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Separatists take control of Mechel steel mill in Ukraine

Debt-ladenRussian steel and coal group Mechel OAO said July 21 it was at risk of losing controlof its Donetsk Electrometallurgical Plant, after officials in the unrecognizedDonetsk People's Republic took control of the plant under "temporary stateadministration" measures.

Theseparatists' move to seize control of the mill will not affect the company'sfinancial results, because the plant was shut down in 2012 due to tough marketconditions, Mechel said.

The plant,which has annual production capacity of approximately 1 million tonnes of steelfrom an electric arc furnace, according to Mechel's website, is located in aseparatist region of eastern Ukraine.

"Thecompany's preliminary view is that Mechel runs the risk of losing control overany future production and commercial activity of DEMZ for an indefiniteperiod," Mechel's statement read.

TheRussian company said officials of the separatist republic in Donetsk signed adecree June 25 allowing the de facto state to take over management of theplant. Officials also decreed that a separate Donetsk-owned company, YuzovskyMetallurgical Plant, would be created on the site of the existing mill. All ofthe assets of Mechel's Donetsk Electrometallurgical Plant are to be transferredinto the newly constituted entity, according to the decree.

Mechelsaid it was now monitoring the situation and would take all legal measures toprotect its property rights.

Separately,Russian newswire Ria Novosti reported that the Donetsk Republic's Minister ofIndustry and Trade, Aleksey Granovsky, said he was prepared to return the plantto Mechel if the Russian group promised to restart production at the enterprise.

Thenewswire also quoted Granovsky as saying that seized property would be returnedif the self-proclaimed republic was officially recognized on the world stage.

Sincedeclaring independence from Ukraine in 2014, no other country has officiallyrecognized the Donetsk People's Republic.

Mechelbought the plant in 2011 from groups linked to Russia's Alfa Bank. It agreed topay US$537 million over seven years to fund the purchase, and a spokesman forthe company told SNL Metals & Mining it has not halted these payments.

SNL Metals & Mining is anoffering of S&P Global Market Intelligence.