Corum, a mining equipment maker belonging to billionaire Rinat Akhmetov, intends to expand to China, the world’s biggest coal producer, which churns out four billion tons of coal annually.
On Jan. 23, Corum, previously known as Girnychi Mashyny, obtained a license from the Chinese government to launch a production platform in the country that is a home to the globe’s second biggest economy.
More than 70 percent of energy in China is coal-based, which makes the prospects of the new deal especially sweet.
Sales and production unit will operate as Beijing Corum Machinery and the first contract is expected to be signed by July.
However, as of now the Chinese office operates only as sales facility supplying Ukraine-produced machinery. Later, it will produce some too – for the local market as well as for Vietnam.
Obtaining the license wasn’t easy, admits Corum’s chief executive officer Evgen Romashchyn. “Our local partner, Shan Xi TZ Coal Mine Whole-Set Equipment, helped a lot,” he says.
As Russia-backed war brought unrest to the Donbas, the company’s core region, it had to shut down three of its six plants. “I don’t have any information on how heavily these plants suffered. What I know I get mostly from the open sources, like Facebook. But they’re damaged, that’s for sure,” says Romashchyn.
Evgen Dubogryz, a mining industry analyst with Case Ukraine, a think tank, expects the plants to be pretty badly damaged. As for Corum’s production in China, he says it will depend on whether Akmetov’s company manages to compete at the local market’s cheap prices.
Corum’s Romashchyn agrees: “Costs of producing the machinery are lower in China, which is why prices for the produced equipment are lower too.”
He refused to disclose the financials for 2014, but confirmed that the company experienced losses, with revenues down by some 30 percent. As of now, it also had debts which are overdue. “The company is undergoing the audit,” Romashchyn explained.
In 2012 Corum had $410 million in revenue with earnings before taxes at $81.4 million, according to Interfax Ukraine news agency.
With Chinese expansion, the company wants to have 40 percent of the revenue coming from the exports, while last year it was at 23 percent.
The company was started in 1889, but acquired most of its assets in the 2000s though privatization of state assets, buying which has been part of Akmetov’s business strategy for years.
In 2013, China passed a law that obliged mining companies to be more rational with natural resources, working with even the thinnest layers of coal. With the economy growing by more than 7 percent annually and with coal production growing by 2 percent, the country’s ongoing concern is energy saving and preservation of natural resources.
Jonathan Holslag, an expert on China at Free University of Brussels, says that China is not too friendly when it comes to allowing foreign business to operate. “China wants to create jobs for its own people – it needs six million new jobs annually to avoid unemployment,” he told the Kyiv Post.
There are also limits to private entrepreneurship. The country stopped licensing private coal producers altogether, be they local or foreign, in order to preserve public control over the industry. But suppliers for the industry are still allowed to come in.
Romashchyn of Corum says that expansion to the Chinese market is a strategic decision. With the war hitting Akmetov’s energy and steel business badly, he has to turn to foreign markets to find the revenue-generating demand.
“We’re not happy with the war at all,” says Romashchyn. Neither is Akhmetov, whose $10-billion fortune, an estimate by Dragon Capital investment house, is at risk.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected].
