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26 Jul, 2007 03:19

Looking for an Iron Grip

It is the reporting season for Russia's metals producers but amid the focus on production results and targets, one of the country's largest gold miners is busy diversifying into iron ore.

Peter Hambro Mining is the largest foreign gold miner on the Russian market.

But the company's ready for a new challenge through it's spin-off Aricom which handles its non-gold assets…

“Peter Hambro mining is becoming more mature, its producing now from Pokrovka, it will be producing from Pioneer this year. Aricom is still very much in the growth phase, and that's where I think the next big uplift in value will come from,” shared Peter Hambro, Aricom shatreholder.

Aricom is aiming to start producing iron by the end of the year from its deposits in Russia's Far East.

Most of it will go to China, who needs as much steel as they can get to support its construction boom.

Most of China's iron now comes from Brazil, so Aricom's Russian deposits are better positioned to service the market.

And Hambro and his partner Pavel Maslovsky are not worried about diversifying.

“Mining is mining. In reality it does not seriously matter whether you are mining gold or mining iron-ore. The operations are very typical. If it is profitable and if you have reserves why not mine whatever you can mine?  It is the same shovels, the same tractors, very similar plants. It’s a very similar business,” concluded Pavel Maslovsky, Aricom shareholder.

But the main difference between gold and iron is the volume.

If all the gold ever produced was melted down into one cube – it would only measure 20 metres by 20.

But gold, valued for its scarcity, could not differ more from iron which is the world's most commonly used metal. Therefore it is the cost of transportation that could become a financial risk for the established gold miners.

“For example you have the iron ore which you can sell for $US 60. Of that, you use $US 20 to dig it out and then you may spend $US 30 to actually transport it somewhere, you are left with very little to enjoy as a profit,” warned a Deutsche Bank metals analyst Aleksandr Pukhaev.

Though Mr Pukhaev agreed that China is the best destination for Aricom's iron and will be lucrative as long as the infrastructure is in place to get it there.