Mechel Posts 1Q Operational Stats - Analyst Blog
01 Maggio 2012 - 6:36PM
Zacks
Russia’s leading mining company, Mechel OAO
(MTL), recently released its operational results for the first
quarter of 2012. The company’s operations exhibited improvement in
the quarter, driven by its modernization and cost-cutting programs,
which led to an increase in production and sales of its chief
products.
Mechel’s release briefed investors on how its various segments
performed in the quarter. The segments and their performance are
enumerated below.
Mining Segment: Output of run-of-mine coal grew
7% to 6.4 million tons in the first quarter from last year’s
comparable quarter. Sales of coking coal increased 14% and that of
anthracites jumped 26%.
The increase in production was achieved despite the temporary
shutdown of mining at Southern Kuzbass Coal Company OAO's
New-Olzherassk and Sibirginsk mines. The company followed a
strategy of boosting production and pushing through sales of high
value-adding products, resulting in a 265% jump in PCI sales.
However, sales of steam coal fell 19%.
As far as the expansion of the mining business is concerned, the
company continued to expand the segment’s resource base by winning
subsoil licenses for Southern Yakutia's Sutamsky and Sivaglinsky
iron ore deposits.
According to Russian standards, these reserves are estimated at
1.38 billion tons and are strategically located near Yakutugol
Holding Company OAO's existing assets and the Elga coal deposit's
transport. Mechel expects these licenses to help it generate
greater profits due proximity with these two areas, where it is
presently building production and social infrastructure.
Steel Segment: Stable growth was seen in steel
and pig iron production. Sales volume for long and flat rolls grew
12% and 14% respectively, driven by the expanding client base of
the company’s service and sales network. However, a drop in share
of products produced by third parties led to a decline in billet
sales in the quarter.
Ferroalloy Segment: Results from this segment
displayed improvements on several fronts. Boost in production at
Tikhvin Ferroalloy Plant due to improvement in the structural
content of iron ore propelled chrome sales 52% higher in the
quarter from last year. Production of nickel was stable and
ownership transfer periods led to increase in sales volumes.
However, modernization and equipment replacement at Bratsk
Ferroalloys Plant resulted in a temporary decline in ferrosilicon
production. But the plant launched a reconstructed ferroalloy
electric furnace in March 2012, and this is expected to result in
increased production from the second quarter of 2012.
Power Segment: Mechel improved the efficiency
of its key power assets by modernizing and implementing advanced
management practices for the production process. The company
successfully met its internal need for electricity and heat along
with growing external demand.
Our Take
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 is mainly 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 with which the company contends frequently.
We currently have a long-term Underperform recommendation on
Mechel. The company, which competes with
ArcelorMittal (MT), has a Zacks #5 Rank,
indicating a short-term Strong Sell rating.
ARCELOR MITTAL (MT): Free Stock Analysis Report
MECHEL OAO ADS (MTL): Free Stock Analysis Report
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