UPDATE 1-Chinese firms to pay $808 mln for Afghanistan deal

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HONG KONG May 28 (Reuters) - Jiangxi Copper Co (0358.HK), China's top integrated copper producer, and China Metallurgical Group Corp will pay $808 million for the right to explore and exploit minerals in a copper mine field in Afghanistan.

The amount was part of an expected initial investment of $2.9 billion to develop Aynak copper deposit, Pan Qifang, board secretary of Jiangxi Copper told Reuters.

Jiangxi Copper (600362.SS) and state-owned mining and investment firm China Metallurgical won the contract through a tender last year to develop the vast Aynak Copper Mine, as the Chinese companies accelerate a search for minerals abroad to feed the world's fastest-growing major economy.

The project has been in the spotlight since then as it is expected to contribute huge revenues to mineral-rich Afghanistan, where violence has escalated in the past two years, the bloodiest period since the the Taliban's removal from power in 2001.

Kabul-based independent group Integrity Watch said in December local communities needed to benefit from the mine and be properly compensated, otherwise it could lead to further unrest, which could raise risks as well as the cost of the project.

The site for the mine at Aynak, 60 km (38 miles) southeast of Kabul contains the world's second-largest unexploited copper deposit.

Pan said China Metallurgical was working on a detailed feasibility study, which would include the scale of production and shares of the two companies on the Aynak project.

The shares would determine Jiangxi Copper's actual investment in the project.

Pan said the study would be completed in the second half of this year.

Jiangxi Copper expected the project to start providing copper concentrates to its Guixi smelter in Jiangxi province five years from now, he said.

The contract with the Afghan government grants mining rights in the Central and Western mineralised zones for 30 years, Jiangxi Copper said in the statement, in a move set to boost copper concentrate supplies to the copper producer.

The mining area has total resources reserves of 705 million tonnes of ores and an average copper content of 1.56 percent, comprising 11 million tonnes of copper metal deposits.

China's largest integrated copper producer said it would buy at least 50 percent of the copper concentrate products generated upon operation of the mine.

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In March, Jiangxi Copper's chairman Li Yihuang said the Aynak project would expand to 200,000-300,000 tonnes a year, from a previously planned 200,000 tonnes.

The project would increase supply of copper concentrate to Jiangxi Copper, which was expanding capacity to 900,000 tonnes of refined copper a year in 2010 from 700,000 tonnes, Li said. Shares of Jiangxi Copper were down more than 1 percent at HK$17.30 on Wednesday afternoon, lagging a slight rise in the index of Chinese companies listed in Hong Kong .HSCE.

(US$1=HK$7.8) (Reporting by Polly Yam and Donny Kwok; Editing by Anne Marie Roantree)