Kaz investors rattled by $900m deal for Russia copper project
SHAREHOLDERS in Kaz Minerals have taken fright at news it plans to buy a remote copper project in the far east of Russia from a consortium of investors including Chelsea Football Club owner Roman Abramovich for $900m (£689m).
The FTSE 250 miner described the Baimskaya asset in Chukotka as one of the top 10 undeveloped copper projects globally. But investors sent the stock down 28.3pc to 587.8p yesterday amid concerns that Kaz could be overstretching itself.
Kaz will spend the next year working on a definitive feasibility study for Baimskaya, which will determine the total costs of building it, thought to be at least $5.5bn.
Oleg Novachuk, chairman of Kaz, defended the deal, which could ultimately double its output and take it into Russia for the first time, after spending the last four years focusing on developing two mines in Kazakhstan. Mr Novachuk said Kaz’s track record “proves we can deliver projects … we can demonstrate the same success in Russia”.
The mining company will pay the Baimskaya consortium, which also includes Alexander Abramov, chairman of steel maker Evraz, in two instalments. The first tranche of $675m for 75pc of the project will be delivered in two-thirds cash and one-third shares.
The final $225m for the remaining 25pc stake will be paid in shares depending on whether the project hits certain milestones, or else in cash.
Mr Novachuk said this arrangement would keep Mr Abramovich and his partners invested in the delivery of the project. Kaz expects to begin construction in 2020 with a view to completing it by 2027, when it could produce around 250,000 tons of copper a year.
The company is betting on strong demand for the metal, used in consumer gadgets and electrical wiring, well into the next decade.
Copper is highly sought after among the major miners as supply is expected to tighten in the next few years, because existing mines are nearing the end of their lives.
Kaz will be dependent on the Russian government for help in building hundreds of miles of roads and power lines to serve the new mine.