ArcelorMittal Kryviy Rih and IUD create consortium to participate in KGOKOR privatization

According to a joint statement yesterday, ArcelorMittal Kryviy Rih (KSTL: BUY) and the Industrial Union of Donbas signed an agreement in June to establish a consortium to participate in the privatization of Kryviy Rih Oxidized Iron Ore Plant (KGOKOR). Construction of KGOKOR started in 1983 and is still ongoing (70% of the plant has already been built). Among other purposes, the created consortium will also jointly build a deep-sea cargo port on the Black Sea and develop manganese deposits. ArcelorMittal Kryviy Rih and IUD said their shares in the consortium are equal, and they would consider adding other companies to the consortium. Eugene Cherviachenko: Creation of the consortium with one of the largest Ukrainian business groups will strengthen the political lobbying power of ArcelorMittal Kryviy Rih in Ukraine and add to the leverage in AM Kryviy Rih’s negotiations with the state on KGOKOR’s privatization. This March, ArcelorMittal announced its mining initiatives, noting the opportunity to process oxidized iron ore at AM Kryviy Rih (+816 mln mt with Fe 35%). This would bring AM Kryviy Rih’s resources to over 2.6 bln mt (over 900 mln mt in Fe content) – the largest within ArcelorMittal’s global structure. We estimate oxidized ore processing would add +5…10 mln mt p.a. to AM Kryviy Rih’s production of iron ore. Meanwhile, today Kommersant reported that Russian Evraz, which already owns sizable metals & mining assets it bought from Ukrainian Privat group in December 2007, was in talks with IUD to acquire its Ukrainian steel assets, thus the case could be that ArcelorMittal is also having negotiations on the consortium with Evraz – if this is true, in our view, this would strengthen ArcelorMittal’s position within the CIS. We maintain out 12M TP of USD 4.75 per share and BUY recommendation.