Mechel Reports Elga Results - Analyst Blog
07 Settembre 2011 - 11:00AM
Zacks
Russian coal
miner and steelmaker Mechel OAO
(MTL) has announced the first
results of mining at Yakutugol Holding Company OAO's Elga Coal
Complex.
Sakha
Republic’s Agency for Use of Mineral Resources gave permission to
launch the first stage of the open-pit development of the Elga
deposit. Construction of the Ulak-Elga railway link was completed
ahead of schedule. A coal reloading facility at this site will
allow the company to transport the Elga coal by truck until the
railroad is completed which is scheduled by the end of December
2011. This represents another critical milestone toward development
of the coal deposit which is Mechel’s largest project for coking
coal.
Mining at
the Elga deposit started in August 2011. The Elginsky open pit
yielded some 21,000 tons of coal in less than a month. One work
shift in Elga Coal Complex currently includes some 120 personnel.
Over 75 equipment units are involved in the mining process. In
addition to mining, leveling operation of the chief mine site is
being held at the open pit.
By
implementing the Elga project, Mechel is introducing a project
unique in Russian business, a private railroad and an open pit with
one of the world's largest coking coal production volumes.
Commissioning of the Elga open pit and the railroad link to the
Baikal-Amur Mainline will prove that Mechel OAO is one of the few
companies in the world that can implement greenfield coking coal
mining projects on a large scale.
Mining this
deposit will enable Mechel to complement its coking coal product
range and reinforce its international positions among leading
producers of metallurgical coals.
In June
2011, the company reported its results for first quarter 2011. The
company recorded a net income of $309.1 million in first quarter
2011 comprehensively beating last year’s consolidated net income of
$82.6 million, a jump of 274.3% year over year.
Revenues in
the first quarter 2011 soared 54.4% year over year to $2.9 billion
based on the company’s relentless efforts to increase
production.
Throughout
the quarter the company made concerted efforts to enhance the coal
production volumes by modernizing production facilities, perfecting
the marketing structure, developing new high value-added products
and lastly, by implementing strategic investment projects, which
strengthened its market position.
Operating
profits in the reported quarter climbed more than three times the
first quarter profit in 2010 and amounted to $448.4 million,
compared with the operating income of $147.6 million in the first
quarter of 2010. Operating margin was 15.28% in the first quarter
of 2011 versus 7.77% in the first quarter of 2010.
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.
Mechel has
also entered into various agreements to supply its rail products to
large Russian metal mining companies. We are positive on the
company’s favorable business profile with a high degree of backward
integration and low-cost structure. Mechel’s key assets are located
close to the major steel consuming markets.
In addition,
the company owns and controls essential infrastructure, including
ports, rolling stock and power plants, which provide access to
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 #3 Hold rating and a
long-term (6 months) Neutral recommendation.
Mechel faces
stiff competition from Arcelor
Mittal (MT) and Norilsk Nickel Mining
and Metallurgical Co.
ARCELOR MITTAL (MT): Free Stock Analysis Report
MECHEL OAO ADS (MTL): Free Stock Analysis Report
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