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. Last Updated: 07/27/2016

Coal Auction to Start at $1.9Bln

Itar-TassA truck transporting coal at the Elgaugol-owned Elginskoye field in Sakha.
The government will sell majority stakes in two firms with licenses for large coal deposits in the republic of Sakha as a single lot and has set a starting price of $1.85 billion for the Oct. 5 auction, the Federal Property Management Agency said Friday.

The fund said it would sell 75 percent minus one share in Yakutugol and 68.86 percent of Elgaugol, plus associated infrastructure, in a long-awaited auction that has drawn interest from firms including steelmaker Mechel and diamond monopoly Alrosa.

"It would have been possible to raise more money by holding two separate auctions. This form of auction can be explained by the desire to sell Elgaugol," said Kirill Chuiko, metals and mining analyst at UralSib bank.

"Elgaugol is a complicated project," he said. "It wouldn't be easy to find someone prepared to invest several hundred million dollars then to wait eight to 10 years for a return."

Russia is the world's fifth-largest coal miner and the country ranks third in terms of exports, behind Australia and Indonesia.

Elgaugol has a license for the Elginskoye coal deposit and is owned by Russian Railways and the local government of Sakha, an area in the northeast the size of Western Europe and home to the world's coldest place.

The winner of the auction must commit to opening the Ulak-Elga railroad for permanent use by Sept. 30, 2010.

Yakutugol mines about 9 million tons of coal a year from three deposits in Sakha.

New York-listed Mechel, which is spending $700 million raising coal output by 47 percent to 25 million tons by 2011, already owns 25 percent plus one share of Yakutugol and is seen by some analysts as the leading contender in the auction.

"Mechel is studying the conditions of the contest for the sale of Yakutugol and Elgaugol with a view to making a decision on the possibility of taking part," a Mechel spokesman said in an e-mailed statement.

Other contenders for the stakes may include Alrosa, whose diamond assets are in the republic of Sakha, and Basic Element, the investment vehicle of billionaire Oleg Deripaska.

Finance Minister Alexei Kudrin, who is also chairman of Alrosa, said on Aug. 9 that the company would take part in any contest for Elgaugol and had Sakha's best logistics network.

A South Korean consortium including LG International and state-controlled Korea Resources has also been cited as one of the contenders.

"I think it's unlikely that a foreigner will win," Chuiko said.