Metalloinvest Wins Udokan Auction

A unit of Metalloinvest, Russia's biggest iron ore producer, has won an auction for the huge Udokan copper deposit for $585 million and will invest more than $5 billion into developing it with Russian Technologies.

The Federal Subsoil Resource Use Agency named Mikhailovsky GOK as the winning bidder on its web site Wednesday, a full week before the tender results were expected to be announced.

Metalloinvest, half-owned by billionaire Alisher Usmanov, said in a statement that it would invest more than 100 billion rubles ($3.9 billion) in exploring the deposit and would pay 400 billion rubles in taxes over the period of its development.

Metalloinvest will work on Udokan with state-run Russian Technologies, which said Wednesday that it would invest at least $1 billion into Udokan. Metalloinvest said it was open to other parties joining the project.

Mikhailovsky GOK, with a bid of 15 billion rubles ($585 million), outstripped a rival consortium comprised of state-owned Russian Railways, the country's second-largest copper producer Urals Mining and Metals Co., and state-run Russian Development Bank.

Wednesday's announcement came a day after Usmanov, whose company has no experience in the copper industry, met President Dmitry Medvedev and promised a 1 billion ruble ($39 million) donation to refugees from South Ossetia.

Three other bidders -- Mikhail Prokhorov's Onexim Group, Oleg Deripaska's Basic Element and Norilsk Nickel -- had previously pulled out of the auction.

The results had been expected to be announced Sept. 17.

"We simply managed to make the decision earlier," said Natural Resources Ministry spokesman Nikolai Gudkov. The ministry oversees the subsoil agency.

"One of the main criteria was the depth of the refinery the participants were suggesting," he said, adding that money was also an important factor. The ministry set the minimum investment into developing the deposit at $1.6 billion.

Dmitry Kolomytsyn, metals analyst at Morgan Stanley, said Metalloinvest managed to win the tender because it is rich with cash. "The company, which is not traded publicly, has lots of money to invest, and its owner is close to the Kremlin," Kolomytsyn said. "The next step for Usmanov will be to go on with his planned cooperation with Potanin."

Usmanov agreed in May with Vladimir Potanin, chairman of Norilsk Nickel and a 30 percent shareholder in the company, to merge their companies into a global mining giant and might work on Udokan together. When Norilsk withdrew from the Udokan tender last month, Potanin said the company could still work on the deposit with the winner.

Norilsk Nickel spokeswoman Yelena Kovalyova reiterated Potanin's statement Wednesday.

Interros, Potanin's investment vehicle, declined comment.

The Udokan deposit, located in the east Siberian region of Chita, is believed to contain 14.4 million tons of copper, 7.3 million tons of silver and 1.9 million tons of gold and has the potential to produce 187,000 tons annually, or about 15 percent of Russia's current output of the metal.

Metalloinvest said it would start to build a hydrometallurgical plant on the deposit in 2010.