Mechel Reports the 1Q 2013 Financial Results

Revenue amounted to $2.5 billion
Consolidated adjusted EBITDA amounted to $210 million
Net loss attributable to shareholders of Mechel OAO amounted to $321 million

MOSCOW, June 18, 2013 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, today announced financial results for the 1Q 2013.

Evgeny Mikhel, Mechel OAO's Chief Executive Officer, commented on the 1Q 2013 financial results:

"The first quarter was marked by an important step forward toward optimizing Mechel's asset structure. We disposed of Romanian steelmaking assets, which did not fit into the company's reviewed strategy and had a negative impact on our financial results. We expect that the sale of loss-making steel enterprises will have a positive influence on the economics of the steel division and the Group as a whole in the medium-term already."

"As a whole, in the reported period the company demonstrated a marked improvement of its financial results as compared to the previous period. We made operational profit and saw a noticeable increase in EBITDA. This became possible due to a pick-up in the steel raw materials market seen in the beginning of this year, despite a seasonal correction in the steel products markets.

Unfavorable price trends, observed since early this year, make undoubted pressure on the market players' financial results. At the same time, we are certain that optimizing the asset structure, debt portfolio and control over expenditure and investment will enable Mechel to successfully go through the market slowdown."

Mechel Mining Management Company OOO's Chief Executive Officer Boris Nikishichev commented on the mining division's results:

"This year's first quarter saw certain volatility in the markets of raw materials for steelmaking. Despite the slump in coking coal prices in long-term contracts, the spot market was characterized by the periods when prices outgrew the long-term contract level. Also, spot prices for iron ore grew rather significantly. This situation, combined with our efforts to expand our client base and redistribute sales into the most attractive markets, enabled us to greatly improve our mining division's operational profit."

"As part of our strategy on developing ties with the world's major steelmakers and diversifying our markets, early this year we signed long-term contracts for coking coal supplies totaling up to 2.5 million tonnes a year with China's Baosteel Resources and Shasteel Group, as well as South Korea's POSCO. These contracts will help guarantee the sales of our products as the global markets for raw materials remain highly volatile. Apart from signing major contracts, attracting a large number of new Chinese clients interested in smaller coal supplies also helped to increase and diversify our sales."

"In order to ensure necessary production volumes both now and in the future, we continue technical revamping of our enterprises and investment in promising projects. For example, in the first quarter, new mining and transport equipment was brought in at Southern Kuzbass Coal Company and Yakutugol Holding Company, and, in June, we signed an agreement on setting up a joint venture in Yakutia with Mechel Group's longstanding partner BelAZ, which will meet the Group's needs in technical maintenance and repairs of dump trucks both at Yakutugol's current open pits and at the developing Elga coal deposit. Measures aimed to maintain and develop our mining enterprises' technical base are a priority for the division and will enable us not only to preserve and consolidate our company's position in the current situation, but also to promptly react to a possible improvement of the market situation in the medium term."

Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky noted in commenting on the steel segment's results:

"As a whole the past quarter was characterized by a certain stability in demand and prices for the construction product range, which the division's enterprises mostly focus their production on. We have to a certain degree decreased the volume of billet and rod sales, which was primarily due to our disposal of the Romanian assets and the halting of our Ukrainian plant. Throughout the quarter we have successfully controlled expenditures and despite the seasonal slump of our key markets, managed to demonstrate operational profit and a positive EBITDA."

"The launch of the universal rolling mill at Chelyabinsk Metallurgical Plant, which currently undergoes hot testing, will be the key event which will have a major impact on the division's future activities. The mill has currently successfully tested the technology of producing several types of structural shapes and sections, including rails. The mill's launch will have a positive effect on the division's profitability, as all of the low-margin billets currently produced will be processed further to produce high-quality structural shapes and rails."

Mechel-Ferroalloys Management Company OOO's Chief Executive Officer Sergey Zhilyakov noted:

"Throughout the first quarter the division worked as Southern Urals Nickel Plant's production facilities were fully halted, which among other factors enabled us to attain marked improvement of the ferroalloys division's financial results. The persistent volatility of key sales markets led to changes in the structure of our product sales. We have cut down on supplies of ferrosilicon to the domestic market, where demand slumped, reorienting our volumes toward export, where the market was more stable.

A certain decrease in ferrochrome sales was due primarily to the process of selling accumulated stocks coming to completion. Nevertheless, Tikhvin Ferroalloy Plant continues to successfully manufacture its products using three furnaces, producing more than scheduled in the annual plan. We have also increased sales of chrome ore concentrate, which had a positive effect on our economics as average chrome ore concentrate prices in 1Q2013 were higher than in the previous quarter."

