Metals and Mining

May go bust. Creditors will not mind. Minority shareholders should SELL.

In 1Q09, OJSC Enakievo ISW sold its 37.04% stake in JV Metalen LLC to Metinvest Holding LLC. The price is unknown; our estimate is USD 55-65 mln. Our interpretation: Metinvest Holding provided OJSC Enakievo ISW with liquidity, to be used in particular for the construction of Blast Furnace No. 3. Metinvest benefited from that deal by effectively increasing its share in the Enakievo ISW group, because OJSC Enakievo ISW will now have to issue 9.07 mln new shares in order to acquire all rights in Metalen (previously, we expected the issuance of 5.71 mln new shares). We also do not rule out additional share issuances aimed at financing BF No. 3’s construction.

On November 12, 2008, 272.57 mln of shares of Khartsyzk Pipes & Tubes (10.49%) changed hands. Most remarkably, the deal went through the PFTS exchange, the price being UAH 2.12 (USD 0.367) per share, for the deal’s total of USD 100.15 mln. We argue that the deal was not technical, and instead likely indicates that Metinvest needs cash, likely for an acquisition. The shares may now serve as the collateral. Should more HRTR deals go through, it may indicate a complete and permanent sellout, but only with additional support for such a possibility.

The corporate structure of the Enakievo ISW group requires a cleanup: the OJSC Enakievo ISW and Metalen LLC should merge. We speculate that the reorganization: (1) will take place by the year’s end, (2) will follow a particular scenario, and (3) will be positive for Enakievo ISW’s stock.

After an adventurous summer, the young Ukrainian business wizard is about to learn many useful lessons and to face his toughest opponent yet.

Ferrexpo plc., ore mining company with assets in Ukraine, has placed five-year Eurobonds worth USD 500 mln at an annual interest rate of 7.875%.

International rating agency Moody's Investors Service has assigned a preliminary rating of (P)B3 to the planned issue of five-year Eurobonds of the ore mining company Ferrexpo plc [FXPO LN, N/R]. The planned volume of the issue is USD 500 mln.

The Alchevskiy metallurgical plant, which is controlled by the Industrial Union of Donbass, increased its net revenue by 5.7%, to USD 1.34 bln, in 2010, while the gross profit of the company grew by 10%, to USD 1.535 bln.