OREANDA-NEWS. On July 14, 2008 Mechel OAO (NYSE: MTL), a leading Russian integrated mining and metals group, announced financial results for the first quarter ended March 31, 2008, reported the press-centre of Mechel.

Igor Zyuzin, Chief Executive Officer, commented, “Our final results for the 2008 first quarter came in as we expected, and reflect strong operational and financial performance.  Conditions in the markets we serve continue to be favorable and are driven by a combination of growth factors.  We are very pleased to have reported record revenue and we remain focused on the successful execution of our operating strategy.”

Consolidated Results
Net revenue in the first quarter of 2008 rose by 64.1% to USD2.3 billion from USD 1.4 billion in the first quarter of 2007. Operating income rose by 112.3% to USD 642.1 million, or 27.58% of net revenue, in the first quarter of 2008, compared to operating income of USD 302.5 million, or 21.32% of net revenue, in the first quarter of 2007.

For the first quarter of 2008, Mechel reported consolidated net income of USD 500 million, or USD 1.20 per ADR / diluted share, an increase of 162.2% over consolidated net income of USD 190.7 million, or USD 0.46 per ADR / diluted share, in the first quarter of 2007.

Consolidated EBITDA rose by 151.1% to USD 853 million in the first quarter of 2008, compared to USD 340 million in the first quarter of 2007.

Mining Segment Results
Mining segment revenue from external customers for the first quarter of 2008 totaled USD 856 million, or 36.8% of consolidated net revenue, an increase of 109.2% over segment revenue from external customers of USD 409 million, or 28.8% of consolidated net revenue, in the first quarter of 2007.

Operating income of the mining segment in the first quarter of 2008 increased by 135.7% to USD 416.2 million, or 39.6% of total segment sales, compared to operating income of USD 176.6 million, or 30.6% of total segment sales, in the first quarter of 2007.

EBITDA in the mining segment in the first quarter of 2008 increased by 158.6% to USD 512.9 million compared to EBITDA of USD 198.3 million in the first quarter of 2007.  The EBITDA margin in the mining segment was 48.8% for the first quarter of 2008, compared to 34.3% in the first quarter of 2007.

Steel Segment Results
Steel segment revenue increased by 29.1% in the first quarter of 2008 to USD 1.28 billion, or 54.9% of consolidated net revenue, from USD 990 million, or 69.8% of consolidated net revenue, in the first quarter of 2007.

Operating income for the steel segment in the first quarter of 2008 increased by 51.3 % to USD 197.8 million, or 14.7% of total segment sales, compared to operating income of \\$130.7 million, or 12.9% of total segment sales in the first quarter of 2007. 

EBITDA for the steel segment for the first quarter 2008 increased by 125.3% to \\$329.5 million compared to segment EBITDA of USD 146.3 million in first quarter of 2007. The EBITDA margin for the steel segment was 24.5% in the first quarter of 2008 compared to 14.5% in the first quarter of 2007.

Power Segment Results
Revenue from Mechel’s power segment in the first quarter of 2008 totaled USD 193.4 million, or 8.3% of consolidated net revenue, an increase of 912.4% compared to revenue from sales to external customers of USD 19.1 million or 1.3% of consolidated net revenue, in the first quarter of 2007.

Operating income for the power segment in the first quarter of 2008 was USD 27.6 million, or 9.4% of total segment revenues, an increase of 688.6% compared to operating income of USD 3.5 million, or 8.7% of total segment revenues, in the first quarter of 2007.

EBITDA for the power segment in the first quarter of 2008 increased  by 813.8% to \\$33.5 million, compared to EBITDA of USD 3.7 million in the first quarter of 2007.  The EBITDA margin in the segment was 11.5% in the first quarter of 2008, compared to 9.1% in the first quarter of 2007.

Recent Highlights
In June 2008, Mechel announced that a groundbreaking ceremony marking the commencement of railroad construction was held at the 60th kilometer landmark of Verhny Ulak Station of the Baikal-Amur Mainline together with Transstroy Engineering Corporation ZAO. This spur-track will connect the Elga deposit with the Baikal-Amur Mainline.  The total length of the railroad will be approximately 315 kilometers.

The railroad’s design includes approximately 420 engineering structures, including 194 bridges. The railroad’s throughput capacity after completion of all construction stages will be approximately 25.0-30.0 million tonnes annually. Commissioning of the railroad for permanent operations is expected to commence before September 30, 2010.

In July 2008, Mechel announced the signing of a contract between its Chelyabinsk Metallurgical Plant OAO (“CMP”) subsidiary and Danieli to supply technology and equipment to construct a rail and structural steel mill at CMP. The mill’s capabilities will enable low cost production of high quality railroad rails up to 100 meters in length using state-of-the-art technologies for steel rolling, hardening, straightening, finishing, and rail quality control and a wide range of other products with steady geometric section parameters and lower metal consumption due to its precision and thermal strengthening.

Financial Position
Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the first quarter of 2008 amounted to USD 175.5 million, of which USD 41.2 million was invested in the mining segment, \\$126.9 million in the steel segment and USD 7.4 million in the power segment.

For the first quarter of 2008, Mechel spent USD 0.7 million on the acquisition of minority interests in subsidiaries.

As of March 31, 2008, total debt amounted to \\$3.2 billion. Cash and cash equivalents amounted to USD 145.4 million and net debt amounted to \\$3.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) as of March 31, 2008.