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MMK in Talks to Sell 49% of Turkish Mill to Fund Flinders

OAO Magnitogorsk Iron & Steel, Russian billionaire Victor Rashnikov’s steelmaker, is looking at selling 49 percent of its Turkish steel mill to help fund iron ore projects in Australia.

The steelmaker, known as MMK, is in discussions about the possible sale of the stake in the MMK Metalurji mill in Turkey with at least three local bidders, Chief Executive Officer Boris Dubrovsky told reporters today in Magnitogorsk, a city in Russia’s Urals Federal District. The sale depends on “a decent offer” and the mill reaching full capacity, he said.

MMK plans to buy and develop Flinders to gain its own iron ore project as a hedge against rising prices. MMK, which relies for most of its ore on Eurasian Natural Resources Corp., settled a dispute with the London-listed trader after cutting purchases below the contracted level last year.

The steelmaker is in talks with lenders on a credit facility of as much as $600 million to buy Flinders, Dubrovsky said. MMK is set to complete the acquisition next month for A$554 million ($580 million) and plans to invest A$1 billion to produce 15 million metric tons of iron ore by 2015 at a currently untapped field.

MMK raised its ownership in the Turkish unit to 100 percent last year, buying the more than 49 percent it didn’t already own from the Atakas family for $475 million.

Turkish Partner

“We feel we’re missing something in the absence of a local partner,” Dubrovsky said. “There are some peculiarities of conducting business in Turkey,” he said, declining to elaborate.

MMK’s profitability has fallen so far this year on lower prices but will be little changed year-on-year, Dmitry Smolin, an analyst at UralSib Capital, said by phone today. The price for hot rolled coil exported from former Soviet republics fell 18 percent from its peak last year in February of $790 a ton.

In the bid to produce iron ore, MMK will focus on Flinders as a more effective project than its as-yet untapped Prioskol deposit in central Russia, Dubrovsky said.

MMK may increase second-quarter steel prices 2 percent to 5 percent from the first quarter, Dubrovsky said. Russian production is running at 85 percent capacity now, while Mill-5000, which makes steel for pipemakers, is loaded at 100 percent, he said.

Ford, Toyota

The second stage of the $2.1 billion Mill-2000, producing steel for automakers, will start in July. The new line will double production of this type of steel to 200,000 tons a month, Dubrovsky said. The company is working on contracts with Ford Motor Co.’s venture with Russia’s OAO Sollers and with Toyota Motor Corp., he said.

After Iran’s steel imports declined because of international sanctions, MMK had to change its export structure this year, UralSib’s Smolin said. Iran accounted for as much as 50 percent of MMK’s exports last year, he said.

MMK cut sales to Iran to about 200,000 tons of steel this quarter from about 500,000 tons in the fourth quarter last year, company’s press-office said today.

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