Regulator to approve acquisition of 13.3 percent of Siberian Bystrinsky GOK by Chinese Investors

By Marina Romanova

Government Commission on Monitoring Foreign Investments has approved long anticipated acquisition of 13.3 percent of Bystrinsky copper-gold-iron development project by Chinese Highland Fund, www.finmarket.ru quoted Igor Artemyev, head of the Russian Federal Antimonopoly Service, as saying.

Last December, China’s Highland Fund, consortium established by prominent Chinese investment funds and corporations, has agreed to acquire a 13.33 percent stake in the Bystrinsky copper project of MMC Norilsk Nickel OJSC located in the Zabaykalsky Kray of Russian Siberia for a total consideration of US$100 million. Since December 2015, partners were expecting Federal Antimonopoly Service to consent the acquisition.

Nornickel did not disclose the identities of the Chinese investors behind the deal. Pavel Fedorov, company deputy chief executive, said to The Financial Times, they included “some of the premier Chinese private equity and state-owned investment corporations”. PRC’s firms are expected to become consumers of the plant’s main production, copper concentrate. 

China has been increasing its copper consumption over the last decade, and accounts for 45 percent of the global demand for copper.

Norilsk Nickel was not ready to invest in Bystrinsky project without partners due to the present lack of external funding to all Russian businesses. Even being the world’s largest nickel producer and third-largest global mining company with a market value of US$30bn, Nornickel currently has problems to finance new projects associated with falling commodity prices, volatility by ruble, and wear down political controversy. The project is estimated to be worth US$750 million.

Commenting on the transaction, Vladimir Potanin, CEO of Norilsk Nickel and largest shareholder, noted that “partnership with a group of Chinese institutions with strong state sponsorship is aimed at unlocking the full potential of the Bystrinsky project and is in line with company’s strategy of de-risking the Bystrinsky development by bringing high quality partners focused on the Asian markets and external financing to ensure its successful completion despite the challenging external environment.”

Bystrinsky Mining and Processing Combine (Bystrinsky GOK or Bystrinsky GRK LLC) is Norilsk Nickel’s subsidiary in charge of the deposit development. Company press release names the project as “one of the biggest in the mining industry of Russia” with total investment of about US$1.7 billion. The project is expected to be commissioned in 2017. Proven reserves promise 34 years for the facility’s scheduled life, company states when describing the deposit.

Pursuant to the design documentation, annual level of production will amount to 10m tons of ore; 65.8 thousand tons of copper in concentrate; 2.1m tons of iron in concentrate; 6.9 tons of gold in concentrate; 35.9 tons of silver in concentrate. Two start-up facilities with the capacity of 5m tons of ore each will be involved to put the production facilities into operation. Additionally, the Bystrinsky GOK will produce 3m magnetite concentrate per year with a premium iron content of 68 percent (in the usual concentrate, this figure is 62 percent) and low amounts of contaminants, Nornickel press release says.

The project includes the construction of quarries, transport and engineering infrastructure and the Bystrinsky GOK ore dresser at the Bystrinskoye field located within 300 km from the Russia-China border and regarded as one of the world ten largest copper deposits.

Norilsk Nickel has found investors for its biggest project in Tianjin, during China’s largest trade fair ‘China Mining Congress and Expo’ in October, 2014. It took another year and two months to complete a deal with Chinese investors, and additional six months for the regulator to approve the acquisition.

Earlier in April, 2016 Norilsk Nickel and Russian Sberbank CIB informed on approval of a credit facility in the amount of up to US$800 million for the period of 8 years to finance the construction of Bystrinsky mining and concentration complex in Zabaykalsky Kray.

In December 2015, Nornickel also signed its first renminbi-denominated loan for more than 4.5bn renminbi (US$700m) with Chinese banks including ICBC.

Although, Russians are welcoming significant equity injection into Bystrinsky project by Chinese side, which is interested in an increase to 20 percent of the stake, according to Vladimir Potanin, Nornickel is not in a rush to increase the stake.

“So far, we think that the Bystrinsky GOK’s contribution to our EBITDA will be rather good from 2018, and there is no special reason for us to be interested in a sale of a larger stake in the project,” he told reporters in March, 2016.

Though, in longer term Bystrinsky GOK can be listed at the Shanghai or Hong-Kong stock exchanges “if the project is enlarged at the expense of qualitative assets that can be performed within the coming 5-7 years”.

Nornickel claims the Zabaykalsky Kray — the home of its new Bystrinsky copper mine — has good exploration potential, with an estimated 8.6m tones of undeveloped copper reserves. Company is hoping the region to become a hub to cater to the Asian market.

The commission of Bystrinsky GOK with Chinese investment will provide over 2,375 new jobs in the Zabaykalsky Kray. Under the Soviet Union, centre of the region Chita was closed city because of its proximity to the highly militarized border zone with China. But since a series of treaties between Russia and China in the late 1990s and 2000s, writes The Moscow Times, the area’s strategic significance has been downgraded. Later in 2010, then President Dmitry Medvedev dissolved the Siberian Military District, of which Chita was the capital. And jailed billionaire Mikhail Khodorkovsky did a stint in a prison colony near the uranium-mining town of Krasnokamensk to the south of Chita, which is located 2943 miles east of Moscow.

As of the 2010 Census, the population of Zabaykalsky Kray was 1,107,107 with 329 thousand living in regional centre city of Chita.