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. Last Updated: 07/27/2016

MMK Buys a Stake in Belon to Boost Raw Material Assets

Magnitogorsk Iron & Steel Works, or MMK, said Thursday that it acquired a 10.75 percent share in coal producer Belon and that it would seek to increase its stake.

"We are considering ways to increase our stake," MMK spokeswoman Yelena Azovtseva said. "As to the size and timescale, it is too early to say."

No details were disclosed regarding the value of the stake, which was sold by Cyprus-based Sapwood Investments, but analysts said they expected it to be close to the market value.

Interfax calculated Belon's market capitalization at $557.75 million on Thursday, implying a value of around $60 million for the stake.

MMK, majority-owned by billionaire Viktor Rashnikov, said in a statement that it was pursuing strategic plans to create its own raw materials base.

MMK currently lacks coking coal and iron ore assets, the main raw materials for the production of steel, which puts the company at a serious disadvantage in relation to its competitors, analysts said.

"There has been a serious rise in coking coal prices, and this has squeezed MMK's margins," Deutsche UFG analyst Alexander Pukhayev said. Analysts said MMK would have to increase its stake in Belon if the deal was to hold any real significance for the company.

"I'd be looking for them to consolidate this company -- if they can," Pukhayev said.

Belon is expected to boost production significantly over the next couple of years, analysts said. In the first half of 2007, the company increased coal production by nearly 50 percent from the previous year.