The quite a good bit protracted deal to sell 51% in Timir, an iron ore company, to Evraz Group has been finally completed, Anastasia Popinako says on the RBC Daily portal. ALROSA will gain nearly 5 billion rubles for this package. Besides, the diamond miner got rid of a costly and non-core asset in the run-up to its IPO. Evraz reassures that Timir will help it to make up for dwindling resources of its iron ore division.
Upon completion of this transaction, Evraz obtained a 51% shareholding in Timir, while ALROSA retained 49% minus one share, the latter being held by Vnesheconombank. This asset cost 4.95 billion rubles (about $160 million) to Evraz, but the company will pay this amount in several tranches.
"It is assumed that Timir will replace the gradually diminishing reserves of Evrazruda in the next five to ten years," Alexander Frolov, President of Evraz, said, according to a press release issued by the company. Fyodor Andreev, President of ALROSA, said that “for its part, ALROSA will continue to participate in this project and in particular invest in the development of the deposits in accordance with its share in the capital." The first phase of the Timir Project involves the development of the Tayozhnoye Iron Ore Field, the resources of which amount to 341 million tonnes of ore with an iron content reaching 38-40%. It is expected that this opencast mine will produce 15 million tonnes of ore per year, while investments in the first phase of the Timir Project are estimated at $ 1.8 billion in 2013-2018.
ALROSA was granted licenses for four iron ore deposits - Tayozhnoye, Desovskoye, Tarynnahskoye and Gorkitskoye (their resource base accounts for 3.5 billion tonnes of iron ore) - back in 2008. As it was implied by the government of Yakutia at that time, the investor was expected to build a mining and concentration mill with a production capacity of 15-20 million tonnes of ore per year by 2015 and a steel-making plant with a capacity of 6.5 million tons per year by 2020. In 2009, ALROSA established its subsidiary, the Timir Mining and Metallurgical Integrated Works, and transferred the licenses for the above four iron ore fields to this entity. At the same time, the diamond miner began to look for a partner in the project, but the amount of investments (estimated at $ 10 billion) scared off possible bidders. However, ALROSA started negotiations with Evraz in the summer of 2011 inviting the latter to join the iron ore project and almost immediately the parties began to discuss scenarios to alter the project settings. Finally, Russia’s Federal Agency for Subsoil Usage agreed to shift the timing of the project: the construction of a mining and concentration mill was postponed from 2014 to 2020.
And although the authorities made concessions to the new investor, Evraz was in no hurry to complete the transaction. Thus, the Supervisory Board of ALROSA approved the sale of a 51% stake in Timir eight months ago, while the Federal Antimonopoly Service gave the green light to the deal at the end of 2011. Sergei Filchenkov of IFC Metropol says that the current market conditions make investors to revise or freeze their greenfield-projects. So it was with Magnitogorsk, which refused to buy Australia’s Flinders Mines and virtually froze the development of the Prioskolskoye Iron Ore Field in the Belgorod Region. However, after a few years the attractiveness of iron ore projects can grow again. Vadim Astapovich of VTB Capital believes that mining operations at Timir will start no earlier than 2017-2018.
According to Sergei Filchenkov, it is likely that in the medium term ALROSA will get rid of the remaining shares in Timir. "Facing an IPO, the diamond miner will dispose of non-core assets, one of which is Timir. As likely as not, it will be Evraz to consolidate 100% of Timir’s shares," the analyst suggests.
