Russian Steelmaker to Buy PBS Coals in Somerset

Russia’s biggest steelmaker plans to buy fast-growing PBS Coals, which counts the Quecreek Mine among its operations in Somerset County.

OAO Severstal of Cherepovets, Russia, said Friday it will acquire PBS for $1.3 billion to supply its U.S. operations with coking coal.

Severstal, led by billionaire Alexei Mordashov, follows steelmakers including ArcelorMittal and Posco in acquiring coal mines after a year in which steel and coal have doubled to record prices. Steelmakers have boosted production to satisfy greater usage in China and India.

“The big steel companies are getting concerned about getting the raw materials — the coal and iron ore — that they need,” said Robert Scott, CEO of Somerset-based PBS. “They are starting to buy up the resource companies.”

The 45-year-old company runs six surface and six underground mines, all within about a 15-mile radius in Somerset County.

One operation is new this year, and another two underground “drift” mines are to open by year’s end, Scott said. Drift mines tunnel into a coal seam from a hillside and don’t need shafts.

So far this year, 110 new employees have been hired, and 55 are to be added by the end of 2008, he said. PBS has a total 630 employees.

The company has an annual capacity of more than 4 million metric tons of coking coal, and produces thermal coal. Severstal said it plans to complete the purchase in mid-October, which involves buying a combination of PBS and Penfold Capital Acquisition Corp. for $7.93 a share.

PBS’s best-known mine is Quecreek, which flooded in 2002 and nearly killed nine miners. Millions watched on live TV as the men were rescued one by one, after being trapped for 76 hours underground.

Quecreek — reviewed, rehabilitated and improved after the accident — remains the company’s top-producing mine, and likely is one of the country’s safest, said Scott, who has been with the company for 23 years. “Most of the guys who were there and some of the ones who were trapped are back working,” he said.

Still, lawsuits against PBS over the Quecreek accidents, blamed largely on faulty underground maps submitted to regulators before the excavation, could go to trial later this year in Allegheny County Common Pleas Court.

Gregory Mason, Severstal’s chief operating officer and head of its international division, said yesterday the PBS acquisition will help ensure the steelmaker controls costs “by providing a guaranteed supply of metallurgical coal.”

Severstal is expanding in the United States to take advantage of a weaker dollar, which has made the nation’s steel exports more competitive.

The company, ranked fourth among steelmakers in the United States, spent $950 million this year on an ArcelorMittal plant near Baltimore and WCI Steel Inc., based in Warren, Ohio, and this month acquired Wheeling-Pittsburgh Steel parent Esmark Inc. for $1.25 billion. The steelmaker runs a mill in Dearborn, Mich., that supplies Ford Motor Co., and the SeverCorr factory in Columbus, Miss.

The PBS transaction comes amid quickening consolidation in the U.S. coal industry. ArcelorMittal, the world’s largest steelmaker, agreed to buy West Virginia-based Mid Vol Coal Group on June 23 to add more than 85 million tons of reserves, for example.

Scott said PBS is due to go public in about three weeks on the Toronto Stock Exchange. There was concern, before the acquisition agreement, that “if our shares were out there, that we could be bought by anybody,” he said.

The Severstal relationship ensures PBS will have an outlet for its coal, even in future down times for the industry, Scott said. “It is going to create stability, and with their desire to grow the company this is a great opportunity,” he said.

Originally published by Staff and wire reports.

(c) 2008 Tribune-Review/Pittsburgh Tribune-Review. Provided by ProQuest LLC. All rights Reserved.

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