IRC, which develops iron ore projects in Far East Russia, saw its share price fall 17.6 per cent after it clinched deals to raise HK$1.84 billion by selling shares at a sharp discount to two mainland companies which also agreed to be its main customers.
The investments will fund a large part of IRC's US$400 million, 3 million tonnes-a-year second-phase expansion of an iron ore mine called Kimkanskoye & Sutarskoye, which will raise IRC's annual output capacity by 73 per cent by 2015.
The two investors had also committed to buy the project's output for 15 years, IRC said in a statement to the stock exchange.
IRC's output is mainly sold to the northeast Chinese market, where it has a logistics cost advantage compared with iron ore from Australia and Brazil.
"This is a transformational deal for IRC," said IRC chairman Jay Hambro in an interview with the South China Morning Post. "It gives us the money we need to expand our mine and also strong off-take partners, which will derisk our project."
Analysts said while the sharp discount of the share sale lowered existing shareholders' interest, the new investments would bolster the feasibility of IRC's projects.
"Tying Minmetals into a long-term contractual arrangement should finally convince the market that the expansions will really happen," said Citi analyst Jon Bergtheil in a research note.
General Nice Development, the mainland's largest privately owned steel smelting raw materials trader controlled by Cai Suixin, has agreed to buy 851.6 million new IRC shares for US$103.3 million, giving the Tianjin-based unlisted firm an 18.9 per cent stake.
The sale price of 94 HK cents per share is at a 33.8 per cent discount to Wednesday's close of HK$1.42, ahead of the deal's announcement. IRC rose 12.7 per cent on Wednesday but fell to HK$1.17 yesterday.
The deal has to be approved by shareholders of IRC and its London-listed parent Petropavlovsk, and is expected to be completed by March 31.
On completion of the first deal, General Nice has agreed to buy a further US$104.7 million of IRC shares, raising its stake to 31.4 per cent.
Minmetals Cherglory, a Hong Kong subsidiary of state-owned China Minmetals, the nation's largest steel trader, will also buy US$30 million of IRC shares for a 4.5 per cent stake.
These purchases will also be at 94 HK cents per share, and are expected to be completed by the end of September.
Petropavlovsk's stake will be diluted to 40.4 per cent from 63.1 per cent on completion of all the purchases.
As part of the deals, General Nice and Minmetals Cherglory agreed to buy Kimkanskoye & Sutarskoye's output for 15 years.
IRC is building the US$360 million, 3.2 million tonne-a-year first-phase of the mine, which is backed by a US$340 million loan from the Industrial and Commercial Bank of China.