Ukraine’s largest steel and mining group has teamed up with a Canadian exploration company for a planned $1bn investment to build an iron ore mine.
Metinvest, which is majority owned by Rinat Akhmetov, Ukraine’s richest man, will contribute up to half of the cost of the project. Shares in Black Iron, the Toronto-listed junior that owns the project, jumped more than 30 per cent.
The deal comes as Black Iron eyes a London listing during a challenging period for many junior mining companies, with higher costs and uncertain demand. Investors have been shunning mining stocks but Black Iron believes its Ukraine focus may be better understood in London – where a number of eastern European miners have listed – than in Canada.
Black Iron said on Tuesday that the agreement created “a defined path” for Metinvest to become a “prominent shareholder” with up to 51 per cent interest of its Ukraine-based Shymanivske and Zelenivske ore mining projects. Metinvest is investing an initial $20m.
Black Iron said it needed more than $1bn to develop a first project at Shymanivske, where it expects to be able to produce more than 9m tonnes of iron concentrate annually.
Igor Syry, Metinvest’s chief executive, described the Black Iron partnership as “important for Ukraine and its economy”.
Mr Akhmetov is a longtime political ally of Viktor Yanukovich, Ukraine’s president. Metinvest controls about half of the mining and steel business in Ukraine, a top 10 steel-exporting country and home to some of the world’s largest ore reserves.
Metinvest churned out more than 14m tonnes in 2012 at four domestic mills. It is also a major ore exporter and produces steel at UK, Italian and Bulgarian plants.
Matthew Simpson, Black Iron’s chief executive, said: “To finance a project of this magnitude, you need big partners. [Metinvest] have a tremendous amount of experience in Ukraine. They are the largest company in Ukraine.”
The total project development cost would be part financed by Metinvest, the rest through debt, trade-off agreements with steel mills and ore traders, with the difference being raised through a listing on London’s alternative investment market “by the end of this year, or next year”.
As for listing in London, Mr Simpson said: “We would be seeking to raise $40m-$50m. We found that the project is much better received in the European markets. They understand Ukraine much better than in North America.”
Black Iron acquired the Ukrainian licences in 2010 from billionaire Victor Pinchuk, son-in-law of Leonid Kuchma, a former Ukrainian president.
Mr Simpson said the biggest investors behind Black Iron, which is listed on Canada’s TSX, were Forbes & Manhattan, a Toronto-based private merchant bank, Luxor Capital Partners, RBC Global Resources Fund and Grupo Salinas, of Mexico.
Black Iron made headlines in 2011 for hiring Larry King, an internationally recognised media host, as an adviser, with a focus on raising awareness about the company and its investment plans. The American TV personality made a high-profile visit to Ukraine that year, meeting with top government officials, including Prime Minister Mykola Azarov.