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Mechel Inks Elga Financing Deal

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Russian mining company Mechel OAO recently announced the signing of an agreement with Vnesheconombank for the allocation of the first tranche (worth $150 million) of the project financing for Elga Coal Complex's first stage aggregating $2.5 billion. The market reacted positively to the news and Mechel’s shares rose as much as 4.5% following this announcement.

Vnesheconombank's Supervisory Board approved Mechel’s application for funding the development of its Elga Coal Complex in Sep 2013. The first stage will include construction of a railroad and a mining and washing complex with an annual capacity of 11.7 million tons of run-of-mine coal by 2017. The loan has a tenor of 13.5 years with a grace period until 2017.

Mechel has the requisite facilities for supporting this project, such as its own wagon fleet, port facilities in the Far East and long-term contracts with major international steelmakers. The project is expected to create about 5,000 new jobs. Mechel expects that the project will enable it to create an industrial cluster that will cater to the economic growth of the entire region.

Elga Coal Complex, located in southern Yakutia, is one of the world's as well as Russia’s largest deposit of high-quality coking coal.  Mechel believes that Vnesheconombank's financing will boost its efforts to complete the first phase of the Elga project and also lead to social and economic development of the Republic of Sakha (Yakutia) and the Far East as a whole.

Mechel currently retains a short-term Zacks Rank #4 (Sell).

Other companies in the steel industry with favorable Zacks Rank are Companhia Siderurgica Nacional (SID - Free Report) , Shiloh Industries Inc. (SHLO - Free Report) and Gerdau S.A. (GGB - Free Report) .  While both Companhia Siderurgica and Shiloh Industries hold a Zacks Rank #1 (Strong Buy), Gerdau retains a Zacks Rank #2 (Buy).

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