(MTL) Mechel OAO Halts Mine Operations

Russian mining company, Mechel OAO (MTL) temporarily halted operations at its Sibirginskaya mine due to high gas levels in a mined-out area. Mining works at the site were halted and all miners returned to the surface.

Luckily, no carbon monoxide was detected in the long wall 3-1-9’s active mine-working.

The mine’s experts are working on the way to liquidate the source of self-heating. The mine’s entire production infrastructure, including transport, ventilation, pumps, power facilities, tunneling faces and active mine-working areas are operational and safe.

The date when mining is resumed will be determined once the project of liquidating the source of self-heating is complete.

The company will not suffer much losses as the mine’s storages hold enough coal for the company to meet all its contractual obligations.

Halting the mine’s work will not impact the construction project for Sibirginskaya’s second line, which when completed, will increase the enterprise’s production capacity to 2.4 million tonnes a year.

We are encouraged by Mechel’s focus on organic expansions and cost cutting measures. The company has the largest coal reserve base in Russia. It has also entered into various agreements to supply its rail products to large Russian metal mining companies. We are positive on the company’s favorable business profile, which has a high degree of backward integration and a low-cost structure. Management’s strategy of shifting its coal business from domestic to export markets is also encouraging. Additionally, Mechel’s key assets are located close to the major steel consuming markets.

Mechel faces stiff competition from Arcelor Mittal (MT), Norilsk Nickel Mining and Metallurgical Co. (NILSY.PK) and a privately held OAO Severstal.

Currently, Mechel has a short-term (1 to 3 months) Zacks #4 Rank and a long-term (6+ months) Neutral recommendation.

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