Construction of a mine at the acquired Yuzhkuzbassugol deposit will cost more than $150 million / Vedomosti

According to the terms of the auction, the winner must build a mine with a capacity of 3 million tons of coal per year at Yerunakovsky-VIII from scratch within six years. Despite such tough conditions, the auction promised to be a real battle of metallurgists and coal miners. Nine companies submitted applications to participate in the bidding, representing the interests of Severstal, NLMK, as well as Yuzhny Kuzbass (a Mechel company), Yuzhkuzbassugol (50% owned by shareholders of Evrazholding), Kuzbassrazrezugol and the Kemerovo coal holding Siberian Business Union (SDU). But on Friday, the day of the auction, there was no excitement. Only Yuzhkuzbassugol, Kuzbassrazrezugol and the Salek mine (part of SDU) took part in the bidding; representatives of the other contenders did not come.

"We want to focus on preparing for auctions for other assets that are perceived by the company as more attractive," explained Mechel's head of public relations, Alexey Sotskov. "Other objects are more important to us," echoes NLMK representative Andrey Sidorov. Severstal-Resource also expects to take part in other auctions, the company's representative claims.

The bidding for Yerunakovsky-VIII ended with a record. The bidders traded for more than 4 hours, the participants say. At 8:00 p.m., the auctioneer announced a technical break until Saturday, February 19. An employee of Kuzbassrazrezugol says that his company made the last move at around 970 million rubles, after which Yuzhkuzbassugol and Salek continued the fight. Yuzhkuzbassugol won Saturday's bidding, offering 1.155 billion rubles (a little over $41 million) for the license.

Representatives of Yuzhkuzbassugol could not be reached over the weekend, and Evrazholding declined to comment. The coal miners call the amount paid for the license surprising. “There is nothing special about this site. Usually, such assets are sold in several auction stages,” says an employee of a large coal company. Mechel bought licenses for the Raspadsky open-pit mine and the Berezovsky-2 site with total reserves of 55.5 million tons at a similar auction in December for just over 48 million rubles, he recalls. “We stopped because we considered that purchasing a license at such a price was economically inexpedient,” says an employee of Kuzbassrazrezugol. Comparable amounts were paid only for licenses for the development of oil fields. For example, in the Samara Region in January, licenses for the development of seven sites with total reserves of 44 million tons of oil were sold at an auction for 2.23 billion rubles.

“Of course, coal is a very profitable business now. Prices for coking coal on the domestic market reach $120 per ton and will grow by at least 50% this year. Under these conditions, the cost of the license will pay for itself. But by the time it comes to production, the situation may change,” notes Fedor Tregubenko, an analyst at Brunswick UBS. But Alexander Pukhaev from the United Financial Group insists that Yuzhkuzbassugol paid for the license as much as it is really worth. “Previously, companies paid the state a paltry price, and the state agreed to it,” he says. The analyst notes that Yuzhkuzbassugol will pay $10 per ton of reserves at the deposit, while on the market it costs more than $100. According to Pukhaev, the reserves of Yerunakovskoye-VIII will be enough for at least 15 years of production, and Yuzhkuzbassugol will be able to return the money invested in purchasing the license in the first year of production. Pukhaev believes that the company will have to invest at least another $150 million in the construction of the mine.

Coal is worth its weight in gold