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IRC to ramp up iron ore output as transport costs are expected to drop

Iron ore producer IRC Ltd. is ready to ramp up production at properties located in the Russian Far East region, amid increased iron ore prices and improving transport infrastructure resulting from China's new Silk Road initiative, according to CFO Danila Kotlyarov.

Kotlyarov told S&P Global Market Intelligence that the company expects two major benefits — lower costs and stronger demand — from the initiative.

During a recent speech in Beijing, Chinese President Xi Jinping said the country is increasing funding support to create an infrastructure network that will span over 60 countries, according to a May 14 report from Xinhua News Agency. The country will provide an additional 100 billion Chinese yuan to construct roads, ports and railways in the Silk Road region, according to Xi.

As part of the initiative, Russia and China are constructing the first cross-border highway bridge across the Amur River near the city of Birobidzhan, which is scheduled for completion in June 2018, according to Kotlyarov.

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"The bridge will shorten the time and distance [of transport of Kimkanskoye and Sutarskoye products to China] and reduce costs," Kotlyarov said.

He noted that the estimated average cash cost for the Kimkanskoye and Sutarskoye, or K&S, mine would be reduced to US$28.0 per tonne from US$35.4 per tonne following the completion of construction, as the bridge would halve K&S's transport cost.

The bridge is also expected to reduce the transportation time from the property to the Russia-China border to between three and five days, from seven to 10 days, according to Kotlyarov.

Meanwhile, Kotlyarov also expects the massive infrastructure investments from the initiative, dubbed One Belt, One Road, to boost demand for iron ore products.

"There will be huge demand from infrastructure [construction] in the area, which will increase demand for our products," he said.

In addition to the flagship K&S operation, which is on schedule to reach its full capacity of 3.2 million tonnes per year in the second half, IRC is also considering resuming operations at the Kuranakh iron-ilmenite mine in the area.

Given that transport costs are expected to drop significantly in 2018, Kotlyarov said the company has the capacity to further increase its total output, including options to accelerate exploration programs at the Garinskoye iron ore project and the Bolshoi Seym iron ore-titanium project in the area.

As of May 17, US$1 was equivalent to 6.89 Chinese yuan.