Anglo-Russian miner Aricom Plc has sold the first 5,000 tonnes of iron ore from its Kuranakh deposit in the Russian Far East as it seeks to become a supplier of raw materials to China's booming steel industry.

Aricom, which last year joined the FTSE 250, is also considering partners for the $1.5 billion development of other iron ore deposits near the Chinese border, which are due to launch in 2010, Chief Executive Jay Hambro said on Thursday. What we've done is proven our ability to contract with another party, proven the rail logistics, Hambro told Reuters by telephone from the far eastern Russian province of Amur after watching the first iron ore leave the Kuranakh mine.

We will be going into full crushing and screening operations in the third quarter and we will have a product to sell on a regular basis, he said in an interview.

Global prices for iron ore, a crucial ingredient in steel, have quadrupled in the last five years as China -- producer of a third of the world's steel -- devours ever more raw materials.

Hambro said Aricom would be able to deliver concentrate from Kuranakh by rail to the Chinese border at a freight rate of $13.44 per tonne, or about a quarter of the cost from Australia.

The mine at Kuranakh will supply 2.4 million tonnes a year of ore to a mill that will produce 900,000 tonnes of titano-magnetite concentrate, containing an average 62 percent iron, and 290,000 tonnes of ilmenite.

Sales of ilmenite, the ore from which titanium sponge or dioxide is made, will begin early next year, Hambro said.


Aricom was spun off from Peter Hambro Mining
in 2003. Since switching to the London Stock Exchange's main board from the AIM market on Oct. 29, its stock has risen 20 percent.

Hambro, son of Peter Hambro and a former manager in HSBC's metals and mining corporate finance team, said the capital cost of constructing Kuranakh would be 10 percent to 15 percent over an original budget of $95 million.

High energy and materials costs are affecting miners worldwide, but Hambro said these expenses would be offset by the higher prices for the products it will sell.

We're effectively selling a very early form of steel: if it affects our capex, it will also our affect our P&L, he said. Energy costs are a threat, but we have seen the commodity price for iron ore increase in line with energy prices.

Aricom has an offtake agreement with China National Gold Group Corp (CNGGC) for production at Kuranakh, but Hambro said it retained the right to sell its ore elsewhere.

We can sell all of it to them if we need to. If we find a better price from somebody else, we can sell to somebody else.

This week's first shipment, however, is not going to China. Hambro said it had been bought by a local steel producer whom he declined to identify.

Aricom's other two main iron ore projects, Garinskoye and Kimkan & Sutara, will add significant production from 2010.

The company has appointed Morgan Stanley to advise it on raising over $1 billion, most likely in debt, to complement its $554 million equity and warrant raising for these projects.

He said the company, as part of its mandate from Morgan Stanley, was looking at options for a strategic partnership at an individual project level.

We're developing these assets and are very confident we can take them forward into production. If another party came and wanted to co-develop them, we would obviously look at it.

(Editing by Christopher Johnson)

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