UPDATE 2-Russia's Mechel to buy Oriel Resources for $1.5 bln

(Writes through with details, comment, background, share price)

By Robin Paxton

MOSCOW, March 26 (Reuters) - Mechel (MTL.N: Quote, Profile, Research), the Russian steel and coal firm controlled by billionaire Igor Zyuzin, has agreed to pay $1.5 billion for ferro-chrome producer Oriel Resources OLR.L and increase access to valuable raw materials.

The all-cash acquisition will allow Mechel to more than double capacity of ferro-alloys used to make steel and also gives the New York-listed company control of chromite and nickel mines in Kazakhstan which Oriel was preparing to bring on stream.

"It's premature to evaluate the price as most of the assets are not yet in production. But the ferro-chrome market is interesting and there will be a deficit in the short term," said Alexei Morozov, mining analyst at UBS in Moscow.

Ferro-chrome, used in stainless steel, is trading at record highs as power shortages in top producer South Africa coincide with booming demand in China. Mechel is Russia's No. 1 producer of special and alloy steel, with a 39 percent home market share.

The company said in a statement it would pay 219.86 U.S. cents for every share in Oriel -- a 13.7 percent premium on Oriel's closing price on Feb. 29, the day before Mechel said it was considering an offer.

Oriel's London-listed stock traded at 106.53 pence (212.7 U.S. cents) at 1255 GMT, up 1.2 percent.

"The acquisition of Oriel will enable Mechel to increase its competitiveness by expanding the existing ferro-alloy business, entering new markets and operating new production facilities," Zyuzin, who is Mechel's chief executive, said in a statement.