OREANDA-NEWS. December 13, 2007. Alexander Abramov, a co-owner of Evraz Group, who three times failed to purchase iron and steel assets in Ukraine (Krivorozhstal, Krivoy Rog Iron Ore and Nikopol Ferroalloys), at last has entered Ukrainian market by purchasing mining and metallurgical assets of Privat group, UFC-Capital reports. A day after acquisition of the Claymont Steel (the USA) for $564.8 mn, the largest Russian steelmaker announced about its next acquisitions. According to the press-service of Evraz Group, they purchased a 99.25% stake in Sukhaya Balka Mining, 95.57% -in Dnepropetrovsk Petrovskiy Steel and more than 90% stakes in three coke companies: Bagleikoks, Dneprokoks and Dneprodzerzhinsk Coke. "We consider these acquisitions as one more important stage in implementation of our strategic plans. After this purchase in Ukraine the level of our iron-ore self-sufficiency will increase and Evraz will continue its integration into the mining and ore segment. The to-be-acquired coke companies will create additional possibilities for coking coal sale, which are produced by the coal mines of the company. The purchase of Dnipropetrovsk Petrovski Steel will enable us to diversify its production geography even more and move towards its production costs decrease." Alexander Frolov, board chair and president of the group, said in the statement. There is no doubt of his words, taking into account that Raspadskaya mine, owned by Evraz, is the main importer of coking coal to Ukraine. The annual output of Raspadskaya mine is 8 mn tonnes of coal and its reserves are estimated at 640 mn tonnes. In view of the fact that the aggregate capacity of three Pirvat coke companies equals to 3.52 mn tonnes, this is more than enough. 

In addition, after purchasing Privat assets Alexander Abramov will secure for himself the honorable title of "metallurgy assets collector on the ex-USSR territory".  We would like to remind the reader that initially with a silent backing of Kremlin this title was assumed by Alisher Usmanov, co-owner of Gazmetal group. After the structures controlled by Roman Abramovich became the shareholders of Evraz Group, Moscow announced that consolidation of the Russian iron and steel will take place on Evraz basis. It is interesting that in the nearest future the Ukrainian assets of the Russian steel kings may include one more metallurgical asset – ISTIL steelmaker (Donetsk), which presently is proposed for sale as well. The main pretenders to this asset are also Industiral Union of Donbass, Energo concern of Victor Nunsenkis and the key competitors to Evraz in the Russian market – Severstal, which belongs to Alexei Mordashov. The price of the issue is $1 billion.

The terms and conditions of the Ukrainian assets acquisition are not disclosed in the statement published by press-service. However, it is said the final terms and conditions and the deal structure will be defined by the board of Evraz based upon the appraisal performed by a recognized international appraisal organization that will carry out an independent valuation of the to-be-purchased assets. Evraz will pay for the aforesaid assets in cash and by new shares. It is expected that the deals will be closed in the first quarter of 2008. The acquisition of assets in Ukraine has already resulted in Evraz capitalization decline. On Tuesday, the trades on London SE closed with Evraz Group GDR quotations drop by 3.02%. The price for one GDR fell to $83.4. The reason for decline might have been a lack of information about the new deal and fears that the debt of the group may increase. Before, one GDR of Evraz cost $86, on Tuesday its GDR went up and down on the news about its plans to buy Claymont Steel.
Meanwhile, according to Timur Novikov, first board chair of PrivatBank, the Russian company paid for metallurgy business owned by Igor Kolomoiskiy in excess of $3 bn: "The deal is to be finalized in several months. Evraz will pay slightly more than $3 bn. They will pay almost equal amounts for all business areas. Evraz will pay in cash $1.7 bn, the rest – by shares. It is slightly less than 10%." It is curious that if Privat gets a little bit less than 10%, then, it means that the shares will be sold to Mr Kolomoiskiy with a 50% discount as minimum, taking into account the present capitalization of Evraz. This may understand that the deal also may have several options, as minimum, for 50% stakes of Privat in Krivoy Rog Iron Ore and Southern Mining.

Privat group tried without any success to get rid of its iron and steel assets a year ago, although there were even several pretenders to some of its companies. Nevertheless, due to the disagreements in price no asset was sold. This year, Privat group organized a real sale out: Southern Mining, Krivoy Rog Iron Ore, Sukhaya Balka, Dneproazot, Bagleikoks, Dneprokoks, Dneprodzerzhinsk Coke and Galichina. This time, practically all assets found their buyers: 50% in Krivoy Rog Iron Ore was sold to Rinat Akhmetov, coke companies, Sukhaya Balka Mining were sold to Alexander Abramov, and it is not excluded that the latter also acquired Southern Mining and a 50% in Krivoy Rog Iron Ore (as Alexander Abramov in due time made attempts to buy Krivoy Rog Iron Ore). In the nearest future, the group will try to get rid of Galichina. One may well understand the reasons – of late, the core business for Privat becomes ferroalloys and oil products. Taking into account that next year the state-owned stakes in Ukrtatnafta and Ukrnafta may be privatized, as well as that the stake of Victor Pinchuck in Nikopol Ferroalloys may be proposed for sale, the group needs to accumulate significant amount of cash. If to take into consideration that this sale out generated about $4 bn for Privat, than in the aggregate the group may earn about $6 bn, which will be more than enough to buy Ukrnafta and Ukrtatnafta and Nikopol Ferroalloys.  
The capacity of Sukhaya Balka Mining OJSC is 3.75 mn tonnes of agglomerate per year; Dnepropetrovsk Petrovskiy Steel OJSC – 1.8 mn tonnes of cast iron and 1.23 mn tonnes of steel per year. The aggregate capacity of three coke companies – Bagleikoks OJSC (to be purchased – 93.74% stake), Dneprokoks OJSC  (98.65%) and Dneprodzerzhinsk Coke (93.83%) is 3.52 mn tonnes of metallurgical coke per year.

Evraz mining and metallurgical holding in 2006 produced 16.1 mn tonnes of steel. Last year the revenues of the company amounted to $8.29 bn, net profit – $1.38 bn. The company’s capitalization is $28 bn (LSE). Shareholder – an 83.19% interest is owned by the Cyprus-based Lanebrook (a JV established by Millhouse, owned by Roman Abramovich, and by Alexander Abramov and Alexander Frolov, founder of Evraz).