Russia's Mechel to Spend Nearly $3 Billion in Mines and Smelters

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Researched by Industrial Info Resources (Sugar Land, Texas)-- Mechel OAO (NYSE:MTL) (Moscow), one of Russia's leading mining and metals companies, plans to spend $2.1 billion on a coal mine and $350 million on a nickel plant in Russia, and $500 million in a nickel mine and smelter in Kazakhstan. Mechel's mining segment comprises the production and sale of coking and thermal coal, iron ore and nickel. To maintain its position as a top coal producer in Russia, Mechel is the developing the Elga Coal project in the Republic of Sakha. Sakha holds 45% of all Russia's coal reserves, the second largest in the world. The project is a massive endeavor that involves a mine, coal handling and preparation plant, a railroad and a port terminal.

The proposed mine is conveniently located near the power-hungry markets of Asia, particularly China. Because of Elga's geographical location and the permafrost conditions of the area, the mining and hauling of coal across mountains present a challenge that would require heavy equipment. The coal in Elga will be mined by truck and shovel. The 30 million-ton-per-year run-of-mine operations will produce 23 million tons per year of coking, thermal and middlings coal. It will be transported by rail to the Vanino Port in Muchka Bay where Mechel plans to spend $500 million to build a state-of-the-art coal terminal with moisture-reducing equipment. Mecheltrans OOO (Moscow, Russia), a subsidiary of Mechel, will manage the construction of the coal terminal. Construction of a 315-kilometer railroad, which links the Elga coalfield to the main Baykal-Amur railroad, has been started, and construction of the mine access road will be completed by the end of next year.

As a part of its capital expenditure program in Russia, Mechel is also spending $350 million through its subsidiary Mechel Steel Group OAO to upgrade the Southern Urals Nickel Plant in Orsk. A major chunk of the budget will go toward replacing major equipment; improving ferronickel production, and environmental protection. Bateman Engineering NV will be in charge of engineering, procurement and construction.

Additionally, Mechel officially opened the Voskhod Chromite Mine last month in the Aktyubinsk Region of Kazakhstan. Earlier this year when Mechel acquired London-based Oriel Resources Plc, it took ownership of the chromite mine as well as the proposed Shevchenko nickel mine, which is also in Kazakhstan. A feasibility study has been completed on the $500 million Shevchenko mine, and it is expected to enter the next phase of development as soon as Mechel decides on the best processing technology to use. The Shevchenko mine will use two 80-megawatt Bateman DC arc furnaces to smelt 2.3 million tons per year of nickel ore into 86,500 tons of ferronickel alloy.

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