UPDATE: Mechel Buys US Bluestone Coal Assets In $436 Million Deal
22 Abril 2009 - 12:52PM
Dow Jones News
Russian miner OAO Mechel (MTL) Wednesday said it would buy U.S.
coal producer Bluestone in a $436 million deal that would give it a
foothold in North America and could boost coal output by a
quarter.
New York-listed Mechel joins Russian metals firms like OAO
Severstal (CHMF.RS) and Evraz Group N.V. (EVR.LN), which have
flocked to the world's biggest steel and its raw materials markets
in recent years to pursue acquisitions.
"The addition of Bluestone's production assets and large,
high-quality coking coal reserves and resources establishes Mechel
as one of the largest producers of coking coal in the world and
provides us with additional scale that will drive added
efficiencies through our business," Mechel's Chief Executive Igor
Zyuzin said.
Confirming a local media report from February, Mechel said it
would acquire West Virginia-based coking coal producer Bluestone
for cash and preferred shares, assuming $132 million in debt in the
process.
Bluestone has four mining complexes comprising eight active open
pit and five underground mines. Its coking coal holdings include up
to an estimated 725 million tons of reserves and resources.
The company sold 2.8 million tons of high-quality, hard coking
coal in 2008, generating revenue of $327 million, and has in the
past been linked with separate bids from India's Tata Steel
(500470.BY), Essar Steel and Russia's Severstal.
Mechel said it plans to raise Bluestone's annual production to 7
million tons, which would add 27% to its 2008 coal output.
It sees the transaction as accretive to 2009 earnings but some
analysts questioned the price Mechel is paying.
"On the face it, this deal seems really expensive," said analyst
Michael Kavanagh at investment bank UralSib in Moscow. "We would
expect the market to react negatively to the news."
Kavanagh, who rates Mechel at hold with a $4 target price, said
the transaction implies an enterprise value/earnings before
interest, tax, depreciation and amortization multiple of 13.6. He
noted that the terms could force Mechel to pay more if the price of
its preferred shares don't rise sufficiently.
He also warned that demand for coal may not be sufficient to
absorb Bluestone's output.
"It remains to be seen if (Mechel) will be able to move the full
volume (of coal in 2009)...given the weak steel market, with U.S.
and E.U. steel makers operating at 50% of capacity."
At 1515 GMT, Mechel's American Depositary Receipts were trading
2% higher at $6.18 each on the New York Stock Exchange.
Company Web site: www.mechel.ru
-By Andrew Langley, Dow Jones Newswires; +7 495 937 8445;
andrew.langley@dowjones.com