September 14, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of coal miner and steel company Mechel (NYSE: MTL ) rose 10% in early trading, after news came out that it may sell a stake in a coal deposit.
So what: Southeast Asian investors are interested in a 25% stake in the Elga coal deposit owned by Mechel. The company plans to spend $2.87 billion to develop the mine, and has been looking for funding options.
Now what: Mechel doesn’t currently have the balance sheet to make the investment needed to develop Elga, so this would be a positive development outside of another financing method. With coal companies encountering challenging conditions right now, any sale would be positive, in my opinion. This doesn’t make Mechel a buy, considering the worsening economics in the industry, but it’s probably a good strategic move if management can pull off a deal.
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