Mechel-Energo OOO's Chief Executive Officer Yuri Yampolsky noted:

"In the reported period, the division demonstrated an expected good result. We had operational and net profit and achieved a significant improvement of EBITDA. It was largely due to the seasonal high demand for our products. The division fulfilled its production plans, providing uninterrupted supply of heat and electricity to its customers during the most important period in the year. We now enter summer, which is traditionally characterized not only by lower electricity consumption, but also active work on technical maintenance and preparation of our production facilities for the next cold season."

Recent Highlights

• In April, Mechel announced signing a memorandum of understanding with Baosteel Resources Int. Co. Ltd. The memorandum stipulates that Mechel OAO, through its subsidiary Mechel Carbon Singapore will supply Baosteel Resources with up to 960,000 tonnes of coking coal annually. The price will be corrected monthly.
   
• In April, Mechel announced the resolutions of Mechel OAO's Board of Directors to convene the Annual General Shareholders' Meeting of Mechel OAO on June 28, 2013, to approve the agenda for the Annual General Shareholders' Meeting, to prepare the list of the shareholders eligible to take part in the Annual General Shareholders' Meeting based on the data in the Shareholders' Register as of May 17, 2013.
   
• In April, Mechel announced signing several loan agreements with Gazprombank OAO totaling 1 billion US dollars.
   
• In April, Mechel announced its Board's dividend recommendation to the annual general shareholders' meeting regarding the payment of dividends based upon the results of the 2012 fiscal year:
   
• In April, Mechel announced that its mining division's trading subsidiary Mechel Carbon (Singapore) Pte. Ltd. has signed a three-year contract with South Korea's POSCO corporation for supply of coking coal. The agreement, signed on April 30, 2013, stipulates that Mechel Carbon (Singapore) will supply POSCO with 500,000 tonnes of coking coal per year. Besides that, Mechel Carbon also signed with POSCO a one-year contract for supply of 200,000 tonnes of PCI coal in 2013.
   
• In May, Mechel announced that successful hot testing was held at the complex of Chelyabinsk Metallurgical Plant's universal rolling mill.
   
• In June, Mechel announced signing a coking coal supply agreement with China's Shasteel Group. According to the signed agreement, Mechel Carbon (Singapore), trading subsidiary of Mechel OAO's mining division, will directly supply Shasteel Group with 40,000 to 80,000 tonnes of coking coal a month from Russian Far East ports, starting from June 2013. Coking coal prices will be determined on a monthly basis.
   
• In June, Mechel reported that hot testing of rail rolls production at Chelyabinsk Metallurgical Plant's universal rolling mill has begun.

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 1Q 2013 amounted to $172.4 million, of which $101.7 million was invested in the mining segment, $60.2 million was invested in the steel segment, $7.0 million was invested in the ferroalloy segment and $3.5 million was invested in the power segment.

As of March 31, 2013, total debt was $9.3 billion. Cash and cash equivalents amounted to $170 million and net debt amounted to $9.2 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 1Q 2013.

The management of Mechel will host a conference call today at 10:00 a.m. New York time (3:00 p.m. London time, 6:00 p.m. Moscow time) to review Mechel's financial results and comment on current operations. The call may be accessed via the Internet at http://www.mechel.com, under the Investor Relations section.

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.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements. We refer you to the documents Mechel files from time to time with the U.S. Securities and Exchange Commission, including our Form 20-F. These documents contain and identify important factors, including those contained in the section captioned "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in our Form 20-F, that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of our recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or ADRs, financial risk management and the impact of general business and global economic conditions.

Attachments to the 1Q 2013 Earnings Press Release

Attachment A

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Adjusted EBITDA represents earnings before Depreciation, depletion and amortization, Foreign exchange gain/(loss), Loss from discontinued operations, Gain/(loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of long-lived assets and goodwill, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests and Income taxes. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to EBITDA measures of other companies. Adjusted EBITDA is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While interest, depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted net income / (loss) represents net income / (loss) before Loss from discontinued operations, Result from companies' disposal, Impairment of long-lived assets and goodwill and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests. Our adjusted net income / (loss) may not be similar to adjusted net income / (loss) measures of other companies. Adjusted net income / (loss) is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted net income / (loss) provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations. While impairment of long-lived assets and goodwill and provision for the amounts due from related parties are considered operating costs under generally accepted accounting principles, these expenses represent the non-cash current period allocation of costs associated with assets acquired or constructed in prior periods. Our adjusted net income / (loss) calculation is used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted EBITDA can be reconciled to our consolidated statements of operations as follows:

Adjusted Net income / (loss) can be reconciled as follows:

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

Adjusted Net income / loss can be reconciled as follows:

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

Adjusted Net income / (loss) can be reconciled as follows:

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

Adjusted Net income / (loss) can be reconciled as follows:

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:
 

Adjusted Net income/loss can be reconciled as follows:

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows: