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Mechel Reports The 9M 2012 Financial Results

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."

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