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Mechel Sells Romanian Assets

Zacks Equity Research

Russian miner Mechel OAO (MTL) has announced the sale of its Romanian steel assets to Romania's Invest Nikarom SRL for a small amount of 230 Romanian lei (about $70). Invest Nikarom SRL has bought Mechel’s five assets, namely, Ductil Steel Mechel, Campia Turzii S.A., Mechel Targoviste S.A., Mechel East Europe Metallurgical Division SRL, and Laminorul S.A.

The decision to sell these assets was in response to weak pricing for steel products in Europe and weak demand for finished products. Earlier, in Nov 2012, Mechel temporarily halted Romanian steel manufacturing facilities because of poor economic conditions.

The asset divestiture is consistent with the company’s strategy of focusing more on the development of its core businesses, specially consolidating the group's leading position as a metallurgical coal producer. The company aims at dispensing its non-core assets, which are hurting its financials.

Mechel plans to exit the European steel production, which are chronically loss-making and also increases its costs. The expected loss on the disposed Romanian assets was around 2.4 billion rubles (roughly $79 million) in 2013. Mechel expects to use the freed cash flow to lower its leverage as well as for other operating activities.

The company, in Dec 2012, also 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.

Mechel currently retains a short-term Zacks Rank #4 (Sell).
Other companies in the steel industry with favorable Zacks Ranks are Gibraltar Industries Inc. (ROCK), POSCO (PKX) and Commercial Metals Company (CMC). All of them have a Zacks Rank #2 (Buy).

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