VTB AND ARMENIAN COPPER PROGRAMME SIGNED AN AGREEMENT FOR DEVELOPMENT OF TEKHUTSY COPPER MOLYBDENUM FIELD AND CONSTRUCTION OF AN ORE MINING AND PROCESSING ENTERPRISE
Banking and Stock Exchange, Finance, Economics (Russia)
December 13, 2007 Thursday
Reference: Maria Cherkassova "VTB to Enrich Armenia", Kommersant,
December 11, 2007, p.17; Daniil Shabashov "VTB to Spend on Armenian
Copper", RBC daily, December 11, 2007, p.6.
On Saturday on December 8, in Yerevan Andrey Kostin, chairman of the
board of VTB meet with Prime Minister of Armenia Serge Sarkisyan.
A source of Kommersant at VTB says that the project is evaluated at
$300 million and the obligations of the second party in respect of
financing are not clear.
The project worth over $300 million implies a construction of a mine,
an ore mining and processing works, and a tailings dump.
According to Andrey Kostin quoted by Prima-TASS, VTB will obtain an
interest in ZAO Tekhut in return for a credit worth $257 million.
According to the source the bank will hold 50% of Tekhut’s shares as
a pledge through an SPV, which will be ACP.
According to Andrey Kostin, the participation of the bank in this
transaction is temporary and is limited by the date when the credit is
to be redeemed (in 12 years). Tekhut is a closed joint-stock company
and after quitting from this business VTB and ACP will have preemption
right on the shares. Valery Medzhlunyam, president of ACP, pointed out
that VTB obtains a preemption right to enter other projects of ACP,
which is exploring gold and copper fields.
A businessman, operating in this country, says that it is not
surprising that the Russian capital will get access to Armenian
deposits. Armenian exports copper and gold and Russia provides oil
products and gas. The production and development of gold and copper
fields in the country were performed by Industrial Investors Group
owned by Sergey Generalov, whose metal assets are to be transferred
to Siman Povarenkin, chairman of the board of directors. A source
close to this group regards political risks of Armenia as moderate.
Experts were not surprised at VTB’s choice. Vladimir Zhukov at Lehman
Brothers said that for the last three years the growth in consumption
in China had driven copper prices 3.7 times higher. At present experts
expect copper prices to be $6,600 per ton in 2008 and $6,060 per
ton in 2009. The expert points out that molybdenum is likely to be
exported to Europe.
VTB used to participate in mining projects in Armenia, for example
it finances the development of Sotsky gold field. However, Andrey
Kostin states that the transaction with ACP is "unexampled".
Experts consider the copper project to be profitable. Despite the
recent decrease in copper prices, which is accounted for by the weak
demand of the U.S.A., the producers of copper take into consideration
China. According to Goldman Sachs, in 2008 the consumption of copper
in China will add 15% to 19.01 million tons while in other countries
it will gain only 4.9%. Dmitry Smolin at UralSib says that by 2012 the
copper price may fall to $4,500 per ton from current $7,000 because
of the large-scale launch of new production capacities.