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    RNS Number : 3284F
  Aricom PLC
  08 October 2008
   

 Press Release      8 October 2008

    Aricom plc ("Aricom", "the Company", or "the Group") 
    Completion of Feasibility Study for the K&S and Garinskoye Projects

    Aricom plc (LSE: ORE, OREW), the Anglo-Russian developer of mineral resources, is pleased to announce the completion of the feasibility
study and ancillary documents.

    The key findings of these studies can be highlighted as follows:

-     Project optimisation resulting in combined processing plant located at K&S, beneficiating 20mtpa ore from K&S and Garinskoye mines to
produce fines and direct reduced iron (*DRI*);
-     Base case net present value of c.US$2.1bn and internal rate of return c.21%;
-     Estimated maximum external funding requirement of c.US$1.0bn - Shown net of the estimated forecast cash balance as at 31 December
2008, being c.US$254m;
-     Positive independent review by industry leading consultants, including Wardell Armstrong International and Hatch Engineering; and
-     Mineable reserves under JORC show good correlation to historical GKZ estimates.

    An executive summary of the study and certain related review documentation will be available on the Aricom plc website following the
release of this announcement.

    Commenting on this announcement, Jay Hambro, Chief Executive, said:

    "Aricom has succeeded in proving the viability of K&S and Garinskoye in a number of scenarios and has also had the analysis
independently reviewed. The step forward from initial feasibility study to bankable feasibility study is often a time when value is eroded
through detailed analysis and the application of current economic conditions. Furthermore Aricom's design group has managed to optimise the
design to keep aggregate capital costs broadly constant in a global industry which has seen significant capital cost inflation.

    The funding process now begins in earnest as we progress discussions to the next step with the banks, contractors and other partners. In
this capital constrained market the importance of Aricom's freight advantage remains valuable however the presence of a transport network
with the ability to ship bulk commodities is perhaps more important. We have had a number of preliminary finance discussions and I believe
that, with our bankable feasibility studies confirming the strength of these projects, we can move the financing process forward with
confidence. In the short term, further solutions for reducing development plans in line with available capital are being considered.

    Despite the global financial turmoil, I believe the outlook for iron ore remains robust. I believe that the mining companies that will
flourish in this environment are those with a competitive advantage through geology and geography, particularly those benefitting from an
existing infrastructure. Aricom has a good geological base that is located close to a growth market and a well established rail, road and
energy network."


    Conference Call 
    A conference call to discuss the announcement will be hosted by Aricom plc, on Wednesday 8 October 2008 at 14:00 UK time. 

    Details to access the conference call are as follows:

- The dial-in number in the UK will be: 020 3140 9064 and internationally will be +44 20 3140 9064
- with the Participant PIN code in both cases: 176444�
    

    In advance of this call, participants should find the investor slide presentation on Aricom's website from 12:00pm UK time


    For further information: 
 Aricom plc
 Charles Gordon, Investor Relations Officer  Tel: +44 (0) 20 7201 8939
                                                     www.aricom.plc.uk

 Abchurch
 Charlie Jack/ George Parker  Tel: +44 (0) 20 7398 7700
                                www.abchurch-group.com 

    This release does not constitute, or form part of or contain any invitation of offer to any person to underwrite, subscribe for,
otherwise acquire, or dispose of any shares in Aricom plc or advise persons to do so in any jurisdiction, nor shall it, or any part of it,
form the basis of or be relied on in any connection with or act as an inducement to enter into any contract or commitment therefore.
    This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates",
"expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by
discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that
are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements
regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations,
financial position, liquidity, prospects, growth, strategies and expectations of the industry.
    By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group
operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In
addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking
statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors
could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without
limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency
fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty. Save as required by law
or applicable regulation, the Company is under no obligation to update the information contained in this release.   
    Summary Findings & Process Update
    This release describes proposals set out in the feasibility study and related documentation regarding the development of the K&S and
Garinskoye projects. The actual form which the development takes, and/or the economics thereof, could vary materially from these proposals.

    K&S and Garinskoye Project Summary
    Construction at K&S and Garinskoye is expected to commence in 2009. The study foresees two distinct mining operations: 10mtpa at K&S
commencing in 2010 and 10mtpa at Garinskoye commencing in 2011. The product of the Garinskoye mine will be shipped to the K&S site where it
will be treated alongside the K&S ore at an 18mtpa beneficiation plant. The process plant at K&S is planned to commence production in 2012.
The product of this plant will be 8.2mtpa of 65% iron ore concentrate which will initially be sold in this form.

