Shares in Highland Gold rose almost 19% on Thursday
Shares in Highland Gold rose almost 19% on Thursday after a strong interim performance appeared to ease investor fears over the company's "Russia risk" and recent management changes.
Production at Highland's lone operating mine in the Russian far east increased after earlier efficiency improvements, driving a 77% rise in revenue to $76.5m in the six months to June 30. Pre-tax profits rose to $26.6m, compared with $5m in the first half of 2007.
The results came one week after a management shake-up. Henry Horne, chief executive, is to be replaced by Valery Oif, a former Russian senator from Siberia and an executive at Millhouse, Mr Abramovich's investment vehicle that bought a 32 per cent stake in Highland in December 2007.
Highland shares were lowered further by the managerial changes. For months, the Russia-focused gold miner backed by Chelsea football club owner Roman Abramovich saw their shares decline in spite of the high gold price, alongside Peter Hambro, its larger Russia-invested gold mining peer. The passage of the Federal Strategic Assets Law in May coupled with the fallout from the Russia-Georgia dispute added to a sense of rising risk for foreign-owned miners in Russia.
However, analysts said Highland's increasingly Russian face was an advantage. Its political advantages were suggested in the company's conference call, when it said it expected to be able to acquire new gold mines in Russia, effectively bypassing the Federal Strategic Assets Law.
"If you look at the way the political wind is blowing in Russia, it is certainly the case that if companies want to operate in the country, they need to be more Russified," said Jonathan Guy, a gold industry analyst at Investec Securities.
By having Mr Abramovich as its leading shareholder, he added in a note, Highland had a credible Russian figure whose political weight complemented the technical expertise provided by Barrick Gold, Highland's second-largest shareholder with a 20 per cent stake.
The involvement of Barrick, the world's biggest gold producer, is partly credited for the operational improvements that drove the company's leap in revenues during the interim period.
The company confirmed that a second mine in Siberia, Novoshirokinskoye, was expected to start production by the end of the fiscal year. The mine's projected 50,000 ounces of gold a year would increase Highland's production by 60 per cent.
The shares closed up 11p at 70p after falling more than 60 per cent in the past three months, partly reflecting a projected three-year delay in the opening of another of its Russian mines.