Press Releases

Mechel Reports The 9m 2012 Financial Results

Moscow, Russia – December 12, 2012 – Mechel OAO (NYSE: MTL), a leading Russian mining and steel group, today announced financial results for the 9M 2012.

MECHEL REPORTS THE 9M 2012 FINANCIAL RESULTS

Revenue amounted to $8.8 billion 

Consolidated adjusted EBITDA amounted to $1.2 billion

Net loss attributable to shareholders of Mechel OAO amounted to $550 million

Moscow, Russia – December 12, 2012 – Mechel OAO (NYSE: MTL), a leading Russian mining and steel group, today announced financial results for the 9M 2012.

Evgeny Mikhel, Mechel OAO's Chief Executive Officer, commented on the 9M2012 financial results:

“In this accounting period, the group focused on its key strategic tasks as outlined by the Board of Directors in May. We focused our efforts on our core businesses — mining and full-cycle steelmaking, and made significant headway in cutting costs and maximizing sales. At the same time we have taken a series of measures aimed at minimizing the impact loss-generating enterprises have on the group’s financial results. We cut down to a minimum manufacturing of those products that are unprofitable in current economic conditions and prepared for sale those assets earlier designated for divestment. Work on optimizing the company’s debt structure never stops, as demonstrated by the recent refinancing of the syndicated loan as well as several long-term loans from Russian banks taken out to repay short-term debt. Investment expenses are subject to ever more rigorous control. Despite the fact that programs of production cost cuts have always been in place at our enterprises, now we pay extra attention to the issue. All these measures enabled us not only to improve our profitability at the EBITDA level and achieve a net profit in the 3rd quarter, but also to demonstrate a maximum quarter operational cash flow since the 2nd quarter of 2009 *.”

** For the comparative purposes the operating cash flow for the 4th quarter 2011 is taken net of the effect of the repayment of receivables by the related metallurgical plants.

Consolidated Results For The 9M 2012


US$ thousand

9M 2012 (1)

9M 2011 (1)

Change Y-on-Y

Revenue from external customers

8,750,831

9,617,126

-9.0%

Intersegment sales

1,231,103

1,586,328

-22.4%

Operating (loss) / income

(29,868)

1,454,169

-

Operating margin

-0.34%

15.12%

-

Net (loss) / income attributable to shareholders of Mechel OAO

(550,094)

526,730

-

Adjusted net income  (1) (2)

173,113

526,730

-67.1%

Adjusted EBITDA (1) (3)

1,223,696

1,856,763

-34.1%

Adjusted EBITDA, margin (1)

13.98%

19.31%

-

(1)       See Attachment A.

(2)       Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.


US$ thousand

3Q 2012 (1)

2Q 2012 (1)

Change Q-on-Q

Revenue from external customers

2,714,876

3,085,908

-12.0%

Intersegment sales

353,676

408,864

-13.5%

Operating income / (loss)

126,712

(470,607)

-

Operating margin

4.67%

-15.25%

-

Net income / (loss) attributable to shareholders of Mechel OAO

54,910

(823,023)

-

Adjusted net income / (loss) (1) (2)

132,130

(177,037)

-

Adjusted EBITDA (1) (3)

374,848

385,446

-2.7%

Adjusted EBITDA, margin (1)

13.81%

12.49%

-

(1)       See Attachment A.

(2)       Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

The net revenue in 3Q 2012 decreased by 12.0% and amounted to $2.7 billion compared to $3.1 billion in 2Q 2012. The operating income amounted to $126.7 million or 4.67% of the net revenue, compared to the operating loss of $470.6 million or -15.25% of the net revenue in 2Q 2012.

In 3Q 2012, Mechel’s consolidated net income attributable to shareholders of Mechel OAO  comprised $54.9 million compared to the net loss of $823.0 million in 2Q 2012. Excluding the effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (net of deferred taxes related to non controlling interests) the adjusted net profit amounts to $132.1 million in 3Q 2012.

The consolidated adjusted EBITDA in 3Q 2012 decreased by 2.7% to $374.8 million, compared to $385.4 million in 2Q 2012. Depreciation, depletion and amortization in 3Q 2012 for the Company were $140.8 million, a decrease of 10.4% compared to $157.2 million in 2Q 2012.

