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VEB.RF, Gazprombank and Sberbank Agree to Finance Construction of Udokan MMP as part of Project Finance Factory Initiative

VEB.RF, Gazprombank  and Sberbank Agree to Finance Construction of Udokan MMP as part of  Project Finance Factory Initiative
Baikal Mining Company (part of USM Holding), VEB.RF, Gazprombank  and Sberbank came to an agreement to finance Stage I of Udokan Copper Project (Zabaikalye Region, Kalar District) and construction of the Mining and Metallurgical Plant. Key terms of the financing were established in the term sheet signed by partner banks and Baikal Mining Company at the Russian Investment Forum in Sochi.
Project financing will be structured in accordance with the principles of Project Finance Factory with target-specific tranches from a syndicate of Russian banks and interest rate subsidies.
The document was signed by First Deputy Chairman and Board Member of VEB.RF Nikolay Tsekhomsky, Gazprombank ’s Deputy Chairman of the Management Board Alexey Belous, Sberbank’s Deputy Chairman of the Management Board Anatoly Popov, and Chairman of the Board of Directors of Baikal Mining Company LLC, Valery Kazikaev.
The total project budget amounts to USD 2.9 bn (including shareholders` investment, VAT and financing costs). The syndicated loan for 12 years will be used to finance capital and operational expenditures, including construction, installation works and equipment supply.
According to key terms, the partner banks shall provide financing as follows: VEB.RF – 20%, Gazprombank  – 40%, Sberbank – 40%.
As Mr.Kazikaev pointed out: “We planned to use project financing mechanism from the beginning. Shareholders` participation shall be not less than 30% of the total investment, including the already invested RUR 28.5 bn. We are certain that participation of state Russian banks and a major development institute will secure the most effective terms of financing and will guarantee a successful startup of Mining and Metallurgical Plant as early as 2022.”
“The Government of Zabaikalye Region will facilitate Udokan deposit development process and assist in starting the construction of the Mining and Metallurgical Plant as early as possible. We continue our work on creating a Priority Development Area in Kalar District. New jobs created by the start of MMP operation and tax revenues to the consolidated budget of the region are essential to us,” Head of Zabaikalye Region Alexander Osipov stated. He added that notwithstanding the harsh climatic conditions of the region, Baikal Mining Company has proceeded with motor roads and power facilities construction.
“This is the first deal under this factory mechanism to include three lenders (two major commercial banks and VEB.RF). The factory facility creates conditions for mutually beneficial cooperation of commercial banks in arranging financing for capital-intensive projects. A state subsidy for the key interest rate growth adjustment is foreseen for all tranches in Rubles during the whole period of the loan, including tranches of the partner banks. There will also be an additional tranche from VEB for interest payment during the investment stage of the project,” Nikolay Tsekhomsky highlighted.
“A loan to Udokan project is of importance for the whole country, since copper is not only used by our industry, but it also remains an export commodity of strategic importance. Sberbank as one of the major Russian banks is always actively involved in getting such economic objectives, essential for the whole country, through, both in the framework of state programs and under separate agreements,” Anatoly Popov, Deputy Chairman of the Management Board of Sberbank, stated.
Alexey Belous, Deputy Chairman of the Management Board of Gazprombank , commented on the signing, “With our extensive experience in financing of industrial facilities construction all over Russia, we are happy to actively participate in another large-scale project in this field. Signing of the document today shows the efficiency potential of the Project Finance Factory, which was established last year with participation of major financial institutes of the country. I am certain that this cooperation will continue in the future.”
Udokan is the largest undeveloped copper deposit in Russia and one of the largest globally.
Commissioning of the plant is planned for late 2021, with the Project reaching capacity of 12 mtpa of ore in mid-2022.
15 February 2019