Petropavlovsk Plc, the Russian company considering selling shares in its iron ore business in Hong Kong, plans to sell all production of the steelmaking material to China.

The iron ore mines’ proximity to the Chinese border and increasing demand for steel there make it the natural market for the commodity, Jay Hambro, the chief investment officer of the London-based company that’s also Russia’s third-largest gold producer, said today in an interview in Hong Kong.

Petropavlovsk is developing the Russian iron ore assets it acquired in April 2009 with the 294.5 million pound ($425 million) purchase of Aricom Plc. The company said in a statement earlier this week it’s still considering listing the division in Hong Kong. Petropavlovsk is also mulling whether to find an investment partner as an alternative method to develop the business, Hambro said today.

Production at the Kuranakh iron ore mine in Russia’s far east will resume next month, Hambro said. The pit will produce about 900,000 metric tons a year and all the output will be taken by the Jianlong Iron & Steel Group.

The London-listed miner agreed in March to a loan of about $400 million from Industrial & Commercial Bank of China to fund the first stage of its K&S iron ore project in Russia’s Amur region. The mine, about 40 miles from the Chinese border, will produce 3.2 million metric tons of iron-ore concentrate a year starting in 2013. The company plans to build a third mine at its Garinskoye deposit.

The Asia Resources Fund in Hong Kong will invest $60 million in the company’s iron ore operation, valuing the unit at $860 million, Petropavlovsk said earlier this week.

Petropavlovsk posted a more than six-fold increase in profit last year on increased output and higher gold prices. Net income rose to $143.2 million from $22 million in 2008. It produced 486,800 ounces of gold last year and is targeting annual output of more than 1 million ounces in 2013.

OAO Polyus Gold is Russia’s largest producer of the precious metal and OAO Severstal the second-biggest.

--Editors: Andrew Hobbs, Keith Gosman

To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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