07 June 2010
Petropavlovsk agrees terms for proposed equity investment from investors in iron ore business
· Heads of terms agreed for US$60m equity investment into non-precious metals division by leading Hong Kong based investors
· Investment values non-precious metals division at US$860m following the investment
· Board continues to explore strategic options including a possible listing on the Hong Kong Stock Exchange
· Debt finance - advanced discussions progressing well with ICBC and Sinosure
· First iron ore operation, Kuranakh is ramping up following successful plant commissioning
Petropavlovsk PLC ("Petropavlovsk" or the "Group") is pleased to announce the following significant developments for the non-precious metals division of the Group.
As announced on 21 January 2010, Petropavlovsk has been continuing to evaluate the available funding options for its iron ore projects. Today, the Group is pleased to announce that it has entered into heads of terms with a consortium of leading Hong Kong-based investors for an equity investment of US$60m into a new holding company ("NPMHoldCo") for the non-precious metals division of Petropavlovsk.
Asia Resources Fund ("ARF") (through a wholly-owned subsidiary), a subsidiary of General Enterprise Management Services (International) Limited ("GEMS") and CEF Holdings Limited ("CEF") together the "Investors", have agreed, subject to the entry into definitive documentation which is now being finalised and the conditions therein being satisfied (principally relating to a corporate re-organisation of Petropavlovsk's non-precious metals interests), to invest US$50m and US$10m respectively into the non-precious metals division of Petropavlovsk in return for an equity stake in NPMHoldCo. This investment has been approved by the investment committees of ARF and CEF and the Board of Petropavlovsk. This investment values the equity in the non-precious metals division of Petropavlovsk at US$860m following the investment.
The Investors will have the option to put this investment back to Petropavlovsk after two years under certain circumstances or earlier in the case of certain trigger events. The put option will be exercisable at the Investors' entry cost plus interest accrued at a rate of 8% per annum. In the case of an IPO of NPMHoldCo where shares are sold at a lower price than the investors' subscription price, the Investors will be provided with anti-dilution protection based on the final pricing of an IPO.
A possible listing of NPMHoldCo's shares on the Hong Kong stock exchange is one of a number of strategic options for the non-precious metals division which the Group continues to explore.
Petropavlovsk is very pleased to welcome its new partners in its non-precious metals division.
K&S Development Finance
On 23 March 2010, the Group announced the heads of terms for the funding of Stage 1 of its Kimkano-Sutarskiy iron ore mining operation with Industrial and Commercial Bank of China.
As outlined in the 23 March 2010 announcement, the amount to be lent will constitute 85% of the total amount of the proposed EPC contract (currently estimated at c.US$400m and with a total limit of US$500m). The loan term will be for up to 10 years. The availability of the loan is subject to the completion of definitive transaction documentation, final confirmatory due diligence and final credit committee approval.
Sinosure, the Chinese State Export Credit Agency, which is progressing its work towards providing a 95% guarantee for the facility has carried out considerable due diligence and an internal credit approval process. Petropavlovsk is continuing with negotiations on the definitive loan documentation for the facility.
Following successful commissioning of Kuranakh's process plant in May 2010, the plant's primary ball mill and spiral classifier have been working at full capacity on low grade ore and waste in order to test the equipment and provide a base lining for the tailings dam. Ore is being gradually introduced as more equipment is commissioned and it is estimated that both ilmenite and magnetite concentrates will be produced shortly. Further photos of the equipment in operation can be seen on the website, www.petropavlovsk.net.
Peter Hambro, Executive Chairman, said:
"We are extremely pleased to have GEMS and CEF committing capital to our non-precious metals business, and their participation in our growth story is testimony to the underlying confidence in the opportunities in the iron ore market in China.
Our potentially world-class iron ore business is focussed on the nearby Chinese market with considerable economic advantages in both geography and transport costs over most other major iron ore suppliers to the Chinese market - we are c.19,000 kilometres closer to China than our Brazilian competitors.
We believe that these developments are significant steps in delivering the value of the non-gold assets of Petropavlovsk."
Simon Murray, Chairman of GEMS said:
"We have known and worked with Peter Hambro and the wider Petropavlovsk group for many years and have been looking for possible joint investment opportunities.
We believe that an investment into Petropavlovsk's non-precious metal division represents a unique opportunity given its attractive growth profile and proximity to the rapidly expanding market in China.
We are delighted to become an investor in this business and look forward to participating in its future development."
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Notes to Editors
ARF is a private equity fund targeting investments across a diversified portfolio of natural resources companies or assets with exposure to broad Asian growth. ARF evaluates opportunities across bulk commodities, metals and energy (oil, gas, coal), as well as forestry and services companies across the Asia Pacific region including companies that predominantly supply to the Asian region. ARF seeks to provide capital to support growth over the medium term.
ARF is managed by General Enterprise Management Services (International) Limited (GEMS). GEMS is a private equity fund management group founded by Mr. Simon Murray (Chairman of the Board) that manages over US$600 million across the GEMS and ARF Funds that in turn make direct investments in the Asia Pacific region.
CEF Holdings Limited is 50% owned by Cheung Kong (Holdings) Limited and 50% owned by Canadian Imperial Bank of Commerce (CIBC). Cheung Kong (Holdings) Limited is the flagship of the Cheung Kong Group which has business operations in 56 countries and employs about 260,000 staff worldwide. In Hong Kong alone, members of the Cheung Kong Group include ten listed companies with a combined market capitalisation of approximately US$85 billion (as at 31 March 2010). Mr. Li Ka-shing is the Chairman of Cheung Kong (Holdings) Limited.
The material set forth herein is for informational purposes only and does not constitute an offer of securities for sale in the United States or any other jurisdiction in which such an offer or solicitation is unlawful. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or the laws of any state, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state laws. No public offering of securities will be made in the United States.
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