Mechel Reported the 1H 2011 Financial Results

Mechel, JSC is a leading Russian mining and steel group, announced financial results for the 1H 2011.

- Revenue amounted to $6.4 billion

- Consolidated adjusted EBITDA amounted to $1.2 billion

- Net income attributable to shareholders of Mechel, JSC amounted to $501 million

Yevgeny Mikhel, Mechel’s Chief Executive Officer, commented on the 2Q 2011 results: “The Company was quite successful in this period. Despite a few difficulties we had to contend with early in the year, we concentrated on restoring production volumes in our mining segment while preserving high capacity utilization rates in steel and other segments. Our efforts were also directed to the implementation of the company’s ambitious investment program. As a result, in the second quarter we demonstrated a growth in mining volumes and sales of nearly all our products, which, when combined with fairly favorable market conditions, enabled us to improve the financial results of the previous period.”

The net revenue in 2Q 2011 increased by 18.3% and amounted to $3.5 billion compared to $2.9 billion in 1Q 2011. The operating income rose by 6.2% and amounted to $476.3 million or 13.72% of the net revenue, compared to the operating income of $448.4 million or 15.28% of the net revenue in 1Q 2011.

In 2Q 2011, Mechel’s consolidated net income attributable to shareholders of Mechel, JSC decreased by 37.9% to $191.9 million compared to the consolidated net income attributable to shareholders of Mechel, JSC of $309.1 million in 1Q 2011.

The consolidated adjusted EBITDA in 2Q 2011 increased by 8.0% to $612.3 million, compared to $566.9 million in 1Q 2011.

Mechel’s steel segment’s revenue from external customers in 2Q 2011 amounted to $2.1 billion, or 59.3% of the consolidated net revenue, an increase of 17.3% over the net segment’s revenue from external customers of $1.8 billion, or 59.9% of consolidated net revenue, in the 1Q 2011.

In 2Q 2011, the steel segment’s operating income decreased by 70.7% and totaled $36.8 million, or 1.7% of total segment’s revenue, versus the operating income of $125.6 million, or 6.8% of total segment’s revenue, in 1Q 2011. The adjusted EBITDA in the steel segment in 1H 2011 decreased by 56.3% and amounted to $65.4 million, compared to the adjusted EBITDA of $149.8 million in 1Q 2011.

Commenting on the results of the steel segment Andrey Deineko, Chief Executive Officer of Mechel-Steel Management Company noted: “In the second quarter we managed to retain a high workload and used the period of rising prices for construction products to increase sales of our key products — rebar and hardware, by 46% and 12% respectively. We made full use of our expansive Mechel Service Global sales network, which allowed us to stock our warehouses to the maximum in the first quarter for efficient sales in the second quarter, which is a traditional high season for steel products”.

Financial Position:

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 1H 2011 amounted to $769.5 million, of which $562.4 million was invested in the mining segment, $174.6 million was invested in the steel segment, $18.7 million was invested in the ferroalloy segment and $13.8 million was invested in the power segment.

As of June 30, 2011 total debt was at $8.9 billion. Cash and cash equivalents amounted to $356.2 million and net debt amounted to $8.6 billion at end of 2Q 2011.

About the Company:

Mechel is one of the leading Russian companies. Its business includes four segments: mining, steel, ferroalloy and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.