Mechel, Vnesheconombank Sign Project Financing Deal

Zacks

Russian miner Mechel OAO (MTL) announced that its project company Elgaugol OOO has signed agreements with Vnesheconombank for the second and third credit lines of project financing for developing the first phase of the Elga Coal Complex. The market reacted positively to the news and the Mechel’s stock price increased as much as 5.4% during the trading hours following the announcement.

The second credit line amounting $2.085 billion will be utilized to finance construction of Elga Coal Complex's facilities till the complex's coal mining and processing capacity reaches 11.7 million tons of run-of-mine coal a year. Further, it will be used to complete work at the complex, which in turn, will increase the Ulak-Elga railway's capacity.

The third credit line of $418.7 million will be utilized to fund expenses on paying Vnesheconombank's interest and fees for the second credit line until Elga Coal Complex's first-phase facilities are launched, as well as to repay the $150 million bridge loan, which was the first tranche granted to Mechel for the project financing for Elga Coal Complex's first stage.
Vnesheconombank's Supervisory Board approved Mechel’s application for funding the development of its Elga Coal Complex in Sep 2013. The loan has a tenor of 13.5 years.

Mechel has the requisite facilities to support the Elga project, such as its own wagon fleet, port facilities in the Far East and long-term contracts with major international steelmakers. The project is expected to create about 5,000 new jobs. Mechel expects the project to enable it to create an industrial cluster that will cater to the economic growth of the entire region.

The Elga Coal Complex, located in southern Yakutia, is one of the world's as well as Russia’s largest deposit of high-quality coking coal. Mechel believes that Vnesheconombank's financing will boost its efforts to complete the first phase of the Elga project.

Mechel currently retains a Zacks Rank #3 (Hold).

Other companies in the steel and related industries with favorable Zacks Rank are AK Steel holding Corporation (AKS), Worthington Industries, Inc. (WOR) and Timken Co. (TKR). While AK Steel retains a Zacks Rank #1 (Strong Buy), both Worthington Industries and Timken carry a Zacks Rank #2 (Buy).

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