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By John Helmer in Moscow

Leading Russian steel producer Evraz revealed its financial crisis management plan in Moscow on Thursday, although it claimed it will try to avoid cutting domestic jobs.

Evraz said it will cut output for the second half of this year by 25%, compared to to the first half, in Russia and Ukraine. In a press briefing, details of which have not been posted on the Evraz website, Pavel Tatyanin, a senior executive, said Zapsib had halted one of its three blast furnaces this week, and working hours are being reduced at other Evraz mills in Russia. No change in output or jobs is planned for North America, Europe, or South Africa, where steelworkers’ unions are more powerful than in Russia.

Tatyanin also said that capital expenditure by the group would be reduced this year from a planned $1.5 billion to $1 billion, and projects worth another $1.8 billion may be postponed. Next year’s capex may be slashed to $400 million — about one-third of the planned level. The De Long acquisition in China — costing an estimated $754 million — is to be delayed.

When Evraz was asked to specify what capex projects will face postponement or elimination, at what mills, and in what countries, spokesman Tatiana Drachuk refused to say.

In the past twenty months, Evraz has bought Oregon Steel inthe United States for $2.3 billion; Highveld Steel in South Africa for $700 million; ZapSib TPP (West Siberian thermal power plant) in Russia for $231 million; a remaining 50% in Yuzhkuzbassugol coal mining company for $871 million; remaining minorities in its Russian steel making subsidiaries for $261 million; the outstanding 25% in its Italian steel making subsidiary Palini e Bertoli for EUR76 million; Claymont Steel for $565 million; iron ore, coke, iron-ore and steel making assets in the Ukraine for $2 billion; the steel and pipe business of IPSCO Canada for $2.3 billion; and a 10% interest in Chinese steel producer Delong Holdings for $150 million, with options and agreements to acquire up to a further 41% in Delong for $614 million. In total, Evraz has spent $9 billion to acquire 4.5 million tonnes of steel making capacity — 6.4 million tonnes of rolled product capacity; 7.5 million tonnes of coal production, 2.4 million tonnes of coke capacity, and 3.4 million tonnes of iron ore production.

Tatianin said that Evraz might have to cut coal purchases from the Raspadskaya and Yuzhny Kuzbass mines, which are owned by the Evraz group.

Job loss is an especially sensitive political issue in Russia, where senior government officials have publicly attacked the steelmakers for lining their pockets at the expense of other elements in the economy; and for leveraging domestic Russian assets in order to buy loss-risking assets abroad. Evraz and Mechel have also been singled out by name by Prime Minister Vladimir Putin and the Federal Antimonopoly service (FAS), and hit with fines. Evraz has also been sanctioned in the past for waste water pollution from Zapsib and Novokuznetsk mills, and for failing to implement a waste water treatment plant required by regulators.

According to Renaissance Capital analyst, Rob Edwards, “strong balance sheets, efficient leadership and these timely crisis management measures make the Russian steelmakers attractive plays in the global steel universe.”

Notwithstanding, a Russian newspaper reports industry speculation that Evraz and its domestic peers may cut shareholder dividends this year, in order to repay short-term debt. Evraz refuses to comment.

Market calculations by UralSib Bank indicate that Evraz ranks the third most heavily indebted among Russian companies on a short-term (6-9 months) net basis. Its current cash position is estimated at $919 million. Its short-term debts total $3.38 billion. The net short-term debt position is $2.9 billion. This is significantly worse than pipemaker TMK ($944 million), Mechel ($848 million), and Novolipetsk ($104 million).

Evraz lists its principal shareholders as Lanebrook Ltd., with 69.5%, and BNY Nominees, with 30.5%. De facto, the controlling stake is held by Roman Abramovich’s Millhouse, which occupies three seats on the 10-man board. Alexander Abramov, one of the initial shareholders, and Alexander Frolov, his protege, hold board seats, along with their associate, a former KGB officer, Otari Arshba. There are three independent directors. The Russian market suspects that none of Evraz’s board members, nor Abramovich, are in a position to secure a Kremlin rescue for its strategy of building an offshore steel empire by leveraging its Russian assets and operations.

In Friday trading, following Tatyanin’s appeal to the market, Evraz’s stock price fell 3.6% to $15.40; this was in the opposite direction from the market index as a whole. Evraz’s market capitalization is now at $5.6 billion. At peak, in May, its market cap was $43 billion.

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