    In 2015, it is planned to commission a direct reduced iron facility at the K&S project site. This plant would eventually use 3.75 mtpa
of concentrate from the K&S beneficiation plant, as from 2016. The plant is expected to use the Kobe Steel Ltd owned "ITmk3" technology
which uses a coal based rotary hearth furnace to form iron nuggets. At full production this plant should produce 2.5 mtpa of iron nuggets
which will be sold in this form.


    Independent Review
    As part of Aricom's work with its financial advisers, all key project documentation has been independently reviewed by industry experts.
This work has mainly been commissioned by Morgan Stanley for the potential lending group ("Lenders") to ensure the independence of the
analysis.

    Wardell Armstrong International ("WAI") in its capacity as Independent Expert, for the Lenders, has completed a full review of all the
key study documentation including; a reserve and resource analysis; the mining, processing and engineering methods; an environmental and
social impact analysis; an analysis of appropriate transport and infrastructure requirements; and an economic analysis of capital and
operating costs. WAI has confirmed that it believes there are no fundamental flaws to the studies and is supportive of the conclusions. WAI
will be presenting their independent experts report to the banking group shortly. Wardell Armstrong LLP is a major environmental and
engineering consultancy that owns Wardell Armstrong International Ltd, the international mining, mineral and alternative energy consultancy
based in Truro, Cornwall.

    The Hatch Group has reviewed the direct reduced iron project from a technical and economic perspective. Hatch's initial conceptual
analysis carried out in 2007/2008 found that the project is viable and recommended that the ITmk3 process be used for the proposed 2.5mtpa
plant. Hatch has subsequently updated its analysis in a report for the banking markets and has used the CRU pricing forecasts. The Hatch
Group provides process and detail engineering, technologies, business consulting and project and construction management services to the
Mining & Metals, Energy and Infrastructure sectors. Hares Engineering are in the process of providing Aricom with a detailed engineering
study on the project.

    CRU has carried out an analysis of Aricom's product qualities and the market for this product in order to provide estimated pricing
scenarios for economic modelling. For the purpose of this analysis, CRU has provided various pricing scenarios. CRU is a leading authority
for the world of metals and mining, power and cables, fertilizers and chemicals. CRU offers independent, authoritative and knowledgeable
services to investors, companies, governments and NGOs. 

    Marsh has carried out a detailed analysis of Aricom's project documentation and an extensive site visit in order to provide the banking
group with an assessment of Aricom's insurance requirements.

    Aricom's legal counsel, Norton Rose LLP, has been working with counsel appointed on behalf of the Lenders to complete a legal review of
Aricom's relevant assets and corporate documentation.  

    Aggregate Project Economics
    The optimisation of the project has had significant effects on both value and return estimates but has also focussed on reducing the
capital burden in this high inflationary and uncertain credit environment.

                       NPV*   IRR  CapEx**  Maximum External Funding***
                       US$m         US$m


 CRU Base Case         2,091  21%   2,304              1,030
 CRU Alternative Case  3,607  32%   2,304               926
    * NPV is calculated at 10% discount rate
    **A 10% contingency has been added to all capital expenditure estimates for the construction process and capital expenditure is stated
in current prices
    ***Maximum External Funding is the Maximum Capital requirement net of Aricom forecast cash balance as at 31st December, 2008, being
US$254 million 

    The capital expenditure is required for 4 main areas and can then be subdivided again by product type:
                  To Concentrate   On to DRI  Total
            US$m  K&S  Garinskoye     K&S
 Design & Other   29       37         88       154
 Infrastructure   157     549          7       713
 Mining           74       47         n/a      121
 Beneficiation    276      69         971     1,316
 TOTAL            536     702        1,066    2,304

    The majority of these estimates are based on actual quotations received. For the purpose of this analysis all capital expenditure totals
are shown as pre-production and so do not include ongoing sustaining capital expenditure which is expected to be on average US$10m per
annum.

    Mineable Reserve Analysis
    Aricom has used a Russian contractor to construct detailed mine plans for both the K&S and Garinskoye projects using both historical
geological data as used in the GKZ reserve and resource data and the more recent confirmation drilling that Aricom has undertaken. The
following table sets out this information and highlights the good correlation between the historical mineable reserves to what has been
redrilled and independently audited recently:








                 GKZ Resource      GKZ Mineable Reserve  JORC Mineable Reserve  Estimated Mine Life *****
                   Estimate            Estimate***           Estimate****
 Garinskoye   388.8mt at 41.3%**     223mt at 38.5%**      220.2mt at 37.9%*             25 years
 K&S          564.5mt at 33.7%*     539.6mt at 33.7%*      404.7mt at 31.1%*            40 years
 TOTAL         953.3mt at 36.7%      762.6mt at 35.1%      624.9mt at 33.5%             40 years

    * - confrmed by GKZ in 1956 for Kimkan deposit and calculated, but not confirmed, for the Sutara deposit
    ** - confirmed by GKZ in 1956
    *** - Mineable reserve estimated as GKZ A + B + C1 categories
    **** - JORC estimate as independently reviewed by WAI
    ***** - Mine life as estimated by Aricom studies at forecast annual mining capacity and based on reserves before the addition of
resources and halo areas.

