Glencore Eyes Yakutia’s Coal

International trading firm Glencore is considering bidding for a controlling stake in Yakutugol and Elgaugol coal producers at an upcoming auction, news agencies reported Wednesday. All potential buyers think the ask price is too high, and auction organizers are negotiating a discount. Some experts say, however, that bidders may set up a consortium to pay the starting price of $1.8 billion for the assets.

Yakutia’s Prime Minister Egor Borisov met a Glencore delegation on Wednesday, making a statement that the Swiss firm is considering a bid in the auction selling Yakutugol and Elgaugol, the Interfax news agency reported Wednesday. The list of bidders includes ALROSA, Evraz Group, Novolipetsk Metallurgy Combine, Mechel, Renova. Japan’s Sumitomo and Mitsui.

Yakutugol develops three deposits in Yakutia, Russia’s Far East, producing 9 million metric tons of coal a year while Elgaugol holds a license for a coal deposit with the explored reserves of 2.1 billion tons.

The auction for controlling stakes in Yakutugol and Elgaugol is slated for May 30 with the starting price for the whole lot at $1.8 billion. A well-informed source of Kommersant says that bidders are not satisfied with the ask price since the buyer will also have to invest about $3 billion in infrastructure and further exploration at Elgaugol. Authorities in Yakutia and in Moscow are now in talks to review terms of the auction.

Industry experts say that if the bidders decide to create a consortium, they will be able to pay $1.8 billion. Switzerland’s Glencore, a Japanese and Russian companies – Mechel or ALROSA – are strongly tipped to form such a team.

// May 24, 2007

Resource: Commersant.com