Russian mining company
Mechel OAO
(
MTL
) has announced the commencement of the production of first volumes
of the coking coal concentrate at the Elga mine following the
commissioning of a seasonal washing plant at the site. The mine has
one of the largest coking coal deposits globally.
The launch of the new washing plant, which fully complies with
international standards, represents a major milestone for the
Moscow-based company. The plant, in which all the processing
systems are controlled in a real-time mode, has an annual
processing capacity of up to 3 million tons. The company has
invested roughly $64.7 million on the plant.
Mechel, in early 2012, announced the completion of the construction
of a railroad that connects the Elga coal deposit to Baikal-Amur
mainline. The launch of the washing plant now enables the company
to mine and process coking coal at Elga on production scale.
Mechel, which competes with
ArcelorMittal
(
MT
) 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
cost-cutting measures.
Mechel slipped into a loss in the second quarter of 2012. It posted
a net loss of $823 million in the quarter, in stark contrast to a
profit of $191.9 million registered a year ago. Revenues fell 11%
year over year to roughly $3.09 billion. The results were affected
by weak market conditions and foreign exchange losses.
We are encouraged by the incremental opportunities stemming from
the Elga mine which is expected to reinforce Mechel's position as a
metallurgical coal producer through capacity expansion.
However, Mechel's large capital-spending program and high debt
level are matters of concern. The company could be handicapped
because of its high leverage and interest burden and may not be
able to keep up with its huge capital spending program.
Mechel currently carries a Zacks #4 Rank, which translates into a
short-term (1 to 3 months) Sell rating. We have a long-term Neutral
recommendation on the stock.
ARCELOR MITTAL (MT): Free Stock Analysis Report
MECHEL OAO ADS (MTL): Free Stock Analysis
Report
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