Image source: Mechel PAO.

What happened

Shares of Mechel PAO (NYSE:MTL) rose by more than a third in September, extending a rally that started in mid-August. There were a number of things going on, including improving prices for the company's various commodities. But it was really the big picture that changed the equation for Mechel.    

So what

Commodity prices are the big determinant of Mechel's top- and bottom-line success. There's no getting around that, so generally rising metallurgical coal prices and an improvement in the Russian steel market were notable positives that came out of the company's late August earnings release. In fact, the company managed to improve its operating profit by over 20% on roughly flat revenues. That alone is enough to push a company's shares higher.   

But Mechel has been struggling for a number of years to get out from under a heavy debt load. And it announced notable progress on that effort with its second quarter numbers. CEO Oleg Korzhov summed up the important changes: "In this period we completed restructuring of our loans with Russian state banks, which enabled us to balance our financial payments. Also in late June we completed the deal on selling 49% in the Elga project to Gazprombank, which allowed us to source repayment of loans in the amount of 32.9 billion rubles [$530 million in US currency] and overdue interest payments from the previous periods."   

In other words, Mechel has notably improved its financial position. And at roughly the same time that its core markets have started to show a little life. It makes sense that investors were extra enthusiastic to hear the earnings update.

Now what

Mechel is clearly moving in the right direction. However, it still has a huge debt load and negative shareholder equity. Add in the not so minor fact that Mechel is a Russian company, and there remain a great many risks here. Only the most aggressive investors should be looking at Mechel.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.