Evraz Abandons Its Plans to Merge 2 Siberian Coal Firms

Evraz Group, a steelmaker part-owned by billionaire Roman Abramovich, said Wednesday that it had abandoned plans to merge two Siberian coal miners in a deal that would have created the world's No. 3 producer of coking coal.

Evraz said its Yuzhkuzbassugol subsidiary and Raspadskaya, a separate company in which it shares ownership with the management, would generate more value on their own from strong demand for coking coal used to make steel.

"With the valuation of coking coal companies inflated by enormous coking coal prices, it would have been buying at the peak of a cycle," Renaissance Capital mining analyst Yury Vlasov said.

Evraz, the country's largest steelmaker by domestic volume, announced its plans to merge the two firms in June. Coal prices have since rocketed as the world faces supply shortages.

Evraz chairman and chief executive Alexander Frolov said the company's purchase of assets in Ukraine in December, including three coking plants that could run on Siberian coal, had also been a factor in its change of heart.

"We concluded that further integrating Yuzhkuzbassugol with Evraz's steel operations and with Ukrainian coke production assets would yield more immediate value and long-term synergies than combining Yuzhkuzbassugol and Raspadskaya," he said.

Analysts said the development was positive for the company, which in November 2006 became the first Russian coal miner to float shares in an initial offering, raising $317 million. Its stock has nearly tripled in value since the IPO.

"For Raspadskaya, it means business as usual," Vlasov said.

Raspadskaya, which produces coking coal at lower cost than its Russian peers, is majority-owned by Corber Enterprises, which in turn is a joint venture between Evraz and the firm's management.