Mechel: Continuing to Acquire Most of Eastern Europe's Steel

I cannot keep up with all the transactions Mechel (MTL) is doing - all I know is this company is becoming a powerhouse. I was hoping to keep this one under the radar but I just noticed Cramer had to get behind this stock on Monday's show.

Drat, the cat is out of the bag - now we can expect a lot of volatility and impatient investors who think the stock is terrible if it does not go up 5% a day, or the "story is over" when it drops 4%. I much prefer stories before the masses find them i.e. solar spring 2007, fertilizer summer 2007, coal fall 2007 - it's a much smoother ride without the masses of momentum traders pushing the stock around like a punching bag.

Mechel is currently my top position and I just cannot be more pleased with the news flow out of this company the past 2 quarters. Yet another acquisition Wednesday; smaller than its usual, but they continue to roll up a lot of resources, piece by piece.

Furthermore, it's Russia's largest producer of metallurgical coal which I have been blathering about constantly the past few days (Posco Agrees to 200% Coal Price Increase). So, by having its own coal supply, not only does the company not need to pay the huge price increases coming in the sector, since it has its own production in house, but it can also sell excess to other steel makers. It's a win-win situation.

Talk about a diamond in the rough. With my focus on companies not reliant on the subprime USA, companies like this are precious (even though it is due to sell off 20% the next time some publication says the commodities boom is dead).

• Mechel, Russia's sixth-largest steel maker, has expanded its presence in Romania by acquiring rebar and wire rod producer Ductil Steel for 142 million Euros ($221 million), the company said on Tuesday.
• New York-listed Mechel said in a statement it had agreed to purchase 100 percent of Ductil, which last year produced 340,000 tonnes of crude steel.
• Mechel, controlled by billionaire chief executive Igor Zyuzin, already owns two plants in Romania -- Mechel Targoviste and Mechel Campia Turzii. The acquisition of Ductil gives it access to plants in Buzau in the east of the country and Otelu Rosu in the west.
• "The integration of Ductil Steel's production and marketing facilities will allow Mechel to further develop its steel business, particularly in Romania and eastern Europe," said Vladimir Polin, chief executive of Mechel's management company.
• Mechel, also Russia's largest coking coal miner, has earmarked $2.7 billion by 2011 to increase steel production by 26 percent and improve its coal, iron ore and nickel mining operations. The company has also been on an acquisition spree recently. In the last year it has bought the Bratsk Ferro-Alloy Plant and large coal deposits in the Russian Far East, as well as agreeing the $1.5 billion acquisition of ferro-chrome producer Oriel Resources.

Disclosure: Long Mechel in fund and personal account.

Comments

[Urbane Gori...:]

Steel, coal, nickel and even a dash of energy and cement...Just for flavor.... And a China connection as well as infrastructure in the old USSR... Sounds good... Seems a bit toppy here though... What with the doji and recent run-up...( Don't you think? )

Thx jegan ;-)

2008 Apr 10 04:49 PM

[TraderMark:]

Yes a bit toppy now, when I wrote it I believe it was around $132 or so; it's tagged on $20 in 2 sessions so I cut back some and assume we'll have a pullback sooner or later. But I really like this name for the long run and yes that Chinese relationship is very good - Russian and Chinese are not only close geographically but seem to agree with each other, forming another axis to counter the West.

2008 Apr 10 05:27 PM

[CrossProfit:]

TraderMark,

The time to have gone long MTL was in mid October 2007 at $71/72, see article beneath 2007 chart here:
www.crossprofit.com/vi...
(Same article was posted on SA - look up symbol.)

As per 2008 weekly close chart, MTL closed at $146.51, see chart here:
www.crossprofit.com/vi...

Using 'weekly close' charts enables most investors to get a better feel for the stock. Based on the fundamentals, it may be time to take half off the table and wait for a pullback as you mention in your comment.

A 100+% profit in six months isn't bad, besides we have a saying "never regret a profit".

CrossProfit

2008 Apr 12 02:58 PM

[TraderMark:]

CP,
I began my position in early November near $80 and built it up in the weeks after in the low to mid 70s up through $80.

www.fundmymutualfund.c...

I am just trading around a core stake I dont plan to sell for a long time. With the volatility in these type of names it is worthwhile to sell some off when they spike and buy back on the inevitable sell offs.

I'm usually early - I was in solar in late 2006, and fertilizer in spring 2007. I always enjoy watching the masses join the trade 6 months later...

2008 Apr 12 04:14 PM