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Mechel Reveals Board Strategy

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Steel and coal miner Mechel OAO revealed the decisions taken by its board of directors at a meeting. The primary agenda of the board meeting was to draw an effective strategy to improve the company's financial performance and increase its shareholder value. The company reaffirmed its prior strategy of further emphasizing on mining and full-cycle steelmaking.

Mechel OAO will also focus on producing high value-added products, including specialty steel, stainless steel and hardware. The company aims to improve its operational efficiency and develop promising investment projects.

Mechel also announced its intention to sell a minority stake in its mining division, Mechel Mining OAO, to a strategic partner. The company will, however, not divest more than 25% in the division.

In June 2012, the company released its first quarter 2012 results with consolidated net income of $218.0 million, a 29.5% decline from last year’s $309.2 million. Revenues in the quarter came in at $3.0 billion, up 3.4% from $2.9 billion posted in the year-ago period.

The company’s margins were unimpressive as operating income dropped 30% from last year to $314 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 18.2% to $463.4 million in the quarter.
Mechel is a leading domestic steel and coal producer with a strong position in key markets, including specialty steel and alloys. The company has the largest coal reserve base in Russia and is mainly focusing on growth and cost-cutting measures. The company primarily competes with ArcelorMittal (MT - Free Report) .
Mechel owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to the export markets. However, as mentioned earlier, Mechel could be handicapped because of its high debt and interest burden, and might not be able to keep up with its huge capital spending program.

Mechel has a short-term Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We currently have a Neutral recommendation (more than 6 months) on the shares of the company.

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