Research Notes

Not a single liquid Russian zinc manufacturer was listed on the stock market until recently, but an unprecedented rise in global zinc prices this year has stoked investor interest in the stocks of these companies.

A successful IPO of Chelyabinsk Zinc Plant (ChZP) could prompt investors to look at other Russian zinc producers. The only other lucrative option in this segment is ElectroZinc, whose shares are still undervalued, unlike those of ChZP.

ElectroZinc is part of Ural Mining Company (UMC). As part of UMC, ElectroZinc enjoys the advantage of easy access to raw materials supplied by mining and processing plants which operate under UMC control, as well.

ElectroZinc has made the most of the favorable conditions which currently prevail on the zinc market and its H106 revenues surged to $111.1 mln, 2.2-fold y-o-y, while net profit skyrocketed 18-fold y-o-y to $25.4 mln.

The company intends to spend these windfall profits to lift its output and diversify its product line. ElectroZinc plans to gradually lift its annual zinc production to 110,000 tons by 2010 against the current 90,000 tons.

Furthermore, UMP is set to erect a new zinc plant with annual output of 140,000-150,000 tons, which could make it possible for UMP to surpass ChZP, Russia’s largest zinc producer and ElectoZinc’s only competition in the domestic market.

In April, 2006 ElectroZinc launched production of indium, a rare metal which is used in semi-conductors, to diversify its product line.

According to our estimates, the fair price of ElectroZinc’s shares is $242. We reiterate our Buy recommendation on these securities.

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Nataly Kocheshkova

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