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Ukrainian coal group Sadovaya says no relief in sight for troubled Donbass miners

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Ukrainian coal group Sadovaya says no relief in sight for troubled Donbass miners

Ukrainiancoal miner Sadovaya GroupSA said no relief is in sight for troubled Donbass coal miners asperiodic fighting in the region made reopening many mines impossible for thetime being — despite high domestic prices for the fuel caused by nationwideshortages.

Inits annual report published July 5, Alexander Tolstoukhov, the company'sfounder and co-owner, said the conflict in Ukraine's industrial east had been muchmore complicated than initially expected and would likely drag on for some time.

Withboth of Sadovaya's mines closed, Tolstoukhov said survival was the company'smain goal.

"SadovayaGroup is primarily focused on the saving of its assets, as well as coalreserves with the potential for their further growth," he wrote.

He said2015 had been a difficult year. The company managed to regain control of itsRassvet-1 andSadovaya minesfrom unidentified military officers, but then faced legal action from Ukrainianlender OTP over defaults on approximately US$21.3 million in loans.

Officialsin Kiev, meanwhile, stripped the company of its mining permits for the Sadovayamine.

Highinflation, the devaluation of the national currency and Kiev's abolition ofstate subsidies for coal miners were other factors contributing to the coalsector's difficulties, Tolstoukhov said.

Theongoing fighting was also slowing down repairs to infrastructure needed torestart mines, including rail tracks and power lines, while the lack ofavailable credit restricted miners' activities.

Inspite of this deeply negative backdrop, Tolstoukhov said in the report that thebusiness environment in the country looked better last year than in 2014.

Thecompany narrowed its net loss attributable to shareholders for the year toUS$38.8 million, down from the US$50.1 million loss reported for 2014, whilenet current debts outstanding stood at US$41.2 million.

"Dueto high coal demand and sufficient coal needs in Ukraine Sadovaya Group has allchances to restart its activity in normal mode," the report read.

Ukraine'scoal production halved, to about 40 million tonnes in 2015, as the 2014-2015conflict in the eastern provinces destroyed transport and electricityinfrastructure and flooded mine shafts.

Theshortage pushed up domestic coal prices and forced power stations to importfuel from as far away as South Africa.

Sadovayaproduced more than 500,000 tonnes of thermal coal from the two mines in 2012,but later closed down both mines before fighting started in the region due tolow domestic prices.

Thereport also noted that the company is still recovering coal from historicalwaste dumps at its Interdon subsidiary — it extracted 57,140 tonnes of coal fromwaste dumps during 2015, but was still unable to fully expand the operation dueto renewed fighting in the area.

Italso warned of the ecological dangers the war had presented by destroyingcritical infrastructure, including those around its Rassvet-1 mine.

Destructionof an electricity substation, a pumping station and filtration works at themine's sediment and tailings pond meant that water released into the Olkhovskiyreservoir from the tailings pond was now below "established norms,"the report said.