Mechel Buys 55% of Vanino Port

Russian miner Mechel OAO (MTL - Analyst Report) has acquired a controlling stake in Vanino Sea Trade Port OAO for about RUB15.5 billion ($512.5 million). The takeover is in sync with the company’s efforts to expand its export capacities in Asia Pacific.

The Government of the Russian Federation, in December 2012, issued a decree related to the sale of federally owned shares of Vanino Sea Trade Port OAO and Mechel was declared the buyer. The company purchased 55% of share capital (or 73.33% of common shares) of Vanino.

Port Vanino is one of Russia's ten largest ports and is suitably located for Mechel for providing deliveries to the Asia Pacific region. The port is also open to navigation throughout the year and is the largest transport hub in the Khabarovsk Region. Port Vanino can process vessels up to 45,000 tons deadweight and has 64 cranes of 6 to 100 ton hoisting capacity.

With access to the port’s transhipment capacities, Mechel can increase its exports given the port’s greater storage capacity. According to Mechel, Port Vanino’s coal transhipment capacity can be increased to 7 million tons in 2013 without incurring any significant costs. This also saves Mechel from building its own storage terminal at Vanino for the next 3-5 years. By utilizing the capacities of the port, Mechel can increase its customer base.
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.

Last month, the company released its third-quarter 2012 results. It posted consolidated net income of $54.9 million in the quarter compared with a net income of $25.7 million in the year-ago quarter, representing a roughly 114% increase. Revenues for the quarter came in at roughly $2.71 billion, down 15.4% from $3.21 billion in the year-ago period.

Mechel competes with ArcelorMittal (MT - Analyst Report), among others. The company retains a short-term Zacks Rank #3 (Hold). We currently have a long-term (more than 6 months) Neutral recommendation on its shares.