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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 www.xy-group.com.
 
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.”
 
 
Enquiries:
 
Petropavlovsk PLC
Alya Samokhvalova 
Charles Gordon
Rachel Tuft
 
 
 +44 (0) 20 7201 8900 
 
 
Merlin
David Simonson
Tom Randell 
 
 +44 (0) 20 7653 6620 




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