Acquisition of Coal Group to Create Value for Severstal Shareholders;
Builds Vertically Integrated Operations in U.S.
MOSCOW, Aug. 22 /CNW/ -- Through its mining division Severstal Resources,
OAO Severstal (LSE: SVST; RTS: CHMF, "Severstal") today announced that it
intends to acquire the business of PBS Coals Corporation ("PBS") by way of an
acquisition of Penfold Capital Acquisition Corporation (TSX VENTURE: PNA.P)
("Penfold") following a business combination of PBS and Penfold for an all
cash purchase price of C$8.30 per share, implying an enterprise value of
PBS is engaged in the mining, processing and sale of metallurgical and
thermal coal in Somerset County, Pennsylvania, U.S. PBS's operations are
located in the Northern Appalachian Coal Fields, situated between Severstal's
North American production centres, and have the capacity to produce over 4
million tonnes of metallurgical coal.
PBS's portfolio includes six underground and six surface mining
operations. In the fiscal year ended March 31, 2008, PBS produced
approximately 2.4 million clean tonnes of coal, including 1.5 million clean
tonnes of coking coal. PBS has 133.5 million tonnes of in-place coal reserves
and 228.3 million tonnes of in-place coal resources. In addition to its
significant reserves, PBS has an experienced management team and a competitive
cost position among international coal producers.
Through its acquisition of PBS, Severstal expects to create value for its
shareholders through benefits from the vertical integration of its upstream
operations; the increase in self-sufficiency with regard to the supply of
primary raw materials available to its North American operations will allow
Severstal to control its operating costs. PBS's central location will also
mitigate transportation costs between Severstal's facilities.
Roman Deniskin, CEO of Severstal Resources, commented: "Severstal
Resources believes that the high demand for primary raw materials for steel
production, including coking coal and iron ore, will continue due to the
strong industrial fundamentals in global metals and mining. To keep pace with
the global growth of the steel industry, our mining business is capitalizing
on the opportunity to expand into a new geographic market, gain access to
export markets and diversify its mining technologies. Our significant
experience with coal mining in Russia leaves us well positioned to make the
most of our acquisition of PBS, ensuring its continued growth by providing
additional management and operational expertise. "
Gregory Mason, CEO of Severstal International and COO of OAO Severstal,
added: "Securing the supply of raw materials is a critical piece to maximizing
the full potential of our U.S. business. The acquisition of PBS will help
ensure that Severstal controls its operating costs by providing a guaranteed
supply of metallurgical coal for our coke making operations in the U.S. The
integration of our upstream production, from coal and coke making to steel
making, will allow us to sustain profitability and return value to
Severstal Resources has retained RBC Capital Markets as financial advisor
and Torys LLP in New York and Toronto as legal counsel. PBS has retained
Cormark Securities Inc. as financial advisor and Borden Ladner Gervais LLP as
legal counsel. Penfold and the independent committee of the board of PBS have
retained Haywood Securities Inc. as financial advisor and Gowling Lafleur
Henderson LLP in Vancouver and Toronto as legal counsel. Haywood has provided
an opinion to the independent committee of the board of directors of PBS and
Penfold that the transaction is fair from a financial point of view to PBS and
Penfold shareholders, respectively.
Severstal Resources expects to fund its proposed offer for PBS through
cash on hand. The transaction is subject to a number of conditions including
obtaining all necessary regulatory approvals. The transaction is expected to
close by mid-October. Upon completion of the acquisition, PBS will operate as
a business unit of Severstal Resources.
Notes to Editors on the Structure and Details of the Deal
Severstal's takeover bid is conditional upon Penfold consummating a
business combination with PBS, whereby Penfold will acquire PBS and the
resulting public company will be known as PBS Coals Limited.
The transaction has been unanimously approved by the board of directors
of both PBS (and the independent committee of the board of PBS) and Penfold
and they have determined that the transaction is in the best interest of their
Penfold and PBS have entered into a support agreement whereby they have
agreed to support Severstal's bid. The support agreement includes a
commitment by PBS and Penfold not to solicit or initiate discussions
concerning alternative transactions. PBS has agreed to pay a break fee of
C$41.9 million to Severstal in certain circumstances and has granted Severstal
the right to match competing offers.
