Mechel's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Mechel OAO (MTL)

Q1 2012 Results Earnings Call

June 20, 2012 10:00 AM ET

Executives

Vladislav Zlenko – Director, Investor Relations

Yevgeny Mikhel – Chief Executive Officer

Stanislav Ploschenko – Chief Financial Officer

Oleg Korzhov – Senior Vice-President, Economics and Management

Analysts

Sergey Donskoy – Société Générale

Anton Rumanse – Troika

Andrey Lobazov – Alfa Bank

Oleg Petropavlovsky – BCS

Bernard Zonneveld – ING Bank

Dan Yakub – Citi

Vasily Kuligin – Renaissance Capital

Andrey Kulakov – Uralsib Capital

George Buzhenitsa – Deutsche Bank

Paul Carr – Amoris Management

Presentation

Operator

Welcome to the Mechel Reports Q1 2012 Financial Results. My name is Emma, and I will be your coordinator for today’s conference. For the duration of the call, you will be on listen-only. And at the end of the call, you’ll have the opportunity to ask question. (Operator Instructions)

I’m now handing over to Vladislav Zlenko to begin. Please go ahead, sir.

Vladislav Zlenko

Thank you, and good day, everyone. I would like to welcome you to Mechel’s conference call to discuss our first quarter 2012 financial results which were reported today.

With us from management today are Mr. Yevgeny Mikhel, Mechel’s CEO; Mr. Stanislav Ploschenko, Mechel’s CFO; and Mr. Oleg Korzhov, Mechel’s Senior Vice-President for Economics and Management.

After management has made their formal remarks, we will take your questions to the presentation team. Please note that during this call, management will make forward-looking statements, some of which may have been made in the press release. Some of the information on this conference call 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 United States Securities and Exchange Commission, which contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

In addition, we will be using non-GAAP financial measures, including EBITDA in our discussion today. Reconciliations of non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures are contained in the earnings press release, which is available on our website at mechel.com.

At this point, I would like to turn the call over to Mechel’s CEO. Mr. Mikhel, please go ahead.

Yevgeny Mikhel

[Foreign Language]

Good morning and good day ladies and gentlemen. Welcome to conference call where we will discuss company’s performance in the first quarter of 2012.

[Foreign Language]

We have to recognize the fact that on the whole the first quarter of this year proved to be rather challenging. Significant reduction of quarterly prices on coking coal was pre-determined by prolonged weakness of the global economy and low demand from major customers.

This works against Mechel Mining financial performance. On the other side, in the first quarter steel feedstock prices were falling at a time when steel product prices were relatively stable. This contributed to high financial results of Mechel’s steel.

We succeeded in our efforts at optimizing the production of steel program with the view to reduce the inventory, which accumulated at the end of last year in Mechel Service Global and this also had positive effects. We managed the release of working capital to improve operational cash flow of the group.

[Foreign Language]

Overall, we achieved the full-end results in the first quarter of 2012. Mechel’s consolidated revenue was around $3 billion. EBITDA was $463 million, net income $218 million.

[Foreign Language]

Concerning our activities on the key areas of strategic business development especially mining, I have to note that at the end of last year, a railroad linking Baikal-Amur Mainline and Elga deposit was opened.

Early this year, we started construction of the seasonal washing plant, another infrastructure facility that is essential for Elga development. We expect to complete construction by the end of July, which will enable shipments of readymade coking coal concentrate directly from deposit already in this year, thus enhancing the project efficiency.

[Foreign Language]

We mustn’t forget that in the coming years, Mechel’s mining segment will develop not only by building up production of Elga. Coke cruisers of the Southern Kuzbass are estimated to be around 700 million pounds. From the start of the year in the Southern Kuzbass, we made progress with one of our most important current project, construction of the second line at Sibirginskaya mine.

By May, we completed funneling of the vertical shaft that took us several years and at this moment, we begin to reinforce it. We expect to work the second line at Sibirginskaya mine in 2014, thus doubling its production and bringing it to 2.4 million tonnes of coal a year.

[Foreign Language]

Considering a serious operation production of coal in the coming years, we focus on development of own port facilities to ensure efficient access to the most promising markets. From the start of the year, we manage to make progress and expand in the capacity of Port Posiet our gate to the Asia Pacific region.

Till the end of the year, we plan to increase port capacity from current 4 million tonnes to 7 million tonnes a year. (Inaudible) is down next year, the port capacity will reach 9 million tonnes. And the port will be able to receive Panamax-class vessels with deadweight of up to 60,000 tonnes, which will significantly improve the efficiency of logistics through the port.

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