5th Apr 2007 07:01
Aricom PLC05 April 2007 Press Release 5 April 2007 Aricom plc ("Aricom" or the "Group") Wardell Armstrong CPR Estimates Value of K&S Project of c.US$1.7bn.Decision to acquire remaining 50% of K&S Project and to produce pig iron at the project. Aricom plc (AIM: TIO), the Anglo-Russian developer of mineral resources, todayannounces that Wardell Armstrong International ("WAI") has now completed itscompetent person's report and valuation of Aricom's K&S project. The reportestimates a value of US$1,676m for the project. Aricom has an initial feasibility study on the project which suggests that themaximum value will be extracted by processing the iron ore through to pig iron.It had previously been suggested that the optimal project would involve theconstruction of a pelletisation plant however Aricom's further analysis suggestsproducing pig iron presents the potential for significantly greater returns. Following receipt of WAI's valuation of the project, Aricom has decided toacquire the remaining 50% of the project which it does not already own. Aricomhas accordingly exercised its option to acquire from Philotus Holdings Ltd ("Philotus") all the shares of the company which holds the remaining 50% of the K&S project. Under the terms of Aricom's existing option agreement the optionexercise consideration will comprise the issue of 123,782,467 new Aricom sharesto Philotus. The number of shares was calculated in accordance with theoriginal agreement and utilising the WAI valuation, as the number of shareswith an aggregate value of US$61m using the then current share price of UK£0.28and a fixed dollar exchange rate of £1:£$1.76, each as agreed at the time ofentry into the agreement. Philotus is a company owned jointly by Peter Hambroand Pavel Maslovskiy and is hence a related party. This option agreement wasapproved by Aricom's shareholders at a general meeting on 18 April 2006. As isnormal practice for a transaction of this nature, completion of the acquisitionand hence the allotment of the consideration shares is conditional on receipt ofthe approval of the Russian Federal Anti-Monopoly Service ("FAS"). As a separate transaction but further to receipt of WAI's valuation, pursuant tothe agreement under which Aricom acquired its existing 50% interest in the K&Sproject, 65,000,000 new Aricom shares are to be issued as additionalconsideration (being the maximum consideration payable under the originalacquisition agreement) to Malavasia Enterprises Inc ("Malavasia"). Malavasia isnot a related party and this transaction is not subject to the approval of theFAS as it does not increase Aricom's shareholding in the project. Theseadditional shares will be issued shortly. Project Plan, Competent Persons Report & Estimated Valuations Wardell Armstrong International Ltd is a well known energy and earth resourcesconsultancy company that provides specialist consultancy services to the mining,minerals, renewable energy and environmental industries. Wardell ArmstrongInternational is part of the Wardell Armstrong LLP. Using the historic reserve and resource estimates together with Aricom's morerecent confirmation drilling, two operational mining scenarios have beenproposed based upon mining 7.4million tonnes per annum ("mtpa") and 10mtpa. Inboth scenarios a total of 263mtpa of ore and 902mtpa of waste are mined. In the7.4mtpa scenario this occurs over a 42 year operating life with an average of33mtpa combined ore and waste mined each year. In the 10mtpa scenario theoperational life is 32 years and an average of 45mtpa of ore and waste are minedeach year. Both scenario's assume 3 years of pre-production development. In relation to each of the above mining scenarios, Aricom's studies and WAI'scompetent persons report consider the additional option of producing pig ironversus the sale of concentrate. Aricom's further development plans will bebased on the option(the fourth in the table below)of processing 10mtpa of orewith a smelting operation to sell 1.75mtpa of pig iron and 1.03mtpa ofconcentrate. WAI has assessed Aricom's estimates for these scenarios and finds them to bereasonable. These estimates include an analysis of the investment programmerequired, both in terms of quantum and timing, and operating assumptions. The below table is an extract from the WAI report summarising the potential ofthe project on various assumptions: Operating, Expenditure & Return Estimates for each Operational Scenario Scenario Ore Pig Iron Sales Concentrate Pre-Production Capital Expenditure NPV IRR Production (mtpa) Sales (US$m) (US$m) (mtpa) (mtpa) 1 7.4 0 2.76 434 445 23% 2 10 0 3.72 490 606 26% 3 7.4 1.69 0.17 743 1,565 33% 4 10 1.75 1.03 799 1,675 35% Source: Competent Persons Report On The Kimkan & Sutara Iron Ore Deposits, Obluchenski District, Evreyskaya Autonomnaya Oblast, Russia. Wardell ArmstrongInternational Ltd April 2007. The discount rate used for the NPV calculation is10% WAI's Competent Persons Report will be available in full on the Aricom website -www.aricom.plc.uk. Jay Hambro, Chief Executive of Aricom plc, commented: "I believe that for Wardell Armstrong, a leading global consulting company inour field, to provide an independent valuation of just one of our assets whichamounts to what would be twice the market capitalisation of the Company attoday's share price were all the new consideration shares in issue, isconfirmation of Aricom's potential. Subject to the normal regulatory approvals, following today's announcement,Aricom will own 100% of the K&S project for which the total consideration paidrepresents less than a quarter of the WAI valuation, at today's share price. We very much look forward to building on our own and Wardell Armstrong'sanalysis of the project so as to begin production as soon as possible." - Ends - For further information:Aricom plcJay Hambro, Chief Executive Tel: +44 (0) 20 7201 8939 www.aricom.plc.uk Canaccord AdamsRobert Finlay / Chris Bowman Tel: +44 (0) 20 7050 6500 www.canaccordadams.comAbchurchCharlie Jack / George Parker Tel: +44 (0) 20 7398 7700 www.abchurch-group.com Notes to Editors Aricom plc is a leading developer of Russian metal and mining assets, focusingon iron ore and ilmenite production and delivery. The Company was establishedin September 2003 to develop projects, situated in the north west of the AmurRegion, in Russia's Far East. These projects are set to service the Chinese andRussian commodity market. Aricom currently operates three projects in the Amur region and the adjoiningJewish Autonomous Region. The Company's projects Kuranakh, K&S and Bolshoi Seymhave combined estimated reserves and resources of over one billion tonnes ofIron Ore and Ilmenite ores. The location of the Company's deposits offer asignificant logistical advantage being close to the Trans-Siberian-Express andthe Baikal-Amur Magistral railways. In 2005, 700 million tonnes of iron ore were shipped globally, of that 300million (43%) was shipped to China. It is currently estimated that China is oncourse to have imported 300 million tonnes of ore by the end of 2006 tofacilitate its demand for steel production. In June 2006, Aricom announced aMemorandum of Understanding with China's largest nonferrous metal companyChinalco, to co-operate in the design and development of a Titanium Spongeproduction plant in China. Aricom is headquartered in London, with a highly experienced board of directorscomposed of British and Russian citizens. The company's shares were admitted totrading on the AIM Market in December 2003 and trade under the symbol TIO.L. Forfurther information please visit www.aricom.plc.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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