Coal news and updates

OAO Mechel (MTL), among the most indebted Russian companies, plans to sell a stake in its Elga coal mine to an Asian investor this year to help repay borrowings.

 

“We hope to get as much as $1 billion from the sale of the minority stake,” Chief Financial Officer Stanislav Ploschenko told reporters in Moscow. “We expect most of the interest from Asian companies, our biggest consumer market.”

 

Mechel, with net debt of $9.4 billion as of December, last year shelved plans to sell as much as a quarter of the Mechel-Mining unit that owns Elga, saying it may get bank funding. It is seeking to refinance borrowings after coal prices fell about 50 percent in the past year, BCS Financial Group figures show.

 

Talks on the sale of a stake in the Elga deposit in Yakutia will begin in the “nearest future,” Ploschenko said yesterday.

 

Mechel received $2.5 billion for project financing for Elga from state-run Vnesheconombank in September. It may also raise additional funds to cut its debt by selling other assets.

 

“We continue to divest assets of our Mechel Steel Global trader,” Ploschenko said. “It’s mostly steel stockpiles and service centers.” The company is selling European assets in the business after offloading Turkish operations last year, he said.

 

Mechel plans to get about 100 million euros ($137 million) from that this year, bringing the total to 200 million euros.

 

Mechel agreed with lenders to extend or refinance some loans in December, allowing it to cut debt due this year to $1 billion from $2 billion. Half of the resulting figure is held by the Russian state lender VTB, according to Ploschenko.

 

VTB Talks

 

“We are in talks with VTB to refinance this debt, which is mostly due in the second half of the year,” he said.

 

The rest is held by banks or with export agency guarantees and the company is in talks to refinance some loans and plans to pay back other debt with its cash flow, Ploschenko said.

 

Mechel this month bought back 12.35 billion rubles ($343 million) of bonds as some holders exercised a put option on three issues with a total nominal value of 15 billion rubles. New state-bank loans helped fund the deal and some lenders who held the bonds agreed not to exercise the option, the CFO said.

 

While coal prices have fallen, Mechel still has positive earnings before interest, taxes, depreciation and amortization.

 

It expects coal prices to rebound “a little bit” in the second half and for the year to be at the average level of 2013, Ploschenko said. Mechel sells about 60 percent of its coking coal outside Russia, targeting Asian customers, he said.

 

Mechel expects funds needed to maintain operations totaling $150 million this year. Investment, only necessary for Elga, may reach $2 billion from 2014 through 2016 and is fully covered by project financing from state development lender Vnesheconombank, Ploschenko said. The railroad that Mechel built to the coal mine needs about $800 million to increase its capacity, he said.

 

 

Source: Bloomberg