Mechel Inks Deal with BelAZ - Analyst Blog

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Russian mining company Mechel OAO ( MTL ) inked a deal with Belarus-based BelAZ OAO, following their agreement-in-principle in August 2011.

As per the partnership agreement, BelAZ is expected to set up production of cargo platforms on the dump trucks and further certify a Mechel subsidiary as a BelAZ service center in the Russian Federation. The financial details of the transaction were not disclosed.

The pact, expected to run for 10 years, was signed at a session of the Supreme State Council of the Union State of Russia and Belarus.

According to Mechel's statement, Mechel Group's mining division plans to use the mining dump trucks mainly at the Elga coal deposit, which has estimated reserves of 2.2 billion metric ton of coking coal.

In October 2011, Mechel recorded a net income of $191.9 million for the second quarter of 2011, down 37.9% from the previous quarter's consolidated net income of $309.1 million.

Revenues in the second quarter soared 18.3% sequentially to $3.5 billion based on the company's relentless efforts restoring production volumes in its mining segment while preserving high capacity utilization rates in steel and other segments.

Operating income in the reported quarter climbed 6.2% to $476.3 million versus the first quarter of 2011. Operating margin was 13.72% in the second quarter of 2011 versus 15.28% in the first quarter of 2011.

Mechel 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. It is focusing on growth and cost-cutting measures.

The company owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to the export markets. However, Mechel's large capital-spending program, high debt and substantial interest burden are matters of concern.

Currently, Mechel has a short-term (1 to 3 months) Zacks #5 Strong Sell rating and a long-term (6 months) Underperform recommendation.

Mechel faces stiff competition from Arcelor Mittal ( MT ) and Norilsk Nickel Mining and Metallurgical Co .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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