OREANDA-NEWS. May 12, 2012. Mechel JSC  (NYSE: MTL), a leading Russian mining and steel group, today announced financial results for the full year 2011.

Revenue amounted to USD 12.5 billion

Consolidated adjusted EBITDA amounted to USD 2.4 billion

Net income attributable to shareholders of Mechel JSC  amounted to USD 728 million

Mechel JSC ’s Chief Executive Officer Yevgeny Mikhel commented on the 2011 financial results: “On the whole, last year was quite successful for the Group. Despite difficulties with economic development in many countries that are traditional customers of Mechel’s products, volatility in the financial markets and ambiguous price dynamics for our company’s key products, we not only managed to implement a fairly large-scale investment program and advance on our key projects, but also improve on the previous year’s main financial parameters. In that, a major role was played by the company’s competitive advantages such as a full range of coal and steel products offered by our sales branches, expansive geographical presence and the leading positions maintained by the company’s divisions in their market segments, supported by the holding’s integrated structure.”

Consolidated Results For The Full Year 2011

Consolidated Results For The Full Year 2011 USD  thousand

FY 2011

FY 2010

Change Y-on-Y

Revenue from external customers

12,546,285

9,746,036

28.7%

Intersegment sales

2,068,494

1,635,536

26.5%

Operating income

1,831,663

1,532,207

19.5%

Operating margin

14.60%

15.72%

-

Net income attributable to shareholders of Mechel JSC

727,885

657,213

10.8%

Adjusted EBITDA (1) (2)

2,393,104

2,015,446

18.7%

Adjusted EBITDA, margin (1)

19.07%

20.68%

-

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income. Consolidated Results For The 4Q 2011

Consolidated Results For The 4Q 2011

USD  thousand

4Q 2011

3Q 2011

Change Q-on-Q

Revenue from external customers

2,929,159

3,210,182

-8.8%

Intersegment sales

482,166

493,962

-2.4%

Operating income

377,494

529,484

-28.7%

Operating margin

12,89%

16,49%

-

Net income attributable to shareholders of Mechel JSC

201,155

25,708

682,5%

Adjusted EBITDA (1) (2)

536,342

677,589

-20.8%

Adjusted EBITDA, margin (1)

18.31%

21.11%

-

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

The net revenue in 2011 increased by 28.7% and amounted to USD 12.5 billion compared to USD 9.7 billion in 2010. The operating income rose by 19.5% and amounted to USD 1.8 billion or 14.60% of the net revenue, compared to the operating income of USD 1.5 billion or 15.72% of the net revenue in 2010.

In 2011, Mechel’s consolidated net income attributable to shareholders of Mechel JSC  increased by 10.8% to USD 727.9 million compared to the consolidated net income attributable to shareholders of Mechel JSC  of USD 657.2 million in 2010.

The consolidated adjusted EBITDA in 2011 increased by 18.7% to USD 2.4 billion, compared to USD 2.0 billion in 2010. Depreciation, depletion and amortization in 2011 for the Company were USD 561.1 million, an increase of 18.2% compared to USD 474.6 million in 2010.

Mining Segment Results For The Full Year 2011

USD  thousand

FY 2011

FY 2010

Change Y-on-Y

Revenue from external customers

4,139,948

3,050,950

35.7%

Intersegment sales

1,052,080

805,215

30.7%

Operating income

1,691,385

1,185,892

42.6%

Net income attributable to shareholders of Mechel JSC

1,069,892

756,687

41.4%

Adjusted EBITDA(1) (2)

2,023,827

1,467,936

37.9%

Adjusted EBITDA, margin (3)

38.98%

38.07%

-

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Mining Segment Results For The 4Q 2011

USD  thousand

4Q 2011

3Q 2011

Change Q-on-Q

Revenue from external customers

1,061,435

1,146,577

-7.4%

Intersegment sales

263,744

250,884

5.1%

Operating income

497,417

427,457

16.4%

Net income attributable to shareholders of Mechel JSC

439,066

14,206

2,990.7%

Adjusted EBITDA (1) (2)

592,825

511,845

15.8%

Adjusted EBITDA, margin (3)

44.74%

36.63%

-

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Mining Segment Output and Sales For The Full Year 2011

Production: Product name

2011, thousand tonnes

2010, thousand tonnes

2011 vs. 2010, %

Coal (run-of-mine)  

27,625  

28,044  

-1%  

Product Sales:

