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. Last Updated: 07/27/2016

MMK Expected to Invest $5.2Bln

Itar-TassFaced with rising raw material and gas costs, Magnitogorsk will sell up to 13.6 percent of its shares next month.
Magnitogorsk Iron & Steel, Russia's largest stand-alone steel mill, plans to invest $5.2 billion through 2012 to battle rising costs and expand output, Renaissance Capital said in a report.

The steelmaker, reliant on outside suppliers for raw materials, is also considering building a coking coal plant in central Siberia together with a unit of domestic rival Evraz Group, the investment bank said March 26 in a confidential report for investors.

Magnitogorsk spokeswoman Yelena Azovtseva could not be reached for comment Friday.

"Rising costs of raw material and potentially gas over the longer term create a further impetus to improve margins," RenCap analysts Rob Edwards and Yury Vlasov wrote in the report. The analysts forecast that the steelmaker's costs will rise by almost one-third before 2010.

Controlled by chairman Viktor Rashnikov, the Ural Mountains-based company will become Russia's fifth steelmaker to offer shares to investors next month. Magnitogorsk may offer as much as 13.6 percent of new and existing shares in London. ABN Amro Rothschild, Morgan Stanley and RenCap are managing the sale.

Magnitogorsk has a market value of between $11.4 billion and $13.3 billion on an equity basis, RenCap's report said. The steelmaker has the country's second-best steel-industry margin on earnings before interest, taxes, depreciation and amortization, or EBITDA, with 31 percent, the report said. The EBITDA margin is a measure of how efficiently a company uses revenue.

Crude steel production at the Urals producer could climb 16 percent to 14.5 million tons in 2009, RenCap said.

The steelmaker is also looking to develop the Kureinskaya coal deposit in the Kuznetsk Basin, which holds 430 million tons of hard- to medium-grade coke reserves, RenCap said.

Magnitogorsk owns half of the deposit's license-holder, Ugolnaya Co. Kazankovskaya, via its MetAl unit. Evraz's coal unit Yuzhkuzbassugol owns the rest.

Given a looming coal oversupply in the country, Magnitogorsk would have to rely on exports or postpone the development, said Kirill Chuiko, an analyst with UralSib.

To secure an export route to Asia, Magnitogorsk has bought a 47.5 percent stake in Vladivostok Commercial seaport in the Far East via its M-Port unit. The steelmaker also has 6 percent of Yeisky seaport on the Black Sea, RenCap said.