Mechel announces acquisition of Donetsk Electrometallurgical Plant

Mechel, one of the leading Russian mining and metals companies, announces closure of the transaction for the acquisition of 100% of the shares of Donetsk Electrometallurgical Plant (DEMZ AO).

On December 23, 2011, Mechel completed the acquisition of 100% of Donetsk Electrometallurgical Plant. As previously communicated, the acquisition was approved at Mechel OAO’s annual shareholders’ meeting and by the Mechel’s Board of Directors. The acquisition is valued at $537 million.

Payment for DEMZ AO’s shares will be made in installments over 7 years. At the time of Mechel’s annual shareholders’ meeting, payment was expected to be paid in installments over 4 years, but over the course of completing the acquisition, the term was extended by 3 years without increasing the total consideration.

DEMZ is one of Ukraine’s most modern steelmaking plants with an annual capacity of over 1 million tonnes. The plant focuses on the production of continuously-cast billets as well as rolls of specialty steels, including thermally treated. The enterprise has a firm market standing as a producer of high-quality rolls, resuming production of large-diameter specialty-steel pipe, which is exported to the United States and Europe. The plant’s advantageous geographic location, well-developed railway network and proximity to major seaports at Mariupol (115 kilometers) and Odessa (900 kilometers) enables it to make efficient deliveries of steel products to more than 30 countries.

The plant’s electric furnace smelting facilities are currently working at their full capacity, producing up to 90,000 tonnes of steel per month. In 2011, steel production is expected to total over 1 million tonnes.

Production of hot-rolled products is planned this year to top 145,000 tonnes. Equipment at the plant’s rolling mill enables it to produce rolls using various types of thermal treatment, including hardening and tempering, annealing and normalization. These products are in demand on the international market in high-tech industries, engineering and shipbuilding.

DEMZ’s quality management system is compliant with the international ISO 9001:2008 standard as certified by Lloyd’s Register Quality Assurance, while the ecological management system is compliant with the ISO 14001:2004 standard as certified by TUV NORD CERT.

With Mechel’s support, the plant began implementing investment programs, created over 1,000 new jobs, mastered the manufacture of high-tech products and is expanding its markets.

Commenting the deal, Mechel OAO’s Chairman of the Board of Directors Igor Zyuzin noted: “Acquisition of Donetsk Electrometallurgical Plant is a logical step for the company as we pursue our strong partnership and investment ties with the Ukrainian plant. This is a new level of development for Mechel Group’s steel division, aimed at increasing the Group’s total production volume and, which is particularly important, the share of high margin products in the group’s product portfolio. This will not require a significant withdrawal of Mechel’s funds at present and in the nearest future, which will have a positive effect on the Group’s cash flows."