First Iron's goal is to develop a major iron ore district in the Urals to supply the main regional Russian and Chinese steelmakers, as well as other customers both locally and internationally. Management intends to implement this development in 3 stages:
- Development of the Petrovskoe deposit, and acquisition of Glubochenskoe North.
- Development of the combined Glubochenskoe Deposits and acquisition of additional local deposits.
- Development of additional local deposits.
To achieve this, the Company plans to develop the Petrovskoe project, with the principal expenditure to be deployed on an intensive delineation drilling programme. The Company will continue to evaluate and develop the Glubochenskoe project. First Iron expects to begin the scheduled drilling programme at the Petrovskoe deposit in the Fall of 2012, and a pre-feasibility study from Q4 2012, with both expected to be completed by end of Q3 2013.
Kurgan - strategic iron ore location
The Kurgan region was identified by the Company as a strategic location for its iron ore operations due its proximity to market, well established infrastructure, common geology and positive local supply and demand fundamentals. The region is close to several major Russian steel mills, and to the Trans-Siberian Railway, which provides access to northern China and international iron ore markets both east and west. Local infrastructure is well developed both in terms of rail links, all-weather asphalt roads and airport access, as well as power and water supply.
Kurgan was formed in 1943 by the Soviet government as a strategic location to protect Russian industrial capacity from the German army. The new region, which comprised of 32 agricultural districts of the eastern Chelyabinsk Region and four districts of the Omsk Region with a total population of 975,000, was the focus of an industrial evacuation which saw 22 factories moved to the area by government decree, along with approximately 150,000 workers. Today the region is well known for its military and transport manufacturing capacity: the largest company in region, Kurganmashzavod, manufactures the BMP-1, BMP-2 and BMP-3 infantry fighting vehicles which are in service in 29 countries, whilst the AuKAvZAutobus Plant produced in 2009 approximately 30% of Russian buses and fire engines.
The magnetite iron ore deposits identified in the Kurgan region are in the same geological trend as those in northern Kazakhstan, and have been subject to exploration since the 1950's. This common geology provides potential for production of concentrate product similar to that supplied to local steel mills from iron ore mines in north-west Kazakhstan. First Iron's historical KGEC data, combined with Soviet-era studies and the more recent work commissioned by the Group from SRK (its 2008 Scoping Study on Glubochenskoe South, and the NI-43101 compliant reports on Petrovskoe and Glubochenskoe South) all indicate the potential of the region as a future iron ore producer.
The lack of development of these deposits to date is principally attributable to Kurgan's reputed role as a strategic reserve for Russia's steel industry. It is believed that Kurgan was for the most part historically closed to civilians, and it is only since the fall of the USSR in 1989 that the region has begun to open up. It was the Soviet state policy to ensure that regions were interdependent and did not become autonomous. Even so, it was not until 2006 that the Kurgan government first made available to private enterprises any of its Valerianov-trend iron ore deposits (Glubochenskoe South).
Reported demand for iron ore in the Ural region is approximately 30 mt per annum. Steel mills in the vicinity of Kurgan consume approximately 65% of the Russian Federation's iron ore and furthermore, rely heavily on imported iron ore from Kazakhstan with around 42% of iron ore consumed being imported from Kazakhstan, 20% of the demand is met by the steel producers' own production, leaving 38% or 11.2 mtpa to be sourced from the remainder of the Russian Federation and internationally. In addition, MMK is planning to expand its steelworks capacity, which would increase local iron ore demand to approximately 38 mtpa by 2014. The four major Ural region steel mills in close proximity to First Iron's Kurgan deposits are MMK, Mechel, Evraz and Metalloinvest.