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. Last Updated: 07/27/2016

Evraz to Take Over Mining Company

APMourners in Novokuznetsk on Saturday attending the funeral of Marat Salikhov, a miner killed in Thursday's blast.
NOVOKUZNETSK, Kemerovo Region -- Steel giant Evraz Group announced Friday that it would assume full control of the company that owns the Yubileinaya mine, where a methane gas explosion a day earlier killed at least 39 miners.

Evraz currently holds a 50 percent stake in Yuzhkuzbassugol, which owns Yubileinaya and other area mines and is valued by analysts at about $2 billion. Evraz is expected to buy out the rest of the company at a steep discount.

"The decision has been made because of the circumstances," Evraz spokesman Nikolai Kudryashov said.

He said Evraz's board would meet in the "near future" to approve the deal, which also requires Federal Anti-Monopoly Service approval.

The explosion at Yubileinaya is the second this spring at a Yuzhkuzbassugol mine. A methane blast at the company's Ulyanovskaya mine in mid-March killed 110 people.

On Thursday, Kemerovo Governor Aman Tuleyev called for Evraz to take over Yuzhkuzbassugol and bring in new management. The governor also said Yuzhkuzbassugol's business license could be revoked if it resisted the takeover by Evraz, whose major shareholders include Roman Abramovich and Alexander Abramov, RIA-Novosti reported.

On Friday, however, Tuleyev and Abramov rejected a proposal by Konstantin Pulikovsky to pull Yuzhkuzbassugol's license, Interfax reported. Pulikovsky heads the Federal Service for Ecological, Technological and Atomic Inspection, the government's main industrial safety watchdog.

"The southern Kuzbass, and Yuzhkuzbassugol in particular, account for 85 percent of Russia's coking coal. This region is indispensable not just for Evraz, but for the country's entire steel industry," Abramov said.

Yuzhkuzbassugol general director Georgy Lavrik said the takeover would be "better for the company, and things won't get worse for the miners," Interfax reported.

Abramov, who also sits on the board of Evraz, said major changes were in store for Yuzhkuzbassugol, including a management shake-up.

Andrei Litvin, a metals analyst at MDM Bank, said Yuzhkuzbassugol was valued at $2 billion, but Evraz could expect to pay less than $1 billion for the 50 percent stake belonging to Lavrik and two other senior managers, Alexander Govor and Yury Kushnerov.

"Evraz was forced to buy this stake and the shareholders were forced to sell," Litvin said, adding that the company would probably restore order at Yuzhkuzbassugol and then announce an initial public offering. "Now they will have to spend a lot of money on this asset, improving operations, restoring production and spending on staff," he said.

Evraz will likely pay $500 million to $750 million for the stake, Aton brokerage said in a research note. The deal will likely have a negative effect on Evraz in the short term, adding to the company's liabilities before improving operating results in the long term, Aton said.

Yuzhkuzbassugol produced more than 16 million tons of coal in 2006, and planned to raise output to nearly 20 million tons this year, according to company figures.

The Yubileinaya mine accounts for nearly 6 percent of Yuzhkuzbassugol's total production and less than 0.2 percent of Evraz's revenues, UralSib said.

The death toll in the Yubileinaya mine disaster rose to 39 early Sunday when a miner injured in the explosion died in a hospital in Leninsk-Kuznetsk, about 150 kilometers from Novokuznetsk.

The miner, identified as Eduard Lyakh, 33, will be buried Tuesday. Four miners were buried Sunday and another 34 on Saturday in Novokuznetsk and other nearby towns. One miner remains in critical condition.

In Novokuznetsk on Sunday, a team of investigators spent 10 hours inside the mine in a preliminary attempt to determine the cause of the blast. The team will continue its work Monday, said Andrei Malakhov, who heads the Kemerovo regional office of the Federal Service for Ecological, Technological and Atomic Inspection. Malakhov said the fire at the blast site had been extinguished. The team noted that the electrical equipment at the site had suffered relatively minor damage, he said.

Tuleyev said Saturday that the bill for equipment lost in the blast and ensuing fire could reach 600 million rubles ($23.2 million).

The governor had opposed allowing the team into the mine, arguing that conditions were too dangerous. A fire broke out shortly after the blast, leading to calls to flood the shaft. Authorities decided instead to seal off the affected coal faces.

On Saturday, Tuleyev said he would only allow investigators to enter the mine if they signed waivers that would absolve Yuzhkuzbassugol of any responsibility for their welfare.

"Then the investigation will have to be conducted on the basis of the black boxes and the data-recording devices in the gas-control system," he said.

A mine supervisor said the data collected from these sources would be insufficient for a thorough investigation.

"The so-called black box only comes on after an explosion. It's an ordinary mic that records conversations with the dispatcher on the emergency telephone," said the supervisor, who declined to give his name because he feared retribution from the company.

"The data recorders would indicate rising gas levels or a sudden emission, but only if they had not been jammed. What's missing at Yubileinaya is an electric substation that would show what breakdowns had occurred in the electrical equipment prior to the explosion that could have caused a short-circuit."

Yemelyan Pugachyov, who heads the electrical engineering department at the Siberian University of Mining and Metallurgy, said he helped to install the Mikon 1R gas-detection system in the Yubileinaya mine.

The system, produced by Ingortex in Yekaterinburg, "is designed to shut off power to the electrical equipment instantly during a methane emission. If the system is working properly, short-circuits are out of the question," he said.

The Mikon 1R system is in place in more than 40 mines. Ingortex could not be reached for comment.

Staff Writer Miriam Elder reported from Moscow.