UPDATE 2-Russia's Evraz scraps merger of Siberian coal firms

(Adds analyst comment, background, updates share price)

MOSCOW, March 19 (Reuters) - Evraz Group HK1q.L, a Russian steel maker part-owned by billionaire Roman Abramovich, has abandoned plans to merge two Siberian coal miners in a deal that would have created the world's No. 3 producer of coking coal.

Evraz said on Wednesday its Yuzhkuzbassugol subsidiary and Raspadskaya RASP.MM, a separate company in which it shares ownership with the management, would generate more value on their own from strong demand for coking coal used to make steel.

“With the valuation of coking coal companies inflated by enormous coking coal prices, it would have been buying at the peak of a cycle,” said Renaissance Capital mining analyst Yuri Vlasov.

Evraz, Russia’s largest steel maker by domestic volume, announced its plans to merge the two firms last June. Coal prices have since rocketed as the world faces supply shortages.

Evraz Chairman and Chief Executive Alexander Frolov said the company’s purchase of assets in Ukraine last December, including three coking plants that could run on Siberian coal, had also been a factor in its change of heart.

“We concluded that further integrating Yuzhkuzbassugol with Evraz’s steel operations and with Ukrainian coke production assets would yield more immediate value and long-term synergies than combining Yuzhkuzbassugol and Raspadskaya,” he said.

Evraz's London-listed stock fell 2.1 percent by 1345 GMT to $88, roughly in line with London-traded Russian steel peers such as Severstal CHMFq.L and Novolipetsk Steel NLMKq.L.


Raspadskaya's stock traded up 3.9 percent on Moscow's MICEX exchange, significantly outperforming a 0.2 percent rise on the bourse's metals and mining index .MCXMM.

Analysts said the development was positive for the company, which in November 2006 became the first Russian coal miner to float shares in an initial offering that raised $317 million. Its stock has nearly tripled in value since the IPO.

“For Raspadskaya, it means business as usual,” Vlasov said.

Raspadskaya, which produces coking coal at lower cost that Russian peers, is majority owned by Corber Enterprises Ltd, which in turn is a joint venture between Evraz and the company’s management.

The merger plan was first mooted after Evraz took the reins of Yuzhkuzbassugol, purchasing the 50 percent of the company it did not already own and installing its own management following two fatal explosions last year at mines owned by the company.

Editing by Erica Billingham