Metalloinvest moves into copper in a big way

A company with next to no experience in copper exploration has won the rights to tap one of the world's biggest copper fields. Metalloinvest pledged extremely ambitious production levels to win the Ukodan auction, but experts warn the $3.9 Billion investm

Metalloinvest is one of the world's top producers of iron ore, raw material for steel, but it has practically no knowledge in copper. Yet the Kremlin-friendly firm won the Udokan auction pledging to extract more than the other bid consortium, which included Russia's number two copper producer Urals MMC.  Metalloinvest claimed in a statement the deposit will make it one of the world's top diversified miners.

“Udokan is one of the biggest copper reserves globally, with 20 million tonnes of pure metal. Following commencement of production, Metalloinvest will become one of the top ten copper producers in the world.”

The risk of missing that target is high. Russia's top base metal producer Norilsk Nickel pulled out the bidding because Udokan is miles from industrial and transport infrastructure, is in hilly seismically active terrain and its copper in ore content is a low grade 1.5%. 

Vladimir Zhukov, Senior Metals Analyst at Lehman Brothers, says to hit full capacity by the 7-year deadline billionaire Alisher Usmanov's firm has to hire rivals. Russian Railways to build rail links, NorNickel for base metal expertise, Rostechnologies with its copper assets in nearby Mongolia.

“It's quite possible that we may actually see a three- to four- party consortium developing the Udokan deposit.”

Metalloinvest is interested because copper prices this summer have neared $9,000 a tonne. The first Udokan partner is likely to be NorNickel, whose major shareholder Vladimir Potanin already has a long-term cooperation agreement with Alisher Usmanov.