    Financial Planning Process
    In May 2008, the Group appointed Morgan Stanley as financial adviser for the funding of construction and development of the K&S and
Garinskoye projects. The Morgan Stanley team is mandated to provide advice on financing from a variety of possible sources including
traditional project finance, access to debt capital markets, equipment and/or technology partner finance and the possibility for the
involvement of a long term strategic project partner.

    Morgan Stanley's debt advisory team is assisting Aricom with the progression of the project studies on K&S and Garinskoye to bankable
feasibility studies. Morgan Stanley is also aiding with the appointment of and negotiations with potential EPC contractors, offtakers and
other independent consultants associated with the development of the projects. It is intended that an information memorandum will be
delivered to various banking groups with a request for indicative offers for providing a credit facility to meet Aricom's budget
requirements.

    Aricom maintains a strong balance sheet with a substantial cash balance deposited with a number of leading banks. The current cash
balance supports Aricom's budget requirements for at least a further twelve months. The Board believes that it will be better placed to
review ongoing expenditure commitments following detailed bank, contractor, equipment suppliers and potential strategic partner briefings
later in 2008. There are a number of alternative development programmes with the Group's portfolio of assets that are being considered.
However, the Board remains comfortable with the results of these studies as a long term investment.


    Construction Contracts
    Aricom is conducting a tender process for the award of construction contracts. The current working assumption is that Aricom manages a
number of subcontractors for the construction and development of the necessary infrastructure and initial mining operations. Separately,
Aricom is in discussions with an international contractor for a full engineering, procurement and construction ("EPC") contract for the
beneficiation plant.  The aim of these negotiations is to conclude a fixed-price and turn-key contract with end product quality guarantees
as appropriate. The lead contractor in these negotiations has also discussed the possibility of providing project finance for this plant.
The DRI plant will be the subject of a separate contract and Aricom has received a proposal from an international contractor.

    Offtake Agreements
    Aricom has discussed a number of offtake proposals which would suit both the feed of concentrate and metallised nuggets. Whilst the
process of talking to potential strategic partners is ongoing, the Board of Aricom has decided to refrain from committing to any one party
due to the inherent value in control of the product.

    Infrastructure
    The K&S project is located close to the Trans-Siberian railway and the road and energy network. The study proposes that Aricom will
construct a small section of railway connection and loading/unloading facilities. The main area of infrastructure required is a camp for
c.1,100 people and relevant heating, water and a set of electricity substations. 

    The Garinskoye project is located approximately equidistant between the Trans-Siberian and BAM railways. The optimised study has looked
at the local area in detail in order to reduce the original cost of constructing a railway connection to Garinskoye from one of the national
networks. Aricom has received a study from a European contractor for the construction of a 124km cable belt conveyor connecting Garinskoye
to a spur from the Trans-Siberian railway at Shimanovsk where Aricom would build a storage area and loading facilities. The second main area
of infrastructure required is a camp for c.500 people and relevant heating, water and a set of electricity substations. 

    Environmental
    Both Garinskoye and K&S have been designed so as to cause the minimum environmental impact upon the region and local inhabitants. The
management plans for the protection of environment, health and safety provides measures for reduction and control over the critical risks.
The monitoring and control of the critical risks will be conducted throughout all stages of the life of each of the projects. In order to
reduce the impact on the environment after project closure a programme of recultivation and ecological monitoring of territory has been
planned. 

    Kuranakh update
    As previously reported, Kuranakh made its first shipment of pre-concentrate in June 2008 and is scheduled to commence regular shipments
later this month. Work on the mining and both the crushing and screening and beneficiation plants is progressing well and the Board
continues to believe that 2008 production will be in line with the most recently published forecast.

    Aricom has managed to secure a c.22% increase in the sales price of the pre-concentrate that it will be shipping later this month versus
the price attained for the June product which was of a similar quality.



This information is provided by RNS
The company news service from the London Stock Exchange
 
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