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30 Apr, 2008 12:37

Bidding war likely for Russia’s largest copper deposit

The closing date for bids to develop one of the world’s largest copper deposits, Russia's Udokan field, is only two weeks away. With copper prices climbing as a result of strong global demand, analysts are predicting a bidding war among some of the Russia

A tender for Udokan is scheduled for July 17. Bids must be submitted by May 14.

Russian Railways, the state-owned railway monopoly, is teaming up with the country’s second largest bank, VTB, to bid for the Udokan field. It is up against a serious rival – a consortium of the state-owned Rostekhnologii and mining giants Norilsk Nickel and Metalloinvest.

Analyst Georgy Buzhenitsa of Aton believes these two bidders are equally strong.

“They have political backup behind them. They have huge financial resources and expertise,” he says.

Located in eastern Siberia near the city of Chita, Udokan is an open-pit deposit that could produce up to 15 % of Russia's copper output.

Experts say that while its strategic status means foreigners cannot gain majority control, whoever wins the auction may end up attracting a foreign minority partner.

Tim McCutcheon, a partner at DBM Capital, says a “foreign partner here would bring to the table the idea of risk sharing, which is similar to Sakhalin.”

“In reality BP, Exxon – they have enough money to do these projects on their own, but they don’t want to. They want to be able to share the risk and make sure they are not totally susceptible to anything,” he said.

If Rostekhnologii wins Udokan, it plans to use it as the starting point to create the world's largest mining company. Its head Sergey Chemezov sent a letter to that effect to President Putin this week, according to daily newspaper, Kommersant.