Mining Segment Results For The 9M 2012


US$ thousand

9M 2012 (1)

9M 2011 (1)

Change Y-on-Y

Revenue from external customers

2,591,167

3,078,513

-15.8%

Intersegment sales

604,606

788,336

-23.3%

Operating income

668,394

1,193,968

-44.0%

Net income attributable to shareholders of Mechel OAO

428,245

630,826

-32.1%

Adjusted net income (1) (2)

450,925

630,826

-28.5%

Adjusted EBITDA(1) (3)

965,178

1,431,003

-32.6%

Adjusted EBITDA, margin (4)

30.20%

37.01%

-

(1)       See Attachment A.

(2)       Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)        Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.


US$ thousand

3Q 2012 (1)

2Q 2012 (1)

Change Q-on-Q

Revenue from external customers

777,246

881,180

-11.8%

Intersegment sales

171,922

207,085

-17.0%

Operating income

200,256

192,570

4.0%

Net income / (loss) attributable to shareholders of Mechel OAO

216,765

(30,024)

-

Adjusted net income / (loss) (1) (2)

218,739

(9,318)

-

Adjusted EBITDA(1) (3)

305,157

301,906

1.1%

Adjusted EBITDA, margin (4)

32.15%

27.74%

-

(1)       See Attachment A.

(2)       Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales

Mining Segment Output and Sales For The 9M 2012

Production:


Product name

9M 2012,

thousand tonnes

9M 2011,
thousand tonnes

9M 2012 vs.
9M 2011, %

Coal (run-of-mine)

20,794

19,813

5%

Product Sales:


Product name

9M 2012,

thousand tonnes

9M 2011,
thousand tonnes

9M 2012 vs.
9M 2011, %

Coking coal concentrate

9,029

9,305

-3%

Including coking coal concentrate supplied to Mechel enterprises

1,950

2,271

-14%

PCI

1,703

1,202

42%

Anthracites

1,937

1,693

14%

Including anthracites supplied to Mechel enterprises

246

235

5%

Steam coal

4,490

5,036

-11%

Including steam coal supplied to Mechel enterprises

1,120

1,139

-2%

Iron ore concentrate

3,219

3,294

-2%

Including iron ore concentrate supplied to Mechel enterprises

268

1,327

-80%

Coke

2,707

2,563

6%

Including coke supplied to Mechel enterprises

1,903

1,704

12%

The mining segment’s revenue from external customers in 3Q 2012 totaled $777.2 million, or 29% of consolidated net revenue, a decrease of 11.8% over the segment’s revenue from external customers of $881.2 million, or 29% of consolidated net revenue in 2Q 2012.

Operating income in the mining segment in 3Q 2012 increased by 4.0% to $200.3 million, or 21.1% of the segment’s total revenue, compared to an operating income of $192.6 million, or 17.7% of total segment revenue for 2Q 2012. The 3Q 2012 adjusted EBITDA in the mining segment increased by 1.1% and amounted to $305.2 million compared to segment’s adjusted EBITDA of $301.9 million in 2Q 2012. The adjusted EBITDA margin for the mining segment in 3Q 2012 was 32.2% compared to 27.7% in 2Q 2012. Depreciation, depletion and amortization in the mining segment amounted to $76.5 million which is 9.9% lower than $84.9 million in 2Q 2012.

Mechel Mining OAO's Chief Operating Officer Boris Nikishichev commented on the mining segment's results:

“As the market situation has worsened for more than a year, our chief tasks became maintaining the mining division’s operational efficiency and ensuring further development of Elga, the company’s key strategic project. This year the group’s production and sales enterprises have made maximum effort to increase production and shipment volumes as Southern Kuzbass’s production capacities were restored, which enabled us to partly smooth over the negative impact of lower prices. The wide range of our coal products and our streamlined distribution system, both on the domestic and the international markets, ensure our company’s strong competitive position, enabling it to expand its client base even in these difficult conditions and enter new markets, as well as diversify sales to its current customers and make up for the lower demand for some types of coal by offering other coal grades.

“A tougher cost cutting program became another key instrument in improving the efficiency of the mining division’s enterprises. We made several management decisions including limitations on operational and administrative expenses, acquiring third-party supplies for lower prices, selling inventories and planned reductions of production at several assets. As a result, production costs were cut dramatically in the third quarter at all of our Russian mining assets. Temporary suspension of some of our US-based mining facilities in October due to increased inventories became another expense optimization measure.

