Mechel Reports the 2013 Financial Results

Revenue amounted to $8.6 billion
Consolidated adjusted EBITDA amounted to $730 million
Net loss attributable to shareholders of Mechel OAO amounted to $2.9 billion

MOSCOW, May 15, 2014 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, today announced financial results for the full year 2013.

Oleg Korzhov, Mechel OAO's Chief Executive Officer, commented on the 2013 results:

"In the past year, the Group's structure was subject to major transformation as part of our implementation of the revised strategy. Romanian steelmaking facilities were disposed of by the Group, chrome ore and ferrochrome producing enterprises were sold. These steps had a positive impact on the company's condition as funds were no longer funneled into financing unprofitable enterprises, cash flow was freed and the sale of chrome assets brought in significant funds. The downside of the Group's asset restructuring was in lower revenues as well as major write-offs in our accounts. We have significantly cut down our capital investment program, which was largely due to the completion of the company's key investment projects or their implementation in the framework of project financing.

"Naturally, volatility in the global markets for metallurgical resources brings certain changes to our operations, complicates the deleveraging process and limits our capital investment capacity. Nevertheless we expect that the steps we take will have tangible positive effect in the medium term."

• The major factor contributing to the 19-percent decrease in consolidated revenue as compared to 2012 was the 23-percent decrease in the steel segment's revenue due to the Group's disposal of unprofitable assets (Romanian facilities) and interruption of supplies from third parties due to the end of our partnership with Estar plants.
• The decrease in the consolidated adjusted EBITDA was largely due to the decrease in prices for the mining division's key products.
• The main reason for our net loss is in over 2 billion dollars of write-offs due to the negative results from discontinued operations, loss from disposal of non-current assets, impairment of long-term assets and goodwill, as well as provision for amounts due from related parties.
• Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the FY2013 amounted to $558.1 million, of which $336.8 million was invested in the mining segment, $211.5 million was invested in the steel segment, $4.6 million was invested in the ferroalloy segment and $5.2 million was invested in the power segment.
• As of December 31, 2013, total debt was $9.0 billion. Cash and cash equivalents amounted to $269 million and net debt amounted to $8.7 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at the end of 4Q 2013.

• The market price year-on-year decrease — 22% for coking coal concentrate, 16% for anthracites and PCI, 7% for steam coal and 20% for coke — caused an 18-percent decrease in revenue from selling to outside customers and a 52-percent decrease in adjusted EBITDA.
• Capital expenses in fixed assets and acquisition of subsoil licenses in 2013 amounted to 336.8 million US dollars, which is less by 45% than the previous year's figures.

Mechel Mining Management OOO's Chief Executive Officer Pavel Shtark commented on the mining division's results:

"Despite a complicated situation in the mining industry, as a result of 2013 we maintained coal production in the Group on previous year's levels. Throughout the year, prices for anthracites and PCI, the so-called other metallurgical coals, were more stable. That enabled us to significantly increase sales in this particular segment of our coal production. We have increased sales of PCI coals by a third, and sales of other metallurgical coals went up by nearly 15%.

"As a whole, the weakness of coking coal markets continued to significantly impact the division's operations and results throughout last year. Average sales prices for coking coal concentrate on the FCA basis demonstrated a 11-percent decrease as compared to the figures at the beginning of the period. With the market situation steadily worsening since 2012, current price minimums are at their lowest over the past seven years.

"In order to maximize the division's financial results, we are constantly working on boosting production and sales efficiency and consolidation of our hold on the most promising markets. Since the beginning of this year, we have made significant progress in our cooperation with our Chinese partners by cinching new long-term contracts for more supply volumes than last year's. We have also gained access to new markets of other metallurgical coals by expanding our client base to include steelmakers in Western Europe.

"At the same time we continued implementing our key investment project — Elga Coal Complex's construction. In March, we signed agreements with Vnesheconombank for the second and third credit lines to finance the project. In April, once the winter season was over, the seasonal washing factory at Elga was re-launched, and mining resumed at the open pit. Preliminary work on construction of a permanent washing plant continues, and railway tracks from the pit to the factory are being laid. Other infrastructure facilities are being built. We expect that this year products from the Elga deposit will make their first major contribution to the division's operational results."

• The decrease in sales of key products in 2013, largely due to the Group's disposal of unprofitable assets (Romanian facilities) and interruption of supplies from third parties due to the end of our partnership with Estar plants, led to a 23-percent decrease in revenue from sales to third parties.
• The decrease in adjusted EBITDA is primarily due to lower sales revenue.
• Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 211.5 million US dollars, which is 37% less than the previous year's figures.

Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky commented on the steel segment's results:

"The 2013 final financial result was largely due to a decrease in sales of key products as compared to the previous year. The chief reason for that lies in steps taken to optimize the Group's steel asset structure by disposing of non-core enterprises that generated loss in our cash flow. Primarily the sales volumes were impacted by the Group's disposal of unprofitable Romanian facilities. At the same time, the disposal had a positive effect on the division's financial situation. The division's revenues were also significantly impacted by the end of our partnership with several third-party steelmaking plants and the end to our marketing of their products.

"A certain decrease in the last quarter's figures was due to the cutback of our steel production in the second half of 2013, linked to the planned major repairs to the blast furnace #1 and the planned reconstruction of the converter #3 at Chelyabinsk Metallurgical Plant.

"Throughout last year we have achieved notable success in several directions. In line with the Group's revised strategy, we continued to cut down on Mechel Service Global sales and service network's European segment. Some of its trade facilities that were inefficient insofar as product turnover and unprofitable operationally, were shut down, some are in the process of closing down. By the year's end, our European product stock went down by 330,000 tonnes, which freed a lot of cash flow. This process is still under way, with our stocks going down by over 40,000 tonnes since the beginning of this year.

"In July 2013, we launched the universal rolling mill at Chelyabinsk Metallurgical Plant. The mill is currently undergoing tests and mastering production. The mill has mastered production of 10 types of double-T rolls, as well as production of pit props. The mill is working on mastering rail production. We intend to shortly ship a batch of high-quality rails to Russian Railways for certification."

• Revenue from sales to outside customers in 2013 went up by 19% due to a 21-percent increase in ferrosilicon sales.
• Despite the negative impact of the price decrease, adjusted EBITDA went up by 60% due to cuts in operational and administrative costs, as well as the decrease in expenses in creating a reserve on unrecoverable debt.
• Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 4.6 million US dollars, which is 23% less than the previous year's figures.

Mechel Ferroalloys Management Company OOO's Chief Executive Officer Sergey Zhilyakov noted:

"By 2014, the ferroalloys division underwent major changes. Apart from Southern Urals Nickel Plant which was halted in 2012, by the end of 2013 we disposed of chrome assets. Bratsk Ferroalloy Plant remains the division's key production asset.

"The revamped division demonstrated good 2013 results. An increase in production and sales volumes led to a major increase in revenue. At the same time, despite still weak prices, the division managed to almost entirely get rid of operational loss, and adjusted EBITDA topped last year's figures.

"The fourth quarter's results turned out to be somewhat weaker. That was due to increased costs as a result of a hike in electricity prices, and an increase of the share of products aimed for export sales. Nevertheless, we expect that this year our production structure revision, as well as measures on optimizing costs, will enable us to normalize operational costs and continue our trend toward improving financial results."

• Revenue from sales to outside customers year-on-year remained practically the same.
• Adjusted EBITDA went down by 20% largely due to bad debt provision's growth by 9.1 million US dollars.
• The main reason for a decrease of net loss is the decrease of loss from discontinued operations at Toplofikatsia Rousse.
• Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 5.2 million US dollars, which is 47% less than the previous year's figures.

Mechel-Energo OOO's Chief Executive Officer Pyotr Pashnin noted:

"As a result of 2013, the Group's power division's revenue remained at the previous year's levels, with adjusted EBITDA going down by 19.7% due to increased costs of unrecoverable debt provision as payment history of our end customers worsened. Despite a complicated situation, our enterprises ensured reliable and uninterrupted work of our production facilities and supply of our customers with electricity and heat in high winter season. Each of the division's enterprises is implementing a program for improving energy efficiency and cutting reference fuel consumption in 2013-2017."

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.

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 FY 2013 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), Loss from discontinued operations, Gain/(loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of long-lived assets and goodwill, Provision for amounts due from related parties, Amount attributable to noncontrolling 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 net income / (loss) represents net income / (loss) before Loss from discontinued operations, Impairment of long-lived assets and goodwill and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests. Our adjusted net income / (loss) may not be similar to adjusted net income / (loss) measures of other companies. Adjusted net income / (loss) 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 net income / (loss) provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations. While impairment of long-lived assets and goodwill and provision for the amounts due from related parties are considered operating costs under generally accepted accounting principles, these expenses represent the non-cash current period allocation of costs associated with assets acquired or constructed in prior periods. Our adjusted net income / (loss) calculation is 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 Net income / (loss) can be reconciled as follows:

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

Adjusted Net income/loss can be reconciled as follows:

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

Adjusted Net income / (loss) can be reconciled as follows:

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

Adjusted Net income / (loss) can be reconciled as follows:

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

Adjusted Net income/loss can be reconciled as follows:

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

Mechel OAO
Vladislav Zlenko
Director of Investor Relations
Mechel OAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
vladislav.zlenko@mechel.com