OREANDA-NEWS. August 25, 2010. Mechel’s main shareholder Igor Zyuzin is in talks to buy a blast furnace from Brazilian pig iron producer Cosipar and 2 blast furnaces from its major project (subsidiary) Usipar, reported the press-centre of OTKRITIE Financial Corporation.

However, according to Vedomosti’s unnamed source in Mechel, Igor Zyuzin’s company and Cosipar are planning to create a JV, which will be under Igor Zyuzin’s control. The JV will include Cosipar’s blast furnaces and a steel plant (Mirsteel) in the UK. The idea is to create a logistics chain among Mechel’s North American coal producer Bluestone, Cosipar and Mirsteel. 

Bluestone will supply coal to Cosipar, while Cosipar in turn will supply pig iron to Mirsteel. According to the Cosipar’s official web-site, the current capacity of Usipar’s 2 blast furnaces is 500kt of pig iron, while total capacity of the company could reach 3mt by 2012.

View: The establishment of such a JV certainly makes sense. Cosipar has access to cheap Brazilian iron ore, while Bluestone’s coal could be shipped by sea to Cosipar’s facilities thanks to its location in the North Brazil, which is near the coast. We view this news as slightly positive for Mechel, and expect the company to acquire this JV a some point in the future, that is, as soon as loan covenants allow.

Valuation and Action: We reiterate our BUY rating for Mechel and a target price of USD40.5/share.