bond that allows investors to lock in a 7pc interest rate while also taking a bet on gold.
If the price of gold rises above $1,000 an ounce, the owners of the bonds can accept payment of the equivalent value in cash once two years have elapsed. This would give them a 37pc capital appreciation above today's price of $741 (£363).
If gold goes higher, they make more. Should the price fail to reach $1,000, investors redeem the bond at par, plus interest yield.
"There are plenty of people interested in the certainty of being able to buy gold at $1,000 an ounce in the next 5 years, so demand has been high," said the group's chairman, Peter Hambro. The money is to be used to fund development of the company's deposits in eastern Russia and the Arctic.
Ian Hannan, who devised the instrument at JPMorgan Cazenove, said the bonds had been snapped up: "I started at 11pm and by 2pm the whole lot had been sold. The bond is a clever way of getting long-term financing in a market that is closed to most people. It means Peter Hambro does not have to raise fresh equity, which is why the share price shot up today," he said. It rose 5.22pc to £12.71 in London.
It produced 261,000 ounces of gold last year, but aims to reach 500,000 annually by the time the deal expires in 2012.
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