Kimkano-Sutarsky expansion will cost IRC $250 mln to 2013
MOSCOW. Sept 9 (Interfax) - Expanding mining capacity in the Kimkano-Sutarsky project to 6.3 million tonnes of titanium magnetite concentrate per year (64.5% Fe) could cost iron ore company IRC $250 million to 2013, said Renaissance Capital analysts, who have started analyzing the company's shares.
Initially, production was planned at 3.2 million tonnes in concentrate, but in the summer the company announced its decision to expand to 6.3 million tonnes by 2015.
Renaissance Capital analysts reckon the best way to fund the project is to find a strategic investor in the Chinese steel sector or to raise a new loan from the Industrial and Commercial Bank of China (ICBC). The Bank has already allocated $340 million to IRC for construction of the Kimkano-Sutarsky Beneficiation Plant, which is to be launched in 2013.
Renaissance Capital expects long-term production costs of $57 per tonne (DAF basis Russian-Chinese border) based on a production term of 30 years. The estimate is based on a long-term forecast for crude iron ore of $97 per tonne.
Long-term production costs at the Olekma GOK, launched in 2010, which processes ore from the Kuranakh deposit, is forecast at $75 per tonne of titanium magnetite (including a bonus of $36 per tonne for the sale of ilmenite).
Potential risks include limited production and revenue - until 2013 the only cash flows will be generated by Olekma, which is expected to achieve project capacity of 950,000 tonnes of titanium magnetite and 290,000 tonnes of ilmenite concentrate per year in 2011 - and a strong dependence on Russian Railways tariffs. Renaissance Capital estimates the share of spending on rail transport at 36% of overall spending. If a bridge is built through Amur the share could reduce to 24% from 2016.
Renaissance Capital has started analysing company shares, which are traded on the Hong Kong Stock Exchange, with the recommendation to buy and a target price of 2.9 Hong Kong dollars per share. IRC is the former iron ore unit of the Petropavlovsk alliance, which mines for gold in Russia's far eastern regions. The iron ore company was listed on the Hong Kong Exchange in the fall of 2010. Petropavlovsk owns the controlling stake of 65.6%.
Renaissance Capital has also started to cover Australia's Fortescue Metals Group Ltd., in which Russia's Magnitogorsk Iron and Steel Works (MMK) is a minority shareholder (4.997%). The recommendation on Fortescue shares is to hold and the target price is 6.3 Australian dollars.
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