MOSCOW () -- The Russian authorities postponed an auction for the huge Udokan copper field, located in the eastern Siberian region of Chita, in an apparent attempt to allow domestic metals majors and other influential players more time to better prepared for the sale.
Just one day ahead of the original application deadline, on May 13, Russia's subsoil resources agency Rosnedra extended the deadline from May 14 until June 11 for bidders to indicate their interest in the auction for Udokan.
Rosnedra, Russia's Natural Resources Ministry's agency, also confirmed that the starting price for the 20-year licence will be 4.5 billion roubles ($189 million). The winner was originally due to be declared on July 17, but now the deadline has moved to August 14.
The authorities made little effort to keep secret that the delay came as a result of corporate lobbying. On May 13, Russia's Natural Resources Minister Trutnev announced that the auction was put off at the request of the potential bidders.
"The companies sought more time to do pre-feasibility studies and economic calculations," he said. "We have no task to rush this auction."
Incidentally, Udokan is Russia's only copper deposit large enough to be viewed "strategic" and therefore unlikely to be sold to foreign bidders. According to a bill on foreign investment in strategic sectors, signed into law earlier this month, overseas investors must have any "strategic" acquisition in Russia approved by the governmental. The bill, passed by the parliament in April, applied to "strategic" deposits of natural resources, including copper deposits with reserves of more than 500,000 tonnes.
The Natural Resources Ministry's Rosnedra estimated that Udokan has 5.5 million tonnes of C2 reserves, and 14.4 million tonnes of B+C1 reserves, as well as 14,000 tonnes of silver. The ministry has said the deposit could yield up to 187,000 tonnes of copper a year, or 15% of Russia's annual output.
The ministry has estimated investment in the project at $1.6 billion, while the Russian state coffers should receive some $3 billion. However, in a yet another sign of possible corporate lobbying, the starting price was halved to 4.5 billion roubles from 9 billion roubles proposed earlier.
As the government moved to improve the auction's terms, potential bidders lost little time. On May 15, Russia's largest copper miner Norilsk Nickel [RTS:GMKN; OTC:NILSY] formally applied to bid for Udokan. Norilsk CEO Denis Morozov said the Udokan project would fit the scale of the company's operation. He also said Norilsk would consider inviting co-investors and partners to develop Udokan if it places a winning bid, but did not mention any current bidding partners.
Last month, the state-run Russian Technologies expressed interest in teaming with Norilsk Nickel and Metalloinvest in order to make a joint bid to develop Udokan. However, Norilsk is yet to confirm any interest in joint bidding.
Russia's leading commodities company Basic Element, or BasEl, voiced interest in Udokan on May 8, but appeared to be slow to announce a formal bid. In the upcoming auction for Udokan, BasEl is expected to be represented by Strikeforce Mining and Resources Ltd., a subsidiary of BasEl's affiliate Soyuzmetalresource.
Furthermore, one unusual alliance was created to acquire Udokan. In April 9, Russia's state-owned railway monopoly Russian Railways [RTS:RZHD] announced formation of a consortium, ZAO Russian Copper, to bid for Udokan. The consortium also included the government-controlled Russian Development Bank, and the country's second-largest copper miner, Urals Mining and Metals Co.
ZAO Russian Copper reportedly estimated Udokan's total net profit at $12.5 billion on $25.5 billion sales during the project's lifespan. The consortium anticipated to produce 210,000 tonnes of copper a year.
First discovered back in 1949, Udokan has remained untapped for nearly six decades. However, now the once-dormant deposit appears to have sparked fierce competition among Russia's leading mining and commodities companies.
