Aricom wins interest but wants to go it alone

By Georgina Prodhan

LONDON (Reuters) - Russia-focused miner Aricom Plc TIO.L is attracting interest from miners and steelmakers because its iron-ore projects are close to China, but its chief executive said on Monday the company can go it alone.

Jay Hambro said he believed iron-ore prices could be sustained at current highs and might rise by as much as 5 to 10 percent annually over the next few years as Chinese demand continues to outstrip supply.

"I see China really as the swing factor for the price and I think that swing factor will remain in place," Hambro told the Reuters Global Mining and Steel summit in London on Monday.

He said the closeness to China of Aricom's Russian far-east projects gave Aricom not only insight into Chinese demand that made it bullish on iron-ore prices, but also meant lower transport costs to the world's biggest steel consumer.

"Perhaps we have a better look through the window into the end market," said Hambro, citing as an example demand by Harbin, a city the size of London that wants to triple in size.

"That expansion will require a huge amount of things but fundamentally it will require a huge amount of steel," he said.

Hambro said Aricom's ability to transport iron ore to China via Russia's trans-Siberian and BAM railways meant its transport costs were as little as a quarter of those of competitors who had to pay shipping costs from Australia or Brazil.

"There was one research report published the other day that said we held the keys to the back door of China in terms of iron ore," Hambro said.

"It is therefore a fact that we are being looked at by various people and we are in talks with a few people but what we maintain is that we can do this on our own," he said, adding: "If we were in serious talks we would have announced it."

Aricom's market capitalisation is about $750 million, a figure that should soon double after a recent capital hike and the buyout of a joint-venture partner.

The company plans to put the first of its four Russian far-east projects into production and to move its listing to London's FTSE 250 from the junior London-based AIM exchange by the end of this year.

RUSSIAN DISCOUNT

Hambro said, however, many western investors were nervous about the company because of the experience of oil firms such as bankrupt Yukos and political uncertainty around presidential elections next year.

"I'd say there is a somewhat, in my view, exaggerated Russian discount for companies," he said.

Hambro said he reckoned Aricom's enterprise value was just one or two times its expected earnings before interest, tax, depreciation and amortisation, compared with a sector average EV/EBITDA ratio of around 10.  Continued...