Russian firm buys PBS Coals

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August 22, 2008

By SHAWN PIATEK The Tribune-Democrat Fri Aug 22, 2008, 11:09 PM EDT

Robert Scott had as much spring in his step at 4 a.m. Friday as anyone possibly could who hadn’t left the office or slept a wink the night before.

Scott, president of PBS Coals Corp. of Friedens, and other company leaders stayed up that late to finalize a deal with Russian steelmaker Severstal. Scott then hurried home for a short nap with the knowledge that the company had agreed to be acquired by Severstal for $1.3 billion, ensuring the long-term future of the local mining operation.

“I grabbed a few hours of sleep and was right back at it,” said Scott, who returned to the company’s offices at the regular starting time in order to explain the transaction to PBS’ 550 employees before the news broke.

“It’s still not working as hard as the guys who go and mine the coal.”

Scott characterized the deal as overwhelmingly positive for both companies, PBS’ employees and the local community. He said the deal will bring long-term stability to the coal mining operations held by PBS Coals.

“I think it’s really a win-win,” Scott said. “The shareholders who invested with us are going to do really well. Severstal is getting a really dependable supplier for its coal. We’re getting resources we couldn’t have dreamed of. We’re getting a stable market for our product and our people are basically guaranteed steady work.”

The deal isn’t yet final, but it is expected to be completed by the end of October. Severstal is a publicly traded company in Europe, which means the transaction will have to satisfy regulators before it is fully consummated.

Once it is final, the deal won’t just stabilize demand for local coal products, it could cause it to explode with rapid expansion to potentially follow.

In reports coming out of Moscow on Friday, Roman Deniskin, chief executive of Severstal’s mining division, noted that the company has big plans for the region’s coal fields.

Deniskin, quoted by Reuters, said, “Production of coking coal can be expected to double in the medium term.” He did not, however, detail any plans for expansion.

PBS Coals has been planning to expand its operations for some time.

The company previously announced that it intends to open new mines in Somerset County as well as a coal cleaning plant in Stonycreek Township.

Raising capital to pay for the expected growth has been a primary concern for PBS for more than a year. The company received nearly $900,000 from the state earlier this month to help with the expansion costs.

In addition, the company recently announced it will go public next month on the Toronto Securities Exchange.

Scott said Friday’s announcement hasn’t changed the company’s plans to become a publicly held entity, a move that some analysts have predicted will generate $300 million in capital.

“We don’t intend to stop our listing,” Scott said. “If for some reason the deal with Severstal did not go forward, we would have our listing on the stock exchange and go forward as we had planned previously. We’re keeping all of our options open.”

If the deal with Severstal goes through as expected, Scott said PBS’ expansion plans would be expedited.

He also believes that with Severstal’s backing, the mining operations will grow beyond any expectations currently held by PBS.

“I don’t think anyone will see anything different in the day-to-day operations,” Scott said. “The only change will be the additional resources they bring.

“We should be able to accelerate our expansion plans. And we should be able to take it to a level higher than we were planning on our own.”

Scott said present company jobs should be unaffected. He said he will remain as president of the current PBS operations and no positions will be lost.

He noted that keeping the PBS team in place was an important component of making the deal with Severstal.

“They’re not just buying our resources in the ground, they’re also buying our expertise and capabilities of getting the coal out of the ground,” Scott said.

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