14 Oct 2009 09:03

Petropavlovsk reaches agreement with XY Group to develop Russian iron ore deposit (repeat)

Moscow. October 14. INTERFAX - Petropavlovsk plc, which was formed through a merger between Peter Hambro Mining plc and mineral resources developer Aricom plc earlier this year, has signed an agreement with China's Xuan Yuan Industrial Development Co. Ltd. (XY Group), to jointly develop the Kimkan and Sutara (KS) iron ore project in Russia's Far East region, Petropavlovsk said in a press release on Oct. 13.

The stage one of the project's development is expected require an investment of $375 million. XY Group will provide at least 70 percent of the funding by way of a loan in the form of a project finance facility with a term of approximately ten years.

XY Group may also choose to invest in new shares in the Petropavlovsk subsidiary that owns the KS project, which would result in XY Group holding a minority stake in the project. Any such subscription funds raised are expected to provide a portion of the project funding cost.

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 one during the term of the loan at a price to be determined using Western Australia's benchmark price plus a transport premium.

This is a binding cooperation agreement that forms the basis for full EPC (Engineering-Procurement-Construction), offtake and loan agreements that are expected to be finalized in the next six months, the press release said.

"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. XY Group is the largest Chinese investor in Russia and enjoys a strong track record of project development and investment and I look forward to building a successful partnership together," Peter Hambro, chairman of Petropavlovsk, said in Beijing.