"Rostegh" left Alisher Usmanov one on one with Udokan

The structure of Alisher Usmanov for 10 years of ownership of a license to develop the Udokan copper deposit did nothing.
Rostekh on September 28 withdrew from the project to develop a giant Udokan copper deposit in Transbaikalia, in which it owned an option of 25%. Now the Baikal Mining Company (BGK), owned by "YueSEM Holding Company" Alisher Usmanov and partners, expects to attract about $ 1.3 billion from a consortium of banks for the construction of the first stage. At this stage no strategic partners are planned. Analysts note cautious attitude of investors to such large-scale projects, but believe that at least the first stage of Udokan will be in demand by the market.

Rostek entered into an agreement to withdraw from the project for the development of the Udokan copper deposit in the Trans-Baikal region, implemented by BGK (part of the YueSEM holding company, Alisher Usmanov and partners), told Kommersant sources familiar with the situation, and confirmed by representatives of Rostekh, BGK and "UESeM." The state corporation had the right to exercise the option for 25% of the project until 2019. The head of Rostekh, Sergei Chemezov, back in June at SPIEF-2018 mentioned that the state corporation could withdraw from Udokan. Now, in Rostekh, their decision is explained by "optimizing the portfolio of commodity projects and concentrating resources on priority areas." Terms of the transaction the parties do not comment.

Udokan copper deposit in Transbaikalia is the largest in Russia, its reserves are 15 million tons, resources - 26.7 million tons (JORC). Launch of the first stage of the GOK with processing capacity of 12 million tons of ore per year and production of 130,000 tons of copper in cathodes and concentrate (approximately in half) is planned for the end of 2021 - early 2022. The head of the board of directors of BGK (the owner of the license for Udokan and the project operator) Valery Kazikayev told Reuters in September that the internal infrastructure of the combine is designed to be able to modularly expand to 48 million tons per year.

Rostek received the right to an option for Udokan in 2008. Then the license to develop the field was won at the Metalloinvest contest, which is part of the USM (later the license was transferred to BGK to organize project financing). It was planned to develop Udokan in conjunction with the profile assets of Rostecha, the Mongolian Erdenet and Mongolrostsvetmet, but in 2016 they were sold to the Mongolian Copper Corporation (see "Kommersant" on June 28, 2016).

The state corporations note that they "joined forces with" YueSEM "even at the stage of preparation for licensing and provided the necessary assistance at the initial stages, supporting the project with expertise." "Today this is a mature project, which requires new partners and investments," add Rostekh. In "YueSEM" in return, the state corporation is thankful for "a significant contribution to the development strategy of the project" and "an important role in determining the modern, economically sound technology of ore processing and the configuration of the future enterprise". In "YueSEM" clarified that now the design of all the main complexes of the plant has been completed, the documentation passes approval and expertise, the technical design of Udokan is ready and coordinated with Rosnedra.

Valery Kazikayev told Kommersant that the first stage will be financed by 60% at the expense of borrowed funds and 40% at the expense of shareholders' own funds. The latter have already invested about $ 830 million in Udokan (taking into account the license redemption), it remains to make $ 100 million of own funds and raise about $ 1.35 billion. It is assumed that the funds will be provided by a consortium of banks, among which will be VEB, which has been engaged in the project for a long time, Kommersant said Mr. Kazikaev, the agreement must be signed before 2019. Investors are not going to be attracted to the first place, although in an interview with Reuters, Mr. Kazikaev noted that "there are certain proposals from at least two of the big four transnational mining companies, in addition, BGK is in constant contact with two or three major Chinese companies."

This year, both in the world and in the Russian Federation, deals with copper assets have intensified. Roman Abramovich and partners agreed to sell the large Baimsky copper deposit in Chukotka to the Kazakh KAZ Minerals (closure is expected in the first half of 2019), the RMK Igor Altushkina plans to close the deal in the third quarter to buy out the Malmyzhsky porphyry copper deposit in the Khabarovsk Territory at Amur Minerals (JV Canadian IG Copper and American giant Freeport-McMoRan).

Andrei Lobazov from Aton notes that the project’s “complexity, scale, remoteness and lack of infrastructure” reduces the chances of BGK to quickly find partners, and investors “do not like megaprojects.” “The general mood on the outlook for copper prices is now neutral, adds Mr. Lobazov: in the medium term, one can hardly expect a rise in prices to $ 8,000 or, conversely, a fall to $ 5,000 per ton. As of September 28, the cost of a ton of copper at LME with delivery in December was $ 6.25 thousand. But Maxim Khudalov from ACRA believes that, against the background of the development of energy and electric vehicles, the first phase of Udokan will definitely be in demand by the market, in particular, China (half of the world copper market) , and the scaling of volumes in the future depends on the global economy and the regulation of the industry in the PRC.

Director of consulting IMC Montan (working on the Udokan project) Sergey Nikishichev notes that the planned cost of production on Udokan makes the project extremely resistant to fluctuations in copper prices (according to analysts' forecasts, within 10-15%). The definition of processing technology, separation into queues, optimization of production processes can reduce capital intensity and financing risks, says Mr. Nikishechev, and Udokan's economic model shows payback periods attractive for banks.