IRC Ltd., an iron ore miner in Russia’s Far East, wants to raise as much as $162 million by 2015 after agreeing to sell about $238 million of shares to two Chinese traders to expand its K&S mine.
IRC, a unit of gold miner Petropavlovsk Plc, will quadruple annual production of iron ore to more than 4 million tons once its K&S mine in southeast Russia starts in the first half of 2014. IRC last month agreed to sell a 31.4 percent stake to General Nice Development Ltd. and 4.5 percent to a unit of China Minmetals Corp.
“The money we have from the Chinese investors gives us the chance to double the size of K&S from 3.2 million to about 6.2 million tons,” IRC Chairman Jay Hambro said. “The total built cost for K&S is $400 million, so we have ongoing conversations with Chinese and Russian banks to give us some debt.”
IRC doesn’t need the extra cash until the end of next year, when it plans to start the expansion, and the banks include Industrial & Commercial Bank of China Ltd., he said.
Chinese steel production will rise about 4 percent this year as economic growth picks up, boosting demand for iron ore, according to the China Metallurgical Industry Planning & Research Institute.
Iron ore prices will range from $120 to $170 a ton in the long term to average about $140 a ton, Hambro said. Demand for the steelmaking raw material will continue to rise while supply growth will be slow because of project delays and cost increases, he said.
Anglo American Plc on Jan. 29 said it would write down $4 billion from the value of its Minas-Rio iron-ore project in Brazil and raise spending for a sixth time after prior blowouts forced Chief Executive Officer Cynthia Carroll to quit. Rio Tinto Group CEO Tom Albanese also quit Jan. 17 after unveiling $14 billion of writedowns, partly after its $38 billion purchase of Alcan Inc. in 2007.
Shareholders in mining companies such as Anglo, which lost almost half its value in the past two years, have fallen victim to a rush of acquisitions as commodity prices rallied in 2008 and 2011, and then asset prices slumped.
“Banks like to fund things that generate cash and are liquid,” Hambro said. “You fund a mine and mining equipment but you don’t fund a railway because you can’t pick it up and sell it, so shareholders won’t fund it, the banks won’t fund it, so it’s very difficult for many companies to bring new supplies on.”
IRC is confident of getting the approval of its shareholders for the deal with the Chinese traders when they vote it next month, Hambro said. “Everyone we met expressed positive feedback about the deal.”