Mechel Inks Contract With Binder - Analyst Blog

Russian mining company Mechel OAO MTL announced that it has inked a contract with Austria's Binder company for engineering services for the development of Elga Coal Complex's first stage.

Per the contract, Binder will design the coal drying line which will be enclosed in the production cycle at the washing plant. The plant has an annual capacity of 9 million tons of coking coal. This plant is part of Elga Coal Complex's first stage, and its construction is expected to begin in the first quarter of 2015.

The state corporation Vnesheconombank will provide $2.5 billion for the development of Elga Coal Complex's first stage. The first stage includes completion of the railway's construction and building a coal mining and processing complex whose capacity will reach 11.7 million tons of run-of-mine coal by 2017.

According to the contract, the project work is expected to be completed by the end of 2014. Post the completion of the project, Mechel will decide whether it will extend the contract with Binder to include supplies of project equipment for the washing plant.

We note that Mechel has the requisite facilities to support the Elga project. The company has its wagon fleet, port facilities in the Far East and has long-term contracts with major international steelmakers. The project is expected to create about 5,000 new jobs. Mechel expects the project to enable it to create an industrial cluster that will cater to the economic growth of the entire region.

The Elga Coal Complex, located in southern Yakutia, is one of the world's as well as Russia's largest deposit of high-quality coking coal. Mechel believes that Vnesheconombank's financing will boost its efforts to complete the first phase of the Elga project.

Mechel currently retains a Zacks Rank # 4 (Sell).

Other companies in the steel and related industries with favorable Zacks Rank are NN Inc. NNBR, Century Aluminum Co. CENX and Norsk Hydro ASA (NHYDY). While NN retains a Zacks Rank #1 (Strong Buy), both Century Aluminum and Norsk Hydro carry a Zacks Rank #2 (Buy).