Petropavlovsk inks Chinese deal for K&S iron ore project development

Tuesday, 13 October 2009 16:18:45 (GMT+2)

The Russian miner Petropavlovsk PLC (Petropavlovsk), previously known as Peter Hambro Mining, has announced that it has signed a cooperation agreement with the largest Chinese investor in Russia, namely, Xuan Yuan Industrial Development Co. Ltd. (XY-Group), for the joint development of its iron ore project located on the Kimkan and Sutara (K&S) iron ore fields in Russia's Far East.

According to the agreement, XY-Group will finance the construction of a mining and beneficiating operation at Petropavlovsk's K&S fields to produce 3.2 million mt per year of 65 percent iron ore concentrate (Stage 1). In addition, the parties will proceed to review the development of further stages of the K&S project. Stage 2 of the project will include the expansion of the 3.2 million mt/year operation to exploit further resources at K&S and to construct a mining and processing operation at Petropavlovsk's Garinskoye deposit, from where the ore would be transported and beneficiated at an enlarged processing operation at K&S. Stage 3 of the project will include the construction of a metallurgical plant at K&S with a total annual production capacity of 2.5 million mt of direct reduced iron (DRI) and the consumption of 3.75 million mt of iron ore concentrate.
 
Stage 1 of Petropavlovsk's K&S project is expected to incur $375 million of capital expenditure, of which at least 70 percent will be provided by XY-Group in the form of a ten-year project finance loan, with repayment in the seven years following the Stage 1 commissioning, and with interest payable at an approximate rate of LIBOR plus five percent on funds drawn.

Upon completion of the project financing agreement, it is intended that XY-Group will enter into an iron ore offtake agreement for all production from Stage 1 at a price to be determined using the Western Australian benchmark plus a transport premium.

In addition, XY-Group may also choose to invest in new shares in the Petropavlovsk subsidiary that owns the K&S project, which would result in XY-Group holding a minority stake in the project.

"We are delighted to have achieved an agreement with XY-Group which delivers significant progress on our three key objectives in iron ore - funding, construction and offtake," Petropavlovsk's chairman Peter Hambro commented.

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