Shares of Russian metals and mining company, Mechel OAO (MTL) slipped 5.78% or $1.22 per share to close at $19.90 on Monday after being assigned a “B1″ corporate credit rating by Moody’s Investors Service, a unit of Moody’s Corp.(MCO). Credit rating agency, Moody’s judges obligations rated B as speculative and subject to high credit risk and have generally poor credit quality. Such ratings are considered non-investment or “junk” grade.
Moody’s corporate credit rating reflects Mechel’s subdued financial results during the recession. Falling prices and volumes have hurt Mechel’s 2009 results, where revenues declined 42.2% to $5.8 million, while net earnings were significantly down 93.5% to $73.7 million. As of December 31, 2009, Mechel’s long-term debt totaled $4.1 billion against cash and cash equivalents of $414.7 million.
However, Moody’s has provided a “Stable” outlook on Mechel, inspired by the company’s favourable business profile with high degree of backward integration, low-cost structure and the shift of its coal business from domestic to export markets.
Mechel is a leading domestic steel and coal producer with strong positions in key businesses including production of specialty steel and alloys.The company has the largest coal reserve base in Russia.
Mechel benefits from backward integration as the only specialty steel manufacturer in the world capable of internally sourcing most of its raw materials.The company has internal demand for coking coal and iron ore in steel production and for steam coal in power generation. Mechel is capable of internally sourcing 100% of coking coal, 92% of iron ore and 55% of nickel requirements of its Steel segment. Mechel controls 23% of the coking coal capacity in Russia.
Mechel’s key assets are located close to the major steel consuming markets.This apart, the company owns and controls essential infrastructure including ports, rolling stock and power plants, which provide guaranteed access to export markets. The company intends to selectively expand internal logistics capabilities, currently centered on railway freight, enhanced by the acquisitions of Port Posiet, located on the Sea of Japan, and Port Kambarka, one of Russia’s largest river ports to help optimize transportation expenses.
We reiterate our Neutral recommendation on Mechel.
Moody’s corporate credit rating reflects Mechel’s subdued financial results during the recession. Falling prices and volumes have hurt Mechel’s 2009 results, where revenues declined 42.2% to $5.8 million, while net earnings were significantly down 93.5% to $73.7 million. As of December 31, 2009, Mechel’s long-term debt totaled $4.1 billion against cash and cash equivalents of $414.7 million.
However, Moody’s has provided a “Stable” outlook on Mechel, inspired by the company’s favourable business profile with high degree of backward integration, low-cost structure and the shift of its coal business from domestic to export markets.
Mechel is a leading domestic steel and coal producer with strong positions in key businesses including production of specialty steel and alloys.The company has the largest coal reserve base in Russia.
Mechel benefits from backward integration as the only specialty steel manufacturer in the world capable of internally sourcing most of its raw materials.The company has internal demand for coking coal and iron ore in steel production and for steam coal in power generation. Mechel is capable of internally sourcing 100% of coking coal, 92% of iron ore and 55% of nickel requirements of its Steel segment. Mechel controls 23% of the coking coal capacity in Russia.
Mechel’s key assets are located close to the major steel consuming markets.This apart, the company owns and controls essential infrastructure including ports, rolling stock and power plants, which provide guaranteed access to export markets. The company intends to selectively expand internal logistics capabilities, currently centered on railway freight, enhanced by the acquisitions of Port Posiet, located on the Sea of Japan, and Port Kambarka, one of Russia’s largest river ports to help optimize transportation expenses.
We reiterate our Neutral recommendation on Mechel.
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