BHP Considers Joint Venture with Abromovich’s Millhouse Capital

on Sep 24, 2012

BHP Billiton (NYSE:BHP) is considering a move to explore gold and copper in Russia, through a partnership with private company Millhouse Capital, Resource Investing News reported on 19 September, 2012. The Millhouse investment company, owned by Russian billionaire Roman Abramovich, is in talks with the U.K.-Australian mining giant to establish a joint venture focused on the development of the Baimskaya gold and copper field in Russia’s Chukotka region.

Aristus Holdings, the Cypriot company controlled by Millhouse Capital that manages some of the group’s assets, including mining, is expected to have a 25 per cent interest in the planned venture, whilst BHP will own the majority stake of 75 per cent. Citing sources close to the project, Resource Investing News reported that BHP will pay Abramovich’s company about $1 billion (£617.6 million), the first $350 million (£216 million) of which will be due after the deal closes, expected to be at the end of the year. The remaining balance will be paid in several tranches at different stages of the project’s development.

Earlier this year, the Russian business paper Kommersant first reported that Millhouse was in talks with BHP Billiton over the potential joint development of the Baimskaya area.
Russian analysts have voiced concerns that a potential project might face problems with infrastructure and energy supply in the region, as the only nuclear power station in the Chukotka area would not be able to deliver the necessary amount of electricity to the mine. The potential partners may also face legal problems after they begin developing Baimskaya, whose reserves are currently not on the state balance sheet. Putting the field on the balance sheet would put it into the “strategic” category of gold reserves (more than 50 tonnes of gold and 500,000 tonnes of copper). BHP and Millhouse still have to get state permission to develop the field, which may take considerable time, analysts warn.

!m[](/uploads/story/477/thumbs/pic1_inline.png)The Baimskaya deposit is currently managed by Millhouse Capital. Abramovich’s company has a 25-year license for the development of the field. In 2008, Millhouse paid 1.078 billion Russian rubles (£21.5 million) to obtain the area. Currently, the Baimskaya field, which includes the promising Peschanka deposit, has 1.4 billion tonnes of ore, comprised of 8.3 million tonnes of copper, 200,000 tonnes of molybdenum, 435 tonnes of gold, 5,000 tonnes of silver and 159 tonnes of platinum group metals.

BHP is not the only miner which has set its sights on the rich area. Baimskaya has also been eyed by Rio Tinto (NYSE:RIO), who could not reach a deal with Millhouse and decided to develop Kamchatka’s gold and copper field in the Russian Far East, through a partnership with Norilsk Nickel (PINK:NILSY) instead. Polyus Gold International (LON:POLG) has also shown interest in Baimskaya. The Russian gold producer offered about $500 million for the field, but Millhouse declined the offer as insufficient.