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Mechel Could Lose Mining License for Key Asset
03/26/2012 - Mechel OAO might lose its mining license for one of its key assets, Yakutugol subsidiary, due to major violations discovered by the Russian Ministry of Natural Resources. Yakutugol represents about 30% of Mechel's coal output.
Coal, steel, and iron ore producer Mechel OAO might lose its mining license for one of its key assets, Yakutugol subsidiary, due to major violations discovered by the Russian Ministry of Natural Resources. Yakutugol represents about 30% of Mechel's coal output and a substantial share of the company's revenues.
Rosprirodnadzor, the governmental watchdog, listed serious violations by the company. The violations can lead to termination of the mining license as well as criminal prosecution.
"Mechel's price plunged 5.75% after the news broke, and is likely to continue decreasing, putting a downward pressure on Russian equities," said Michael Thompson, Senior Analyst for RUXX Index, which tracks Russian companies traded in the U.S. and the U.K. "Mechel clearly enters a period of uncertainty, both political and business. The Ministry will possibly allow the miner the time to fix some of the problems, but we estimate that the demand for Mechel stock will continue falling."
"The violations will be discussed at the Rosnedra commission meeting. Mechel representatives will be there, and the company will be required to correct the violations within a short time period," said Elena Koverga, the Ministry spokesperson.
"Mechel’s situation illustrates the kind of political risk associated with Russian companies that are dependent on their connections with the government," Thompson added. "However, the Mechel case is special because of the severity of the violations and large share of revenues represented by Yakutugol."
