Translated material
Mechel is stocking up on ferroalloys
The company has agreed to buy British Oriel Resources
In just a month, the Mechel group managed to persuade 46.6% of the shareholders of the British Oriel Resources, which owns nickel and chromium deposits in Russia and Kazakhstan, to sell their shares to it. The Russian company is ready to pay $1.5 billion for 100% of Oriel shares. However, experts believe that Mechel will get the company relatively inexpensively, since Oriel’s assets are at the exploration stage and require significant capital investments. Commenting on the offer, Mechel CEO Igor Zyuzin said: “We continue to implement our strategy to improve the efficiency of the metallurgical segment . The acquisition of Oriel Resources will allow Mechel to increase the company's competitiveness by expanding its existing ferroalloys business, entering new markets and managing new production facilities."Oriel Resources Plc is a British company whose shares were listed on the AIM platform of the London Stock Exchange in March 2004. It specializes in the production of chromium and nickel in the countries of the former USSR, owns the Tikhvin ferroalloy plant near St. Petersburg (capacity - 148 thousand tons of high-carbon ferrochrome per year) and two deposits in Kazakhstan - Voskhod (confirmed reserves of chromium - 19.51 million tons) and Shevchenko (proven nickel reserves - 21.4 million tons, probable - 83 million tons). The British company is controlled by the ICT group and one of its founders, Alexander Nesis. Oriel's major shareholder is VTB (12.9%), and co-owners include businessman Alexander Mamut, the Israeli Baran Group and the family of Israeli businessman Ehud Riger. Last August, Mechel bought the Bratsk ferroalloy plant from the ICT group for $186.7 million and, in the event of a positive outcome of the agreement with Oriel, will double its ferroalloy capacity.
Information about the possibility that Mechel will make an offer to Oriel shareholders appeared on the market at the end of February this year. As Mechel noted then, the negotiations are at an early stage, and there is no certainty that a formal purchase offer will be made as a result. Oriel's board of directors recommended that its shareholders refrain from selling shares to Mechel, but yesterday it changed its recommendations to the exact opposite.
Mechel offered to pay $2.1986 per share in cash, which is 13.7% higher than the average market price of Oriel shares as of February 29, 2008, when the Russian group submitted its offer. “These obligations remain valid even if competing takeover offers are received,” Mechel said in a statement. Polyprom Holdings BV (25.6%) and Quotan International (1.4%), which belong to businessman Alexander Nesis and Chairman of the Board of Directors of Oriel Sergei Kurzin, and Eanermoon Limited (19.6%) agreed to sell their shares. ABN Amro and Merrill Lynch have already received the mandate to organize financing for the transaction. To complete the transaction, Mechel must obtain the consent of the regulatory authorities of Russia and Kazakhstan.
Analysts believe that Mechel will get the asset relatively inexpensively. “Our valuation of the company coincides with the consensus forecast and is about 0.9 pounds per share, and the purchase price is 22.2% higher than the estimate, which is a satisfactory indicator,” said Evgeny Ryabkov from Antanta Pioglobal Investment Group. “A certain discount is certainly justified, since Oriel Resources’ cash flow-generating assets are in the exploration stage and require significant capital investment,” says the report from investment company UniCredit Aton. “However, we believe that this purchase will allow Mechel to increase shareholder value and will be a good addition to its portfolio of nickel and ferroalloy assets, which currently consists of Yuzhuralnickel and the Bratsk Ferroalloy Plant.” However, if we take into account that production at the facilities of Oriel Resources has not yet begun, Mechel will need to invest significant funds in the development of the resources it has inherited.
The Federal Antimonopoly Service issued a number of orders to the Mechel group to prevent actions that could lead to restriction of competition in the coal market. As stated in the department's materials, Mechel is obliged to notify the FAS if the price of coking and/or thermal coal increases by more than 15% during the year. If there is demand for coal, the group is obliged to sell products under conditions that do not allow discrimination. Mechel is also prohibited from unreasonably reducing the volumes and range of products of Yakutugol and Elgaugol, the shares of which the group acquired in October 2007. The orders were issued in early March to the Mechel-invest company, which applied to the FAS with petitions to acquire rights that would allow them to determine the conditions for carrying out business activities of these coal companies. INTERFAX