GOLD fever is gripping the City, but instead of drill rigs heading for Kalgoorlie or Anchorage, the new destination is far-eastern Russia.

Two AIM-listed stocks, Highland Gold Mining and Peter Hambro Mining (PHM), are already among Russia’s biggest ten gold producers. And there are others waiting in the wings.

The City showed its appetite for gold in Russia and former Soviet Union states last month when Oriel Resources’ £40.6 million float on AIM closed heavily oversubscribed.

Williams de Broë, the broking house, is working on £20 million to £30 million worth of listings, while WH Ireland, which listed Highland Gold, is in the throes of listing three Russian projects on AIM in a deal that could be worth £50 million.

“You can buy gold assets in Russia with established infrastructure still for peanuts,” James Picton, a mining analyst at WH Ireland, said.

Peter Hambro, who first invested in Russia a decade ago, said: “I am amazed it’s taken this long for people to realise what a great place it is to invest in.”

The world’s global miners are slowly warming to the hitherto off-limits region. Anglo American, the FTSE 100 mining house, intends to open an office in Moscow this year. Barrick Gold, the Canadian gold giant, owns 10 per cent of Highland Gold.

Last month Rio Tinto signed a joint venture agreement with PHM to explore for gold. It is Rio Tinto’s first deliberate move into Russia.

While the world’s major gold producers, wary of political and legislative risks in Russia, have been slow to move, the door has opened for a host of smaller companies to make the most of the rich pickings.

Success in Russia has already made millions for the likes of Peter Hambro — a descendant of CJ Hambro, who founded the namesake bank in 1779 — and members of the Fleming banking dynasty, which set up Highland Gold.

Lord Daresbury, the chairman of Highland, holds shares worth £5.8 million. Lord Mackenzie of Framwellgate, who sits on the board of newcomer Oriel, has 500,000 incentive shares that are worth almost £500,000.

Roddie Fleming set up Highland Gold two years ago as a vehicle to list the Mnogovershinnoe mine, which was acquired as part of a management buyout from Roman Abramovich, the Russian billionaire owner of Chelsea FC.

Neither Hambro, the executive chairman of his namesake company and holder of a 13 per cent interest, nor Lord Daresbury are miners by background — but they can see the pot of gold in Russia. “There’s a highly skilled workforce, a huge amount of reserves and resources data from the Soviet era and a very low cost of acquisition,” Hambro said.

PHM’s 1,200-strong workforce, in the eastern region of Amur, is made up of locals.

Russia has massive, largely untapped gold reserves, which were mapped extensively by the country’s geological survey teams in the days of the Soviet Union. The data is available to potential investors and those who have used it praise its accuracy, which limits the amount of costly exploration that has to be undertaken. Add to that low operating costs — a factor of both low labour cost and easily mined gold ore bodies — and a gold price hovering near seven-year highs, and the right projects become worth backing.

GFMS, the London consultancy, says gold production in Russia is increasing by 9 per cent a year, compared with stagnating output in established markets such as Australia and South Africa.

Western operators accounted for only 15 per cent of Russia’s total gold output in 2002 but almost all of them featured in the country’s Top 20 producers table. The sector is led by the Russian mining and metals giant Norilsk Nickel, controlled by Vladimir Potanin, the oligarch. Kevin Foo, whose grandfather worked in Ballarat, Australia, during the gold rush in the late 19th century, heads Eureka Mining, a spin-off of his Celtic Resources. He compares Russia with Australia in the 1950s, when it was still possible to find surface deposits. Russia has the added advantage of substantial infrastructure.

“It is a bit of a rush but there’s quite a few of us who have been out there for ten to twelve years grafting away,” Foo said.

Bema Gold Corp, which is listed on the Toronto Stock Exchange and AIM, acquired two gold projects in Russia in 1998. Last year its Julietta mine produced 118,145 ounces at a cash cost of $148 (£80) each. Gold is selling at about $420 an ounce.

Bema credits its success in Russia with its ability to secure land titles, helped by strong local partnerships on the ground. It is a common thread linking Highland Gold, PHM and their peers and is likely to be discussed by delegates at the Russian Economic Forum in London next weekend.

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