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Mechel Reports The 1H 2012 Financial Results

In 2Q 2012, the steel segment's operating loss totaled $471.0 million, or -24.0% of total segment's revenue, versus the operating income of $10.7 million, or 0.6% of total segment's revenue, in 1Q 2012. The adjusted EBITDA in the steel segment in 2Q 2012 increased by 87.8% and amounted to $91.2 million, compared to the adjusted EBITDA of $48.6 million in 1Q 2012. The adjusted EBITDA margin of the steel segment was 4.65% in 2Q 2012, versus the adjusted EBITDA margin of 2.81% in 1Q 2012. Depreciation and amortization in steel segment reduced by 5.7% from $43.7 million in 1Q 2012 to $41.2 million in 2Q 2012.

Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky commented on the steel segment's results: "In spite of the global economy still remaining weak, we managed to further improve our performance in the second quarter. Sales measured by volume increased by nearly 18% quarter-on-quarter contributing to a 15% growth in the segment's revenue. Sales grew as driven by both increased saleable volumes and a 130-thousand tonne reduction in inventory at Mechel Service Global. Given the positive effect from a circa 10% reduction in production costs for the key products on the back of relatively flat market prices, adjusted EBITDA increased virtually twofold quarter-on-quarter. Net of the negative accounting write-offs, including the foreign exchange loss, the Q2 net income is also well above the same result of Q1."

Ferroalloys Segment Results For The 1H 2012

US$ thousand 1H 2012 (1) 1H 2011   (1) Change Y-on-Y
Revenue from external customers 257,107 255,653 0.6%
Intersegment sales 49,955 123,365 -59.5%
Operating (loss) / income (169,067) 10,774 -1,669.2%
Net loss attributable to shareholders of Mechel OAO (163,094) (22,746) 617.0%
Adjusted net loss (1) (2) (80,097) (22,746) -252.1%
Adjusted EBITDA (1) (3) (14,878) 54,323 -127.4%
Adjusted EBITDA, margin (4) -4.85 % 14.33 % --
(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 2Q 2012 (1) 1Q 2012 (1) Change Q-on-Q
Revenue from external customers 132,376 124,730 6.1%
Intersegment sales 22,141 27,814 -20.4%
Operating loss (135,297) (33,770) 300.6%
Net loss attributable to shareholders of Mechel OAO (107,055) (56,040) 91.0%
Adjusted net loss (1) (2) (24,057) (56,040) -57.1%
Adjusted EBITDA (1) (2) (7,381) (7,498) -1.6%
Adjusted EBITDA, margin (3) -4.78 % -4.92 % --
(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 1H 2012, thousand tonnes 1H 2011, thousand tonnes 1H 2012 vs. 1H 2011, %
Nickel 8 8.4 -5%
Including nickel supplied to Mechel enterprises 1 3 -67%
Ferrosilicon 35 45.9 -24%
Including ferrosilicon supplied to Mechel enterprises 15 14.2 6%
Chrome 40 26.1 53%
Including chrome supplied to Mechel enterprises 4 7.9 -49 %

Ferroalloys segment's revenue from external customers in 2Q2012 amounted to $132.4 million, or 4% of the consolidated net revenue, an increase of 6.1% compared with the segment's revenue from external customers of $124.7 million or 4% of the consolidated net revenue, in 1Q2012.

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