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By John Helmer in Moscow

The Evraz Group, Russia’s biggest steelmaker, has announced that it has started construction of a new railroad to serve the group’s iron-ore mine and combine, Sukha Balka at Dniepropetrovsk in the Ukraine.

An official statement by Evraz spokesman Alexei Agureyev in Moscow explains that the new line may take six months to complete, and that the effort and expense have been forced on Evraz, owned by Roman Abramovich and Alexander Abramov, by the refusal of the competing iron-ore mine, Krivoy Rog Iron-Ore Combine (KZhRK), owned by Igor Kolomoisky, to allow Sukha Balka to use the same track. Agureyev had also announced earlier that the rail blockade was forcing Sukha Balka to suspend production. Last year, according to the published data, Sukha Balka produced 1.7 million tonnes of iron-ore, down 38% on the 2008 production level, and contributing to a loss of 55.6 million hryvnia ($6.2 million). Sukha Balka and KZhRK produce iron-ore concentrate of similar quality, and sell into the same markets.

In December 2007, when Evraz announced the acquisition of Sukha Balka from the Privat Group, owned by Kolomoisky and Gennady Bogolyubov, the additional assets included in the takeover were the Dniepropetrovsk Iron and Steel Works, with 1.2 million tonnes of crude steel capacity, and three coking plants. The Evraz announcement at the time claimed the deal “would allow us to increase iron-ore self-sufficiency and …create captive intra-group coke-making demand for the excess production of the company’s coalmines in Siberia.” Counting all forms of iron-ore produced by the Evraz group, Sukha Balka contributed 14% in 2008; 10% last year. After the transaction, Bogolyubov joined the Evraz board where he still sits. He is not involved in Kolomoisky’s action on behalf of Krivoi Rog.

No mention was made in 2007 of the rail transport and logistical lifeline for Sukha Balka. And so it remains unclear today why Evraz did not make secure provision for access to the existing rail tracks when it bought the mine and processing plant.

At the Krivoy Rog Iron-Ore Combine (KZhRK), a spokesman for the combine’s chief executive Fedor Karamanits told CRU Steel News in December: “The railway by law belongs to KZhRK. We need it for our own ends, and we use it, so we do not recognize the claims by Sukha Balka and we have no obligations in front of them. We own this railway and we need it”. A source at KZhRK added recently that the obvious solution of the conflict would be for Evraz to build its own rail line.

Footnote: John Henry was a railway labourer, possibly a slave, and an American folk hero, memorialized in legend and song, for having raced against a steam-powered hammer in the construction of track in the 1840s by the Chesapeake and Ohio Railway near Talcott, West Virginia. He beat the machine, but he died in the attempt. In the Johnny Cash version of the song, this is what happened: “John Henry said to his captain, a man aint nothin but a man, but if you bring that steam drill round, i’ll beat it fair and honest, i’ll die with my hammer in my hand, but i’ll be laughing, cuz you cant replace a steel driven man.”

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