“The third quarter was also marked by another event in the development of Elga Coal Complex — we completed construction of a washing plant and made the technological launch of a full production cycle. Currently finishing and insulating works are being conducted at the site, and when completed, the plant will be able to work all year round reaching 3 million tonnes capacity. Washing facilities next year will enable us to increase coal production at Elga and increase Mechel Mining’s supplies of coking coal concentrate. In order to ensure a long-term off-take for Elga’s steam coal, in September we signed a long-term cooperation agreement with RAO Energy Systems of East OAO, which provides for a gradual increase in coal supplies up to a total of 60 million tonnes over 15 years.”

Steel Segment Results For The 9M 2012


US$ thousand

9M 2012 (1)

9M 2011 (1)

Change Y-on-Y

Revenue from external customers

5,246,358

5,613,161

-6.5%

Intersegment sales

195,156

234,296

-16.7%

Operating (loss) / income

(503,231)

277,921

-

Net loss attributable to shareholders of Mechel OAO

(751,830)

(38,217)

1,867.3%

Adjusted net loss (1) (2)

(188,192)

(38,217)

392.4%

Adjusted EBITDA (1) (3)

214,587

368,681

-41.8%

Adjusted EBITDA, margin (4)

3.94%

6.30%

-

(1)       See Attachment A.

(2)       Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.


US$ thousand

3Q 2012 (1)

2Q 2012 (1)

Change Q-on-Q

Revenue from external customers

1,699,564

1,897,661

-10.4%

Intersegment sales

49,629

66,538

-25.4%

Operating loss

(42,868)

(471,029)

-90.9%

Net loss attributable to shareholders of Mechel OAO

(110,989)

(625,277)

-82.2%

Adjusted net loss (1) (2)

(35,740)

(136,888)

-73.9%

Adjusted EBITDA (1) (3)

74,746

91,251

-18.1%

Adjusted EBITDA, margin (4)

4.27%

4.65%

-

(1)       See Attachment A.

(2)       Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Steel Segment Output and Sales For The 9M 2012

Production:


Product name

9M 2012,

thousand tonnes

9M 2011,
thousand tonnes

9M 2012 vs.
9M 2011, %

Pig iron

3,107

2,672

16%

Steel

5,101

4,501

13%

Product Sales:


Product name

9M 2012,

thousand tonnes

9M 2011,
thousand tonnes

9M 2012 vs.
9M 2011, %

Flat products

534

512

4%

Including those produced by third parties

303

308

-2%

Long products

3,107

2,925

6%

Including those produced by third parties

666

614

9%

Billets

1,950

1,723

13%

Including those produced by third parties

751

1,208

-38%

Hardware and welded mesh

737

722

2%

Including those produced by third parties

39

39

0%

Forgings

39

45

-13%

Stampings

83

88

-6%

Mechel’s steel segment’s revenue from external customers in 3Q 2012 amounted to $1.7 billion, or 63% of the consolidated net revenue, a decrease of 10.4% over the segment’s revenue from external customers of $1.9 billion, or 61% of consolidated revenue, in 2Q 2012.

In 3Q 2012, the steel segment’s operating loss totaled $42.9 million, or -2.4% of the segment’s revenue, versus an operating loss of $471.0 million, or -24.0% of total segment revenue, in 2Q 2012. The adjusted EBITDA in the steel segment in 3Q 2012 decreased by 18.1% and amounted to $74.7 million, compared to the adjusted EBITDA of $91.3 million in 2Q 2012. The adjusted EBITDA margin of the steel segment was 4.27% in 3Q 2012, versus an adjusted EBITDA margin of 4.65% in 2Q 2012. Depreciation and amortization in the steel segment decreased by 3.4% from $41.2 million in 2Q 2012 to $39.8 million in 3Q 2012.

Commenting on the steel segment’s results, Mechel-Steel Management OOO’s Chief Executive Officer Vladimir Tytsky noted:

“In the third quarter, we continued to implement our equipment modernization program at our enterprises. Construction of the universal rolling mill at Chelyabinsk Metallurgical Plant has reached its final stage. We also continued to optimize stockpiles of steel products in our sales network’s warehouses. Despite a certain decrease of overall sales volumes of our finished products, we managed to increase sales of high value-added products, such as hardware and forgings. Lower iron ore and coke prices enabled us to reduce production costs at the division’s key Russian enterprises. The Russian market’s stable demand for long products also proved helpful. At the same time, persistent weakness in the European steel market and high scrap prices put great pressure on the results of the division’s enterprises located in Eastern Europe. Ultimately we decided first to cut production at electric smelting plants and then to temporarily halt production there. Many other companies faced the same problems, including those whose products we are selling through our sales network. Cutting production at such plants led to reduced sales volumes and therefore the division’s revenues. Due to our focus on the Russian market for long products, which fared much better than its European counterpart, in the third quarter we managed to maintain EBITDA at a fairly high level as compared to previous financial periods.”

