MTL Mechel PAO

MECHEL REPORTS THE 9M 2015 FINANCIAL RESULTS

Revenue amounted to $3.3 billion
Consolidated EBITDA(a) amounted to $ 587 million
Net loss attributable to shareholders of Mechel OAO amounted to $1.0 billion

Moscow, Russia – December 16, 2015 – Mechel OAO (MICEX: MTLR, NYSE: MTL), a leading Russian mining and steel group, announces financial results for the 9M 2015.

OAO Mechel’s Chief Executive Officer Oleg Korzhov commented:

“All of our business segments continue to demonstrate stable growth of operational income and positive EBITDA sufficient to service our current debt interest payments. The management’s efforts aimed at optimizing the Group’s operations and adapting to changing market situations yield positive results. At the same time, low costs of mining and processing coal award us competitive advantages as compared to other global producers. As the ruble weakens, costs are dropping even more when denominated in dollars, which proves a positive impact on our operations’ economic efficiency. As production remains stable, EBITDA has grown by 20% as compared to the same period last year and by 10% quarter-on-quarter. Operating income has nearly doubled year-on-year, going up by nearly 30% quarter-on-quarter.

We continue constructive talks with our lenders on debt restructuring and see positive dynamics of these negotiations. Meanwhile, the company is holding talks seeking to bring in partners for developing the Elga deposit.

Throughout the accounting period, we have been increasing mining at the Elga project. Record profitability of production at this facility, upheld by the weakening of our national currency, enables Elga to be economically efficient even considering the current production level and coal prices. Stable demand for coal products from Japan’s and South Korea’s export markets combined with growing consumption in India and our own facilities’ major need of coal is a recipe for this project’s long-term success”.

Consolidated Results For The 9M 2015

Mining Segment

Mechel Mining Management Company OOO’s Chief Executive Officer Pavel Shtark noted:

“Global prices and demand for metallurgical raw materials which are our segment’s principal product, continued to fall throughout the year. The major decrease in our revenue reflects that. Against this backdrop, we actively optimized our sales policy to lessen the negative impact of market factors. As the domestic market was more profitable, starting from the second quarter we redirected some of our product flow from export to the Russian market and used our own coal in the coke and chemical production as much as possible, with the Elga deposit’s coal playing a major part in this. Elga’s coking coal is actively used in producing coke at the Group’s facilities.

I must note that mining at the Elga deposit is growing at an outperforming rate. Over these nine months, nearly three million tonnes of coal were mined at the deposit, with the year’s total nearing to four million tonnes.

The segment demonstrates growth of both the operational income and EBITDA compared to the same period last year and quarter-on-quarter.”

Steel Segment

Mechel-Steel Management Company OOO’s Chief Executive Officer Andrey Ponomarev said:

“Despite the global economic volatility and difficulties at steel products markets, this year our segment managed to demonstrate stable operational and financial results. Our sales of nearly all key products are growing quarter by quarter. We paid a lot of attention to optimization of our product range, giving up on economically inefficient production and increasing the share of high value-added products. For example, Chelyabinsk Metallurgical Plant’s universal rolling mill has shipped off some 150,000 tonnes of high-quality rolls this year.

The decreased cost of incoming raw materials, as well as the ruble’s devaluation, enabled us to significantly improve operational income and EBITDA as compared to the same period last year, while constant effort of controlling costs and optimizing production yielded stable financial results quarter-on-quarter.”

Power Segment

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

“Throughout this year, we were demonstrating higher results in electricity generation than last year. Minor fluctuations are caused only by seasonal factors in our operations. As a whole, we continue to demonstrate stable operational income and positive EBITDA.”

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The management of Mechel will host a conference call today at 18:00 p.m. Moscow time (3:00 p.m. London time, 10 a.m. New York 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.

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Alexey Lukashov
Director of Investor Relations
Mechel OAO
Phone: 7-495-221-88-88
Fax: 7-495-221-88-00
alexey.lukashov@mechel.com

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Mechel is one of the leading Russian companies. Its business includes three segments: mining, steel 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.

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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.

*Please find the calculation of the EBITDA(a) and other measures used here and hereafter in Attachment A

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Attachments to the 9M 2015 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, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, Income taxes and Other one-off items. 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, Result of disposed companies, Foreign exchange gain / (loss), Impairment of goodwill and long-lived assets and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests and Other one-off items. 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.

Our calculations of Net debt and trade working capital are presented below:

Adjusted EBITDA can be reconciled to our consolidated statements of operations as follows:

**including intersegment operations