Mechel Considers Takeover Offer of $1.2Bln for Oriel

Miner and steelmaker Mechel is in preliminary talks to acquire Oriel Resources, a $1.2 billion London-listed company with chrome assets in Russia and Kazakhstan. Mechel said Monday that it was contemplating an offer for Oriel's entire share capital.

"This process is at an early stage and there can be no certainty that any offer will ultimately be forthcoming," the company said in a regulatory statement.

Officials at Oriel's London headquarters were not available for comment.

New York-listed Mechel has a market capitalization of $18.1 billion. Billionaire chief executive Igor Zyuzin holds the largest financial interest in the company.

As well as being Russia's largest producer of stainless steel, the primary end use for chrome products, Mechel produces nickel and last year entered the ferro-alloy market with its purchase of ferro-silicon producer Bratsk Ferro-Alloy Plant.

Oriel, also listed in Toronto, has a market capitalization of $1.2 billion. Last year it started producing ferro-chrome, an alloy used in steelmaking, at a new smelter in Tikhvin, 200 kilometers east of St. Petersburg.

Oriel imports chromite ore for the smelter but plans to launch its own mine, Voskhod, in Kazakhstan in the third quarter of this year. It also owns a nickel project, Shevchenko, in Kazakhstan.

Spot prices for high-carbon ferro-chrome, the type produced at Tikhvin, have more than tripled in the last year to between $2.40 and $2.60 per pound.

"Strategically, it makes sense for Mechel as the ferro-chrome market is very interesting right now," said Alexei Morozov, an analyst at UBS. "But Oriel is not yet mining, so it's hard to put a real value on the company's assets."

Oriel is owned by several businessmen and institutions. Those with an interest in the firm include Russian multimillionaire Alexander Nesis.