Russian mining company Mechel OAO (MTL - Analyst Report) announced that it has sold 100% shares of UK-based steel plant Invicta Merchant Bar to Helium Miracle 127 LLP for 1.1 million pound sterling ($1.7 million). The buyer Helium Miracle 127 LLP also assumed the plant’s debt to Mechel OAO.
Invicta Merchant Bar produced round, square and strip long rolls of various steels and the plant was sold as a part of Mechel’s strategy to divest those assets that do not add value to the company’s stakeholders. It was also due to the challenging conditions in Europe's steel industry that triggered the company’s decision to sell off the plant. Mechel expects the sale to improve its operational cash flow and encourage deleveraging.
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.
Mechel owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to the export markets. However, Mechel could be jeopardized because of its high debt and interest burden, and might not be able to keep up with its huge capital spending program.
Mechel posted a loss in the first quarter of 2013, reported on Jun 18, hurt by the sale of its Romanian steelmaking assets. Revenues dropped by double digits with declines across the board. Sustained weakness was seen in the core mining segment. Mechel announced its decision to buy back shares.
Mechel currently retains a short-term Zacks Rank #4 (Sell).
Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. and Nippon Steel & Sumitomo Metal Corporation (NSSMY). All of them hold Zacks Rank #1 (Strong Buy).