RUXX Index: Mechel Stands to Lose Mining Licenses, Sees Cost of Debt Rise

RUXX Index continues covering MTL amid its license conflict as the company's valuation affects the overall index.

New York -- April 18, 2012 -- Russian steel and mining giant Mechel may lose three coal mining licenses at Yakutugol, its core mining subsidiary, over license violations. This news creates a significant downside risk for the stock.

A recent inspection by Prirodnadzor, the Russian environmental watchdog, discovered that Yakutugol was behind on mine infrastructure construction, may be mining outside its license area limits, that some of its mines were below required production volumes, and that it did not keep proper records, the agency’s statement says.

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RUXX Alert: Conflict with minority shareholders may further weaken Mechel

New York – Mounting problems at major Russian mining and steelmaking company Mechel (NYSE:MTL) may trigger yet another dip in the company’s stock. Following Russian authorities’ recent announcement that Mechel may lose its Yakutugol coal mining license – one of its most substantial assets – over serious violations, and a resulting 5% stock price decline, Mechel has now run into more trouble. New accusations against the company have to do with its disregard for minority shareholders’ rights.

Swiss Bank Julius Baer and Co Ltd asked a court to stop an additional stock issue by Tomusinsky Mine, a Mechel coal mining subsidiary. Julius Baer claims that the “new stock issue may destroy substantial value for minority shareholders.” The Kemerovo Regional Commercial Court sided with the minority shareholder’s claim, blocking the new issue that could, according to Julius Baer, dilute their holding in Mechel and destroy shareholder value.

Michael Thompson, an analyst for RUXX Index that includes Mechel and other Russian stocks listed overseas, believes that the new conflict around Mechel may hurt its stock price: “Western investors are mostly concerned about two kinds of risks associated with investing in Russia: political and legal. With Mechel, both kinds of risk are very high. The company clearly has a troubled relationship with the Russian authorities. Several years ago, the company lost US$ 5bn of its market capitalization within hours of  Mechel CEO Igor Zyuzin getting publicly scolded by then-Russian Prime Minister Vladimir Putin. Conflict with minority shareholders is a classic legal risk likely to make the company less appealing to investors.”

If Mechel’s problems continue, and the stock remains volatile, the RUXX Committee will look into deleting Mechel from RUXX Index.

“After troubles with the minority shareholder started, Mechel postponed indefinitely a RUB 15bn bond issue. The company will find it very hard to raise financing unless it can reach a settlement with its Western minority shareholders,” Thompson also said. 

Stock In Focus: MTL

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Chelyabinsk Zink Plant GDR Deleted from RUXX Index Due to Low Liquidity

Chelyabinsk Zink Plant GDR (Isin: US1635232028; Sedol: B1G0GT1) has not traded in the past 10 days, with low liquidity for the past few months. RUXX and Dow Jones have deleted Chelyabinsk Zink Plant GDR from RUXX effective January 26, 2011.

Dow Jones Index Review Data Distribution Schedule, 4th Quarter 2010

Friday, December 10, 2010	Final quarterly review data, including additions, deletions and finalized constituent weights, will be distributed after the close of trading.
Friday, December 17, 2010	All index review changes will be implemented after the close of trading.

RUXX Investor Alert: Norilsk Nickel May File Deliberate Obstruction of Business Charges Against Rusal

Moscow-New York -- September 30, 2010 -- OAO Norilsk Nickel, the world’s largest producer of nickel, does not rule out the possibility of filing the deliberate obstruction of business charges against UC Rusal Plc, an aluminium giant which owns 25 percent stake in Norilsk, RUXX has learned from a source close the miner’s management.

The charges may be filed after the Arbitration Court of the Krasnoyarsky region has reviewed a lawsuit filed by Rusal, which aims to overrule the Board Election Annual Meeting of Norilsk Nickel, that took place earlier this summer and resulted in Rusal losing one of four sits on the Norilsk Board.

Unsatisfied with the outcome of the election, Rusal appealed to Russia’s Prosecutor General’s office and Federal Securities Commission. After review, both agencies found no irregularities in the election and dismissed Rusal’s appeal. Rusal also filed a lawsuit in London, disputing the board election and called for an emergency meeting of the shareholders, which will take place on October 24, 2010.

However, Rusal is putting more pressure on Norilsk and is resorting to what seems similar to the corporate raider tactics, popular in Russia in the 1990s, which include filing lawsuits and demanding interim measures, effectively banning the company’s Board from running the company. Kommersant, Russian business daily newspaper, quotes a source in Norilsk Nickel as saying: “The lawsuit can provide Rusal with additional leverage. In court, the company can request interim measures and block the Board from doing any work. And the Board is making 2000 important decisions per year. Norilsk can’t function without it”.

Aaron Wolf, a senior analyst with RUXX Index, which tracks Russian stocks, thinks that Norilsk investors might support the legal action against Rusal, shall the miner decide to take it: “Rusal’s lawsuits can clearly affect the company’s operations. The authorities found no irregularities in the shareholders’ meeting, and the long-running conflict can hurt the company,” adds Wolf.

RUXX Index and Research group tracks and analyzes Russian companies listed on international exchanges.

Update on Friday, October 1, 2010 at 03:19AM by RUXX

Norilsk Nickel management claims that the Rusal lawsuit has been dismissed by the Krasnoyarks region court. Rusal issued an official statement that says that the lawsuit is still under review and has not been dismissed: The court will review the lawsuit after minor technical issues will be resolved.