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Russia, China sign deal for first railway bridge

MOSCOW (Reuters) - Russia and China have signed a deal paving the way for construction of the first railway bridge between the two countries, creating a potential supply route for iron ore produced by Anglo-Russian miner Aricom OREA.L.

Aricom Chief Executive Jay Hambro told Reuters the bridge across the Amur river would allow the company to save almost $40 million in annual freight costs associated with delivering iron ore to the Chinese border.

“It will give us a circa $4 saving on every tonne of material that goes across the border,” Hambro said by telephone from London. He said Aricom was also considering taking part in the project to build the bridge.

Russia is seeking to expand trade with China, already estimated at around $50 billion a year, as the Kremlin seeks to meet China’s hunger for raw materials and diversify supply of its oil and commodities from traditional markets in the West.

Chinese Premier Wen Jiabao, visiting Moscow on Tuesday, oversaw the signing of several deals including an agreement between Russian pipeline monopoly Transneft TRNF_p.MM and China National Petroleum Corp to build an oil pipeline spur.

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Russia’s government announced the signing of the bridge deal on its Web site, www.government.ru.

The intergovernmental agreement to build the bridge gives the green light to authorities in Russia’s Jewish Autonomous Region and the Chinese province of Heilongjiang to proceed with construction of the project previously estimated at $200 million.

“The next step will be a formal tender process, where companies or institutions will be offered the ability to tender for the construction and financing,” Hambro said.

He said Aricom was considering a bid and was in talks with the International Finance Corp, the private sector arm of the World Bank, with a view to supporting a possible bid.

“We’ve had a lot of interest from people in this project.”

IRON ORE SUPPLIES

The bridge will cross the Amur river at the Russian town of Nizhneleninskoye. It will have capacity to handle 20 million tonnes of commodities annually in both directions, Hambro said.

Aricom would expect to use about 8.5 million tonnes per year in one direction, he said, making it one of the bridge’s largest users. Timber is also a major industry in the region, while China could use the route to supply consumer goods to Russia.

Aricom plans to supply iron ore to Chinese steel mills, which account for about a third of global steel output. It made its first sales this year from the Kuranakh mine in Amur region and plans to bring on stream two larger deposits, Kimkan & Sutara (K&S) and Garinskoye.

From 2012, using ore from both deposits, the company plans to be producing 8.2 million tonnes a year of concentrate at a central processing plant. From K&S, it will cost $9.15 per tonne to deliver concentrate to the Chinese border, Aricom has said.

When the bridge is built, the cost will drop to about $5 per tonne, Hambro said.

“These prices are current. We’d expect them to come off in line with international freight rates.”

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