Ferroalloys Segment Results For The 9M 2012


US$ thousand

9M 2012 (1)

9M 2011  (1)

Change

Y-on-Y

Revenue from external customers

348,114

359,366

-3.1%

Intersegment sales

72,980

183,194

-60.2%

Operating loss

(193,592)

(8,983)

2,055.1%

Net loss attributable to shareholders of Mechel OAO

(204,782)

(32,437)

531.3%

Adjusted net loss (1) (2)

(121,784)

(32,437)

275.4%

Adjusted EBITDA (1) (3)

(18,022)

57,102

-

Adjusted EBITDA, margin (4)

-4.28%

10.52%

-

(1)       See Attachment A.

(2)       Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.


US$ thousand

3Q 2012 (1)

2Q 2012 (1)

Change

Q-on-Q

Revenue from external customers

91,007

132,376

-31.3%

Intersegment sales

23,025

22,141

4.0%

Operating loss

(24,525)

(135,297)

-81.9%

Net loss attributable to shareholders of Mechel OAO

(41,688)

(107,055)

-61.1%

Adjusted net loss (1) (2)

(41,688)

(24,057)

73.3%

Adjusted EBITDA (1) (2)

(3,144)

(7,381)

-57.4%

Adjusted EBITDA, margin (3)

-2.76%

-4.78%

-

(1)       See Attachment A.

(2)       Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income  .

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Product Sales:


Product name

9M 2012,

thousand tonnes

9M 2011,
thousand tonnes

9M 2012 vs.
9M 2011, %

Nickel

11

12.5

-12%

Including nickel supplied to Mechel enterprises

2

4.6

-56%

Ferrosilicon

57

65.8

-13%

Including ferrosilicon supplied to Mechel enterprises

22

22.2

-1%

Chrome

53

43.3

22%

Including chrome supplied to Mechel enterprises

6

12.9

-53%

The ferroalloy segment’s revenue from external customers in 3Q2012 amounted to $91.0 million, or 3% of consolidated net revenue, a decrease of 31.3% compared with the segment’s revenue from external customers of $132.4 million or 4% of consolidated net revenue, in 2Q2012.

In 3Q2012, the operating loss in the ferroalloys segment decreased by 81.9% and totaled $24.5 million, or -21.5% of total segment revenue, as compared to an operating loss of $135.3 million, or    -87.6% of total segment revenue, in 2Q2012. The adjusted EBITDA in the ferroalloys segment in 3Q2012 increased by 57.4% and amounted to negative $3.1 million, compared to segment’s adjusted negative EBITDA of $7.4 million in 2Q2012. The adjusted EBITDA margin of the ferroalloys segment was -2.8% in 3Q2012 compared to the adjusted EBITDA margin of -4.8% in 2Q2012. The ferroalloys segment’s depreciation, depletion and amortization in 3Q2012 was $20.9 million, a decrease of 23.7% over $27.4 million in 2Q2012.

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

“As the situation on the ferroalloy product markets continues to worsen, we had to resort to drastic measures in a bid to reduce the negative economic effect. In the third quarter, production at Southern Urals Nickel Plant was dramatically reduced. In late September, nickel production at the plant was halted completely. Tikhvin Ferroalloy Plant’s production program was also revised. At the same time, Bratsk Ferroalloy Plant, using its modernized furnace's full capacity, increased manufacturing products whose sales bring the company profit even despite the markets' high volatility. As a result, operational loss and negative EBITDA were markedly reduced. The division will continue to optimize its operations in a bid to achieve positive results.”

Power Segment Results for The 9M 2012


US$ thousand

9M 2012 (1)

9M 2011 (1)

Change

Y-on-Y

Revenue from external customers

565,192

566,087

-0.2%

Intersegment sales

358,362

380,502

-5.8%

Operating (loss) / income

(42,208)

23,071

-

Net (loss) / income attributable to shareholders of Mechel OAO

(62,496)

99

-

Adjusted net (loss) / income (1) (2)

(8,603)

99

-

Adjusted EBITDA (1) (3)

21,184

33,520

-36.8%

Adjusted EBITDA, margin(4)

2.29%

3.54%

-

(1)       See Attachment A.

