Eurasian Development Bank’s Investment Project in Kazakhstan’s Aktyubinsk Region a Success

Kazakhstan’s Aktyubinsk Region is reaping the rewards of a successful investment project run by the Eurasian Development Bank.

November will mark the completion of the first stage of the industrial development of the Voskhod chrome ore deposit in the Aktyubinsk Region in the Republic of Kazakhstan. The Eurasian Development Bank (EDB) is a co-investor in the project.

In December 2006, the EDB, together with German banks WestLB AG and Bayerische Hypo-und Vereinsbank AG signed an agreement with Voskhod-Oriel on extending a loan in the amount of USD 120 million towards the development of the Voskhod chrome deposit. The EDB entered into a partner transaction and served as the collateral agent, which helped close the transaction in an extremely short period of time, by late December 2006. The EDB is contributing USD 60 million in financing will a ten-year repayment period.

In July, the EDB issued the first tranche of USD 40 million to Voskhod-Oriel. The second tranche of USD 20 million is scheduled for late 2007.

Thanks to the financing it has secured, Voskhod-Oriel has successfully completed the first stage of its project. The capital investment is being used as intended. A series of engineering and technical works are underway for the construction of a mine, an ore mill, power supply, and creating a transport infrastructure. In particular, a 400-meter boundary along the descent into the mine from the surface has been set up, and the foundation for construction of the ore mill has been completed, which means installation works can begin on 1 November.

The EDB’s participation in the financing of chrome ore extraction and enrichment at the Voskhod deposit is in line with the Bank’s investment policy. Project implementation will have a positive effect on the development of the Russian and Kazakh economies, support the growth of their shared commodities, expand mutual investment and facilitate integration between the two countries.

The driving factor behind this development is the long-term, sustainable supply of raw materials to the metals industry; these materials are needed for the production of stainless steel, which is enjoying growing demand in Russia, Kazakhstan and other countries around the world. Furthermore, new mining technologies are being introduced as a part of the project. The project will create roughly 400 new jobs and will support the development of the socio-economic infrastructure in Aktyubinsk Region by establishing a pool of qualified experts, securing payments to local budgets, and making a contribution to the social infrastructure. Voskhod is one of the richest chrome ore deposits in the world, and once it is put into operation in summer 2008, Oriel Resources Plc. will become one of the most prominent players on the global ferrochromium market.

The countries will be brought closer together thanks to expanded trade and the mutual investments of Russia and Kazakhstan. Private capital is being used in carrying out the project. Voskhod’s products will be loaded by the Tikhvinsky Ferrochromium Plan in Russia. It is expected that up to 40% of the chrome concentrate produced from the deposit (up to 350,000 per year) will be used by Russian companies. The volume of shared commodity flows generated by the project amounts to USD 40 - 50 million per year, and the total volume of trade shipments between Russia and Kazakhstan will exceed USD 700 million thanks to the project.

In assessing the industrial development of the Voskhod deposit, experts have also noted that this is one of the first major multilateral projects using Russian and Kazakh capital and being implemented completely from scratch, including the creation of a vertically-integrated Russian-Kazakh company.

Background Information:

Voskhod-Chrome is a subsidiary of the British public company Oriel Resources Plc., based in Kazakhstan. The company's main shareholders include Russia, Kazakh and other international investors.

The Voskhod project is one of the first project finance transactions in the world aimed at the development of a chrome deposit. The Voskhod's advantages include high-quality ore, the properties of its bedding which facilitate cost-efficient means of extraction, the simplicity of the transport and processing system based on proven technologies, and guaranteed sales of raw materials.

Once the deposit has been developed, it will produce 1,200,000 tons of chrome each year, putting it among the top three suppliers of chrome concentrate worldwide.

The authoritative British journal Project Finance has called the Voskhod project the best transaction in Europe's mining industry in 2006.

About the Voskhod Project

Voskhod-Oriel, a limited partnership, obtained the right to conduct mining works for chrome ore at the Voskhod deposit in Aktyubinsk Region under Contract No.1545 (29 October 2004) and Addendum No. 1 thereto.

The following works were carried out at the deposit in 2005 - 2007: hydro geological, exploration, geological engineering, laboratory testing, resource inventory, technological studies of the chrome ore, preparation and agreement of the preliminary construction plans for the path descending into the mine and the mining plant itself (which is meant to have a capacity of 1.3 million tons per year), and an assessment on the environmental implications of the mining works. All works were completed by Kazakh contractors.

As a result of geographical and exploratory works, the original amount of estimated resources increased 870,700 tons and resources originally classified as C2 were reclassified as C1, as C1 resources account for 84.2% of all of the resources, demonstrating the thoroughness degree to which the deposit was studied.

In terms of social developments and obligations (Contract), a road reconstruction project was carried out from the village of Donsk to the village of Susanovok, in addition to reconstruction of water supplies in the village of Onger and other works. In 2005-2006, projects valued at a total of 54,478,200 tenge (USD 445,000) were completed. A contract was signed with local authorities to finance social programs in the region.

The total amount of works done at the deposit in 2005 and the first three quarters of 2007 amounted to USD 36 million.

The construction of the mining plant and putting it into operation is expected to be completed in nine months, starting with the construction of a subsurface path leading towards the mine. The mine is expected to be operational in the third quarter of 2008.

At present, the first stage of construction of the mining plant has been completed.

1. The Mine:

• Penetration up to 40 meters deep with vertical pressure ventilation shaft. A pile driver has been installed on the surface for further deepening up to 200 meters.
• The company SAM has carried out penetration for a descending entryway 500 meters long using the latest technology from Caterpillar, Atlas and Tomrok. A technology employing reinforced pneumatically applied concrete fasteners and Jumbo machines were used to reinforce the walls. This was the first time that the technology and this kind of equipment were used in Kazakhstan.

2. The Processing Plant

• A construction site has been prepared and works have been completed to install the foundation and begin installation works for the main buildings of the processing plant (heavy suspensions workshop and coarse breaking area).
• Construction of the tailing pit for processing plant waste utilization is nearing completion.

3. Infrastructure

• Industrial campuses are now operational, in addition to a camp area and office buildings, dormitories, a hotel, a cafeteria, a boiler unit, a warehouse for combustive-lubricating materials, a repair workshop, warehouse facilities, security premises, a laboratory, facilities for water boilers and transformers.
• Construction is nearing completion for VL-100, with a range of 60 kilometres from the Voskhod deposit to the Kempirsai deposits.
• Construction is underway for a new road from the processing plant to the Sarysai railway station (15 kilometres).
• Construction of a new railway terminal is underway to the Sarysai station for delivering ready concentrate to clients.

Putting the Mining Plant into operation will provide jobs for at least 400 people. The expected gross income from the project amounts to USD 1.830 million, contributing USD 551 million to the republic over 15 years of operations.

The construction project is part of the republic’s development plans and is one of six breakthrough projects in Aktyubinsk Region included in the Top 30 Corporate Leaders of Kazakhstan programme.