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5 Oct, 2007 05:00

Tough bidding expected for coal field worth $2 BLN

On Friday Russia's government is planning to auction the world’s largest untapped coal field with Arcelor Mittal and Russian metal producer Mechel set to bid for the lot worth $2 BLN.

Arcelor Mittal is bidding for a large coking coal deposit in the Sakha Republic along with diamond monopoly Alrosa and Russian metal company Mechel.

There were rumors that auction participants might strike alliances, but according to latest reports all three will bid separately.

The starting price for the Elga field, which holds reserves of more than 2.5 billion tons of hard coking coal, is $1.8 BLN.

The winner will also have to invest another $3 BLN to build a railway and other infrastructure. But experts say the owner will recoup the investment by selling coal abroad.

Mechel has bought another large coal asset – Yuzhny Kuzbass – the second coal producer in Russia. The company is keen to diversify its business and develop its energy interests.

While for Arcelor Mittal the deposit would be a contribution to its raw material balance amid a growing shortage of coal.

Each company appears to have a clear strategic need for the asset  and that’s likely to insure intrigue and tough competition once the auction begins.