(2)       Adjusted net (loss) income is net (loss) income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects) 

(3)       Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income  .

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.


US$ thousand

3Q 2012 (1)

2Q 2012 (1)

Change

Q-on-Q

Revenue from external customers

147,059

174,691

-15.8%

Intersegment sales

109,101

113,099

-3.5%

Operating loss

(10,850)

(56,237)

-80.7%

Net loss attributable to shareholders of Mechel OAO

(13,877)

(60,053)

-76.9%

Adjusted net loss (1) (2)

(13,877)

(6,160)

125.3%

Adjusted EBITDA (1) (3)

(6,610)

287

-

Adjusted EBITDA, margin(4)

-2.58%

0.10%

-

(1)       See Attachment A.

(2)       Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)        Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

(4)       Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Power Segment Output and Sales For The 9M 2012


Product name

9M 2012

9M 2011

9M 2012 vs. 9M 2011, %

Electric power generation (ths. kWh)

3,097,211

2,830,884

9%

Heat power generation (Gcal)

5,409,167

4,804,525

13%

Mechel’s power segment revenue from external customers in 3Q 2012 was $147.0 million, or 5% of consolidated net revenue, a decrease of 15.8% compared with the segment’s revenue from external customers of $174.7 million or 6% of consolidated net revenue in 2Q2012.

The operating loss in the power segment in 3Q2012 amounted to $10.9 million, or -4.2% of the  segment’s revenue in the same period compared to an operating loss of $56.2 million, or -19.5% of the total segment revenue, in 2Q2012. The adjusted EBITDA in the power segment in 3Q2012 amounted to negative $6.6 million, compared to the adjusted positive EBITDA of $0.3 million in 2Q2012. The adjusted EBITDA margin for the power segment in 3Q2012 amounted to -2.6% compared to 0.1% in 2Q2012. Depreciation and amortization in power segment in 3Q2012 decreased by 0.8% comparing with the 2Q2012 from $3.65 million to $3.62 million.

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

“In the third quarter the power division worked with a low-season load and was preparing for the forthcoming winter period as planned. At the same time, production results are as planned and even exceed plans at some enterprises. Repairs and preparation for the winter are also complete. Financial results were typical for low-season  electricity and heat consumption, and are generally on the level of the previous period.”

Recent Highlights

  • In October 2012, Mechel reported signing long-term agreements with Sberbank of Russia OAO pursuant to which Sberbank opened four credit lines to Southern Kuzbass Coal Company OAO for a total of 24 billion rubles for a period of five years with a three-year grace period. Yakutugol Holding Company OAO, Mechel Mining OAO and Mechel OAO act as guarantors of the facility.
  • In October 2012, due to accumulated coal inventories, Mechel reported the temporary halting of mining facilities at Mechel Bluestone.
  • In November 2012, Mechel reported the temporary halting of production facilities at Donetsk Electrometallurgical Plant (DEMZ), and the schedule for temporary suspension of production at the group’s Romanian steelmaking facilities, in both cases due to unfavorable conditions on markets of raw materials and finished steel products.
  • In December 2012, Mechel announced signing an amendment and restatement agreement in relation to a syndicated pre-export loan totalling 1 billion US dollars in order to further improve the liquidity of the company.

***

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 9M 2012 amounted to $847.3 million, of which $509.8 million was invested in the mining segment, $296.2 million was invested in the steel segment, $32.0 million was invested in the ferroalloy segment and $9.3 million was invested in the power segment.

 

As of September 30, 2012, total debt was $9.7 billion. Cash and cash equivalents amounted to $582 million and net debt amounted to $9.1 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 3Q 2012.

