Russian giant expands coal division

RUSSIAN mining and steel group Mechel’s coal operations flourished during the first half of this year with mining revenues well up, but the steel division let the Russian giant down with an operating income below last year’s.
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Mechel Coal Resources.

Angie Tomlinson

Mechel reported revenues of $US2.14 billion, up 33.2% on last year. However, the good result did not translate into net income, which was down 4.3% to $US243 million.

Mechel chief Vladimir Iorich said that in the second quarter this year the company had seen negative pricing trends for both mining and steel products.

“Although this was a challenging time for us, we believe that it also confirms that our dual strategy of seeking to continue to increase our mining segment through organic growth and acquisitions, while working to improve the bottom line in our steel segment through a comprehensive efficiency program, is exactly the right focus for us,” Iorich said.

“We will continue to work hard to achieve these goals, and we believe that our efforts, along with an improving price environment, will yield results.”

Mechel produced 7.5 million tonnes during the first half, of which 4.1Mt was coking coal. Coking coal output was down slightly due to operational reasons, but Mechel said production had resumed and was now at full capacity.

Steam coal output was up 9% to 3.4Mt.

This year Mechel has made a number of significant investment moves, some significantly expanding its coal segment. These included successes at licence auctions to develop coal deposits which lifted Mechel’s total reserves by 1.15 billion tonnes, according to Russian reserve valuation standards.

Mechel also won an auction for the sale of ordinary shares in Yakutugol OAO. Yakutugol’s annual output is about 9Mt, of which approximately 5.4Mt is coking coal.

The acquisition further expanded Mechel’s mining holdings while also increasing its exposure to the Asia-Pacific region.

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