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Russia Plans $8 Billion Siberia Investment to Boost Coal Exports

OAO Severstal, Russia’s second-largest steel producer, is among four companies planning mines and a state-backed railroad in the Siberian region of Tyva that would double the country’s metallurgical coal exports by 2020.

“Annual coal production in Tyva may reach 40 million metric tons in 2020 should all the companies implement the announced plans in full,” Dmitry Sakhno, project manager at Severstal, said in an interview in Moscow. “More than half of these volumes will be exported.”

Russia produced 64.7 million tons of the variety of coal used by steelmakers last year and exported 14.2 million, Economic Ministry data shows. The projects proposed by the four companies and the railroad partly funded by the state may cost about $8 billion, according to an estimate by Dmitry Smolin, an analyst at UralSib Capital.

Evraz Plc, Russia’s largest steelmaker, Severstal, billionaire Oleg Deripaska’s En+ Group and shareholders of Russian Copper Co. have bought licenses for coal deposits in the Tyva region since 2008. In December, Prime Minister Vladimir Putin hammered a symbolic golden spike that marked the start of work on a railroad to the remote region.

The 400 kilometer (250 mile) railroad, linking Tyva to the Trans-Siberian railroad as early as 2015, will allow the transportation of coal from the Ulug-Khem basin, which contains 16 billion metric tons of coal reserves, according to data provided by Severstal, about 2.5 times more than the Tavan Tolgoi field in neighboring Mongolia.

Joseph Stalin

Russia, holder of the world’s second-largest coal reserves, mines 60 percent of its production in Siberia’s Kuzbass region, developed largely under plans overseen by Joseph Stalin in the 1930s. Rising output from mines in Kuzbass has caused railroad bottlenecks and lapses in safety, including underground blasts at a site operated by OAO Raspadskaya that killed 91 in 2010.

“Tyva will be the first new coal basin developed in Russia in at least 50 years,” said Andrei Churin, head of coal business at En+ Group, a natural resources holding company owned by Deripaska, chief executive officer and main shareholder of United Co. Rusal, the world’s largest aluminum producer. Coal from Tyva may be shipped to China, South Korea, Japan and southeast Asia by railroad or by sea from harbors in Far Eastern Russia, he said.

China, which accounts for half of global steel output, is the major customer for metallurgical coal. Chinese demand for the raw material may increase to 65 million tons by 2014 from about 40 million tons last year, according to IHS McCloskey.

The complexity’s of developing Tyva and delays by some of the mining companies may curb production by 2020 to 15 million to 20 million tons, Severstal’s Sakhno said.

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