Mechel Reports the 1Q 2015 Financial Results

Revenue amounted to $1.1 billion

Consolidated EBITDA(a)^* amounted to $211 million

Net loss attributable to shareholders of Mechel OAO amounted to $273 million

MOSCOW, June 23, 2015 (GLOBE NEWSWIRE) -- Mechel OAO (MICEX:MTLR) (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 1Q 2015.

Mechel OAO's Chief Executive Officer Oleg Korzhov commented:

"In the first quarter of 2015, the group worked in a dramatically different economic reality. The weakness of Russian national currency helped to improve the company's performance, we managed to nearly triple EBITDA(а) and nearly quadruple our EBITDA(а) margin compared to the same period last year. I would like to note that we also managed to maintain coal production at the same level as the first quarter last year and to increase steel production.

"Even though the situation on coal and ore markets remains critical for all producers, we do not intend to decrease production — our leadership in costs enables us to keep our share even as the market is shrinking, preserving our position for the time when coal prices recover, which process we expect may begin in 4Q2015.

"Operating income which increased dramatically enabled us to overcome our liquidity crisis and reach restructuring agreements with our major creditors — Gazprombank and VTB. We continue talks with Sberbank and intend to reach a compromise.

"Despite the ruble becoming stronger in the second quarter, Mechel is quite confident with the current exchange rate. If this trend persists, we expect that our results will improve accordingly throughout the year.

"A confident growth of production in our key investment projects — the universal rolling mill and the Elga coking coal deposit — creates the basis for further improvement of the company's financial results, which will enable us in the medium run to bring our debt to a comfortable level."

Consolidated Results For The 1Q 2015

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

• The 20-percent revenue decrease quarter-on-quarter was largely due to ruble devaluation, as most (60%) of the group's revenue was in rubles.
• Devaluation was an even more important factor in the decrease of production costs in dollar terms, which enabled us to maintain EBITDA(a) practically at the previous quarter's level, allowing only a 4-percent decrease. EBITDA(a) margin has meanwhile grown to 19%.
• The debt portfolio has largely remained unchanged over this quarter. The decrease of net debt by 3% was mostly due to exchange rate fluctuations.
• Trade working capital continued to decline, though at a lesser rate than in the previous periods. The reason for the decline was the necessity of repaying outstanding debt at an accelerated rate to speed up debt restructuring negotiations.

Mining Segment

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

"Early this year the global trend for weaker coal prices continued. As major Australian producers kept to the policy of tough price competition with other global producers for a share in the market, China's demand for imported coal continued to go down as steel facilities were being shut down. Local producers were forcing out imports by way of a series of measures taken by the Chinese government.

"Due to market weakness, in the first quarter the segment demonstrated a decrease in coking coal concentrate sales, particularly exports, having redirected some of its volumes to the domestic market and increasing PCI sales as China's demand for PCI grew. As a result, revenue from sales to external customers went down by 19% quarter-on-quarter. At the same time, as production costs for all of our product range, as well as dollar-denominated transport costs, went down due to ruble devaluation, the segment has shown a 22% increase of EBITDA(a) with EBITDA(a) margin up to 22% as compared to 15% in 4Q2014.

"We must also note our success in developing the Elga deposit. In this accounting period, we nearly doubled coal production quarter-on-quarter, and continue to increase production in the second quarter."

• A decrease in production costs across our product range helped us to significantly increase our EBITDA (a) margin.
• The segment's operating income in 1Q2015 totaled $68 million, which is 79% more than $38 million in 4Q2014.

Steel Segment

Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky noted:

"As domestic prices for the segment's products skyrocketed in the end of 4Q2014 due to ruble devaluation and a growth in export parity prices, the first quarter began with an auspicious market situation for us. However, by the mid-quarter it became evident that the growth potential was exhausted due to a decrease in effective demand from end customers as project financing problems set in. Further on, customer activity continued to decline, prompting a weakness in prices.

"With these conditions in mind, we still maintained production volumes at the level of the previous quarter and did not allow sales volumes to slump. Nevertheless, ruble devaluation led to a decrease in dollar revenue. During the first quarter our management has been working on optimizing expenses what, along with national currency devaluation, enabled us to cut production costs, and so EBITDA(a) went down rather less, while the EBITDA(a) margin continued to grow and reached 16.5%."

• Despite maintaining steel production at 4Q 2014 level and moderate decline in sales volumes, ruble devaluation led us to the 19% decline in revenue.

Power Segment

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

"The first quarter is traditionally a period of high load for our facilities. This year it was characterized by our generating equipment's high reliability due to successful repairs and maintenance works conducted last year. This enabled us to increase electricity production, and also the heat production due to the demand for vapor. A decrease of dollar revenue quarter-on-quarter was due to currency exchange rate dynamics."

The management of Mechel will host a conference call today at 18:00 p.m. Moscow time (4:00 p.m. London time, 11 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.

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.

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 1Q 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, 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 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, excluding finance lease liabilities, and trade working capital are presented below:

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