Mechel, a U.S. coal producer, may sell stake in mining division

Russia’s Mechel OAO (NYSE: MTL), which has coal mining operations in southern West Virginia under its Bluestone Coal Group, said Sept. 25 that it may sell up to a 25% stake in Mechel Mining OAO, which oversees those coal operations.

Mechel’s Board of Directors held a meeting on Sept. 21 with the agenda including, among other issues, the measures on restructuring the group’s assets in order to improve the company’s financial performance and increase its shareholder value, in view of a revised strategy approved in May. “We reiterate that the revised strategy for Mechel OAO’s development envisions focusing on such priority areas as mining and full-cycle steelmaking with an emphasis on production of long products and high value-added products, including specialty steel, stainless steel and hardware,” the company noted in a Sept. 25 statement.

The board unanimously approved divestment of various assets as not consistent with the new development strategy, including enterprises that make up Mechel’s Eastern European Steel Division S.R.L., Donetsk Electrometallurgical Plant PJSC (Ukraine) and Invicta Merchant Bar Ltd. (UK).

In order to speed up implementation of the mining division’s priority project — development of the Elga metallurgical coal deposit in eastern Siberia — the board also recommended evaluating the possibility of a potential divestment of a minority stake in Mechel Mining OAO to a strategic partner, with that stake not to exceed 25%. Mechel Mining produces various mined commodities, including coal in West Virginia and Russia, and also iron ore.

Mechel CEO Yevgeny Mikhel said: “We took an important practical step in implementing the Group’s renewed strategy. The decisions made by the Board of Directors are fully in line with Mechel’s declared course on improving our operational efficiency, development of those investment projects that are most promising from an opportunity costs standpoint, and will enable us to focus on priority business areas, work on systematically reducing the level of indebtedness and improving the company’s shareholder value. I will note that any divestment deals within the framework of Mechel OAO’s renewed strategy would be subject to receiving proposals at compelling terms that the Board of Directors consider to be in the best interest of all shareholders.”

The Bluestone mining business in southern West Virginia sold 3.4 million tonnes of coking and steam coal in 2011, 71% of which was sold to the export market, said Mechel in an annual Form 20-F report filed May 10 at the SEC. The Bluestone operations produced 4.9 million tonnes of run-of-mine (raw) coking coal in 2011, up from 4.1 million tonnes in 2010. Bluestone produced 0.5 million tonnes of run-of-mine steam coal in 2011, down from 0.7 million tonnes in 2010.

Substantially all of the Bluestone coal was sold on the spot market. A major portion of production is shipped via the Norfolk Southern railroad and either goes directly to coking plants in North America or to port facilities for transloading into ships. In 2011, Bluestone exports went through the port of Norfolk, Va., and the port of New Orleans, La.

The Bluestone mines, bought in May 2009 from coal operator Jim Justice, are located in McDowell and Wyoming counties in southern West Virginia, near Beckley. The mines are organized around three mining complexes: Keystone No. 1 and No. 2 (collectively called Keystone), Justice Energy and Dynamic Energy, all of which are located in close proximity to each other.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.