Kaz Minerals has announced plans to buy the Baimskaya copper project in the Chukotka region of Russia for $900m from a consortium of investors led by Roman Abramovich, the billionaire owner of Chelsea Football Club.
London-listed Kaz Minerals said payment would be made in two stages, with $675m to be paid later this year on receipt of regulatory clearances. This would comprise $436m in cash and 22.3m shares, or 5 per cent of the company’s current issued share capital.
The balance would follow by 2029 either in cash or shares if certain conditions relating to infrastructure and tax incentives were met.
Kaz said the payment structure provided a strong incentive for Mr Abramovich and his associates, which include Alexander Abramov, the chairman of steelmaker Evraz, to assist in the delivery of the project.
Mr Abramovich was a former governor of Chukotka, in Russia’s Far East.
“The acquisition of Baimskaya marks the next stage of the transformation of Kaz Minerals,” said its chairman and majority shareholder Oleg Novachuk. “The development of this new project in Russia will enable the Group to continue its industry leading growth, delivering both value and volume as the copper market is forecast to enter a period of significant supply deficit.”
Kaz said Baimskaya was one of the world’s most significant undeveloped copper assets with the potential to become a large scale, low cost, open pit copper mine.
The company estimated Baimskaya would cost $5.5bn to develop, and in its first ten years of operation would produce 250,000 of copper and 400,000 ounces of gold.
The deal marks the company’s first move in Russia and it may look for a partner to help fund its development. First production is slated for 2027.
Some analysts thought Kaz’s interest in Baimskaya, which has enough copper to support at least 25 years of mining, had cooled after it brought in a Chinese partner to develop the Koksay deposit in Kazakhstan. Thursday’s deal shows that it is still keen to grow.
“On first look the project is a big call for Kaz Minerals, essentially doubling its production base but with high capex and in a very challenging place to operate due to extreme cold temperatures,” said analysts at Numis Securities.
“With copper hit heavily in the last month, we can see market nervousness over this one. Having said that, Kaz has earned some degree of market trust with its strong operational delivery to date.”
Shares in Kaz Minerals dropped 13.3 per cent to 710p on concern about the size and complexity of the deal.
“The project is remote with limited infrastructure. The nearest town is Bilibino, the regional administrative centre. The Russian government has committed to developing the far east and plans to build power and all season road linking with the port of Pevek on the Arctic Ocean, and a power link to hydro generation close to Magadan. Mine construction will likely depend upon a winter road, which comes with its own risks,” said Edward Sterck, analyst at BMO Capital Markets.
Kaz said it expected Baimskaya to be designated as a Territory of Accelerated Social and Economic Development. If achieved, the project would pay no tax on profits for a period of five years, and a reduced tax rate for the following five years.
Kaz said the book value of the assets it was buying was $136m at the end of December.
Copper prices have fallen sharply over the last couple of months, briefly trading below $6,000 on fears the trade spat between China and the US will hit global growth.
Over the long term the metal is expected to benefit from the growth of renewable energy, however, and miners are scouring the globe for new projects. Last week, the board of Anglo American approved the development of a $5bn copper project in the mountains of southern Peru.
