Evraz Merges ts 2 Siberian Coal Firms

Steelmaker Evraz, partially owned by billionaire Roman Abramovich, will merge its two coal mining companies, creating the world's third-largest producer of coal for the metals industry, the group announced Friday.

Evraz will seek to improve safety at the Siberian coal companies, Raspadskaya and Yuzhkuzbassugol, in an effort to prevent any repetition of the underground explosions that claimed 149 lives at Yuzhkuzbassugol this year, it said.

"Through [this merger] we will create a Russian coking coal leader and a top-three global coking coal producer," Evraz chairman and CEO Alexander Frolov said in a statement.

The combined company will be the world's largest coal miner after Australia's BHP Billiton and Japan's Mitsui, Evraz spokeswoman Irina Kibina said.

Raspadskaya and Yuzhkuzbassugol cumulatively produced 21.3 million tons of coking coal, or some 30 percent of the country's output, last year, according to Kibina and Raspadskaya's web site.

The companies ship more than half of their coking coal to Evraz mills in Siberia for steel production, and that will remain unchanged after the merger, Kibina said. They supply the rest to various other steelmakers in Russia, Ukraine and Eastern Europe.

Unlike most global steel producers, Russian companies prefer to own coal mines to ensure continuity of supply -- a tradition that comes from the tumultuous 1990s, a time when contracts were not always honored.

"It makes them extremely profitable," said Anthony Trickett, a raw materials expert at the International Iron and Steel Institute.

Western steelmakers are now struggling to keep their raw materials inflow at the levels that meet their growing demands, in part because Australia -- one of the main suppliers -- has railroad restraints, he said.

World prices for coking coal have been rising sharply over the past two years as a result of supply problems, especially at Chinese mills.

Evraz could get an even greater edge over competitors because the synergy of the merged companies could make their product cheaper, said Valentina Bogomolova, an analyst at Alfa Bank.

Raspadskaya CEO Gennady Kozovoi will take the helm at the new entity. Improving safety standards at the mines of the combined company will be a top priority, he said in the statement.

A methane explosion killed 110 Yuzhkuzbassugol miners in March, and another 39 died in a blast at another mine owned by the company two months later.

Evraz earlier this month completed a deal to buy half of Yuzhkuzbassugol that it didn't already own. It didn't exercise operational control of the company at the time of the blasts. The stake has been valued at between $500 million and $750 million, but Evraz is widely expected to enjoy a discount.

Evraz also owns 40 percent of Raspadskaya through Corber Enterprises Limited. Another 40 percent in Raspadskaya belong to its managers while the remaining 20 percent of shares are publicly traded on Russian stock exchanges.

Upon completion of the merger, Raspadskaya will fully own Yuzhkuzbassugol.

Evraz expects to finalize the terms of the merger in the second half of the year.

Source: http://www.moscowtimes.ru/stories/2007/06/18/045.html