Russian miners launch group to develop Far East

July 1, 2008

July 1st (Guardian) – The founders of Anglo-Russian miners Peter Hambro Mining and Aricom will invest about $5 billion over the next six years developing mining, banking and infrastructure assets in Russia’s Far East.

The two London-listed companies will form the backbone of a new holding group worth $5.6 billion that could double its worth within four years through a range of projects in the region, Petropavlovsk Group Chairman Pavel Maslovsky said on Tuesday.  “The group is a consolidation of our strategies,” Maslovsky told reporters, adding that the shareholder structure of every member company — including Aricom and Peter Hambro Mining — would remain exactly the same within the newly founded group.
Petropavlovsk Group, which launched on Tuesday, is run by Maslovsky and his British partner Peter Hambro. The two began their long cooperation in 1994 with the launch of the Pokrovsky gold mine, now the main production asset of Peter Hambro Mining. Maslovsky said new projects would be funded by a mixture of the group’s own resources and debt. Cash flow from the start-up of new operations, including Aricom’s Kuranakh mine this year, would provide a significant amount of the necessary finance.
“The classic international composition is 30-35 percent from a company’s own means and 65-70 percent debt. This is the way we’ll be looking at structuring our financing,” Maslovsky said. Maslovsky did not rule out that unlisted companies within the group could be floated, although he gave no details.
NEW PROJECTS
Aricom, a FTSE 250 company mining iron and titanium ore, has a market capitalisation of $1.9 billion. Peter Hambro Mining, Russia’s second-largest gold miner, is worth $2.1 billion. Aricom is developing several large deposits in the Amur region and the Jewish Autonomous Region with a view to supplying iron ore across the border to China.
Maslovsky said Petropavlovsk Group was also looking to develop steel production in the region to serve the growing shipbuilding and construction industries. Steel, were it to be produced, would be primarily for the domestic market, he said. “China is developing its own steel sector intensively, so forecasting Chinese rolled steel demand is very complex,” he said. “We will also have our own market and will operate in this market. It’s the most reliable arrangement.”
Peter Hambro Mining, which produced 5.6 percent of Russia’s gold last year, plans to more than triple output to over 1 million ounces by 2011 and retain its place as No. 2 producer. In banking, Petropavlovsk will unite three banks — Kolyma, Asia-Pacific and Kamchatprombank — with a combined 100 branches in the Russian Far East. It will also run Moscow-based M2M Private Bank.
Maslovsky and Hambro raised $745 million for such projects when they agreed in March to sell their stake in Expobank to British bank Barclays. In the infrastructure sector, Petropavlovsk plans to build the first rail bridge over the Amur River between Russia and China and to develop the Pacific port of Sovetskaya Gavan.
“The Far East should become an engine for growth in Russia,” Maslovsky said. “It has raw materials, energy. Our task is to unite our strengths into one strategy to maximise these resources for the industrialisation of the Far East.”
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