The management of Mechel will host a conference call today at 9:00 a.m. New York time (2:00 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 OAO

Vladislav Zlenko

Director of Investor Relations

Mechel OAO

Phone: 7-495-221-88-88

Fax: 7-495-221-88-00

vladislav.zlenko@mechel.com

 

***

 

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 9M 2012 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), 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 loan given to related parties, 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 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:

Consolidated results


US$ thousand

9M 2012

9M 2011

Net (loss) / income

(550,094)

526,730

  Add:

Depreciation, depletion and amortization

453,819

421,578

Forex loss / (gain)

(5,828)

131,518

Loss from remeasurement of contingent liabilities at fair value

1,413

1,303

Interest expense

484,717

448,127

Interest income

(52,453)

(10,097)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

748,568

(6,175)

Amount attributable to noncontrolling interests

7,059

53,046

Income taxes

136,496

290,733

Adjusted EBITDA

1,223,696

1,856,763


US$ thousand

3Q 2012

2Q 2012

Net (loss) / income

54,910

(823,023)

  Add:

Depreciation, depletion and amortization

140,756

157,205

Forex loss / (gain)

(126,629)

291,716

Loss from remeasurement of contingent liabilities at fair value

484

469

Interest expense

159,595

164,060

Interest income

(15,883)

(17,798)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

74,520

674,567

Amount attributable to noncontrolling interests

17,730

(25,688)

Income taxes

69,363

(36,059)

Adjusted EBITDA

374,848

385,446

 

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


US$ thousand

9M 2012

9M 2011

Net (loss) / income

(550,094)

526,730

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties

771,028

-

Amount attributable to noncontrolling interests

(27,778)

-

Income taxes

(20,043)

-

Adjusted net income

173,113

526,730


US$ thousand

3Q 2012

2Q 2012

Net  income / (loss)

54,908

(823,023)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties

77,222

693,806

Amount attributable to noncontrolling interests

-

(27,778)

Income taxes

-

(20,042)

Adjusted net (loss) / income

132,130

(177,037)

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


US$ thousand

9M 2012

9M 2011

Revenue, net

8,750,831

9,617,126

Adjusted EBITDA

1,223,696

1,856,763

Adjusted EBITDA, margin

13.98%

19.31%


US$ thousand

3Q 2012

2Q 2012

Revenue, net

2,714,876

3,085,908

Adjusted EBITDA

374,848

385,446

Adjusted EBITDA, margin

13.81%

12.49%

Mining Segment


US$ thousand

9M 2012

9M 2011

Net income

428,245

630,826

  Add:

Depreciation, depletion and amortization

243,010

244,444

Forex loss / (gain)

1,840

99,315

Loss from remeasurement of contingent liabilities at fair value

1,413

1,303

Interest expense

205,429

259,151

Interest income

(84,016)

(117,972)

Net result on the disposal of non-current assets

(805)

(282)

Amount attributable to noncontrolling interests

38,574

57,067

Income taxes

131,488

257,151

Adjusted EBITDA

965,178

1,431,003


US$ thousand

3Q 2012

2Q 2012

Net income

216,765

(30,024)

  Add:

Depreciation, depletion and amortization

76,515

84,875

Forex loss / (gain)

(93,695)

197,945

Loss from remeasurement of contingent liabilities at fair value

484

469

Interest expense

64,605

72,291

Interest income

(29,389)

(31,053)

Net result on the disposal of non-current assets

(2,388)

1,166

Amount attributable to noncontrolling interests

10,394

10,264

Income taxes

61,866

(4,026)

Adjusted EBITDA

305,157

301,906

Adjusted Net income/loss can be reconciled as follows:


US$ thousand

9M 2012

9M 2011

Net income

428,245

630,826

Provision for amounts due from related parties

22,680

-

Adjusted net income

450,925

630,826


US$ thousand

3Q 2012

2Q 2012

Net (loss) / income

216,765

(30,024)

Provision for amounts due from related parties

1,974

20,706

Adjusted net (loss) / income

218,739

(9,318)

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


US$ thousand

9M 2012

9M 2011

Revenue (including intersegment sales)

3,195,773

3,866,849

Adjusted EBITDA

965,178

1,431,003

Adjusted EBITDA, margin

30.20%

37.01%


US$ thousand

3Q 2012

2Q 2012

Revenue (including intersegment sales)

949,168

1,088,265

Adjusted EBITDA

305,157

301,906

Adjusted EBITDA, margin

32.15%

27.74%

Steel Segment


US$ thousand

9M 2012

9M 2011

Net loss

(751,830)

(38,217)

  Add:

Depreciation, depletion and amortization

124,657

94,839

Forex loss

(23,098)

59,148

Interest expense

278,155

245,545

Interest income

(5,730)

(10,808)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

595,705

(1,192)

Amount attributable to noncontrolling interests

(14,222)

(9,148)

Income taxes

10,950

28,514

Adjusted EBITDA

214,587

368,681


US$ thousand

3Q 2012

2Q 2012

Net loss

(110,989)

(625,277)

  Add:

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