Mechel has submitted a non-binding proposal that looks at the formation of Sakhaugol, in which the coal and steel producer would contribute its 25%+1 share in Yakutugol and up to $US300 million. In return, Mechel would obtain a 51% stake in Sakhaugol.

Other participants in the proposed company would include Russian Railways, which would contribute 29.5% of Elgaugol (a company that has the license to develop the Elga deposit); and the Government of the Republic of Sakha, which would contribute its 39.4% stake in Elgaugol and its 45%-1 share in Yakutugol.

As a result, Sakhaugol would own about 70% of Yakutugol and 68.9% of Elgaugol.

Yakutugol produced 9.9 million tonnes of coal in 2005, most all of which was exported to Asian markets.

The Elga coal deposit has proven reserves, according to Russian reserve standards, of 2.2 billion tonnes of coal, potentially making it the largest coal deposit in Russia.

“The proposal we submitted is in furtherance to our goal to gain control over Yakutugol OAO, and could also serve to launch Mechel into a strategically very interesting region, one remarkably rich in mineral resources. All of this, of course, is fully on line with our strategy to further strengthen the mining segment,” Mechel chief operating officer Alexei Ivanushkin said.