INTERVIEW-Location key to Timchenko's Kolmar Asia coal goal

Thu Jan 17, 2013 12:41pm EST

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By Alexei Anishchuk

MOSCOW, Jan 17 (Reuters) - Kolmar, controlled by the billionaire founder of trader Gunvor, will plough money into its east Siberian coal fields to capture the Asian steel making market ahead of its Russian rivals further west, its CEO said in an interview.

With over 1 billion tonnes of reserves in the ground - more than enough to supply the global steel industry for a year with coking coal - the miner plans to spend $1.3 billion to raise output sixfold in the next seven years, Andrei Churin said.

Through Swiss-based Gunvor and his Luxembourg-based investment fund, Volga Resources, magnate Gennady Timchenko acquired 60 percent of Kolmar, once owned by Russian mining tycoon and New Jersey Nets owner Mikhail Prokhorov.

Churin said Kolmar will increase output to 3 million tonnes per year in 2013-2015 from the current 2 million tonnes, then continue to expand with the completion of a processing plant at its leading mine, Denisovskaya, in the Yakutiya Republic of Eastern Siberia, hitting 12 million by 2020.

"Our primary goal is to increase output and launch full-cycle (coking coal) enrichment to make high-quality coal concentrate," he said.

Kolmar's trump card was its location some 2,500 km (1,553 miles) nearer the Pacific coast than established west Siberian producers.

"Russian coal exporters today compete not in terms of extraction costs, but rather in terms of their railway costs," Churin said. "We have this advantage and thus our strategy sees the supply of a large part of our product to China, Japan, South Korea and possibly India."

Construction of its export facilities is underway in the Muchka harbour of Vanino, which is under development as a major outlet for Siberian coal exports to the Pacific.

The Muchka facility will have initial capacity of 10 million tonnes and expansion potential of up to 27 million tonnes per year. Kolmar now sells 80 percent of its coal domestically.

"Hopefully, by the end of 2015 we will be able to load vessels there," he said. "Therefore, our sales strategy will change, supplies to South-East Asia will become a priority."

"China is the main driver and the market will follow Chinese demand," he added.

He said Kolmar will rely on Gunvor's trading power and expertise to sell its products.

"Today 100 percent of our exports are run by Gunvor," he said. "This is sensible and right...because the company's advanced level of operation allows us to handle the sales process in the most efficient way."

GUNVOR LINKS

Gunvor has risen spectacularly in just a decade from obscurity to a major exporter of Russian oil and an $80 billion annual revenue trading house. It started to trade coal in 2009 and invest in mines around the world two years ago.

The Kolmar purchase marks the latest move upstream for Timchenko, who owns a stake in gas producer Novatek.

Timchenko, 60, with an estimated $9.1 billion fortune according to Forbes 2012 global ranking, is believed to have close ties with President Vladimir Putin, which both men deny.

Churin said Gunvor's acquisition of a stake in coal miner Kolmar, finalised last August, should be seen as a strategic investment for the trader.

"Our shareholders made the decision to come to coal business in a big way and for the long term, and not only in Russia," he said.

"They have an in-depth expertise in the Russian and international energy markets which will aid efficient development of the company."

In addition to Kolmar, Gunvor directly and indirectly holds stakes in the U.S.-based Signal Peak miner and South Africa's Keaton Energy Holding.

Transport costs are seen as the Achilles heel of the Russian coal sector, sapping competitiveness when prices fall.

But Churin, who managed Oleg Deripaska's coal assets at EN+ before he joined Kolmar, saw weak coal prices bouncing back after a flat 2013, driven by iron ore mining and steel market growth.

"Given the fact that a lot of miners are shutting down mines and production facilities, the market is at the bottom now and there's nowhere else left to fall," he said. "2013 will witness slight market fluctuations, while the situation is likely to start to improve in 2014."

He said sagging markets made Kolmar pull more coal from export to the domestic market.

"We had to redirect supplies from external markets to Russia's and Commonwealth of Independent States (CIS) markets for 2013, because we even had orders canceled by our overseas clients when coal shipments were already being loaded at the port."

(Editing by William Hardy)

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