Mechel Should Bounce on Russian Deputy P.M.'s Comments

Mechel (MTL), Russia's largest coking coal miner, is unlikely to suffer the same fate as YUKOS, Russian First Deputy Prime Minister Igor Shuvalov was quoted by Russian news agencies as saying on Tuesday.

"I consider this a most unlikely scenario. Under probability theory we can't exclude anything, but if I had the option, I would rule it out. The most likely scenario is that the company will co-operate with the state authorities," Shuvalov was quoted by Interfax as telling reporters.

Mechel's shares have tumbled in recent days after criticism from Prime Minister Vladimir Putin. YUKOS, once Russia's biggest oil company, was divided up and sold by the Russian state after massive back tax claims. Former YUKOS CEO Mikhail Khodorkovsky was jailed for tax evasion and fraud.

- Via Reuters

Notablecalls: I expect to see an upward move in MTL stock following these comments. I don't think Russia can afford a scandal similar to Yukos. That would represent a significant blow to outside financing.

I consider Putin's recent attack at MTL as a warning shot - one that will not end up damaging the company permanently. I see MTL trading towards the $22-$23 level as soon as today. The stock is flat lining in pre-market and expect the action to pick up after the open.

Comments

[Tarun:]

Nah, not today. Mechel had a mining accident today.

2008 Jul 29 09:56 AM

[LT777:]

bad timing for a methane flash accident...stock is tumbling...down 6-7%...might be a buyin opportunity after the dust settles (bad choice of words, but pun intended)

2008 Jul 29 10:05 AM

[seen it before:]

It's not what they say that matters, but what they do.

The only way to restore investor confidence is to make a decision on Mechel - ASAP. Until that happens, Russia stocks are heading lower, except maybe the few that are politically privileged.

2008 Jul 29 10:06 AM

[Alex Filonov:]

Russia is a trap for investors. Get out.

2008 Jul 29 10:20 AM

[fxtrader07:]

you must be long that you interpret the deputy pm that way. read again:
'I consider this a most unlikely scenario. Under probability theory we can't exclude anything, but if I had the option, I would rule it out. The most likely scenario is that the company will co-operate with the state authorities'

In short, the guy said that Mechel either does what Putin wants or it goes the yukos way. he made it clear that he cannot rule out a yukos-like scenario, because he is not the one deciding about it, ultimately.
now, what does putin want? hard to say but to me the most likely scenario is that he will strip mechel off its coal assets and give those to gazprom. the timing of the move was superb - right before the planned private placement of preferred shares. imho, mechel will be forced to give away the coal assets essentially for nothing. or else, they will get yukosed.

2008 Jul 29 12:13 PM

[inthemoney:]

> In short, the guy said that Mechel either does what Putin wants or it goes the yukos way.

Mechel will do whatever it has to do to stay afloat. It will not be another Yukos. For the second day sellers were not able to push it below 16. I am buying it.

2008 Jul 29 12:24 PM

[sundrenched:]

A crucial difference here is that the CEO of Yukos was challenging the powers that be politically. The issue here has nothing to do with politics, so I think it's unlikely the company will go the way of Yukos. There would be a big cost in reputation, and a lot of angry Russian shareholders to deal with. So my guess is the market is over-reacting. Still, it's not for the faint-hearted. Who knows what this bunch of gangsters is going to do.

2008 Jul 29 01:13 PM

[Urbane Gori...:]

"fxtrader07"... Re: "the most likely scenario is that he will strip mechel off its coal assets and give those to gazprom".... Where do you get this?

I just pulled MTL off my radar for obvious reasons (I live too close to Reno if I want to gamble...) ..But I was still looking at Gazprom...As both are really valued low and Gazprom seems a hot deal right now... Gee, they'd be looking like a mail-order bride with some coal!

jegan ;-)

2008 Jul 29 01:21 PM

[Jason Rines...:]

Yukosed: It will be a new verb kind of like Googling. I respect the will of the Russian people to rebuild there nation into something decent and I had a glimmer of hope Vlad could unshackle his brainwashing from the KGB. I think a lot of us did. However, I can't throw too many stones these days. It's not funny our nation is becoming like this. But some political parties here in the USA always did like Marxism, it's an effective way to consolidate and retain power.

2008 Jul 29 09:20 PM

[Blue collar...:]

Mostly blah, blah, blah and more blah. Nobody knows! so this bull is hunkering down on MTL for the long pull. Haven't enough left to make it worth while getting out. Also there is much to be said for the idea that Putin cannot afford another Yokos quite so soon..he's not that dumb, I know. I've "looked into his eyes". Don't knock yourself out laughing now.

2008 Jul 30 12:52 PM

[Urbane Gori...:]

Here's an CNBC video clip discussing MTL and OGZPY .. In it the 'professional' states that he doesn't think Putin's remarks will come to much. He also noted that this is probably a buying opportunity for Gazprom.

www.cnbc.com/id/158402...

However, another blog associated with MTL suggested that Putin aimed to strip MTL of their coal (as noted above).

jegan ;-)

2008 Jul 30 10:19 PM

[Urbane Gori...:]

OK..... That got clipped for some reason... Here it is as plain text .. Copy and paste:

www.cnbc.com/id/158402...

2008 Jul 30 10:20 PM

[User 151001:]

All MTL has to do is pay the bribe to the proper official and all will be well for a while. Russia, today, may be run like the mob, but if you pay the protection money, they will honor the pay off.

2008 Jul 31 11:23 PM

[Urbane Gori...:]

A little more news on the Russia Homefront.... BP has all but publically stated that they are being shut out by the government by their use of restricting visas and other actions.

And on another front, the government is going after two other coal producers for the same reason they were hammering on MTL. In essence for tax evasion and for overpricing in Russia. (Gee, do you think we could get the Russians clean up our insurance business here??? ).... Anyway, I can see that this could mean one of three things:

1) The government **really** is interested in cleaning up business dealings - Kinda like the SEC.... or,

2) Putin would like to hustle some coal into Gazprom and isn't picky about where he gets it. MTL just happened to be handy at the time, or

3) Putin has been notified (nicely... I don't think you can go up against him even now...) that the Russian market has taken a big hit due to his actions and he needs to tone it down. By going after the other two coal producers, it would **seem** to be consistent with an SEC like activity.

In any event, I think this latest bit of news coupled with Medvedev's pronouncement that Putin needs to tone it down, would be good for MTL and Gazprom..

jegan ;-)

2008 Aug 01 06:43 PM