Mechel (MTL) continues to grow, grow, grow - more money, less problems... (those of you above age 35 ... that probably went over your heads) This news could be the source of the recent weakness (some dilution after all)
- Mechel (MTL), Russia's largest coking coal miner, could raise over $2 billion in a preferred share placement in Frankfurt and Moscow that will price by July 22, a source close to the placement said on Thursday.
- New York-listed Mechel, also Russia's sixth-largest steel maker, will launch a roadshow on July 2 after announcing the placement on June 23 or June 24
- The source said the placement would raise over $2 billion were Mechel to place its entire allocation of preferred shares, more than the $1.5 billion quoted in April by a banking source as the company's ordinary stock has risen in value since.
- Mechel, controlled by billionaire Igor Zyuzin, last year acquired substantial coal assets in the Russian Far East, including the country's largest untapped coal field.
- Mechel also plans to spin off its mining assets and sell a stake of at least 20 percent in a new company valued by Zyuzin at $20 billion compared to Mechel's current market value of $17.1 billion. The firm has not said when, or on which bourse, this initial public offering would take place.
- Lately, the world's leading steel companies have dealt with the sharp rise in costs for raw materials, which has squeezed margins despite the robust global demand for steel. Meanwhile, shares of Russia's Mechel (NYSE: MTL) have more than quintupled during the past year. The secret to Mechel's success is in the legacy of U.S. Steel (NYSE: X), whose pioneers recognized the importance of sourcing their own iron ore to ensure competitive steel pricing.
- Steel companies that didn't adopt this model have struggled more than some others, and now POSCO (NYSE: PKX) and ArcelorMittal (NYSE: MT) are both making moves to develop mining projects. Brazilian steelmaker Companhia Siderurgica (NYSE: SID) impressed me back in March with large surpluses from its iron-ore mining operation that added substantial sales profits beyond the cost savings of the integration. Mechel takes this idea to the next level, with its massive diversified mining segment generating huge profits, in addition to producing everything needed for production, including coal, iron ore, nickel, and limestone.
- As an example, let's look at coal, which is the focal point of Mechel's mining segment. Prices for the coking coal used in steel production have risen sharply as experts predict a growing shortfall of global supply. After completing the acquisition of Russia's largest coking coal producer, Yakutugol, Mechel's mining segment is able to supply most of the coking coal needed for its own production, while selling the surplus to a very eager global market. Furthermore, the company's own ports and rail lines help with the trip to market.
I continue to believe this ignored stock will be talked about in the mainstream financial media quite often in about 1-2 years as a dominant powerhouse. Management appears to be aggressive, the government is behind them (in Russia - and China - this is a huge advantage), and I could see them going out into the open market and competing with the "big 3" in mining for assets worldwide over the coming 5-10 years - or versus ArcelorMittal (NYSE:MT) on the steel side.
The mining IPO, which we pointed out in December 2007, could be enormous. Much like other stocks of similar ilk, I really don't keep up with the day to day in this name - in the end those with hard assets will win, in a "World of Shortages"... Mechel (MTL) is positioned perfectly, and getting better by the month it seems.[May 29: Mechel Earnings][Apr 9: Mechel Continues to Acquire Most of Eastern Europe][Dec 12: Mechel Reports Earnings, Considers Mining IPO][Nov 5: Two New Foreign Positions Added Today]
Disclosure: Long Mechel in fund and personal account