Peter Hambro Mining (PHM) said it was leading a consortium investing $80 million in Rusoro Mining with the option of converting the loan into a stake of up to 14 percent in the Venezuelan gold producer.
Peter Hambro, Russia's No. 2 gold miner, will lead a group of investors comprising itself, BlackRock Investment Management , GLG Partners LP, Lansdowne Partners Ltd and Endeavour Mining Capital Corp lending the money to Rusoro.
The loan is exchangeable into shares of Rusoro at C$1.25, a 25 percent premium to Rusoro's last traded price of C$1.00. PHM, GLG and Lansdowne will each lend $20 million and BlackRock and Endeavour will lend $10 million each.
Peter Hambro will have options to convert its own stake in the loan as well as that of its syndicate partners to give it a stake of between 4 and 14 percent in Canadian-listed Rusoro, controlled by South Africa's Gold Fields, the world's No. 4 gold producer.
It's a big step for us to go outside Russia. Venezuela is a long way away and we feel we need to step gently, Executive Chairman Peter Hambro told Reuters in a phone interview.
If it all goes well, we have the power to be a significant shareholder without putting too much money at risk.
Peter Hambro shares rose 1.3 percent to 1,316 pence by 0833 GMT, valuing the Belgravia, London-based firm at around 1.08 billion pounds ($2.14 billion).
Hambro said the exchange premium is justified after Rusoro fell from a high of C$4.00 to C$1.00, a price it thinks is too low.
The Rusoro investment is Peter Hambro's first foray outside Russia.
GOLD PRICES, PRODUCTION
Peter Hambro produces around 297,000 ounces of gold annually. Rusoro, with 12.8 million ounces of gold resources, is targeting around 200,000 ounces of gold production annually.
I'm sure (gold prices) will go higher, Hambro said. (Perhaps)...$1,000 an ounce by the end of this year.
Gold, which traded below $890 an ounce on Tuesday after the U.S. dollar gained on expectations of a possible interest rate hike, is well below its record $1,030.80 hit in mid-March.
We're investing in Venezuela because it is a country with huge gold reserves that are very accessible, Hambro added.
Rusoro, with a large land position in the Bolivar State mining region in southern Venezuela, is led by a mostly Russian management team including Andre Agapov as CEO, and was founded by the Agapov family.
Peter Hambro in April surprised shareholders by announcing its first dividend as it posted a 20 percent increase in 2007 profit on higher output and prices.
Shares in Peter Hambro have risen 47 percent in a year, outperforming the UK mining index which rose 38 percent. (Editing by Louise Ireland)
(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.