Russia's Severstal to sell coal assets in bid to cut emissions

Russian miner and steelmaker Severstal said Dec. 2 it has signed a binding agreement to sell its Vorkutaugol coking coal assets for Rb15 billion ($203 million) in a move reflecting the company's commitment to reducing its CO2 emissions.

Russia's second-largest coking coal mining enterprise (after Evraz-owned Yuzhkuzbassugol) will be sold to Russkaya Energiya, a joint venture between Roman Trotsenko (70%) and Andrey Tyasto (30%).

Trotsenko is also chairman of Aeon, a corporation with projects in heavy industries, construction and transport. Coal has been Trotsenko and the group's most recent interest, having recently acquired coal assets in the Taimyr Peninsular, in Russia's Far North and close to the Northern Sea Route.

The sale of Vorkutaugol is expected to close in the first quarter of 2022. The buyer intends to finance the transaction using its own and borrowed funds, according to Severstal.

Sale aids decarbonization

The steelmaker will use some of the proceeds to finance its decarbonization strategy, which is, among other priorities, aimed at lessening coking coal usage, it said.

"The sale of Vorkutaugol will allow us to focus on developing our steel and iron ore assets, to be the leader of the future industry and to reduce our carbon footprint," said Severstal CEO Alexander Shevelev.

Vorkutaugol contributed 14.3% of Severstal's annual Scope 1 & 2 greenhouse gas emissions.

That said, the terms of the agreement with the buyer include an off-take contract guaranteeing supply of the raw material to Severstal for the next five years; the steelmaker will remain a key consumer of Vorkutaugol coking coals.

"We understand that in the medium term, coal will remain an integral component of steel production," said Shevelev.

With Vorkutaugol, Severstal has been the third-largest coking coal producer in Russia (after Evraz and Mechel); in 2020, the mining subsidiary delivered around 10.3 million mt of crude coal, equivalent to 11% of the country's total coking coal output.

Vorkutaugol operates in the Pechora coal basin in the extreme north of European Russia and has five underground mines, an open pit and auxiliary enterprises altogether employing 5,900 people.

Severstal said it will be working closely with Russkaya Energiya to support the transition of this workforce and maintain the highest health and safety standards.

Russkaya Energiya CEO Tyasto emphasized a strong belief in the prospects for the Russian coal industry and the potential of the Arctic zone.

Exiting coal precedent

Severstal becomes the first Russian steel company integrated into raw materials to offload its coking coal subsidiary, but the second to state such an aim.

Mining and steelmaking major Evraz said in January that it was likely to divest its coal business (comprising Raspadskaya, Yuzhkuzbassugol and Mezhegeyugol) – transferring ownership to Evraz shareholders, in a move to create a purely steel business. The spin-off is expected to be completed at some point in 2022.

From January 2022, mining coking coal will cost more to companies in Russia: the country's mineral extraction tax for the raw material will rise by at least a quarter, but will likely increase much more sharply. In line with a new MET formula, the coal tax will become variable, instead of being a fixed rate currently, and will be sensitive to the fluctuation of the ruble, as well as to the commodity's price.