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Russia’s metal giant to leave US market

Published time: August 16, 2013 12:15
Edited time: August 16, 2013 14:07
RIA Novosti / Aleksandr Kondratuk

RIA Novosti / Aleksandr Kondratuk

Russian steel and coal group Mechel is broadening its list of assets slated for sale, adding coal company Bluestone - its only US asset. Mechel, which is wrestling with a $9 billion debt burden, will begin looking for investors in the fall.

Mechel is now focusing on the assets that have significant competitive advantages, the company’s representative Igor Zuyzin told Vedomosti daily. “Another option with Bluestone may be the company’s union with another North American manufacturer,” the paper added.

The sale is scheduled for October or November.

While the actual sale price hasn’t been disclosed, analysts think the company wouldn’t be valued high. BCS Analyst Oleg Petropavlovsky estimates the company no higher than $300 million, because the US assets are ‘unprofitable’ at current coal prices of $140 per ton. Renaissance Capital analyst Boris Krasnozhenov thinks the sale is worth less, citing $250 million.

Declining metals and commodity prices have hit the company hard, making Mechel the worst performing Russian company on the New York stock exchange.

Mechel stock surged to nearly $60.00 in May 2008, before tumbling during the financial crisis. The stock slightly recovered in 2011, reaching $30.00, and is currently trading at $3.17 on the New York Exchange. The Russian stock gained 2.1 percent on Russian floors to $3.11 (102.30 rubles).

Russia’s metals giant purchased Bluestone in 2009, and it is the only Russian holding in America. Mechel had originally planned to produce 7 million tons of coal, but this goal hasn’t been realized. In 2008, Bluestone produced 2.8 million tons, and in 2011, 5.4 million tons. In 2012, however, production dropped to 3.6 million tons. Sales in 2012 were $193 million.

Chelyabinsk steel mill, Mechel Group, Chelyabinsk.(RIA Novosti / Merkuryi Golodnov)

Mechel is focusing on ventures and markets in where it has a competitive advantage, for example China - the world’s largest coal consumer.

In August, Russia’s largest coal reserve company started delivering the commodity to China by rail, whereas previously they had only supplied by sea.

"The opening of this railroad route will enable Mechel to diversify its logistics and make better time on deliveries to China, which is the world's largest consumer of this type of fuel," Mechel Mining Management Company OOO's Chief Executive Officer Pavel Shtark noted.

Sell-off

Mechel has cut investment across the market to repay the massive debt it had amassed in the course of its rapid expansion prior to the 2008 financial crash.

In July, the company sold British mill Helium Miracle 127 LLP for $1.7 billion, and in August, assets in Turkey's Yildirim Group for $425 million.

Mechel has also sold $70 million in metal assets in Romania, on top of 50 million euro in Toplofitkatsia ruse assets, a Bulgarian producer.

An international mining and steel company, Mechel employs over 80,000 worldwide.

Comments (3)

 

sandra 17.08.2013 14:42

Mechel should look into Pittsburgh, PA.

 

Homo Erectus Giganticus 17.08.2013 06:33

Somebody wants to purchase Mechel at very low cost. Driving commodity prices low allows acquisition of such companies that depend upon high commodity prices to be profitable. On the other hand, manufacturers make more profit when commodities are low. You can trade back and forth and stay on the profitable side if you own the right type of business at the right time.

 

Keith Metoyer 17.08.2013 04:24

How is Bluestone the only russian holding in America? Lukoil has enterprises in the North East, and Gazprom has an office in Houston.

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