By Robin Paxton

MOSCOW, Nov 13 (Reuters) - Aricom, which mines iron ore in Russia's Far East, is in talks with China Metallurgical Group Corp about building a $200-300 million plant to treat ore from a major new deposit, the company's head said on Thursday.
The plant, which is scheduled to start operating in 2011, will be a key asset in London-listed Aricom's plans to become a significant supplier of iron ore across the border to China, where one-third of the world's steel is produced.
"We're asking them for a fixed price, turnkey contract, which means that a lot of the credit risk in terms of the project finance moves onto them," Aricom Chief Executive Jay Hambro told Reuters by telephone from London.
Aricom, a member of the UK's FTSE 250 mid-range stocks index, is betting on favourable freight rates and strong demand for its iron ore as it develops a series of mining projects in eastern Russian regions along the border with China.
The company said in a statement it had signed a memorandum of understanding with China Metallurgical Group Corp, the country's leading state construction company, with a view to building the 10 million-tonne-per-year ore processing plant.
Aricom said the memorandum was the basis for discussions between the companies on signing an engineering, procurement and construction agreement to build the plant.
"Any resulting construction contract would be a significant step forward for the development of the Aricom project portfolio," Hambro said.
Aricom, which this year launched production at its first mine, Kuranakh, had been seeking $1 billion in financing for a variety of projects, but said on Nov. 4 it was reviewing its funding needs and may seek help from a joint venture partner.
"We're looking at the option of trying to reduce external funding requirements," Hambro said.
The iron ore beneficiation plant is scheduled to be built at Aricom's Kimkan & Sutara project in the Jewish Autonomous Region of Russia. Starting in 2011, it would process 10 million tonnes of ore from K&S alone but could be expanded to handle 18 million tonnes should it also take ore from another deposit, Garinskoye.
Aricom expects to be able to deliver iron ore concentrate from K&S to the Chinese border at a freight cost of $9.15 a tonne. The cost will drop to about $5 a tonne when a new railway bridge between Russia and China is built.
Aricom's shares traded up 2.5 percent by 1415 GMT to 10.4 pence. Keywords: ARICOM/CHINA

(robin.paxton@reuters.com; +7 495 775 1242; Reuters Messaging: robin.paxton.reuters.com@reuters.net)

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