Peter Hambro: My gold fortune built on a scrap of paper

By Lisa Buckingham
Updated: 07:05 EDT, 27 February 2011

Peter Hambro talks to Financial Mail and explains how a gentleman's agreement led him to a £250m fortune...

A different side: Old Etonian Peter Hambro

Peter Hambro was 12 when he pulled off his first precious metals deal. After recovering from breaking his leg in a skiing accident, the surgeon presented him with the platinum used to hold the bones together.

Unlike other boys of that age, Hambro did not put it in a jar or show it off in the playground. Instead, he went straight to his father at the Samuel Montagu merchant bank and asked to sell it.

He now runs one of the country's biggest gold producers, Petropavlovsk, amassing an estimated £250m fortune along the way.

Not that such huge wealth has insulated the 66-year-old scion of the Hambro banking dynasty from some nasty knocks over the past year. Shares in Petropavlovsk suffered a drubbing a couple of times in 2010 when the company abruptly cut its forecast production because of bad weather and equipment delays.

Earlier this year a boardroom reshuffle was unveiled, as much in response to investor concerns that the company lacked operational depth at board level as in Hambro's desire to appoint a woman to the board - Alya Samokhvalova - and put in place a succession plan.

'There's been a sea change,' Hambro says in his huge oak-panelled office overlooking Buckingham Palace's back garden and decorated liberally with his own paintings.

'When Pavel Maslovskiy and I set the company up 16 years ago, we were a great team with a skill set everyone loved. But when you get to the size we are [Petropavlovsk is knocking on the doors of the FTSE 100 index] you get problems.

'I was vilified for cutting production forecasts and it was obvious we'd got to make changes. We learnt from our mistakes and have embarked on a more rigorous and scientific approach to forecasting.'

This year, with the gold price still at recent highs, he says production will be a 'minimum of 600,000 ounces'.

Hambro has just returned from a gruelling schedule of investor meetings in Russia - the company's mines are all in that country's Far East - and is squeezing in a few days in London before flying out for more roadshows in Florida.

Nonetheless, he bemoans not spending as much time out of the country as he used to because of the corporate governance pressures of running such a big group.

It is easy to see how Hambro might bridle against today's governance culture. The old Etonian dresses like a banker from earlier times and has an office redolent of port and cigars after a long lunch.

He also clearly revels in the unconventional start of his company - he talks of business meetings that involved copious amounts of vodka - and the fact that the only contract that exists between him and Maslovskiy is a handwritten note, probably lost.

Yet Hambro has managed to do business in a Russia that has defeated many. 'We haven't had much trouble,' he says. 'It's nothing like as chaotic as it used to be and the rule of law is miles better. Russia needs foreign investment and to get it they must become more like Westerners.

'Somehow Pavel and I succeeded in bridging the gap between emerging Russia and the West.' Or maybe, he adds, it was having a 'deep and abiding sense of humour' that got them through.

Hambro has, however, lost his sense of humour about the outlook for the global economy, which is why he is so bullish about the price of gold - so evangelical that he says people should try to have five to 10% of their assets in the precious metal as a 'wealth insurance'.

'I remain convinced that world governments are in as bad a debt trap as a lot of their electors,' he says. 'Electors can, in extremis, go bankrupt - governments can't.

'Their only way out is to devalue their debt. Inflation - through low interest rates, quantitative easing or other stimulus packages - is the only way for governments to get the system back to normal and there are very few ways that the average person can protect themselves against that other than owning assets.'

Hambro argues that gold is an easy proxy for commodities and assets such as oil and wheat, less volatile than even blue-chip shares and less subjective than diamonds. It is also a safe haven in times of turmoil such as in the Middle East and North Africa.

He says the upward pressure on the gold price should also be helped by the long time that new mines take to start producing and the fact that central banks are now buyers rather than suppliers of the metal.

'Slow and surreptitious devaluation will increasingly take place,' he says. 'There are the seeds of catastrophe in here. I may be wrong but having a little bit of gold is a nice protection.'

Hambro is, however, currently more excited about rather baser stuff. The company retains a 65% share in IRC, an iron ore business quoted on the Hong Kong market and run by son Jay, one of his and wife Karen's three grown-up children.

'It's a huge new complex on the borders of China - well about 100 miles away, actually. That north-east region has fantastic development potential.

'The excitement is all in iron ore now. Gold's an old story.'