Who is Dmitry Bosov planning to sell an unprofitable and distressed asset to? Well, to the state, of course! Represented by some corporation that may come his way…
If you have to sell something you don't need, you will have to buy it first. Rosatom has all the chances to illustrate this aphorism perfectly well.
According to RBC, the VostokCoal Management Company owned by Dmitry Bosov and Alexander Isayev has brought forward a proposal to Rosatom to buy a coal deposit in Taimyr.
The trouble is that over the past few years, the Arctic Mining Company has become notorious as an unprofitable and distressed asset. This raises the question: why does the state need it?
So, the main operations of Arctic Mining Company, an affiliate of VostokCoal Management Company, are focused on development of the Malolemberovskoye and Nizhnelemberovskoye coalfields in the Taimyr. The declared coal reserves are equal to 2 million tonnes at the Malolemberovskoye deposit and to 67 million tonnes at Nizhnelemberovskoye.
A while back, Bosov and his business partners pinned big expectations on the Taimyr coal deposit. Thus, in 2017, he said that they were going to ramp up production by 5 million tonnes every year and to reach 30 million tonnes of total production by 2022-2023. However, after that, Bosov & Co downgraded their expectations to 19 million tonnes of total production by 2024. On the other hand, the Ministry of Natural Resources and Environment provided the forecast of coal production only at 1 million tonnes per year. And then, the year 2020 started but production at the field remains at a standstill...
To gain a more precise understanding of the current value of the Arctic Mining Company, it should be taken into account that over the past few years, the Federal Service for Supervision of Natural Resource Usage (Rosprirodnadzor) and the Federal Security Service (FSB) have made heavy claims to that core business of Bosov and Isayev.
Worse still, Bosov's businesses have already lost some of the cases to Rosprirodnadzor. All pending litigations are very likely to be lost, too.
Not farther than at the end of January, Arctic Mining lost the cassation over a legal case with Rosprirodnadzor in the Arbitration court of the Moscow region. Bosov's company promises to continue the lawsuit in the Supreme Court. However, it is more than likely that at long last, the amount of the claim of 600.5 million rubles will have to be paid. The question arises: where will Bosov get the money?
And this is only the start… Since the total amount of lawsuits filed by Rosprirodnadzor against Arctic Mining Company exceeds 2 billion rubles.
Distressed Taimyr Coal
Problems with Rosprirodnadzor began for Bosov and Isayev's company in 2017, when the latter put forward a number of claims to it. Essentially, in April 2014, Arctic Mining Company received a license for exploratory operations (specifically, for search and estimation) on the reach of the Malaya Lemberova River (Dolgano-Nenetsky district of the Krasnoyarsk territory.)
However, Rosprirodnadzor established that, in fact, the company had started mining and selling coal on an industrial scale although it had no right to do so. In April 2017, in the course of an unscheduled inspection, Rosprirodnadzor found that there was an ongoing coal production on the reach without any authorization documentation, and there were about 70,000 tonnes of coal in two warehouses. Bosov's attempts to declare the unscheduled check illegal via the courts failed. As a result, the FSB pointed out in its appeal to Rosprirodnadzor that the Arctic Mining Company had mined 187,000 tonnes of coal from the Malolemberovskoe deposit and shipped it for export via the port Dixon.
The assessment of the Rosgeologekspertiza federal state-owned enterprise turned up the pressure: it concluded that Arctic Mining Company trench were nothing else but an opencast coal mine. That is why the defense line of Arctic Mining Company suggesting that license exploration had been carried out at the field, also failed.
This is why 600.5 million rubles is the tip of the iceberg. Rosprirodnadzor’s Yenisei interregional directorate is attacking Bosov from another frontline. On February 6, the Arbitration Court of the Moscow region will examine the claim of Rosprirodnadzor’s management to Arctic Mining in the amount of 536.875 million rubles for the damage caused to the environment. As a whole, Rosprirodnadzor’s department estimated the damage caused by Bosov and Isayev’s businesses to the Siberian Federal District in the total amount of 2.085 billion rubles.
When the Horse is Dead, Dismount
-- as the old Indian saying says. Well, or either sell this horse to someone else. Apparently, that’s Dmitry Bosov’s plan.
This conclusion avails itself because, as we can see, the Arctic Mining Company is just a documentation package with a license. Although, not really. There is only a license for geological exploration, namely, for search and confirmation of anthracite deposits. And there is no license for mining…
Apart from that, as the expression goes, the company controlled by Bosov and Isayev is up to the ears in debt. In total, Rosprirodnadzor’s lawsuits of are equal more than 2 billion rubles. It should be taken into account that Arctic Mining Company is operating on the ropes. According to figures provided by the Federal Tax Service, in 2018, the profit of Arctic Mining Company was 2.031 million rubles. Given the legal proceedings, the balances may not be enough even to pay for lawyers after settling accounts with Rosprirodnadzor.
In addition, VostokCoal as a business yields no profit for Bosov. In 2018, it brought as much as 1 million rubles, exclusive of tax payments. Translating it into figures, the income was 15.86 million rubles, and expenses stood at 14.813 million rubles.
The situation with Sibanthracite Group is somewhat better but the company is highly leveraged. Basicallly, as Maxim Barsky, a member of the board of directors of Sibanthracite Group, said in an interview that all of Bosov's business is leveraged, and foreign banking groups and domestic Sberbank are the main lenders.
In other words, it will not be possible to transfer profits from VostokCoal and Sibanthracite Group to repay the debts of Arctic Mining because they don’t have the money.
Apparently, in the case of the Lemberovskoye deposit Bosov & Co planned to implement the scheme described by Barsky: "our know-how is that we start to mine quickly, and then the cash flow starts, and then we can apply for loans."
Indeed, Arctic Mining managed to push the project to the stage of shipment, but then the "concession participants" came across Rosprirodnadzor and the Federal Security Service.
Finally, business media pay attention to the so called "scissors’ trend": today, two negative trend lines are developing on the market, mutually heightening the impact of each other. Firstly, Europe is reducing coal consumption. Accordingly, the demand for anthracite and other types of energy is falling. Therefore, it is clear why as of February 2020 the cost of steam coal fell by 40% -- to $47 per tonne.
In that respect, Bosov's proposal for Rosatom to invest in the Arctic Mining Company looks like an attempt to earn on losses by selling a distressed asset to the state.