Russian Government Approved the Terms of Sale for 51% Share in Timir Project

Within the scope of acquisition of 51% share in Timir iron ore project Evraz will not merely have to give one share in the enterprise to Vnesheconombank (VEB) but also undertake to proceed with further development of the deposits till the stage of projected capacity, Vedomosti newspaper reports.

A year ago ALROSA’s Supervisory Board decided to engage Evraz as the principal investor for implementation of Timir project, which involves licenses for development of four iron ore deposits located in Yakutia. The approximate amount of the transaction was known as 5 billion rubles in consideration for 51% share, while final signing of the deal was postponed several times due to the lack of appropriate directive for ALROSA’s Supervisory Board.

First Vice Prime Minister Igor Shuvalov finally signed the directive yesterday (Vedomosti are in possession of a copy). According to a statement by ALROSA’s representative Andrey Polyakov, the meeting of Supervisory Board will be scheduled soon. Vedomosti failed to get in touch with a representative of VEB.

According to the directive, government officials shall approve disposal of 51% share in Timir to Evraz should one share in the project be secured for VEB’s ownership, and the three partners (ALROSA, VEB and Evraz) sign shareholder's agreement. The terms of the shareholder's agreement include reorganization of Timir from OJSC to CJSC which will result in VEB getting a pre-emptive right to buyout shares put for sale by any of the other partners (if they decide to withdraw from the project). Moreover, a sale of share by any of the shareholders is admitted only after completion of the key stages of development of deposits, in accordance to the terms of licenses for Timir project (namely, completion of exploration and approval of technical project of industrial development of the license area, commissioning and achieving projected capacity of the mining complex), as mentioned in the directive.

These restrictions were imposed due to the fact that Timir is treated as strategic enterprise and the government shall accurately control the further activities of the shareholders, so that one of them (Evraz) could not dispose its interest to third parties, a source close to the deal noted.

Evraz is quite satisfied with the scheme of transaction – as Oleg Kuzmin, Vice President on Corporate Communications, stated. Moreover, Evraz is not in position to dispose its share in Timir, he stressed.

Neither Kuzmin, nor Polyakov disclose the amount of investment and the total period of project implementation. Previously investment to Timir development were expected at about $10 billion.

In opinion of UBS analyst Alexey Morozov, construction of the mining complex (inclusive of obtaining all approvals required) will take about five years, while investment at that stage will obviously exceed $1 billion. However Morozov warned that in the current economic conditions distribution of iron ore production is not attractive due to very low prices for steel and expansion of iron ore production in China.

Vedomosti