16th Jan 2006 07:01
Aricom PLC16 January 2006 Aricom to Strengthen Mining Operations in Russia's Far East 16 January 2006 Aricom PLC (the "Company" or "Aricom"), the AIM traded mining company, currentlydeveloping the Kuranakh ilmenite and iron ore mine in the Amur Region of Russia,today announces the proposed acquisition of an option to acquire a 50% interestin the Kimkanskoye and Sutarskoye iron ore deposits. This initiative willsignificantly strengthen Aricom's operations in Russia's Far East and allow itto take advantage of anticipated continued strong demand in China for iron ore. * Proposed acquisition for US$9m of an option to acquire a 50% interest in the Kimkanskoye and Sutarskoye iron ore deposits for a maximum additional payment of US$61m.* The deposits are in the Evreyskaya Avtonomnaya Oblast (EAO), a region in Russia's Far East which borders with China, and are located just four and ten kilometres, respectively, from the Trans-Siberian railway, offering easy access to the Chinese market.* The Kimkanskoye & Sutarskoye deposits are estimated to contain total reserves in excess of 550 million tonnes of iron ore at average grades of 33.0-35.7% at C1 or higher.* LLC Expokom, which currently owns the 50% interest, is a company in which Mr. Peter Hambro and Dr. Pavel Maslovsky and their associates have interests. LLC Expokom has agreed that the sums due for the option premium and the additional payment, if the option is exercised, would be satisfied by the issue of Aricom shares at 28p. Entry into this agreement is subject to shareholder approval. The Company is in the process of discussing potential funding with banks andpotential equity providers to complete the development of Kuranakh and theappraisal of Kimkanskoye and Sutarskoye. Aricom also announces today the appointment of existing non-executive directorsMr. Peter Hambro and Dr. Pavel Maslovsky as non-executive Joint Deputy Chairmenof Aricom plc. Further details on the assets and the proposed transaction are given below. Sir Malcolm Field, Chairman of Aricom, commented: "This transaction is an important step for Aricom. It strengthens the Company'sdevelopment in the Far East of Russia where we already have considerableexpertise. Our proximity to China and our expanding regional infrastructureshould allow us todeliver significant logistical advantages to serve the anticipated continuedhigh growth in the Chinese iron ore market. I am delighted that Peter Hambro and Pavel Maslovsky have agreed to acceptAricom shares at 28p and to become Joint Deputy Chairmen. With their knowledgeand mining experience in Russia, their active participation will bring realvalue to our operations. Successful exploitation of the deposits should deliver significant value for ourshareholders as we develop our position in the ilmenite and iron ore markets." Enquiries: Aricom plc LLC ExpokomTom Swithenbank, Chief Executive Tom Randell, Merlin PRTel: + 44 (0) 20 7201 8939 Tel: + 44 (0) 20 7653 6620 Tim Grey, Millbrook PartnershipTel: + 44 (0) 20 7520 9455 Existing Projects - Kuranakh Mine & TiO2 Aricom is currently developing the Kuranakh ilmenite and iron ore(titanomagnetite) deposit in the Amur Region in Russia's Far East, where itexpects to start production in late 2007. The Company has previously announcedthat it expects annual production from Kuranakh to be 240,000 tonnes per annumof ilmenite concentrate and a minimum of 660,000 tonnes per annum of iron ore,in the form of titanomagnetite concentrate. Conditional offtake agreements were entered into in January 2005 with ChinaNational Gold Corporation, a Group headquartered in Beijing, which provide forAricom plc's subsidiary company, LLC Aricom, to supply to China National GoldCorporation a total of at least 3,300,000 tonnes of titanomagnetite concentrateover five years and at least 360,000 tonnes of ilmenite concentrate over one anda half years. Deliveries are expected to commence once production starts. A definitive feasibility study by Vnipiprom Technologiya for the Kuranakh minedevelopment is currently nearing completion. The delay in the completion of thisstudy, which was originally due in November 2005 and is now expected to becompleted in the first quarter of 2006, is due to the heavy workloads beingexperienced at Vnipiprom. The Company continues to examine options for the development of a TiO2processing plant alongside its activities at Kuranakh and the project announcedtoday. 50% interest in Kimkanskoye & Sutarskoye iron ore deposits Option The Company intends, subject to shareholder approval, to enter into an agreementto acquire from LLC Expokom (the "Vendor") for a payment of US$9m (the "OptionPremium") an option (the "Option") to acquire a 50% interest in LLC Rubicon, theRussian company that won the tenders for the licences to develop the Kimkanskoyeand Sutarskoye iron ore deposits in the Evreyskaya Avtonomnaya Oblast (EAO) inRussia's Far East. The Option, which will have a term of 24 months, will be exercisable followingthe completion of an initial feasibility study and independent valuation. The price payable for the 50% interest (the "Exercise Price") on exercise of theOption will be 50% of the value placed on Rubicon by an independent valuationless the Option Premium which will have been paid. The Exercise Price is subjectto a cap of US$61m. The other 50% of Rubicon is owned by LLC Evrokom, a Russian company, which hasagreed that Aricom will operate the mine. Related party transaction and settlement in Aricom shares at 28p The Vendor is a company in which Mr. Peter Hambro and Dr. Pavel Maslovsky andtheir associates have interests and which holds the 50% interest in Rubiconindependently of Aricom. The Vendor has agreed with the Company that, if the Option is acquired byAricom, the Vendor will accept settlement of the payment obligation in respectof the Option Premium through the issue of new Aricom shares at a price of 28pper share and that the Exercise Price could also be settled by Aricom throughthe issue of new Aricom shares at 28p per share. Aricom completed its lastplacing of