Mechel Shuts Down Nickel Plant - Analyst Blog

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Russian miner Mechel OAO ( MTL ) announced that it will discontinue production at its Southern Urals Nickel Plant OAO, owing to persistent slowdown in demand for nickel and bleak outlook for its recovery in the near future.

The decision of halting production was taken to minimize losses for the company. The company will undergo all the regulations that are set forth by the Russian Federation's law for the shutdown.

Earlier, the board of directors of Mechel approved an asset restructuring program and the company intends to dispense with the Southern Urals Nickel Plant OAO, as per this program. The plant's equipments will be prepared for shutdown for long period in such a way that when acquired, the new owner can resume production within acceptable time and with minimal loss.

Employees affected by the shutdown will be offered about 1,500 jobs at Mechel Group's enterprises, as per the measures required by the labor law and the collective labor agreement and guarantees set by the multi-lateral agreement between the Orenburg Region's government, Orsk's city administration, Mechel OAO and the plant's management and trade union

Few days ago, Mechel released its third quarter 2012 results. The company posted consolidated net income of $54.9 million for the quarter compared with $25.7 million in the year-ago quarter, representing a roughly 114% surge. Revenues for the quarter came in at roughly $2.71 billion, down 15.4% from $3.21 billion in the year-ago period.

The company registered an operating income of $126.7 million in the quarter compared with $529.5 million a year ago, leading to a contraction in operating margin. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 44.7% year over year to $374.8 million in the quarter.

Mechel remains focused on improving its core divisions, such as mining and full-cycle steelmaking, and has adopted several measures to cut costs and increase sales. Its cost containment initiatives contributed to a marked improvement in its bottom line in the third quarter.

Mechel competes with ArcelorMittal ( MT ), and retains a short-term (more than 3 months) Zacks #3 Rank, which translates to a Hold rating. We currently have a long-term (more than 6 months) Neutral recommendation on its shares.



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