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Mechel Reports Work Suspension

MT MTL

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Russian mining company, Mechel OAO (MTL - Analyst Report) announced the suspension of work at its New-Olzherasskaya Underground mine, which is a part of Southern Kuzbass OAO, due to coal self-heating in the long wall.

New-Olzherasskaya Underground mine was commissioned on September 29, 2006 and produces coal of GZhO grade. Its coal reserves amount to 3 million tonnes and length is about 200 meters.

At present, the self-heating center is being isolated. The entire mine infrastructure – transport, ventilation system, dewatering, power facilities, drifting faces and stopes - are in working condition and safe.

Suspension of the mine will not cause any delay in coal deliveries to customers since there is enough coal at the New-Olzherasskaya Underground mine warehouse. Coal from the warehouse together with coal from Olzherasskiy Open Pit is being washed by Kuzbasskaya Coal Washing Plant and delivered to the customers. According to the preliminary estimates, recovering from the accident may take up to 6 months.

Though miners from New-Olzherasskaya Underground mine take part in recovery works, a part of the employees were moved to Sibirginskaya mine and Department for Mining equipment Installation.

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.

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 of concern.

Currently, Mechel has a short-term (1 to 3 months) Zacks #5 (Strong Sell) rating and a long-term (6 months) Underperform recommendation.

Mechel faces stiff competition from Arcelor Mittal (MT - Analyst Report) and Norilsk Nickel Mining and Metallurgical Co.

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