Syndicate of VEB.RF and Partner Banks to Finance Udokan Second Phase

VEB.RF, Gazprombank, Sberbank and Udokan Copper (part of the USM Group, the founder and principal shareholder - Alisher Usmanov) agreed to finance the second phase of the Udokan copper deposit development project.

The signing ceremony took place during the St. Petersburg International Economic Forum at VEB.RF’s site in the presence of the Governor of the Trans-Baikal Territory Aleksander Osipov and VEB.RF Chairman Igor Shuvalov.

The project investments are preliminary estimated at USD4bn. The final amount of investment will be determined during the project due diligence. The project will receive financing under the Project Financing Factory programme, with VEB.RF acting as the Factory’s operator.

The second phase of the Udokan copper deposit development stipulates processing about 24 million tonnes of ore per year in addition to 12 million tonnes to be processed in the first phase.

The 26 million tonnes copper deposit is the largest in Russia and ranks fourth in the world. The copper grade of the ore is 1.0% according to the JORC classification (the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves). The end product of the first phase is cathode copper and sulphide concentrate, the output is expected to be 125 thousand tonnes of copper per year.

After commissioning the first phase, the Udokan mining and smelting facility will create more than 2,000 new jobs aside from allied sectors, and generate over RUB750bn in additional tax revenues for budgets at all levels during the first 25 years of operation.

Nikolay Tsekhomsky, First Deputy Chairman and Member of the Board, VEB.RF:

“We are launching financing for the second phase of Udokan development. Together with the first phase of Udokan development, this project is one of the most capital-intensive projects co-financed by VEB.RF and the largest project implemented under the Project Financing Factory programme. The PFF mechanism allows us to attract large investments from commercial banks. The Factory also helps investors and creditors to minimise project risks. The Udokan second phase will have positive impact for developing the Trans-Baikal Territory. Specifically, project initiators are implementing the programme for integrated territorial development, which will improve quality of life not only of the Udokan Copper employees but also of the local residents.”

Valery Kazikaev, Chairman of the Board of Directors, Udokan Copper:

“Development of Udokan, a huge and unique deposit in terms of complex mineral composition of ore, could not be started over 70 years since its discovery. We offered a unique technological development scheme. Today, we are successfully building the Udokan facility in the zone of severe climate, perpetually frozen under-soil and complex mountainous relief. The project investment reached about USD1.8bn including USD1bn invested by shareholders. Our confidence in project success and the government’s support of investments in the Far East allowed us to launch the second phase of the Udokan project.”

Aleksey Belous, Deputy Chairman, Gazprombank:

“Gazprombank traditionally plays an important role in developing the production and processing of non-ferrous metals in Russia. We together with our partners are turning a new leaf in the history of such a large project, which is important for the Eastern Siberia and Far East. I am confident that the project development will strengthen our successful cooperation and bring added impetus to the development of the Trans-Baikal Territory. The Project Financing Factory mechanism created by VEB.RF has proven its efficiency, while the Udokan-1 project participants have demonstrated their high professionalism. This inspires us to launch the Udokan-2 project.”

Olga Kharlamova, Vice President and Director of Key Client Lending, Sberbank:

“The Udokan copper deposit development project is strategic for the development of the Russian mining industry. Sberbank considers the project initiator - USM Group - to be a reliable and responsible partner and is pleased to participate in financing such projects critical to the country’s economy. The Bank as a member of the syndicate has already co-financed the first phase of the project on the Project Financing Factory principles and is planning to co-finance the second phase. Such large-scale project will substantially strengthen the company’s positions in the Russian and global copper markets.”