ArcelorMittal assets under threat in Russia

The governor of Russia’s Kemerovo region warned steel giant ArcelorMittal (MT-N) that if it doesn’t increase coal production at two of its three Siberian mines, the assets will be seized, Reuters news agency reported today.

As a result of the economic crisis, ArcelorMittal’s Anzherskaya and Pervomayskaya coal mines have been operating at about 50% of their capacity, the news agency said, and in March the company warned it might have to temporarily shut them down if cost-cutting measures didn’t improve their economics.

ArcelorMittal has also introduced a voluntary retirement program.

Reuters quoted Kemerovo governor Aman Tuleyev as saying in a telegram to ArcelorMittal’s chief executive, Lakshmi Mittal, that “if your team is not able to stabilize production at these facilities, then we propose that you hand them over without compensation.”

In an emailed response to questions from The Northern Miner, Adam Warrington of ArcelorMittal’s corporate communications department, said the company had purchased the two mines in the Kuzbass region from Russian steelmaker Severstal in 2007.

Waddington noted that Anzherskaya is predominantly a steam coal asset but that under the current adverse economic conditions, ArcelorMittal “has decided that the best future for this mine would be to pursue alternative solutions to develop it, including selling it to interested strategic buyers.”

“We are in discussions with the local government to find the most optimal solution,” he wrote. “We will continue to develop and operate the other two mines based on the demand for coking coal in the group.”

ArcelorMittal completed the acquisition of 100% of the Anzherskaya mine, 97.9% of the Berezovskaya mine and 99.46% of the Pervomayskaya mine in April 2008 for the sum of US$718 million. It also acquired exploration and mining rights to the Zhernovskaya-3 coal deposit, a subsidiary of the Pervomayskaya mine.

The three operating mines have a combined estimated reserve of more than 140 million tons and in 2007 produced 3.14 million tons of coking coal.

At the time the acquisition was announced in January 2008, Mr. Mittal of ArcelorMittal said the mines would provide an “important and competitive source of coking coal supplies for our steel production, raising our self-sufficiency from 10% to 15%.” He added the acquisition helps the company get a foothold in Russia – “a fast growing market for steel production.”

At presstime in New York, ArcelorMittal was trading down 41¢ or 0.5% at US$29.72 per share. The company has a 52-week trading range of US$15.44-$91.80 per share.