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Mechel Reports The 9M 2012 Financial Results

Stocks in this article: MTL

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.

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