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OAO Severstal, Russia’s largest steelmaker, is considering whether to sell shares of its gold- mining unit after the price of the metal rose to a record, said two people familiar with the situation.

Severstal may hold an initial public offering late next year or in early 2011, said the people, who declined to be identified because the deliberations are private. Severstal created a separate company, OOO Severstal Gold, in October to manage assets including a controlling stake in Toronto-based High River Gold Mines Ltd., one of the people said. The location for a potential IPO hasn’t been chosen, the people said.

Severstal’s billionaire owner Alexei Mordashov, 44, vowed in 2007 to turn the company into Russia’s third-biggest gold miner. While Severstal’s U.S. steel acquisitions have lost money, gold accounted for most of its earnings in the first nine months of the year. The gold unit is worth about $1.5 billion, said Barry Ehrlich, an analyst at Alfa Bank in Moscow.

“Severstal is the only steelmaker I know of that has gold assets on its balance sheet,” said Denis Evstratenko, an associate director at Prosperity Capital Management Ltd. in Moscow, which invests in Russian companies and manages $3.5 billion of assets. “From the very beginning, Severstal planned to spin off the gold assets some day.”

Russian Offerings

Russian companies may raise more than $20 billion selling shares in 2010 as they repair balance sheets and resume expansion after the deepest recession on record ends, Ruben Aganbegyan, president of Russian investment bank Renaissance Capital in Moscow, said in an interview last week.

An attempt by Russia’s United Co. Rusal, the world’s largest aluminum producer, to sell as much as $3 billion of shares in Hong Kong this month failed to get approval from the city’s stock exchange.

Severstal had $7.9 billion debt as of Sept. 30. It spent $4 billion since 2006 buying U.S. and European steel assets. The Cherepovets-based company’s foreign operations haven’t been profitable in four straight quarters, after steel prices fell.

Severstal depositary receipts rose 66 cents, or 8 percent, to $8.95 in London. They have tripled this year, valuing the steelmaker at $8.9 billion.

The company has 13.8 million ounces of gold resources, according to an Alfa Bank in November. Output will be as much as 550,000 ounces this year, Severstal’s Chief Financial Officer Alexey Kulichenko said in a Sept. 7 conference call.

Gold Record

Gold accounted for $146 million of the company’s $207 million in earnings before interest, tax, depreciation and amortization in the first nine months of this year, Severstal said in an e-mailed statement.

“The gold unit makes a good contribution to Severstal’s financials, and we are not in a rush to do an IPO,” it said.

Gold has jumped 29 percent this year as the weaker dollar boosted the metal’s appeal to investors seeking an alternative investment. It traded at a record $1,226.56 an ounce on Dec 3.

Severstal paid 300 million euros ($437 million) in October 2007 for the Siberian gold assets belonging to investment company Arlan, according to Rob Edwards, an analyst at Renaissance Capital in Moscow. It also spent $325 million in 2007 and 2008 to acquire and delist London-based gold miner Celtic Resources Holdings Plc. Mordashov said in 2007 Severstal could hold an IPO or sell the unit.

Minority Investors

Severstal owns 50.1 percent of High River, which mines gold in Siberia and Burkina Faso. A 30 Canadian-cent-per-share offer made by Severstal to minority investors in High River failed in August after too few shareholders accepted the bid. High River closed yesterday at 50 cents.

High River’s rally since August indicates investors are anticipating another, higher offer, said Vadim Ogneshchikov, a manager at Deutsche UFG Asset Management in Moscow.

Instead of an IPO and buying out the High River minorities, Severstal could sell its other gold assets to High River, increasing the steelmaker’s stake in the Canadian company, Renaissance’s Edwards said.

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