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Mechel Announced Posiet Port Results

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Russian coal miner and steelmaker Mechel OAO announced record coal transshipment results achieved by Trade Port Posiet OAO in August.

In August, Posiet Port loaded record 26 cargo ships with a total of 509,000 tonnes of coal products driven by improvements in the port's technical support made within the framework of the large-scale modernization program, scheduled to be completed by the end of 2012.

Posiet Port achieved a new level in transshipment of coal, which is particularly important as the enterprise ensures access for Mechel OAO's products to key Pacific Asian markets.

Posiet Portis is currently undergoing technical re-equipment and expansion of the port's infrastructure, and aims at increasing the port's annual coal transshipment capacity to 9 million tonnes. The total cost will amount to some 73 million dollars.

As part of the restructuring, the port's drainage runs, crane runways and railway tracks had already been lengthened, which enabled the company to admit simultaneously three ships to loading berths. The port commissioned additional equipment, including two hydraulic grab loaders produced by Terex Fuchs and Liebherr Group of Germany, a portal loader produced by Finnish-based Mantsinen Group, and a mobile stacker produced by British-based Telestack.

In June 2011, the company reported its results for first-quarter 2011. The company recorded a net income of $309.1 million in the quarter, comprehensively beating last year’s consolidated net income of $82.6 million, a jump of 274.3% year over year.

Revenues in the first quarter 2011 soared 54.4% year over year to $2.9 billion based on the company’s relentless efforts to increase production.

Throughout the quarter, the company made concerted efforts to enhance the coal production volumes by modernizing production facilities, perfecting the marketing structure, developing new high value-added products and lastly, by implementing strategic investment projects, which strengthened its market position.

Operating profits in the reported quarter climbed more than three times the first quarter profit in 2010 and amounted to $448.4 million compared with the operating income of $147.6 million in the first quarter of 2010. Operating margin was 15.28% in the first quarter of 2011 versus 7.77% in the first quarter of 2010.

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.

Mechel has also entered into various agreements to supply its rail products to large Russian metal mining companies. We are positive on the company’s favorable business profile with a high degree of backward integration and low-cost structure. Mechel’s key assets are located close to the major steel consuming markets.

In addition, the company owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to 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 #3 Hold rating and a long-term (6 months) Neutral recommendation.

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

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