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Petropavlovsk Plc (POG)

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Tuesday 13 October, 2009

Petropavlovsk Plc

Agreement with XY to develop

RNS Number : 6552A
Petropavlovsk PLC
13 October 2009


13 October 2009

Petropavlovsk agreement with Xuan Yuan Industrial Development Co. Ltd.
to develop the K&S iron ore project
Petropavlovsk PLC ("Petropavlovsk") announces the signing of a cooperation agreement (the “Agreement”) with Xuan Yuan Industrial Development Co. Ltd.XY-Group which foresees the two parties jointly developing the K&S iron ore project.
The key elements of the Agreement include the following provisions:
-          XY-Group will finance the construction of a mining and beneficiating operation at K&S to produce 3.2mtpa of 65% iron ore concentrate (“Stage 1”);
-         The parties will proceed to review the development of:
·         Stage 2 – the expansion of the 3.2mtpa operation to (a) exploit further resources at K&S and (b) to construct a mining and processing operation at the Garinskoye deposit from where the ore would transported to and beneficiated at an enlarged processing operation at K&S;
·         Stage 3 - the construction of a metallurgical plant at K&S with a total annual production capacity of 2.5Mt of Direct Reduced Iron (DRI) and the consumption of 3.75Mt of iron ore concentrate;
-         The Stage 1 development is expected to incur US$375m of capital expenditure. XY Group will provide at least 70% of the funding by the way of a loanfor the Stage 1 development in the form of a project finance facility  with a term of c.10 years with repayment in the 7 years following Stage 1 commissioning and with interest payable at an approximate rate of LIBOR plus 5% on funds drawn (the “Loan”);
-         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; any such subscription funds are expected to provide a part of the balance 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 1 during the term of the Loan at a price to be determined using the Western Australian benchmark plus a transport premium;
-         This binding cooperation agreement forms the basis for full EPC, offtake and loan agreements that are expected to be finalised in the next six months.
XY-Group is one of the most successful private enterprise groups in China and is currently the largest Chinese investor in Russia. For more information please visit
Commenting on the announcement from Beijing, Peter Hambro, Chairman of Petropavlovsk, said:
"We are delighted to have achieved an agreement with XY-Group which delivers significant progress on our 3 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.
“This agreement is the first step in realising the significant value that I believe is contained in our portfolio of non-precious metal assets. With Kuranakh reaching full production in 2010 and a busy construction programme at K&S as envisaged in this agreement, I believe the opportunity for Petropavlovsk to build a substantial position in the iron ore market is now achievable.”
Petropavlovsk PLC
Alya Samokhvalova 
Charles Gordon
Rachel Tuft
 +44 (0) 20 7201 8900 
David Simonson
Tom Randell 
 +44 (0) 20 7653 6620 

This information is provided by RNS
The company news service from the London Stock Exchange