Mechel Reports the 1H 2011 Financial Results

Revenue amounted to $6.4 billion

Consolidated adjusted EBITDA amounted to $1.2 billion

Net income attributable to shareholders of Mechel OAO amounted to $501 million

MOSCOW, Oct. 11, 2011 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, today announced financial results for the 1H 2011.

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 OAO decreased by 37.9% to $191.9 million compared to the consolidated net income attributable to shareholders of Mechel OAO 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. Depreciation, depletion and amortization in 2Q 2011 for the Company were $138.6 million, a decrease of 1.2% compared to $140.2 million in 1Q 2011.

Mining segment's revenue from external customers in 2Q 2011 totaled $1.1 billion, or 31.8% of the consolidated net revenue, an increase of 33.3% over net segment's revenue from external customers of $828.1 million, or 28.2% of the consolidated net revenue in 1Q 2011.

The operating income in the mining segment in 2Q 2011 increased by 62.5% to $474.5 million, or 34.4% of total segment's revenue, compared to the operating income of $292.1 million, or 26.8% of total segment revenue for the 1Q 2011. The adjusted EBITDA in the mining segment in 2Q 2011 went up by 54.5% and amounted to $558.0 million compared to segment's adjusted EBITDA of $361.2 million in 1Q 2011. The adjusted EBITDA margin for the mining segment in 2Q 2011 was 40.4% compared to 33.2% in 1Q 2011. Depreciation, depletion and amortization in the mining segment amounted to $79.2 million which is 4.6% less than $83.0 million in 1Q 2011.

Chief Executive Officer of Mechel Mining Management Company Boris Nikishichev commented on the mining segment operating results: "The segment's second-quarter results noticeably improved on the first quarter's results on all points. We increased volumes of coal mining and concentrate production, while cutting down on mining costs in most of our assets, increased sales. This reflected in the improvement of our financial results. For example, EBITDA in the 2^nd quarter grew by over 50% compared to the 1^st quarter.

"The chief factors that had a positive impact on our work's results in this quarter were restoring our mining and coal processing volumes on Yakutugol, planned production growth on the other facilities, and improving conditions on the coal and iron ore market.

"Our success in implementing strategic investment projects must also be noted. Active work on constructing Elga Coal Complex and its railway link allowed us to begin mining at the open pit and ship first coal to our customers as early as in August."

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. The adjusted EBITDA margin of the steel segment was 3.06% for the 2Q 2011, versus the adjusted EBITDA margin of 8.11% in 1Q 2011. Depreciation and amortization in steel segment rose by 11.3% from $29.1 million in 1Q 2011 to $32.4 million in 2Q 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.

"Nevertheless, I must note that the situation in the steel market was not so favorable in the second quarter. We had to deal with growing prices for raw materials, which were not compensated by the growth of steel prices. Scheduled repairs of the furnace #5 at our largest asset, Chelyabinsk Metallurgical Plant, provided additional pressure on production costs and the division's final financial results in the second quarter.

"We continue to consistently implement our investment program aimed at upgrading our production facilities and making the steel segment more efficient. For example, the investment project on Izhstal's modernization overhaul is nearly complete. After launching a new electric arc furnace, an out-of-furnace steel processing complex and a concaster, in August we made the warm launch of the mill and are currently holding tests. Construction of the universal rolling mill at Chelyabinsk Metallurgical Plant is also going along actively."

Ferroalloys segment's revenue from external customers in the 2Q 2011 amounted to $131.5 million, or 3.8% of the consolidated net revenue, an increase of 5.9% compared with the segment's revenue from external customers of $124.1 million or 4.2% of the consolidated net revenue, in 1Q 2011.

In 2Q 2011, the operating loss in the ferroalloys segment totaled $1.1 million, or -0.5% of total segment's revenue, decreasing by 109.1% versus operating income of $11.9 million, or 6.7% of total segment's revenue, in 1Q 2011. The adjusted EBITDA in the ferroalloys segment in 2Q 2011 decreased by 45.3% and amounted $19.2 million, compared to segment's adjusted EBITDA of $35.1 million in 1Q 2011. The adjusted EBITDA margin of the ferroalloys segment comprised 9.5% in 2Q 2011 compared to the adjusted EBITDA margin of 19.9% in 1Q 2011. Ferroalloys segment's depreciation, depletion and amortization in 2Q 2011 were $21.7 million, a decrease of 3.1% over $22.4 million in 1Q 2011.

Gennadiy Ovchinnikov, Chief Executive Officer of Mechel Ferroalloys Management Company, noted: "Every quarter the ferroalloys division demonstrates stable production results for nickel and ferrosilicon while increasing production of ferrochrome. In this year's second quarter ferrochrome production grew by 10%, while sales went up by 30%.

"We continue to implement the modernization program for the segment's facilities. We are about to launch an experimental constant current furnace on Southern Urals Nickel Plant, as part of mastering the technology of electric smelting of nickel ore. If the experimental furnace yields successful tests, the new technology will enable us to increase nickel production while cutting costs. Tikhvin Ferroalloys Plant is shortly due to launch a workshop producing chrome bales. This technology will also allow us to increase production of chrome and make the plant ecologically safer. Bratsk Ferroalloys Plant, which produces ferrosilicon, is due to re-launch the furnace #4 after reconstruction. Implementation of all these projects will allow us to cut costs and increase production volumes."