shares in March 2005 at 28p per share. The share price closed on 13January 2006 at 22.5p. As Mr. Hambro and Dr. Maslovsky are directors and major shareholders of Aricom,approval for entry into and implementation of the transaction will requireshareholder approval which will be sought as soon as practicable at anextraordinary general meeting (the "EGM"). Location and logistical advantages The Kimkanskoye and Sutarskoye iron ore deposits, which were first identified inthe 1950s and 1960s, are located in the Obluchenski district of the EvreyskayaAvtonomnaya Oblast (EAO) of Russia. The EAO borders the Amur Region to the Westand China to the South and East, and benefits from easy access to the Chinesesteel market, which has demonstrated high growth in iron ore consumption. The deposits are adjacent to one another and at a distance of 4kms and 10kms,respectively, from Izvestkovaya station on the Trans-Siberian Railway. The Aricom directors believe that the established transport infrastructure andvery close proximity to the Trans-Siberian railway will provide significantlogistical advantage, which enhances the commercial attractiveness of the sites. Reserves and resources The Kimkanskoye deposit is estimated to be 18km in length, covers an area of22.4km2 and extends to a depth of 400 metres. The deposit is divided into 5distinct ore zones, of which the most important is the Tsentralni zone. The oreis in stratified deposits with a length of 500-3,800 metres and thickness of upto 60m, at a gradient of 65-90degrees. The ore is mainly magnetite andhaematite-magnetite with an average iron content of 35.7%. In 1957, the StateGeological Committee of the USSR confirmed Kimkanskoye reserves and resources,according to the Russian classification system, at 189.4m tonnes (A+B+C1) and32.3m tonnes (C2), of which 111.1m tonnes (A+B+C1) and 11.1m tonnes (C2) aresituated in the Tsentralni ore zone. The Sutarskoye deposit covers an area of 27km2, extends to a depth of 500 metresand runs for 14km in a north-easterly direction with a width of 2.0-2.5km. Thedeposit consists of three ore zones with ore bodies running in a submeridianaldirection with lengths of 800-3,600m and widths varying from 20-75 metres to220-240 metres. The predominant mineral content is magnetite andsilicate-magnetite with an average general iron content of 33%. Reserves andresources according to the Russian classification system are estimated at 369.3mtonnes (C1). The terms of the licences are 20 years and may be extended for the term ofexploitation, should this be longer. Provided that the necessary approvals have been obtained, following theacquisition of the Option, Rubicon will commission an initial feasibility study,which will form the basis of the valuation to be commissioned by Aricom from anindependent third party. This is expected to take 12-18 months. Geological Information Geological information relating to the Kimkanskoye and Sutarskoye depositscontained in this announcement has been extracted from published auctiondocumentation prepared by the Federal Agency on the Use of Mineral Wealth at theMinistry of Natural Resources of the Russian Federation in respect of each ofthese deposits and has not been separately assessed by, or on behalf of, Aricom. Mr. Peter Hambro and Dr. Maslovsky's interests in Aricom Mr. Hambro and Dr. Maslovsky and their associates are considered to be a concertparty by the Panel on Takeovers & Mergers (the "Panel") and their holdingscurrently total 34.04% of Aricom's issued share capital. If the acquisition of the Option to acquire Rubicon proceeds and thereafter ifthe Option were exercised, it is intended that this would result in issues ofnew Shares at 28p per Share. If no other shares were issued, for fundraising orotherwise, and assuming an exchange rate of US$1.76:£1, this would increase theaggregate holdings of Mr. Hambro's and Dr. Maslovsky's associated holdings inAricom from 34% to 42% for the grant of the Option and up to approximately 68%(in each case of the enlarged share capital) following exercise of the Option.Therefore the Company intends to apply for permission from the Panel to seekshareholder approval for a disapplication of Rule 9 of the Takeover Code inrelation to these issues, which would otherwise require Mr. Hambro and Dr.Maslovsky and their associates to bid for the Company. Fundraising The Company is in the process of discussing potential funding for the completionof the development of Kuranakh and the appraisal of Kimkanskoye and Sutarskoyewith potential lenders and equity providers. It is intended that the shareholder approval will be sought at the EGM to enableequity funding to be undertaken. Any equity fundraising would dilute the holdings of Mr. Hambro and Dr. Maslovskyand their associates. Shareholder approvals and independent advice The Company will be writing to shareholders in due course to seek approval for(among any other matters) the Rule 9 disapplication referred to above, theimplementation of the Kimkanskoye and Sutarskoye transactions and the sharecapital authorities to enable the issue of the shares in connection with thesetransactions and for the proposed fundraising. In the event that these approvals are not forthcoming, the acquisition of theOption to acquire the interest in the Kimkanskoye and Sutarskoye deposits willnot take place. It should be noted that, under the AIM rules, the exercise of the Option couldconstitute a reverse takeover. In such circumstances, the exercise of the Optionwould be subject to further shareholder approval and would require thepublication of an AIM admission document at that time. These proposals have been considered and approved by the Directors of Aricomother than Mr. Hambro, Dr. Maslovsky and Mr. Makarov and these independentDirectors, having consulted Canaccord Adams Limited, consider the terms of theissue of Shares to Mr. Hambro and Dr. Maslovsky in connection with theacquisition of the Option to be fair and reasonable insofar as the shareholdersof Aricom are concerned. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Orogen Gold