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. Last Updated: 07/27/2016

Petropavlovsk Wins Big Loan To Expand Iron-Ore Business

LONDON — Petropavlovsk, the third-largest producer of gold in Russia, said Tuesday that its iron-ore business might overtake the precious metal as its biggest operation after a Chinese investor agreed to fund expansion.

Xuan Yuan Industrial Development, China’s largest investor in Russia, offered a 10-year loan covering at least 70 percent of the $375 million needed to develop the first stage of the K&S iron-ore project, London-based Petropavlovsk, previously known as Peter Hambro Mining, said in a statement.

“Once it’s up and running it could be bigger than our gold business,” chairman Peter Hambro said in a telephone interview from Beijing. Xuan Yuan offered the “best deal” after Petropavlovsk held negotiations with several Chinese companies, he said.

Petropavlovsk will pay 5 percentage points over the London interbank offered rate on funds drawn from the loan, which is due to be repaid seven years after stage one commissioning.

The first stage of K&S, in the Amur region about 65 miles from the Chinese border, will produce 3.2 million tons of iron-ore concentrate per year. Xuan Yuan will take all production under a supply contract, Petropavlovsk said.

Petropavlovsk and Xuan Yuan are studying further expansion and construction of a plant to make 2.5 million tons of so-called direct reduced iron a year, the statement said.

Hambro said the deal, signed in front of Deputy Prime Minister Alexander Zhukov, was part of a “big push” for business ties between Russia and China.

Petropavlovsk rose 19 pence, or 1.7 percent, to 1,121 pence in London trading, valuing the company at £1.92 billion ($3 billion). The stock has almost tripled this year.

Gold futures rose to a record of $1,069.70 per ounce Tuesday as the slumping dollar spurred demand for the precious metal as an alternative asset.