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. Last Updated: 07/27/2016

Metals Firms Expand on U.S. Acquisitions

Metals stirred up the market early last week, with Russian companies announcing two buyouts of U.S. producers on Monday.

First came word that Russia's top steelmaker, Evraz Group (EVR.LN), would acquire Oregon Steel Mills for $2.3 billion in the biggest international acquisition from Russia to date.

Also on Monday, mining giant Norilsk Nickel (GMKN), which produces a key raw material for steelmaking, announced that it would pay $408 million for nickel assets from another U.S.-based firm, OM Group.

Norilsk Nickel climbed 2.4 percent Tuesday.

Kommersant said Friday that Severstal (CHMF) was in talks to buy a third U.S. firm, U.S. Wierton Steel, from rival Mittal Steel, the world's biggest steelmaker.

Russia's construction boom, which shows no signs of slowing, has caused an "unprecedented demand" for steel, Renaissance Capital analyst Ovanes Oganisian said. And to meet it, the country's steelmakers are going on the offensive.

There was also major news in the energy sector last week, as investors held their breath ahead of a Kremlin meeting called to discuss raising domestic gas prices and averting power shortages.

But when President Vladimir Putin demanded that officials step up electricity reform and expansion, investors exhaled, sending Unified Energy Systems (EESR) into a 3.7 percent rally Thursday, to finish off the week with gains of 6.78 percent.

Two listed subsidiaries of UES -- generating firms OGK-3 (OGKC) and OGK-5 (OGKE) -- both rose more than 3 percent Thursday, and OGK-3 was the week's second best performer on the RTS index, jumping 8.74 percent.

Gas prices, however, were not raised at Wednesday's meeting by more than the 15 percent budgeted for next year.

UES and Gazprom (GAZP) had called for the price to double, but fears of inflation and political pressure won out. Gazprom had modest weekly gains of 1.39 percent, ending at just under $11 per share.

Power generator OGK-4 (OGKD), which has an IPO planned for next summer, may issue only 50.8 percent of its current equity, instead of the 81 percent originally planned, Vedomosti reported.

"Even in this case, [OGK-4] would be able to attract $1 billion due to its significantly raised [market capitalization]," Alfa Bank analysts said in a note.

UES chief Anatoly Chubais announced Wednesday that he was planning up to 20 IPOs for UES subsidiaries in 2007.

But Dmitry Terekhov, an electricity analyst at Antanta Capital, said this was not realistic.

"10 companies is the absolute limit," Terekhov said. "The market simply cannot take any more."

Through the sell-offs, Chubais expects to raise a minimum of $10 billion, which will go toward $83 billion in investments into the electricity sector planned for the next five years.

For the long term, this massive industrial expansion will swell Russia's machine industry to 10 times its current size by 2010, Chubais said.

Terekhov said Russia's heavy industry outfitter, Power Machines (SILM), would be swamped with orders in the next few years as the construction boom continued.