Mechel's power segment's revenue from external customers in 2Q 2011 comprised $176.8 million, or 5.1% of consolidated net revenue, a decrease of 21.4% compared with the segment's revenue from external customers of $225.1 million or 7.7% of consolidated net revenue in 1Q 2011.

The operating loss in the power segment in 2Q 2011 amounted to $0.2 million, or -0.1% of the total segment's revenue in the same period, a decrease of 100.5% compared to the operating income of $33.5 million, or 9.10% of the total segment's revenue, in 1Q 2011. The adjusted EBITDA in the power segment in 2Q 2011 went down by 85.6% totaling $5.1 million, compared to the adjusted EBITDA of $35.4 million in 1Q 2011. The adjusted EBITDA margin for the power segment in 2Q 2011 amounted to 1.7% compared to 9.6% in 1QH 2011. Depreciation and amortization in power segment in 2Q 2011 decreased by 7.20% comparing with the 1Q 2011 from $5.70 million to $5.29 million.

Anatoly Merzlyakov, Chief Executive Officer of Mechel Energo, noted: "In the power segment, the second quarter was marked with a seasonal decrease of generating and selling heat and electricity, which had its effect on the financial results.

"At the same time, we traditionally used this year's warm period to the maximum to make scheduled repairs, upgrade equipment and prepare our generating facilities for the fall-winter full load, when the division's production and financial results are expected to improve notably."

Recent Highlights

• In August 2011, Mechel announced the signing of a three-party contract between Mecheltrans Vostok OOO, Sinara-Transport Machines OAO, and VTB Leasing OAO for development, production and delivery of TEM-8 type locomotives. The contract stipulates that in 2012-2014 Lyudinovsky Diesel-Locomotive Building Works (part of Sinara-Transport Machines OAO) will deliver 18 single-sectional eight-axle TEM-8 locomotives to Mecheltrans Vostok OOO.
• In August 2011, Mechel announced a JORC summary of its ore reserves and mineral resources. Based on the review prepared by IMC Group Consulting Ltd., the total JORC Equivalent Coal Ore Reserves and Resources as of May 1, 2011 were 3,271 million tonnes and 4,373 million tonnes, respectively, while total JORC Equivalent Iron Ore Reserves and Resources as of May 1, 2011 were 267 million tonnes and 427 million tonnes, respectively.
• In August 2011, Mechel announced the launch of the new converter # 2 in Chelyabinsk Metallurgical Plant's oxygen-converter shop. Replacement of the converter #2 is the first stage in the complex reconstruction program for Chelyabinsk Metallurgical Plant's oxygen converter shop.
• In August 2011, Mechel announced achieving highest monthly production results at the Nerungrinskaya processing plant of Yakutugol Holding Company OAO and that Sakha Republic's Agency for Use of Mineral Resources gave permission to launch the first stage of the open pit development at the Elga deposit. Separately, construction of the Ulak-Elga railway link was completed up to the 209 km point ahead of schedule.
• In September 2011, Mechel announced the creation of Mechel Somani Carbon Private Limited, India, set up jointly with India's Somani Group. The joint venture will handle distribution of metallurgical coals on the Indian market. The project's distribution area will be located on India's east coast, 20 kilometers from India's major port of Vizag, in an industrially developed region.
• In September 2011, Mechel announced the first results of mining in Yakutugol Holding Company OAO's Elga Coal Complex. In accordance with plans announced earlier, mining at the Elga deposit started in August. The Elginsky open pit yielded some 21,000 tonnes of coal in less than a month. The start of the mining process was timed to the commissioning of the Ulak-Elga railway from point 1 to the 209-kilometer point, with the railway planned to be fully completed in December 2011.
• In September 2011, Mechel announced record coal transshipment results achieved by Trade Port Posiet OAO in August. In August, Trade Port Posiet OAO loaded 26 cargo ships with a total of 509,000 tonnes of coal products, which is the best monthly result in the port's history. The record was achieved due to improvements in the port's technical support made within the framework of the large-scale modernization program scheduled to be completed by the end of 2012.
• In September 2011, Mechel announced the signing of a strategic partnership memorandum with SAP AG, the world's leading supplier of business management software solutions. The document provides for the gradual implementation of SAP software solutions, based on specialized industry packages in Mechel's mining, steel and sales divisions. The two sides also decided to jointly implement the Enterprise Resource Planning (ERP) project in all of Mechel's sales network business units.
• In October 2011, Mechel announced establishing its official representative office in Minsk, the Republic of Belarus. Mechel OAO's representative office will provide support to the company's business interests in Belarus, maintain contact with governmental authorities, arrange meetings with representatives of the local business community, search for new partners and ensure informational support for the company's activities in Belarus.

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 (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 2Q 2011.

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.

The Mechel OAO logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=8181

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 1H 2011 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, Amount attributable to non-controlling 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 EBITDA can be reconciled to our consolidated statements of operations as follows:

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