Aricom , the oh well they didn't cost me anything and are doing ok so far thread

Date : January 7, 2004

Aricom Titanium Spin-Off From Peter Hambro Mining Makes Its Mark In Early Dealings.


The last of the spin-offs to list in 2003 was Aricom which listed on AIM on the last day of the year. The company had raised £3.5 million net by a placing, open offer and tender at 15p and the shares are now trading at just over 40p. This hefty premium says a lot about the appetite of the London market as it moves into 2004. Shareholders in Peter Hambro Mining should be happy enough as they were given an opportunity to become shareholders in Aricom through a gifting process whereby they were entitled to apply for three Aricom shares under the open offer for every ten PHM shares held.

Aricom is acquiring from PHM a 74 per cent interest in Olekma which is a Russian company which owns the mining licence for an ilmenite (better known as titanium dioxide) deposit in the Amur region in the Far East of Russia. This was acquired by PHM through its Russian subsidiary OJSC Pokrovsky a couple of years ago, but added no discernible value to the parent company. At the present share price Aricom is being valued at £38 million which is not bad for a company which has just acquired these titanium assets for US$3.9 million. In the package, however, it also got the benefit of stage 1 of a feasibility study on the project, a titanium product trading business in Moscow set up by PHM and an option to become involved in another titanium joint venture project in the Ukraine.

The total loan facility runs for five years at an interest rate of 8 per cent and is capped at US$6 million. It is also expected to cover the cost of the second part of the feasibility study, while the £3.5 million equity funding will provide working capital and due diligence to be carried out on the Ukraine project. According to the first part of the feasibility Olekma has some of the richest titanium ores in Russia with Ti02 grades above 14 %. Eight ore bearing zones have been identified, but only three have been explored significantly so far. The total C2 ore reserves for these three zones is estimated at 11.3 million tonnes which is equivalent to reserves and resources of 1.1 million tonnes of TiO2. A pre-feasibility study indicated that it should be possible to produce high quality titanium dioxide pigment at low cost.

Aricom’s policy is not simply to produce the pigment, but also to become a vertically integrated titanium mining, production and distribution group. Hence when the mining licence was confirmed at Olekma, PHM created the titanium pigment and by-product trading company in Moscow called Chemelt. This has provided a unique insight into the titanium dioxide market in Russia and elsewhere in the world and has started to generate a customer base. The great advantage is that Aricom will not be dependent on offtake agreements for its production as these put the buyers in a very powerful position. Such agreements tend to be a sine qua non for producers of metals or minerals with no end market as banks demand they are in place before considering development funding.

The logic behind the Ukraine deal lies in the fact that most of Russia’s titanium dioxide pigment requirements have been supplied from two processing facilities in the Ukraine, one of which is Titan. And Aricom now has an option to enter a possible joint venture which would provide the capital and technology necessary to upgrade Titan’s pigment production facility at Armyansk. There is a long way to go with this one yet, as due diligence still has to be carried out and it would require Ukraine regulatory approval as well as an undertaking by Aricom that it could produce the necessary funding. If it comes off, however, it would certainly put the company in a very strong position in the Russian industry. Blue sky is how it should be viewed at the moment, but Peter Hambro has never been slouch where painting the sky blue is concerned.

Titanium dioxide is one of these products which is common place, but difficult to identify. Its superiority as a white pigment because of its high refractive index enables it to mask, hide and enhance other colours and it is used in a wide range of industries from paint to cosmetics as well as food, plastics, and pharmaceuticals. Demand tends to be linked to economic growth and the fact that its per capita use in Russia is one-tenth of that in America emphasises the potential. The proximity to China of the production facilities Aricom proposes to construct in Amur is another point which should not be missed. What it needs now is an operations director experienced in the industry and capable of ensuring that the process technology is utilised to maximum efficiency.

The above doesn't make it entirely clear that POG holders received one TIO share for every POG share held as well as being able to apply for 3 shares at 15p for every 10 gifted.