UPDATE 1-Russia's Mechel delays $1.25 bln mining sale-sources
* Mechel Mining stake sale on ice until late 2013 - sources
* Mechel seeking to cut debt pile of more than $9 billion
* Mining assets include Elga coal deposit in eastern Siberia
* Could seek Russian bank support to develop Elga (Adds source comment on U.S. asset sale, Sberbank comment)
By Clara Ferreira-Marques and Anjuli Davies
LONDON, April 26 (Reuters) - Indebted Russian steel group Mechel has backed off from selling up to 25 percent of its mining division because of market conditions, sources with knowledge of the matter said.
The New York-listed coal, iron ore and steel group, one of Russia's largest, has had to cut investments and put non-core assets on the market to service more than $9 billion in debt, amassed while expanding operations before the 2008 financial crisis sent steel and coal prices tumbling.
But three sources said Mechel, whose mining division includes the Elga coal deposit in Siberia, has now put on hold the sale of a stake in the division until later in 2013, following months of negotiations with potential buyers. A sale had been valued at up to $1.25 billion.
Mechel is awaiting an improvement in coal prices and both the company and potential buyers want more time for a complex valuation process to be completed.
"They (Mechel) could return to the sale process later this year," one of the sources said.
While Mechel has not abandoned the sale, another of the sources said potential suitors, which have included some large Southeast Asian steel producers, had requested increased detail on the assets before progressing.
A second source said the sale process was on standby, "rather than died off or inactive".
"To be fair, the process is going a bit slowly, but it's a complex project and the market is slow," the source added.
Mechel declined to comment on the sale process.
The company had already considered listing its Mechel Mining arm, though plans were put on hold in the aftermath of the financial crisis, prompting it to consider a trade sale instead.
Mechel said last year that it might instead sell up to 25 percent to a strategic partner to speed the development of the Elga deposit in 2013. Potential suitors include China's Baosteel and Korea's Posco, one of the largest consumers of Mechel's coal.
However, the sources said that neither of these prospective buyers was likely to make a quick decision in the current environment.
Elga is one of Russia's prize mining assets and one of the world's largest coking coal deposits - a giant field whose development has for decades been constrained by insufficient transport links and difficulties delivering material.
Mechel has said publicly that it does not generate enough cash to develop Elga fully without help. The project has a development cost estimated at as much as $4 billion.
However, it has asked state-owned bank VEB for between $2 billion and $2.5 billion of project financing, which would allow it to pursue work at Elga without a sale.
A VEB spokeswoman said the application was being considered.
A source close to Mechel said VEB was not expected to make a decision on the matter before a board meeting that is expected to be held in September.
But in a further indication of support Mechel could receive from Russian banks - potentially allowing a sale to be postponed for longer - Sberbank said that its chief executive, German Gref, had told Mechel Chairman Igor Zyuzin this week that the bank would look at options to support industrial projects key to the Russian economy, including Elga.
Under growing pressure to tackle its debts Mechel could also consider the separate sale of its North American coal business, according to one of the sources close to the matter.
That business comprises four open pits and four underground mines in the Appalachian mountains, bought from private hands four years ago.
However, a second source said that low prices could hold back a sale of the U.S. operation, where production has been partly halted because of rising stockpiles and weak prices. (Additional reporting by Megan Davies, Oksana Kobzeva, Svetlana Burmistrova and Douglas Busvine in Moscow; Editing by Greg Mahlich and David Goodman)
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