Mechel's Mine Work Suspended

Zacks

Russian mining company, Mechel OAO (NYSE:MTL - News) suffered a setback due to suspension of work at several facilities at the New- Olzherassk mine resulting from the order from the Mezhdurechensk city court.

However, production at the mine is expected to resume shortly without causing any damage to the operational obligations.

Earlier in December 2011, Mechel reported suspension of work at several facilities at two of Southern Kuzbass Coal Company’s mines. Following a check conducted at Lenin Underground and New-Olzherassk mines by the Mezhdurechensk territorial branch, work at the two mines’ was suspended resulting from the order of the Mezhdurechensk city court. This suspension of work affected production.

In December 2011, Mechel also recorded a net income of $25.7 million in the third quarter of 2011, down 86.6% from the previous quarter’s consolidated net income of $191.9 million.

Revenues in the third quarter decreased 7.6% sequentially to $3.2 billion.

Despite a deteriorating pricing environment in the quarter, the mining segment managed to show a sequential revenue increase due to capacity restoration and development work in previous periods. We believe the company’s large capital-spending program, high debt and substantial interest burden are matters of concern.

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 and mainly focuses 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 short-term (1 to 3 months) Zacks #3 Rank (Hold rating) and a long-term (6 months) Neutral recommendation.

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

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