Putin’s statement sends Mechel quotations 45% down, Yukos comes to mind.

Mechel Mining and Metallurgical Company quotations tumbled down on the Russian stock market on Friday. The company lost a third of its capitalization at NYSE on Thursday following criticism by the Russian administration.

As of Friday morning, Mechel RTS quotations went down by 45.6%. The slump soon became disastrous and hit new historical minimums.

The downfall started with Prime Minister Vladimir Putin’s criticism of the company’s sales policy. He said the company was exporting raw materials at prices twice smaller than domestic ones in the first quarter of the year and drew attention of the purely civilian Federal Anti-Monopoly Service and the law enforcer Russian Prosecutor General’s Office Investigation Committee to the situation.

Putin said that Mechel CEO Igor Zyuzin had been invited to attend the Thursday meeting but fallen ill. “Igor Vladimirovich must get well as soon as possible or else we will have to send a doctor and clear up all problems,” Putin said.

The Federal Anti-Monopoly Service is checking the Mechel sales policy, Industry and Trade Minister Viktor Khristenko said. In his words, the company has been criticized “over coal rather than metal with due account of the planned deliveries of coke to the Russian market by a leading supplier of companies, who have no coal reserves of their own.”

In the opinion of experts, Putin’s statement is likely to prevent the placing of Mechel preferential shares planned for August 11.

Earlier the company postponed the placing from July 23 to August 11. “The premier’s statement caused panic on the market. No one will want to hear about Mechel for a while,” Unicredit-Aton analyst Marat Gabitov said. “Most probably, there will be no placing. They won’t find any buyers under these circumstances. The company will have to settle problems with the government first,” an anonymous analyst said.

Mechel trades it stock at RTS and at NYSE (in the ADR form).

The Federal Anti-Monopoly Service initiated a criminal case against the company’s Trade House Mechel, Yuzhny Kuzbass and Yakutugol in the middle of July following an examination of the coke market situation. The entities were charged with the abuse of their dominating position on the market (the unfounded end of supplies of coal concentrate to the Novolipetsk Metallurgical Plant). Trade House Mechel and Yakutugol were also charged with the unfounded refusal to sign an agreement on the deliveries of coal concentrate to the same plant.

The service said that Trade House Mechel was selling coal concentrate for an excessively high price, which was against anti-monopoly laws.

Service deputy head Anatoly Golomozin told the newspaper Vedomosti that the companies might be fined at 1-15% of their coke profits but no more than 2% of overall profits if the violations were proven.

Deputy head of the Federal Environmental Supervisory Service Oleg Mitvol said on Thursday that a joint inspection team of his service, the Federal Technological, Environmental and Atomic Supervisory Service and the Kuzbass police reported that the local branch of Mechel breached the mineral development and business law 18 months ago. A criminal case was opened, he said.

The newspaper Kommersant said with the reference to sources close to Mechel that ‘colleagues’ had drawn Putin’s attention to Zyuzin. The sources told Kommersant that Novolipetsk Metallurgical Plant owner Vladimir Lisin was the main opponent of Zyuzin. Last week the Federal Anti-Monopoly Service initiated criminal cases against Mechel components by Lisin’s request. According to unofficial sources, complaints had also come from the Magnitogorsk Metallurgical Plant.

Federal Anti-Monopoly Service deputy head Igor Tsyganov told the newspaper that his service drafted materials for the Thursday meeting, at which Putin voiced his criticism. He also said that Putin’s speech was exactly about the case initiated by the service last week.

Meanwhile, a source close to the presidential administration told the newspaper that Mechel domestic prices were higher than export prices at a certain moment and that made the premier indignant. “Things changed, but too late,” he said.

A government source of Vedomosti said that low prices on coke were highlighted in preparations for the Thursday meeting by First Vice-Premier Igor Sechin. “Most certainly, the materials did not contain such tough wordings. The wordings came impromptu,” he said.

Sechin focused on his attention on metallurgical industry and coal in the past few months, as Gazprom Neft, Surgutneftegaz and the Fund for Pipe Industry Development complained of growing metal prices to the Federal Anti-Monopoly Service. The service began to inspect Severstal, Urals Steel, Magnitogorsk and Novolipetsk metallurgical plants.

The media said that Putin had not been that harsh about big business since the Yukos times.

Experts have not made any suggestions whether Mechel may share the Yukos lot. A Kommersant source close to the presidential administration said that no one was going to take away the company so far. “Everything will be all right with Mechel in case of a correct market policy,” Lisin said after the Thursday meeting.

Meanwhile, a market dealer told Vedomosti that Mechel had been actively buying metallurgical and coal assets and there would be plenty of prospective buyers. In 2007-2008 Mechel acquired 93.35% of the South Kuzbass state district power plant, 100% of the Bratsk Ferro-Alloy Plant, 75% minus one share of Yakutugol and nearly 70% of Elgaugol (Alrosa and Arcelor Mittal were the other bidders). Oriel Resources shareholders agreed to sell the asset to Mechel this April.

Mechel is a leading Russian mining and metallurgical company, which has shares and controlling stakes in the Chelyabinsk Metallurgical Plant, Trade House Mechel, Yuzhny Kuzbass, Yuzhuralnikel, the Beloretsk Metallurgical Plant, the Vartsila Hardware Plant, Trade House Posiet, Urals Stampings, the Moscow Coke Gas Works, Izhstal, Mechel Trading, the Korshunov Ore Dressing Plant, Mechel Nemunas (based in Lithuania), and Mechel Targoviste and Mechel Campia Turzii metallurgical plants (based in Romania).

Zyuzin has about 70% stake in Mechel, and the rest of the stock is in free circulation. The company’s profit stood at $2.3 billion and net revenues amounted to $500 million in the first quarter of this year.

ITAR-TASS