Gazprombank gets an option to buy share in Elga project

According to the agreement, Mechel is due to sell to Gazprombank by June 30, 2016, 49% of shares in Elgaugol, the project operator company and owner of its subsoil license, 49% of shares in Elga-Doroga which owns the Ulak-Elga railroad, and 49% of shares in Mecheltrans-East OOO which is the railroad’s transport operator. The cost of these shares totals 34.3 billion rubles.

The cash acquired through this deal will be used to repay Mechel’s debt to Sberbank and Sberbank Leasing. Partial debt repayment is a condition for restructuring of Mechel’s debt to Sberbank.

The agreement also stipulates coordinated efforts and mutual guarantees of the two sides regarding the project’s development. Gazprombank has the option of selling the share in Elga project to Mechel within three years following a five-year tenure.

The Elga coal deposit is Russia’s largest and one of the world’s largest deposits of high-quality coking coal, located in South Yakutia. Its reserves amount to approximately 2.2 billion tonnes according to JORC. Mechel has invested some 100 billion rubles into the Elga project. In 2015, the project yielded 3.9 million tonnes of coal, with 5 million tonnes due to be mined in 2016, and the deposit’s project capacity is up to 30 million tonnes of run-of-mine coal.