Results of IUD-Gazmetal Merger to be Announced in 2-3 Months

Yesterday, Sergey Taruta, CEO of the Industrial Union of Donbas, noted that IUD intends to announce results of negotiations concerning an alliance with Russian Gazmetal in 2-3 months. The CEO mentioned that negotiations are still in progress. Eugene Cherviachenko: This is the first official news about the deal in more than six months. The parties might intensify negotiations after Gazmetal failed to acquire a 51% stake in Russian steel producer Maksy-group in November. However, yesterday IUD also announced plans to float its Poland assets on the Warsaw Stock Exchange which we think may precede an IPO of its key assets located in Ukraine. Gazmetal agreed in 2H07 to a large long-term contract for delivery of iron ore concentrate to Arcelor Mittal’s Eastern European mills, while Alchevsk Iron & Steel (ALMK: BUY) renewed cooperation with Brazilian iron ore producer CVRD (see our note of Nov. 1). We think the deal is unlikely to be accomplished in the announced term, while IUD may prolong iron ore supply from Gazmetal in 2008.