Aricom shares soar on bumper Russian iron ore deposit

By bne IntelliNews April 6, 2007

Nicholas Watson in Prague -

Peter Hambro Mining may be having problems with its gold mining licenses in Russia, but a spin-off company Aricom announced Thursday that its main iron ore project in Siberia is worth $1.68bn, much more than previously thought.

Aricom, which was spun off from Peter Hambro Mining in 2003, said an independent valuation put its Kimkanskoye and Sutarskoye (K&S) iron ore project at $1.676bn, sending its shares soaring 25% on London's Alternative Investment Market (AIM) by midday Friday. Mining consultants Wardell Armstrong said the K&S mine has the potential to produce 10m tonnes of iron ore a year for 32 years.

"I believe that for Wardell Armstrong, a leading global consulting company in our field, to provide an independent valuation of just one of our assets which amounts to what would be twice the market capitalisation of the company… is confirmation of Aricom's potential," Aricom's CEO, Jay Hambro, said in a statement.

Aricom said it would now exercise an option to buy the 50% of the K&S project that it doesn't already own from a consortium of Russian investors called Malavasia Enterprises, to which it has already paid $101m in cash and shares. Aricom will give Malavasia another 65m shares, which are worth about $85m at today's prices.

Peter Hambro (who is an investor in bne) and his Russian business partner Pavel Maslovskiy originally bought the 50% stake in the K&S deposits in 2005 for just $9m before selling it on to Aricom in return for shares.

The announcement caps a good month for Aricom. On April 2, the miner announced it has agreed to pay $27m to license holder Cyprus-based Lapwing Ltd for a 60% share in the Garinskoye iron ore deposit in the Russia's Far East. It also paid $19.7m for an option to buy another 25% for $100m within two years.

According to Reuters, JP Morgan Cazenove has valued Garinskoye at about $2bn. The Garinskoye deposits, like the K&S deposits, are located near Russia's border with China, which means they are in a good position to supply the booming Chinese steel industry. In 2005, 700m tonnes of iron ore were shipped globally, of that 43% was shipped to China, says Aricom.

Then on March 20, Aricom said the World Bank's private finance arm has agreed to take a $20m stake in the company because of its potential to create jobs and help the economy in Russia's poor Far East.

There was also seemingly good news for Aricom's former parent firm Peter Hambro Mining last month, as Vladimir Bavlov, deputy head of Rosnedra, Russia's subsoil agency, said the Russian authroties were not considering revoking the firm's mining licenses for environmental violations.

"It is not serious; it won't even be considered at a commission," Bavlov was quoted by newswires as saying. "It is a good company. They are working well, so let them work."

The comments will be a huge relief to Peter Hambro Mining shareholders, who saw the value of their investment plummet late last year when Oleg Mitvol, the deputy head of the environmental watchdog Rosprirodnadzor who is famous for hounding Shell out of its Sakhalin project, said a probe had uncovered breaches of two licenses of Yamalzoloto.

"I don't see these two licenses remaining with the company," Mitvol was quoted as saying at the time.

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