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Why Mechel OAO Shares Dropped Today

What: Shares of Mechel OAO  (NYSE: MTL  ) fell as much as 17% today as investors sold off Russian stocks because of a potential conflict with Ukraine.

So what: The Russian ruble hit an all-time low today as Moscow postured for control of Crimea, an area of Ukraine. Stock markets also fell in Russia and around the world. It doesn't help that Russia's central bank raised interest rates 1.5% today, too.

Mechel's position in Russia and $9.4 billion in debt as of December is concerning. Investors don't like the uncertainty that comes with this stock today.  

Now what: There are a lot of unknowns right now when it comes to Russia and Ukraine, but investors aren't taking the risk of owning a highly leveraged Russian company such as Mechel today. The sell-off isn't surprising but it also doesn't necessarily mean doom for the mining and metals company if the conflict doesn't escalate. That said, there are a lot of risks, and the high debt load and rising interest rates are a threat to Mechel's long-term survival. There may be a pump if the conflict cools down, but that's not a risk I'm taking today.

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  • Report this Comment On March 04, 2014, at 12:13 AM, zzwildman wrote:

    facts are with huge debt load MTL has decided to sell 50% Elga coal deposits to an Asian investor for over 10% debt which will clear debt payments for 2014. Investment is guaranteed by coal which China & South Korea purchase. If and it is an if that with the pending war which will be short lived in time will the investors accommodate MTL? Most likely the Asian investors from China will not be concerned with Russian Politics both from communist countries. That is arrogance Putin is counting on. As for MTL where is the bottom? As for a huge rebound will the shorts be trapped in bullish news on debt control? It can happen.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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Mechel OAO (ADR) CAPS Rating: ***