Steel and mining giant Metinvest Group, part of billionaire Rinat Akhmetov’s System Capital Management, announced on July 15 that it had closed a deal worth $20 million with Toronto-listed Black Iron to develop two iron ore deposits.
According
to the Metinvest news release, Black
Iron had received the fourth and final installment of $5 million
from Metinvest B.V. In turn, Metinvest received a 49
percent stake in Black Iron’s Cyprus subsidiary that controls
the
Shymanivske and the Zelenivske deposits located in Kryvyi Rih, Dnipropetrovsk Oblast. The deal
will come into force once it receives regulatory approvals from Ukrainian government agencies.
No common shares in Black
Iron have been issued as part of the arrangement, but the company remains the operator and
developer of the
two iron ore deposits. “This is
an important milestone for Black Iron which has been struggling to spur the
development of its iron ore projects without the support of a local partner
ever since it’s 2011 initial public offering,” said Roman Topolyuk, analyst of Concorde
Capital.
The Canadian firm bought rights to the iron ore deposits in October 2010 when
it acquired Geo-Alliance Ore East Ltd, then controlled
by billionaire Viktor Pinchuk. The total consideration paid for the Cyprus subsidiary
was $22.18
million. During the period from July 2010 to March 2011 Black Iron managed to
accumulate almost $70 million
for the Ukrainian project development. But the company
had to postpone exploration. In December 2011, the Kryvyi
Rih City Council decided lease more than 250 hectares of land around
Shymaniwske for 10 years lease to the Yuzhnyy
Mining and Processing Plant, controlled by Vadim Novinsky.
This knocked the ground from beneath the Canadians’ feet.
Metinvest
completes merger with Smart Holding
The news came a day after Metinvest on July 14 announced that it had
finalized a merger with Smart Holding, which belongs to former Russian citizen
Novinsky. Started in 2007, the merger was estimated to be worth $3.6 billion
then.
The timing of the completed transaction comes as global prices for iron
ore are dropping. According to Dragon Capital, global iron ore prices sunk 15 percent of the
quarter to $102 per ton, while steel prices remained mostly flat
quarter-on-quarter except for rebar declining 2.2 percent to $532 per ton, and
pig iron increasing 1.3 percent over the same period to $390 per ton.
“We expect Metinvest
to report a strong set of financials for second quarter, 2014, though not as impressive as the first
quarter’s doubling of earnings before interest, taxes, depreciation and amortization to $878 mmillion and
EBITDA margin surge to 30 percent,” said a Dragon Capital July 21
note to investors.
But in 2013, Metinvest’s iron ore earned income for Akhmetov. Prices were
near $130-$140 per ton, with
three deposits garnering more than Hr 10 billion. According to the Citigroup, the
average price of iron ore in 2015 will be nearly $90 per
ton, in 2016 – $80 per ton. If the price decrease to $90 per ton
almost a quarter of the iron ore production capacity in China will stop and
mining companies in other countries will start to cut production, says a Citigroup
document. Morgan Stanley predicts iron ore overproduction in 2014 at nearly 79
million tons, and in 2015 – 158 million tons.
Still, Yuriy Ryzhenkov, General Director and CEO of Metinvest announced that the company
plans to develop the Shymanivske Iron Ore Project. As previously reported, Metinvest
may provide financing of up to $536
million for the project.
“Apparently, Metinvest made the acquisition on attractive terms…maintaining its dominant position in the
Ukrainian iron ore market,” said Andriy Popov, Development Director of audit
company Kreston GCG.
Kyiv Post staff writer Iana Koretska can be reached at [email protected].
