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. Last Updated: 07/27/2016

Gazmetall in Talks on Ukraine Merger

Gazmetall, the iron ore and steel firm half-owned by billionaire Alisher Usmanov, is in talks with Ukraine's Industrial Union of Donbass, which Russian media said Monday could create a $17 billion to $20 billion merged company.

Kommersant, also owned by Usmanov, quoted a Ukrainian source as saying the two firms Saturday signed a letter of intent and that talks on cooperation were at an advanced stage. Gazmetall would control the merged firm.

"Such negotiations are taking place, but they are not the only negotiations in which the company is involved," a source close to Gazmetall said.

The press service for Metalloinvest, the company that manages Gazmetall's assets, confirmed that talks with the Industrial Union of Donbass were taking place on a wide range of issues. It did not confirm what those issues were.

Officials in the union's headquarters in the eastern Ukrainian city of Donetsk and the capital Kiev declined comment.

Vedomosti said a merger would create a company with annual steel output of 20 million tons.

Gazmetall controls the Urals Steel and Oskol Electrometallurgical Plant, while its two iron ore plants -- Lebedinsky and Mikhailovsky -- make it the country's largest iron miner.

Industrial Union of Donbass, or IUD, is Ukraine's second-largest corporation and owns three steel plants in its home country -- Dneprovsky, Alchevsk and Kramatorsk. It also owns the Dunaferr and DAM Steel plants in Hungary and Polish steel mill Huta Czestochowa.

"IUD and Gazmetall have agreed to strengthen their cooperation in commercial, financial, investment and strategic matters," Vedomosti quoted Gazmetall general director Maxim Basov as saying.

Basov told Kommersant that the two firms had created working groups to consider possibilities for integration.

"In the next few months, the conclusions and recommendations should be presented to shareholders of both companies," Basov told Kommersant.

Vedomosti also quoted IUD vice president Alexander Pilipenko as saying the firms had agreed on raw material supplies and that Gazmetall would supply the union with iron ore concentrate from the end of the first quarter.

The cooperation could be widened to a merger, Vedomosti quoted Pilipenko as saying.

Metalloinvest has already held talks with another Ukrainian firm, Smart Group, controlled by Vadim Novinsky, about the possible rehabilitation of the Soviet-era Kgokor iron ore project near the Ukrainian city of Kryviy Rih.

Usmanov's firm has previously proposed an idea to create a CIS iron ore giant including its own Russian mines, Smart Group assets and the Sokolov-Sarbai Mining and Production Union in Kazakhstan.