Product Sales: Product name

2011, thousand tonnes

2010, thousand tonnes

2011 vs. 2010, %

Coking coal concentrate  

12,515  

11,432  

+9%  

Including coking coal concentrate supplied to Mechel enterprises  

2,876  

3,100  

-7%  

PCI  

1,969  

456  

332%  

Anthracites  

2,344  

1,718  

36%  

Including anthracites supplied to Mechel enterprises  

323  

219  

47%  

Steam coal  

6,438  

8,242  

-22%  

Including steam coal supplied to Mechel enterprises  

1,319  

1,813  

-27%  

Iron ore concentrate  

4,404  

4,393  

0%  

Including iron ore concentrate supplied to Mechel enterprises  

1,693  

631  

168%  

Coke  

3,457  

3,696  

-6%  

Including coke supplied to Mechel enterprises  

2,415  

2,469  

-2%  

Mechel’s steel segment’s revenue from external customers in 2011 amounted to USD 7.2 billion, or 57.0% of the consolidated net revenue, an increase of 28.1% over the net segment’s revenue from external customers of USD 5.6 billion, or 57.3% of consolidated net revenue, in 2010.

In 2011, the steel segment’s operating income decreased by 35.6% and totaled USD 191.7 million, or 2.6% of total segment’s revenue, versus the operating income of USD 297.6 million, or 5.1% of total segment’s revenue, in 2010. The adjusted EBITDA in the steel segment in 2011 decreased by 22.9% and amounted to USD 318.9 million, compared to the adjusted EBITDA of USD 413.6 million in 2010. The adjusted EBITDA margin of the steel segment was 4.27% in 2011, versus the adjusted EBITDA margin of 7.09% in 2010. Depreciation and amortization in steel segment rose by 13.6% from USD 110.9 million in 2010 to USD 126.0 million in 2011.

Mechel-Steel Management LLC ’s Chief Executive Officer Andrey Deineko noted in commenting on the steel segment’s results: “Steel products markets’ deterioration in the fourth quarter of 2011, which led to lower demand and steel prices, brought about a decrease in the division’s earnings. This factor especially affected our Romanian enterprises, which mostly supply their products to the European market. The decrease in sales of the Romanian enterprises’ finished products led to an increase in production costs, which put marked pressure on the division’s financial results both in the fourth quarter and for the year as a whole. It must be noted, however, that volatility on the steel markets was significantly offset by the Mechel Service Global sales network, which has grown much in the past 3 years. We can confidently say that major funds we invested in this project, including those from the working capital, were justified, as it minimized the effect of decreased demand on our cash flow thanks to a much wider sales geography. 6

“The reporting period was marked by a series of positive events. For example, in the fourth quarter of 2011 we cut production costs for steel products at Chelyabinsk Metallurgical Plant. Chelyabinsk Metallurgical Plant also launched a new quality steel producing complex, which will work within the same production cycle as the universal rolling mill. As part of our efforts to cut costs, we are reconsidering production plans in favor of more profitable products, optimizing technological processes and consumption indices.”

Ferroalloys Segment Results For The Full Year 2011

USD  thousand

FY 2011

FY 2010

Change Y-on-Y

Revenue from external customers  

475,254  

455,199  

4.4%  

Intersegment sales  

199,191  

173,853  

14.6%  

Operating (loss) / income  

(44,912)  

22,958  

-295.6%  

Net loss attributable to shareholders of Mechel JSC   

(71,578)  

(186,256)  

61.6%  

Adjusted EBITDA (1) (2)

45,879  

94,431  

-51.4%  

Adjusted EBITDA, margin (3)

6.80%  

15.01%  

-  

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Ferroalloys Segment Results For The 4Q 2011

USD  thousand

4Q 2011

3Q 2011

Change Q-on-Q

Revenue from external customers  

115,888  

103,713  

11.7%  

Intersegment sales  

15,997  

59,829  

-73.3%  

Operating loss  

(35,929)  

(19,757)  

-81.9%  

Net loss attributable to shareholders of Mechel JSC   

(39,141)  

(9,691)  

-303.9%  

Adjusted EBITDA (1) (2)

(11,224)  

2,781  

-503.6%  

Adjusted EBITDA, margin   (3)

-8.51%  

1.70%  

-  

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Ferroalloys Segment Output and Sales For The Full Year 2011

Product Sales:

Product Sales: Product name

2011, thousand tonnes

2010, thousand tonnes

2011 vs. 2010, %

Nickel  

16.3  

16.6  

-1%  

Including nickel supplied to Mechel enterprises  

4.9  

4.7  

5%  

Ferrosilicon  

84  

88  

-4%  

Ferroalloys segment’s revenue from external customers in 2011 amounted to USD 475.3 million, or 3.8% of the consolidated net revenue, an increase of 4.4% compared with the segment’s revenue from external customers of USD 455.2 million or 4.7% of the consolidated net revenue, in 2010.

