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By John Helmer in Moscow

The worst-ever coal mine disaster in Russia, with a death-toll of at least 102 miners, and not less than another 8 still missing, hit the Ulyanovsk mine in Siberia on Monday afternoon.

Owned by Yuzhkuzbassugol (“South Kuzbass Coal”), one of the largest coal and coking coal producers in Russia, the mine was opened in 2002; it was reportedly equipped with the most modern equipment.

Failure to prevent a sudden increase in methane was initially blamed for the explosion that triggered the shaft collapse, trapping and killing miners. However, a statement from the General Prosecutor’s Office in Moscow, broadcast on national television Tuesday afternoon, said the explosion was triggered when mine managers were demonstrating equipment below surface to a visiting British auditor, Ian Robertson. All were killed. The name of the audit company has not been released yet. The audit was being conducted for the benefit of the initial share offering, planned by Yuzhkuzbassugol over the past six months.

A coal union spokesman has issued the first criticism of the company for the accident. Alexander Sergiev, chairman of the Independent Coal Miners’ Union, is quoted by news wores as saying that mine safety regulations are not tough enough, and that management pressure on miners to lift their daily output can lead to unsafe working conditions.

The mine and mine company are half-owned by the Evraz group, which relies on Yuzhkuzbassugol for a major portion of its coking coal supplies. The other half of the shareholding in Yuzhkuzbassugol is controlled by the management and heirs of Vladimir Lavrik, the chief executive killed in a helicopter crash six months ago, in September. At the time, there were reports hinting the crash had not been an accident.

In its July 2005 IPO prospectus, Evraz reported the company was “under common control with Evraz”. The document also reported mine output totaling 18 million tons of coal in 2004; 14 million tons of that was coking coal. In 2005, output fell to 17 million tonnes overall; 13 million tonnes of coking coal.

With an estimated market capitalization of $1.3 bilion, Yuzhkuzbassugol has been planning an IPO to raise cash for a planned $700 million investment programme. An official answering the Yuzhkuzbassugol main office telephone, in Novokuznetsk city, refused to say what has happened to this IPO plan. The company spokesman said of the mine accident that “the state committee will work to discover the reasons of accident. It is yet too early to say when the mine will be back in operations and what losses there will be from the accident.”

According to company financial reports, Evraz claims its share of the coalminer’s profit in the first half of 2006 was $13 million. Replying to Mineweb questions about the impact of the accident on the steelmaking of the group, or the accident’s causes,Irina Kibina, head of investor relations for Evraz, said: “We have sent condolences, and we are rendering what help is feasible. Such a tragedy is not an occasion for speculations.”

Evraz, which operates two steelmills in Novokuznetsk, in the Kemerovo region, is sensitive to the fact that it has been sanctioned by the federal government with the heaviest penalty ever imposed for environmental standard violations.

According to Kibina, the Evraz management has come to an agreement with Rospriradnadzor, Russia’s federal environmental control agency, to spend $91 million on new waste-water treatment facilities to put a stop to pollution of the Novokuznetsk city’s drinking water. Records of the conflict between the company and the regulators appear in the regional press over a 24-month period.

Kibina told Mineweb last September that Evraz had agreed with Rospriradnadzor to invest Rb 2.3bn ($88 million) until the year 2012. Deputy head of Rospriradnadzor, Oleg Mitvol, told Mineweb the agreement calls for spending of Rb 2.4bn ($91 million) by the end of 2007. There has been no shareholder announcement from Evraz regarding this outcome.

Evraz and Yuzhkuzbassugol are not the only interested parties to have fallen silent since the mine disaster. None of the major Moscow brokerages, which have been promoting Evraz’s share value as it has moved upward by 24% in the year to date, has reported the accident, or estimated its financial impact. The share price fell back in the past month, in line with the market trend. But it gained almost 1% in Monday’s trading, despite the mine news.
The Ulyanovsk accident is the first at the mine, but the worst recorded by the Russian authorities in the accident-prone coalmining industry. Yuzhkuzbassugol has also reported fatal accidents at other shafts before this. In April 2004, 47 miners were killed in an apparent methane explosion. In February 2005, 25 miners were killed. Investigation of the latter accident pinned the blame on inadequate fire safety procedures on the part of company management.

Ulyanovsk has been producing at a rate of about 1.5 million tonnes of coking coal concentrate. Evraz draws roughly half of its requirement from all of the mines in the Yuzhbassugol group. Indemnity payments, repairs, lost production, and other costs for the coalmine company and its shareholders are currently estimated in industry reports at $200 million.

The Evraz board of directors has been convened on Tuesday to consider the disaster.

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