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. Last Updated: 07/27/2016

Aricom Strikes Deal with Defense Firm

London-listed miner Aricom said Monday that it concluded a cooperation agreement with Oboronimpex, a unit of state arms export monopoly Rosoboronexport, to explore opportunities in strategic raw materials, including titanium, molybdenum and tungsten.

"We have decided that we will work together to review potential acquisitions," Aricom chief executive Jay Hambro said by telephone. "We have the ability to look at greenfield [operations] ... through to operating mines."

Hambro said it was too early to speak about specific projects but that a few options were being considered. The partnership will look at opportunities in Russia and elsewhere, he added.

Aricom, the British miner spun off from Peter Hambro Mining in 2003, is currently developing mines in the Amur region in the Far East, positioning the company well for growth into China. It is scheduled to bring its Kuranakh mine in the northwest of the Amur region on line by the end of 2007.

Aricom mines key raw materials for the production of titanium, including titanomagnetite ore and ilmenite, as well as iron ore, which is used in steel.

"Rosoboronexport has been a friend of ours for a while and this has cemented our friendship," Hambro said.

Last year, Rosoboronexport took a 66 percent stake in VSMPO-Avisma, the world's largest producer of titanium. The arms trader also owns a 25.3 percent stake in RusSpetsStal, which supplies steel to the aerospace and military sectors.

Analysts said the deal was a good move for Aricom, as it would provide the miner with a strong and professional state partner, increasingly a necessity for investing in the strategic metals industry.

"This will provide [Aricom] with a form of insurance," said Valentina Bogomolova, a metals and mining analyst at Alfa Bank. "[Aricom has] a good resource base, but no track record. Rosoboronexport has expertise and there will be good synergies with VSMPO-Avisma."

Last week, Denis Manturov, the head of a company affiliated to Rosoboronexport, was appointed deputy industry and energy minister. The move appeared to strengthen the hand of Rosoboronexport head Sergei Chemezov, an ally of President Vladimir Putin.

Aricom said Mikhail Shelkov, director general of Oboronimpex, will head a joint committee to oversee the projects. Shelkov will also take up a position as deputy chairman of Management Company Peter Hambro Mining, the services arm of Peter Hambro Mining.

In May, Aricom raised $554 million by placing new shares on London's Alternative Investment Market. At the time, Aricom said it would use the funds to start construction at two mining projects in 2008. Aricom's shares have fallen by almost 25 percent since May on fears that the miner has inadequate financing. Cazenove investment house, which covers Aricom's stock, said in late August that fears regarding the company's funding were exaggerated.

"They have a lot of good long-term operations," said Nick Pickens, a metals analyst at Canaccord Adams. Once they start getting some cash flow, he said, "the market will start to see they can deliver on their projects."