In 2011, the operating loss in the ferroalloys segment totaled USD 44.9 million, or -6.66% of total segment’s revenue, as compared to operating income of USD 23.0 million, or 3.65% of total segment’s revenue, in 2010. The adjusted EBITDA in the ferroalloys segment in 2011 decreased by 51.4% and amounted USD 45.9 million, compared to segment’s adjusted EBITDA of USD 94.4 million in 2010. The adjusted EBITDA margin of the ferroalloys segment comprised 6.8% in 2011 compared to the adjusted EBITDA margin of 15.0% in 2010. Ferroalloys segment’s depreciation, depletion and amortization in 2011 were USD 90.0 million, an increase of 33.7% over USD 67.3 million in 2010.

Mechel-Ferroalloys Management LLC’s Chief Executive Officer Gennady Ovchinnikov noted: “The fourth quarter was characterized by ambiguous trends which had their effect on the segment’s results. We managed to stabilize nickel costs to a certain extent. During test probes on chrome briquette producing equipment we decreased ferrochrome production costs despite growing chrome ore concentrate prices. We expected to see a certain growth in ferrosilicon production costs in the fourth quarter, due to the reconstruction of Bratsk Ferroalloy Plant’s furnace # 4, which was launched into production in the first quarter of 2012 as planned. At the same time the degressive price dynamics for the division’s finished products continued to affect the division’s financial parameters. We see further ways to optimize costs at Bratsk Ferroalloy Plant, where a modernized furnace was launched, as well as works are underway to transfer the plant fully to its own resource base at the Uvatsk quartzite deposit. We expect further improvements at Tikhvin Ferroalloy Plant, where the chrome briquette producing workshop is working at full capacity since the first quarter of this year.”

Power Segment Results for The Full Year 2011

USD  thousand

FY 2011

FY 2010

Change Y-on-Y

Revenue from external customers  

776,666  

653,663  

18.8%  

Intersegment sales  

506,807  

409,015  

23.9%  

Operating income  

23,759  

46,724  

-49.2%  

Net income attributable to shareholders of Mechel JSC   

(5,808)  

16,859  

-134.5%  

Adjusted EBITDA (1) (2)

36,537  

60,426  

-39.5%  

Adjusted EBITDA, margin   (3)

2.85%  

5.69%  

-  

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Power Segment Results for The 4Q 2011

USD  thousand

4Q 2011

3Q 2011

Change Q-on-Q

Revenue from external customers  

210,579  

164,132  

28.3%  

Intersegment sales  

126,305  

112,750  

12.0%  

Operating income / (loss)  

688  

(10,288)  

106.7%  

Net loss attributable to shareholders of Mechel JSC   

(5,907)  

(13,374)  

55.8%  

Adjusted EBITDA (1) (2)

3,019  

(7,032)  

142.9%  

Adjusted EBITDA, margin   (3)

0.90%  

-2.54%  

-  

(1) See Attachment A.

(2) 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, amounts attributable to non-controlling interests and interest income.

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

Power Segment Output and Sales For The Full Year 2011

Product name

2011, thousand tonnes

2010, thousand tonnes

2011 vs. 2010, %

Electric power generation (ths. kWh)  

3,915,202  

4,577,777  

-14%  

Heat power generation (Gcal)  

7,078,075  

6,951,511  

2%  

Mechel’s power segment’s revenue from external customers in 2011 comprised USD 776.7 million, or 6.2% of consolidated net revenue, an increase of 18.8% compared with the segment’s revenue from external customers of USD 653.7 million or 6.7% of consolidated net revenue in 2010.

The operating income in the power segment in 2011 amounted to USD 23.8 million, or 1.9% of the total segment’s revenue in the same period, a decrease of 49.2% compared to the operating income of USD 46.7 million, or 4.4% of the total segment’s revenue, in 2010. The adjusted EBITDA in the power segment in 2011 went down by 39.5% totaling USD 36.5 million, compared to the adjusted EBITDA of USD 60.4 million in 2010. The adjusted EBITDA margin for the power segment in 2011 amounted to 2.9% compared to 5.7% in 2010. Depreciation and amortization in power segment in 2011 increased by 10.95% comparing with the 2010 from USD 14.98 million to USD 16.62 million.

Mechel-Energo LLC ’s Chief Executive Officer Yuri Yampolsky noted: “The division’s results improved in the fourth quarter as expected, which was due to the heating season and an increase in capacity utilization. The segment had positive results in operational profit and EBITDA. Nevertheless, growing commercial costs, mostly due to rising electricity traffic tariffs, had a marked effect on the end result. In order to improve the situation, we have worked out and are implementing a series of steps aimed at cutting production costs as well as optimizing the capital expense program.”