HAMBLEDON MINING (HMB)

The mining equipment has been in place since September last year and mining activities were initiated last June. The first blast took place in November. Access roads have been built, mining of ore for stockpiling has begun, and the processing plant is in the final stages of completion. The main pit is getting deeper all the time. All of which means that, subject to final approvals, production this year is likely to be around 40,000 ounces of gold.

That's slightly below initial estimates and slightly behind the initial schedule. But the company is on budget and, with inflationary pressures beginning to bite all across the mining industry, that's no mean feat. Despite the slightly slower start, production should rise to 100,000 ounces by the second half of next year and may even hit 150,000 ounces thereafter.

On that basis, though, according to forecasts from broker Seymour Pierce, Hambledon's shares are now trading on a 2008 multiple of just over 4 - which is cheap and certainly well below its peer group. The low initial output may be one reason for the low rating, or there may be an additional discount for political risk in Kazakhstan. Or it could be that the higher-than-average cost for the initial stages of mining - $350 per ounce - is putting off buyers.

However, Seymour Pierce argues that, based on the valuations involved in a recent gold-mining deal in Kazakhstan - the acquisition of Eurasia Gold by Kazakhmys - Hambledon shares ought to trade at three times the price. That may be wishful thinking, as such valuations only tend to be flushed out when the buyer's final offer is on the table. But it still suggests the current discount is too steep.

And Sekisovskoye is looking increasingly attractive. Although recent attempts at expanding the resource base have met with mixed results, grades have improved. So, the current total of 2.6m ounces of gold and 3.5m ounces of silver could be significant enough to attract a mid-tier consolidator.

That said, a hostile bid looks less likely following the acquisition, earlier this year, of Ognevka, a base metals processing plant with an old mine underneath it. Hambledon paid $1.7m (£850,000) for it and, once it has decided exactly how to develop the plant - and whether the old mine waste that comes with it holds any significant value - it will provide both an alternative form of cash flow and a diversity that is new to the company.

It may also be a signal of intent. Hambledon has managed to put Sekisovskoye into production without incurring any debt, so its balance sheet is unencumbered compared with most small miners. That will give it a nimbleness in approaching further deals, as it is already in touch with several local lenders that had been keen to lend against Sekisovskoye.

There's certainly no shortage of mining activity in the country, and no shortage of government encouragement. So, with gold prices still riding high, there's plenty of opportunity for deals. There's not too much political risk, either, as the real money in Kazakhstan is in oil - this means smaller mining projects assume a smaller political, or strategic, significance. Of course, there remains the regional risk of asset seizure by wannabe oligarchs. But, so far, this has not been a problem in Kazakhstan - and Hambledon's chief executive, former investment banker Nick Bridgen, has years of experience in the country. Buy.

BULL POINTS

• Profits and production due this year

• Low forward earnings multiple

• Good track record

• Capital costs remain on budget

BEAR POINTS

• Some permits still required

• Political risk