Holders of approximately 66.8% of the outstanding shares of PBS,
including all directors and officers of PBS, have executed irrevocable lock-up
agreements whereby they have agreed to tender their shares to Severstal. Such
holders together with the holders who have executed soft lock-up agreements to
tender shares to Severstal represent approximately 71.5% of the outstanding
shares of PBS.
About Severstal Resources:
Severstal Resources is a leading feedstock supplier in Russia to the
iron-and-steel industry which manages the mining assets of Severstal.
Severstal Resources incorporates the Karelsky Okatysh and Olcon iron ore
complexes and Vorkutaugol, a coal mining complex. Stalmag, a niobium
production facility is also part of Severstal Resources. In 2007, these
operations produced 7.6 million tonnes of coking-coal, 1.8 million tonnes of
steam coal, 10 million tonnes of iron-ore pellets and 4.7 million tonnes of
iron-ore concentrate. In 2007, Severstal Resources established a gold business
segment, which totaled 5.3 tonnes of gold output over the past year.
In May, 2008 Severstal Resources reached an agreement to purchase up to a
61.5% stake in African Iron Ore Group Ltd, which owns the exploration rights
for an iron ore deposit in the Putu Range area of Liberia, West Africa.
OAO Severstal is an international steel producer with a listing on the
Russian Trading System and the London Stock Exchange. Incorporated in 1993,
the company focuses on high value added and unique niche products and has a
successful track record of acquiring and integrating high-quality assets in
North America and Europe. Severstal owns mining assets in Russia, thus
securing its supplies of raw materials. In 2007, Severstal produced 17.5
million tonnes of steel with revenues of US$15.2 billion, EBITDA of US$3.7
billion and earnings per share of US$1.92.
PBS is a private British Columbia Corporation which owns 87% of the
equity of the PBS Coals Group of Companies, a privately held group of
companies engaged in the mining, processing and sale of primarily
metallurgical coal from their properties in West-Central Pennsylvania (the
"PBS Group"). The PBS Group consists of PBS Coals, Inc., a Delaware
corporation, and Rox Coal, Inc., a Pennsylvania corporation, and their
subsidiaries and holding companies.
About Penfold Capital Acquisition Corporation
Penfold Capital Acquisition Corporation is a Capital Pool Company and is
part of the Penfold Capital group of companies.
Forward Looking Statements:
This communication may contain projections and other forward-looking
statements regarding future events or the future financial performance of OAO
Severstal (Severstal). Forward looking statements are identified by terms such
as "expect," "believe," "anticipate," "estimate," "intend," "will," "could,"
"may" or "might", the negative of such terms, or other similar expressions.
Severstal wishes to caution you that these statements are only predictions and
that actual events or results may differ materially. Severstal does not intend
to update these statements to reflect events and circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. Factors
that could cause the actual results to differ materially from those contained
in projections or forward-looking statements of Severstal may include, among
others, general economic conditions in the markets in which Severstal
operates, the competitive environment in, and risks associated with operating
in, such markets, market change in the steel and mining industries, as well as
many other risks affecting Severstal and its operations.
For further information:
Dmitry Druzhinin, Investor Relations
Olga Antonova, Public Relations
+7 495 540 7766
Taylor Rafferty for Severstal
+1 212 889 4350 (o)
+1 917 902 0767 (m)
+1 212 889 4350 (o)
+1 646 715 2980 (m)
For further information:
For further information: Dmitry Druzhinin, Investor Relations, or Olga
Antonova, Public Relations, both of Severstal, +7-495-540-7766; or Michael
Henson, +1-212-889-4350 (o), or +1-917-902-0767 (m), or John Dudzinsky,
+1-212-889-4350 (o), or +1-646-715-2980 (m), both of Taylor Rafferty for