Sumitomo, Sojitz May Join Project to Develop Siberia Coal Field

Sumitomo, Sojitz May Join Project to Develop Siberia Coal Field

Sumitomo Corp., Japan’s third-largest trading company, is considering teaming up with a Russian partner to develop a coal field in Siberia that could help to meet growing demand for the fuel from Japanese steelmakers.

Russian companies will take the lead in developing the Elga deposit in Russia’s Republic of Sakha (Yakutia), Sumitomo Managing Executive Officer Michihisa Shinagawa said on Jan. 9. Sojitz Corp., a rival trading firm, is also interested in the project, which will require $2.8 billion of investment.

The Elga field could become a prime source of coking coal for Asia, the fastest-growing region in the world economy. Japan’s crude steel production rose 9.5 percent in November on demand from manufacturers and construction companies, the Japan Iron & Steel Federation said on Dec. 19.

“The coking coal is of high quality comparable to the premium hard coking coal from Australia,” said Mitsuichi Koizumi, a researcher at the Institute of Energy Economics, Japan.

“We would like to tie up with a Russian partner which will lead the project,” Shinagawa said, without naming any companies.

“We are thinking about taking part in developing the Elga field,” Sojitz’s President Akio Dobashi said in December.

A tender will take place in the first quarter of this year for the sale of the Republic of Sakha’s 39.4 percent stake in Elgaugol, which holds a license to mine the Elga field, Russia’s Interfax news agency reported on Dec. 20, citing Deputy Economic Development and Trade Minister Kirill Androsov.

The auction, originally due to be announced in mid-October, was delayed by a legal dispute between Russian central and regional authorities over property rights, Interfax said.

Rich Deposit

A stake of 75 percent minus one share in Yakutugol will also be offered at the tender. Yakutugol is Russia’s leading exporter of coking coal concentrate to the Asia Pacific region, primarily Japan, South Korea and Taiwan. Russian mining and steel group OAO Mechel owns 25 percent plus one share in Yakutugol.

The Elga field, located about 800 km (500 miles) south of Yakutsk, the capital of the Republic of Sakha, may produce 30 million metric tons of coal per year. It has reserves of 2.7 billion tons of coal.

“The decision on taking part in the bidding for Elga will be taken after we see the tender conditions,” Alexei Sotskov, spokesman for Mechel, said by telephone in Moscow. “We don’t exclude forming an alliance with foreign companies.”

The Japanese companies are also interested in plans to sell the 29.5 percent stake in Elgaugol held by OAO Russian Railways. Russian Railways is further slated to sell a 60-kilometer (37.5- mile) uncompleted stretch of coal transport railway.

“We would like to participate in the project such as by constructing railways,” Shinagawa said.

Putin Backing

During his visit to Japan in Nov. 2005, Russian President Vladimir Putin sounded out his hosts to see if they would be interested in taking part in the project.

In March 2006, Mechel submitted a non-binding proposal regarding Yakutugol and development of the Elga coal deposit, suggesting formation of a new company, which would be named Sakhaugol OAO.

“We are considering several routes for the creation of Sakhaugol, one of which could be through the contribution of our 25 percent plus one share in Yakutugol and up to $300 million, in return for which we would obtain 51 percent of Sakhaugol,” Mechel said in a filing with the U.S. Securities and Exchange Commission dated Dec. 28.

As a result, Sakhaugol would own about 70 percent of Yakutugol and 68.9 percent of Elgaugol, it said.

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