OAO Mechel (MTLR), the Russian coal producer controlled by billionaire Igor Zyuzin, is assessing whether to sell a stake in a mining unit to help fund its largest project, said three people with knowledge of the matter.
Mechel has had preliminary contact with Asian companies, testing their interest in buying a minority stake in OAO Mechel- Mining or its division running the Elga coal project, the people said, asking not to be identified because the plans are private. The company hasn’t held formal talks or appointed advisers.
Mechel is looking for funds after shelving an initial public offering of Mechel-Mining last September as Europe’s debt crisis deepened and global stocks declined. The IPO would have been the largest of the year in Russia’s metals and mining industry, helping to finance development of the Elga deposit in Yakutia, for which Mechel-Mining indirectly holds a license.
Should Mechel find a partner to buy into the unit, it would sell no more than 25 percent, the people said. The company had planned to sell as much as 15 percent in last year’s IPO for as much as $2 billion, people familiar with the sale said at the time. The whole unit may now be valued at about $7.8 billion, George Buzhenitsa, an analyst at Deutsche Bank AG, said today.
Maria Kolmogorova, a spokeswoman for Mechel, declined to comment.
Mechel’s American depositary receipts jumped as much as 12 percent to $8.34 in New York, the highest intraday price since May 2. They traded at $8.06 as of 10:59 a.m. local time. The Moscow-traded shares rose 11 percent to 246 rubles.
Japanese trader Sojitz Corp. (2768) is interested in the Elga deposit, Masaaki Bito, head of the company’s coal department, said by phone, declining to elaborate. The Tokyo-based company said in June it plans to boost coal-trading volumes by 50 percent in three years. There has been no contact between Sojitz and Mechel, according to the people familiar with the situation.
Igor Lebedinets, an analyst at VTB Capital in Moscow, backed the view that Japanese trading companies and Chinese competitors may be interested in such a deal, as well as South Korea’s Posco. (005490) A stake sale would give Mechel its best chance of reducing debt and funding the Elga venture, he said by phone.
Zyuzin held talks with Posco Chief Executive Officer Chung Joon-Yang on plans for Elga in Vladivostok last week, Mechel said Sept. 10. Pohang-based Posco is interested in coal deposits in Yakutia and Magadan, Interfax reported Sept. 7, citing Chung. Posco hasn’t had contact with the Russian company on buying a stake in Mechel-Mining, the Asian steelmaker said in an e-mail.
Mechel’s debt totals $9.6 billion. The Moscow-based company won’t revive an IPO for Mechel-Mining this year because of market volatility, Chief Financial Officer Stanislav Ploschenko said in May.
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