Russian mining and metals company Mechel has offered an option to Gazprombank to buy a 49% stake in Elga coal project in Russia, for RUB34.3bn ($504m).

An agreement with this regards has been signed by the two companies.

Under the terms of the deal, Mechel will sell 49% stake in Elgaugol OOO, the project operator and owner of its subsoil license, to Gazprombank by 30 June 2016.

The sale also includes 49% interest in Elga-Doroga OOO which owns the Ulak-Elga railroad, and 49% of stake in Mecheltrans-East OOO which is the railroad’s transport operator.

Mechel plans to use the proceeds from the transaction to reduce its debt to Sberbank PAO and Sberbank Leasing AO.

Within three years after a five-year tenure, Gazprombank will have the option to sell stake in Elga project to Mechel.

Claimed to be world’s largest deposits of high-quality coking coal, the Elga coal project is located in South Yakutia.

The company expects to mine 5 million tons of coal from the project, which produced 3.9 million tons of coal in 2015. The project s estimated to have up to 30 million tons of run-of-mine coal.

In March, Mechel agreed to supply up to 960,000 tonnes of premium-grade coking coal produced at Neryungrinsky Open Pit to China’s Baosteel Resources from April 2016 until March 2017.