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By John Helmer in Moscow

Regional mining officials in Kemerovo and the regional coalminers’ union say that ArcelorMittal had already begun closing down two coalmines and dismissing miners, before the Kemerovo region’s governor, Aman Tuleyev (picture left), issued an ultimatum to stop last Friday. If the charges cannot be resolved in negotiations this week, the legal impact of the claims against the company put in doubt all future operations by ArcelorMittal in Russia.

Yuri Udartsev, deputy head of the Industry Department at the Kemerovo regional government, told CRU Steel News said the focus of attention is “the two mines — Pervomaiskaya and Anzherskaya. ArcelorMittal is preparing to close them down, and has already started dismissing the miners. At the current rate [of coal prices], these two mines have no prospects for the future. That is why the regional government could not remain neutral in the situation. [Governor] Tuleyev proposed to ArcelorMittal either to take measures to save the mines, or their license for the Zhernovskoye deposit will be revoked.”

The governor’s aide, Oleg Shishko, confirmed that in the text of a telegramme Tuleyev sent Lakshmi Mittal (picture right) last Thursday, and posted publicly in Kemerovo on Friday, the governor charged “there is no transparency in their [mining] activity, there are serious infringements of technological discipline at conducting mining works”. As CRU Steel News reported on July 10, Tuleyev threatened that if the two mines are closed down, he will revoke ArcelorMittal’s licence to develop the Zhernovskoye-3 coal deposit.

The assets were acquired in April 2008 by ArcelorMittal, after the group had failed in an earlier bid to buy the much bigger Elgaugol and Yakutugol deposits in fareastern Russia. At that time, Lakshmi Mittal has tried personally to meet and lobby for the deal with then President Vladimir Putin. He was rebuffed.

Mittal then agreed to pay $650 million in cash to Alexei Mordashov, owner of the Severstal group, which had been operating the complex of two mines, and exploring the Zhernovskoye-3 deposit. Mittal paid an additional $70 million to minority shareholders.

According to a press release at the deal announcement,Mittal claimed to be “pleased to be acquiring these mines which will provide an important and competitive source of coking coal supplies for our steel production, raising our self-sufficiency from 10% to 15%. This acquisition also helps ArcelorMittal establish a presence in Russia, a fast growing market for steel production.” But industry analysts noted that the year before, in 2007, the two mines had been producing coal at a cost of $68/t, above the contract price at which it could be sold. The brief spike in coal prices in 2008 improved the position for ArcelorMittal, but not for long.

Russian steel sources also told CRU Steel News at the time of the sale that the mines were too far away from ArcelorMittal’s steelmaking plants in Kazakhstan and Ukraine to warrant supplying them from Kemerovo. It was therefore judged that ArcelorMittal had paid Severstal a premium in order to develop, not the two mines, but the Zhernovskoye-3 deposit. It has been reported to contain more than 40 million tonnes of coal reserves.

Tuleyev’s intervention has made clear that that will be renationalized unless the mines continue to work.

Yuri Kaufman, head of the Federation of Trade Unions in the Kemerovo region, told CRU Steel News that at this point, there is only a warning from the governor — “no measures have been taken yet. The problem is that ArcelorMittal does not pay salaries to the miners, and has started dismissing them. There is also the question of mine safety, because ArcelorMittal does not spare enough money to keep the mines safe to work in. For example, even if they have a plan to close down the two mines, they are not going to follow the regulations and processes necessary to keep the mines safe, while they are closed. This costs a lot, so ArcelorMittal is planning to shut the mines down, breaking the regulations.”

He said the union is aware that there have already been negotiations between the company and the regional administration. Tuleyev’s spokesman said he would not comment on those. At the office of the regional Department of Mineral Resources, CRU Steel News was told the head is on holiday until July 20, and noone is authorized to speak in his absence.

US court papers in litigation filed over metal and mining asset claims in Kemerovo have alleged that regional officials, including Tuleyev, have taken sides in commercial disputes, and used their powers to assist in asset raids. Detailed affidavits are available in the archives of the US District Court for the Southern District of New York (Docket 00 Civ 9627, 2001) spelling out allegations of Tuleyev’s involvement in rigged bankruptcy proceedings involving the steelmills, West Siberian Metallurgical Combine (Zapsib), Kuznetsk Metallurgical Combine (KMK), and the Novokuznetsk Aluminium Smelter; manipulation of electricity tariffs; fabrication of criminal charges; and other wrongdoing.

Tuleyev’s favour for local metals magnates, including the owners of Evraz and Novolipetsk Metallurgical Combine, has also been reported by miners and mine inspection agents in connexion with lax enforcement of mine safety in the region. In 2006, Tuleyev was directly involved in allowing Vladimir Lisin, owner of Novolipetsk, to bail out of the Prokopievskugol mine in Kemerovo by selling it to the local government for one rouble. The mine, a source of coking coal for Lisin’s steelmill, had had four serious accidents in 2006-2007; three of them killed 34 miners. Lisin continues to hold the development and mining rights for the Zhernovskoye-1 deposit, which is near the ArcelorMittal property now under threat.

Union spokesman Kaufman told CRU Steel News that in the current negotiations with ArcelorMittal “there is no document yet” to finalize the terms being negotiated with the regional government. “But it will be drafted soon, as several peculiarities are being discussed now and some are yet to discuss”.

A company statement, issued Friday in response to publication of Tuleyev’s telegramme to Mittal, said: “Under the current adverse economic situation, 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. We will continue to develop and operate the other two mines based on the demand for coking coal in the group.”

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