Small Cap Shares introduction (14/05/2010)

Hambledon

Kazakhstan gold producer

Business

Increased the output of gold from its Sekisovskoye open-pit mine by 60%to 20,050 oz, average price for gold sold up 15.4 per cent at $974 (£636) an ounce. Near break Even

Silver production almost doubled to 46,050 oz.

Processing ore from third-party miners lacking the necessary equipment.

*Advisers suggest that the volume of this third-party ore could increase from 10,000 tonnes to 60,000 tonnes this year.

1Q 2010, produced only 2,579 oz of gold, a shortfall on 'exceptionally cold winter weather' in Kazakhstan.

Conditions have improved since late March and Hambledon produced 2,048 oz in April.

£1.5 million cash, intends to take mining at Sekisovskoye underground, where gold grades will be higher, with first extraction envisaged late next year. The company has renewed a $2 million loan facility from Russia's Alfa Bank until December 2012.

Floated at 5p six years ago, Hambledon shares reached 21.75p in 2007, but technical snags delayed progress and the price fell to 3.88p within the past year. Now 5.25p, the mak cap at £27.1 million.

Intrinsic value of this share will increase as the price of gold increases.

The fixed costs of a gold producer mean that any rise in the gold price has a greater rise in the profits of producing companies.

From last years accounts the coy made a small profit at an average gold price of approx £624 per oz. Approx £13mn turnover.

Today the gold price is £820 per oz approx. If hmb produce 2000+oz per month say average of 24000 over the year at an average gold price of 800, we are looking at turnover of £19.2mn on the same costs.

If the gold price or gold Ozs mined surprise to the upside this coy will be throwing off cash. L

ower grades and recovery rates are a problem but becoming less relevant to the profitability of this coy.

Gold grades will improve with depth, just check the drilling reports from 2004 onwards. A lot of the ore is graded 0.9 - 1.25 g/t but not too far from the surface, for example 31m below the surface is 23m grading 3.06 g/t. Others are higher, some lower.

The initial surface ore was always expected to be low grade and the company is busy at the moment widening the pit so they can get deeper. Patience.