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By John Helmer in Moscow

Russian state uranium miner now no.2 in control of world uranium resources.

The structure for managing and -run capitalizing the mining of uranium in Russia, and Russian uranium mining ventures abroad, is now clear. And also large, as Russia has recently moved into the number-3 spot in the world ranking of uranium reserves — number-2 if Russia’s equity stake in Kazakhstan reserves is counted.

After a confusing spell, in which it was preceded for a year by the Uranium Mining Company (UMC), Atomredmetzoloto (ARMZ) has been authorized to take equity and operational control of Russia’s three operating uranium mines; five planned new mines; and joint ventures in Kazakhstan, Namibia, and Canada.

Atomredmetzoloto — literally, “atomic, rare metal and gold” — is a venerable name from the Soviet era of the nuclear industry administration, when it was an enterprise of the atomic energy ministry. In those days, it not only supervised uranium mining, but also gold at the well-known Muruntau deposit in Uzbekistan.

Since 1996, ARMZ has been a chartered open joint stock company, in which all shares are owned by the Russian state. It is wholly owned by Atomenergoprom (“Atomic energy industry”), a state holding company, which also owns 100% of Tenex, which enriches uranium fuel and exports it; TVEL, which fabricates uranium fuel; Rosenergoatom, the nuclear utility company and owner of Russia’s reactors; Atomstroiexport, builder of reactors; and other research centres and equipment manufacturers. Rosatom, a state corporation, supervises the entire structure, and is headed by Sergie Kirienko, a former prime minister under Boris Yeltsin, and regional representative under Vladimir Putin.

In a briefing for Mineweb, Vice President Pavel Zhuravlev describes the ARMZ stucture as including the Priargunsk, Khiagda, and Dahur mining companies. Altogether, their uranium output last year was 3,413 tonnes; that indicates a 7% increase on the 2006 result. If uranium produced in Kazakhstan is added to the total, then ARMZ can claim total production of 3,527 tonnes.

The modest difference of 114 tonnes is accounted for the Zarechnoye joint venture. This is one of two Kazakhstan joint ventures in uranium mining, in which ARMZ is currently engaged. The Zarechnoye deposit has estimated reserves of 19,048 tonnes, with a production plan calling for output of 2,000 tonnes per year. The joint venture partner is Kazatomprom (“Kazakhstan Atomic Industry”).

ARMZ is expecting to produce 3,880 tonnes of uranium this year, and to triple aggregate output in Russia and Kazakhstan by 2015. The breakdown for this year is Priargunsk, 3,050 tonnes; Dalur, 410 tonnes; Khiagda, 120 tonnes; and Zarechnoye, 300 tonnes.

The second of ARMZ’s Kazakh JVs is called Akbastau, which plans to mine the Budenovskoye deposit; this has over 25,000 tonnes in estimated reserves, with substantially more suspected. An inter-government agreement between Russia and Kazakhstan allocated half-shares in the venture to the two sides. Kazatomprom holds 50%, while ARMZ holds 25% plus one share.

The smaller Russian stake has been held by a Dutch-registered company called Effective Energy, owned by Russian property developer and one-time aluminium boss, Vasily Anisimov. Anisimov is also a 20% stakeholder in the steel and iron-ore group, Metalloinvest, which is controlled by Alisher Usmanov. A year ago, Usmanov was reported to be talking up his interest in the uranium sector, but nothing has materialized, while Anisimov has pulled back from substantial spending obligations; he is looking to exit the sector.

Market sources comfirm that Anisimov is currently negotiating to sell his stake in Akbastau; but no details of the deal, or the contending bidders and exit price, are available for the time being. Investment funding for the mine is on hold until a new partner enters the venture.

The sources of the growth in ARMZ’s production plan for the next seven years are, in order of magnitude, Khiagda, Akbastau, Zarechnoye, and Dalur. By 2025, however, the big uranium feed for ARMZ will come from the Elkonsky deposit in the fareastern Russian republic of Sakha. With estimated reserves of almost 320,000 tonnes, a mine production plan of 5,000 tonnes per year, and investment of $3.5 billion, Elkon has lifted ARMZ’s aggregate reserves in the newly issued Red Book of the International Atomic Energy Agency (IAEA) to third place in the world, behind Australia and Kazakhstan. Counting ARMZ’s equity stakes in Kazakhstan, it moves Russia into second place.

According to the publication, Uranium 2007: Resources, Production and Demand, the identified amount of conventional uranium resources which can be mined globally for less than $130/kg is now about 5.5 million tonnes, up from the 4.7 million tonnes reported in 2005. Elkon accounts for much of the difference. ARMZ now claims identified uranium resources totalling 582,663 tonnes.

Like the recently founded state corporations Rosnanotech, Russian Technologies and VEB Development Bank, Rosatom will be directly subordinate to the government, but also financially autonomous. Raising finance for mine expansion in Russia, and exploitation of Elkon, remains a priority for ARMZ, according to Zhuravlev.

Some of these undertakings have already been commercialized, but the big ARMZ fund-raising push lies ahead. Mitsui of Japan has agreed with ARMZ to undertake a pre-feasibility study of the financing requirements for Elkonsky.

Last year, before ARMZ took the lead, there was an agreement by Tenex to explore for uranium in Namibia. This remains the focus and priority of ARMZ, Alexander Boytsov told Mineweb; he is head of international cooperation and projects for the company. A delegation, headed by ARMZ, kicked off the venture in Namibia early this month. However, there have been changes in the Russian lineup. Tenex has been replaced by ARMZ, and Renova, the holding owned by Victor Vekselberg — once Anisimov’s partner in aluminium smelting — has been replaced by Arlan, a privately held mining investment group based in Moscow. VTB Capital, a unit of Vneshtorgbank (VTB), a Russian state bank, remains, as it was, one of the original participants in the venture. The stakes are 75% Arlan, 12.5% VTB, and 12.5% ARMZ.

Arlan general partner, Dmitry Razorenov, told Mineweb that the Namibian project is targeting hitherto unexplored areas of west central Namibia. He estimates the budget for exploration at $5 million over this year and next. ARMZ and Arlan confirmed that Renova is definitively out of the Namibian project.

According to Boytsov, ARMZ is “looking for new opportunities for cooperation” with investment partners. An agreement has been signed with Cameco for mutual exploration activities in Canada and northern Russia. SRK is advising on technical issues, and Merrill Lynch is circling to pick up a mandate. No equity placements of ARMZ stock can be considered, so long as the company is classified as a strategic enterprise, and privatization barred save by special presidential decree. Project by project investments, combined with offtake arrangements, are up for grabs.

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