Development of Timir Project to be Postponed

Mining and metallurgical company Timir affiliated with diamond miner AK ALROSA agreed on the updated period of construction of metallurgical plant in Yakutia within the scope of its iron ore project, Kommersant newspaper reports citing a statement by Evraz Plc. President Alexander Frolov (Evraz Group to acquire 51% share in Timir). Federal Agency on Subsoil Usage (Rosnedra) allowed MMC Timir to start construction of the metallurgical plant after 2020 while initially the works had been scheduled to kick off in 2014 (subject to the terms of license agreement). ALROSA Vice-President Sergey Pushkin confirmed this information while Rosnedra did not respond to the inquiry.
MMC Timir (100% owned by ALROSA) holds four licenses for development of iron ore deposits in Yakutia, namely Tayozhnoe, Desovskoe, Tarynnahskoe and Gorkitskoe bearing aggregate booked reserves of 4.8 billion tonnes with grade of iron up to 45%. The total amount of investment to the project was estimated at 400 billion rubles and production at projected capacity was expected to start in 2020.
Last Summer Evraz got engaged in negotiations in respect of participation in Timir development, however due to very large investment required the parties soon shifted to alter the terms and parameters of project development.
Yesterday Frolov stated that Evraz intends to invest $1,5 billion to construction of Tayozhny mining and concentration complex within five years. Terms of development in respect of Tarynnahsky mining and concentration complex worth $2.5 billion were adjusted, both Evraz and ALROSA noted without providing details. A source of Kommersant close to the talks, specified that completion of the construction has been now postponed to 2024 (compared to 2016, as was previously scheduled). Desovskoe and Gorkitskoe are satellite deposits which will be developed simultaneously with the main deposits and also faced adjustment of schedule.
For the purpose of the transaction with Evraz, 51% share in Timir was estimated at 4.95 billion rubles, a source close to the deal noted. The parties have agreed to the value of the share subject to expenditures historically incurred by ALROSA. According to the parties’ arrangements the further expenses will be borne on pro-rata basis, subject to the shares owned by the companies.
The transaction was proposed to be closed in the first quarter of 2012, payment being effected in four equal installments till the end of September. Supervisory Board of AK ALROSA was to approve the deal on 16 March, however adjourned the consideration of the issue due to lack of appropriate voting directives by the government.
According to the information obtained by Kommersant, draft directives have not been approved by Department of Economy and Finance of the Russian government. The source noted that Timir deposits might be treated as strategic assets due to presence of cobalt reserves. Inter alia, predicted resources of Tayozhnoe deposit amount to 122,000 tonnes of cobalt, while Desovskoe deposit may contain 36,000 tonnes of cobalt.
According to the terms of federal Subsurface law, areas containing cobalt resources are supposed to be of federal importance and transactions involving these concessions are subject to approval by the committee on foreign investment. However the list of subsurface plots of federal importance does not include Tayozhnoe and Desovskoe deposits. The final decision pertaining to the status of these areas is to be brought by Rosnedra.