Leading Russian miner
) has forged a supply contract with RAO Energy Systems of East, an
energy holding company operating in the Far East Federal District.
Under the pact, Mechel will supply RAO Energy Systems with coal
from the Elga Coal Complex.
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The agreement, which was signed during the Business Summit of the
Asia Pacific Economic Cooperation (APEC), provides RAO Energy
Systems with the access to the high quality coal of the Elga
deposit. Initially, Mechel will supply probes of coals from the
deposit to RAO Energy Systems' subsidiary "DTE". If the test
burning results comes positive, the company may increase the supply
to up to 60 million tons over 15 years.
The agreement builds on a long-standing collaboration between
Mechel and DTE. The company has been supplying DTE with steam coal
from the Neryungri open pit, which is a part of its mining
Mechel, which competes with
) among others, is a leading domestic steel and coal producer with
a strong position in key businesses, including production of
specialty steel and alloys. The company has the largest coal
reserve base in Russia and is mainly focusing on growth and
The company continues the development of the Elga mine. It has also
constructed a seasonal washing plant at the site for accelerating
the production and sales of coking coal concentrate.
Mechel's large capital-spending program, high debt and substantial
interest burden are matters of concern. However, we are encouraged
by the opportunities stemming from the Elga mine which is expected
to reinforce the company's position as a metallurgical coal
producer through capacity expansion.
Mechel currently carries a Zacks #3 Rank, which translates into a
short-term (1 to 3 months) Hold rating. We have a long-term Neutral
recommendation on the stock.