Baosteel in talks to buy stake in Mechel’s mining unit for $1.25bn

10 April 2013 (Last Updated April 10th, 2013 18:30)

Chinese steel major Baoshan Iron and Steel (Baosteel) is in talks to acquire a 25% stake in the mining division of Russian steel and coking coal producer Mechel, in a deal valued at about $1.25bn.

Elga Coal Complex

Chinese steel major Baoshan Iron and Steel (Baosteel) is in talks to acquire a 25% stake in the mining division of Russian steel and coking coal producer Mechel, in a deal valued at about $1.25bn.

A Mechel spokesman told Russian business daily Vedomosti that the company is in talks with various potential investors but refused to comment on a recent report that it has agreed to sell a blocking stake to Baosteel.

The entire division, which comprises Southern Kuzbass Coal Company; Yakutugol Holding Company; Elga Coal Complex; Mechel Bluestone coal company; Korshunov Mining Plant; Moscow Coke and Gas Plant; Chelyabinsk Coke and Chemical Product Plant Mechel-Coke OOO, may be valued at $5bn.

Mechel Mining focuses on production and sale of coking coal concentrate, iron ore concentrate and coke - primary raw material for the production of steel and steam coal.

In September 2012, Mechel announced that it is planning to sell around 25% of its mining unit by the first quarter in 2013 in order to accelerate the development of the Elga coal deposit during H1 2013.

In December, the company said it will refocus on its mining business and sell a majority of its other non-core assets in an effort to raise nearly $4bn.

As of 1 September 2012, Mechel had a net debt of over $9.4bn, which was built up while expanding operations before the drop of steel and coal prices in the 2008 financial crisis.

In March 2103, Mechel Carbon, another subsidiary of Mechel, entered into an agreement to supply Baosteel Resources with 960,000 tonnes of coking coal annually.

Mechel Carbon supplies coal to some of Baosteel's operations in Shanghai and in Guangdong, Jiangsu and Zhejiang provinces.

Mechel, founded in 2003, is a fully integrated mining and steel company focused on the production of mining products, such as coal, iron ore, nickel, and steel products.


Image: Mechel is planning to sell a stake in its mining unit in order to accelerate the development of the Elga coal deposit. Photo: Mechel Mining OAO.

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