1Q2012 RESULTS PRESENTATION JUNE 20, 2012
DISCLAIMER
This presentation does not constitute or form part of and should not be construed as,
an offer to sell or issue or the solicitation of an offer to buy or acquire securities of
Mechel OAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to
enter into investment activity. No part of this presentation, nor the fact of its
distribution, should form the basis of, or be relied on in connection with, any contract
or commitment or investment decision whatsoever. Any purchase of securities should
be made solely on the basis of information Mechel files from time to time with the U.S.
Securities and Exchange Commission. No representation, warranty or undertaking,
express or implied, is made as to, and no reliance should be placed on, the fairness,
accuracy, completeness or correctness of the information or the opinions contained
herein. None of the Mechel or any of its affiliates, advisors or representatives shall
have any liability whatsoever (in negligence or otherwise) for any loss howsoever
arising from any use of this presentation or its contents or otherwise arising in
connection with the presentation.
This presentation 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.
The information and opinions contained in this document are provided as at the date
of this presentation and are subject to change without notice
2
FINANCIAL HIGHLIGHTS
60% 56% 53% 56%
28% 32% 36% 32%
4% 4% 4% 4%8% 8% 7% 8%
1Q11 1Q12 4Q11 1Q12
Steel Mining Ferroalloys Power
SEGMENTS OVERVIEW
REVENUE FROM THIRD PARTIES EBITDA BY SEGMENTS
Consolidated revenue flat q-o-q amounting to $2,950 mn
Net income up 8% q-o-q to $218 mn
Mining segment continues to dominate the consolidated
EBITDA with its share up to 86%
1Q2011 1Q2012
$ Mln
$ Mln
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value 4
Steel Mining Ferroalloys Power
EBITDA(1) BY SEGMENTS
6% 6%
26% 62%
6%
10%
86%
2,934 2,950 2,929 2,950
-2%
150
361
35 35
-15
567
65
558
195
-35
612
153
512
3
-7
17
678
-50
593
-11
3 1,5
536
49
358
-7
28 35
463
Steel Mining Ferroalloys Power Cons.adj. Consolidated
1Q11 2Q11 3Q11 4Q11 1Q12
Market volatility and temporary halt of some underground
mines operations led to Q1 revenue decrease q-o-q to $933
mln…
…with EBITDA posting $358 mln in Q1
Cash costs at Russian assets went up due to ruble
appreciation and lower production at Southern Kuzbass
MINING SEGMENT
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
$ Mln
CASH COSTS, US$/TONNE COS STRUCTURE
$552 mn $555 mn
5
828
1 104 1 1471 061 933
260
277 251264
226
33%
40%37%
45%
31%
0%
20%
40%
60%
0
400
800
1 200
1Q11 2Q11 3Q11 4Q11 1Q12
Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)
REVENUE, EBITDA(1)
3933
48
95
37 37 39
94
3532
41
96
3532
42
113
40 3545
100
Coal SKCC Coal YU Iron Ore Bluestone
1Q11 2Q11 3Q11 4Q11 1Q12
50% 50%
18% 20%
10% 10%
14%14%
8% 6%
1Q11 1Q12
Other
Depreciation and depletion
Energy
Staff costs
Raw materials and purchased goods
35%25% 22% 25%
19%
14% 15% 14%
12%
12% 16% 12%
9%28% 23% 28%
16% 10% 18% 10%
2% 5%3%
5%7% 6% 3% 6%
1Q11 1Q12 4Q11 1Q12
Russia Europe CIS China Asia w/o China Middle East Other
47% 51% 54% 51%
12%
20%23%
20%14%
7%5%
7%2%2%
2%2%10% 4%
3%4%
10% 12% 9% 12%5% 4% 4% 4%
1Q11 1Q12 4Q11 1Q12
Coking coal Anthracites and PCI Coke Coking products Steam coal Iron ore Other
MINING SEGMENT
6
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
Anthracites and PCI sales down 24% q-o-q as demand in
Europe dwindled…
…However coking coal sales volumes unchanged q-o-q
despite seasonal factors and idling of certain operations…
…Although unable to fend off the general pressure on price
The share of China grew to 28% of sales as demand
elsewhere remained volatile
*Restated to include middlings
EXTERNAL SALES STRUCTURE
342
167
122
56
103
354
210
109
51
111
309
206
98
48
106
291
181
104
43
101
263
142
95
49
82
Coke Coking coal Anthracite and PCI
Steam coal* Iron ore
1Q11 2Q11 3Q11 4Q11 1Q12
STEEL SEGMENT
7
CASH COSTS, US$/TONNE COS STRUCTURE
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
REVENUE, EBITDA(1)
Despite low season and harsh weather conditions sales
volumes of steel grew by 8% q-o-q …
… bringing Revenue up 7% to $1.7 bn
Cash costs heading down…
… leading to a reverse in EBITDA to $49 mn
$1,487 mn $1,479 mn
$ Mln
1 757
2 060 1 796
1 5411 649
89
75
70
7679
8%
3%
8%
-3%
3%
-5%
-2%
1%
4%
7%
0
500
1 000
1 500
2 000
1Q11 2Q11 3Q11 4Q11 1Q12
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
529 532 546584 581 596
575 575 585555
503 511497 499515
Billets Wire Rod Rebar
1Q11 2Q11 3Q11 4Q11 1Q12
79% 76%
8% 9%
10% 11%
2% 2%1% 2%
1Q11 1Q12
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
49% 53%58%
53%
24% 21%22%
21%
2% 2%7%8%
5% 8%
15% 11% 9% 11%
5% 5% 6% 5%
1Q11 1Q12 4Q11 1Q12
Russia Europe Asia CIS Middle East Other
STEEL SEGMENT
8
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
EXTERNAL SALES STRUCTURE
Steel prices demonstrate resilience despite low season
helping MSG to de-stock
Share of lower margin semi-finished products down by 37%
in 1Q2012 vs.1Q2011
Fall in rebar sales in Russia is offset by almost two-fold
growth in European sales in Q1 28%
18% 16% 18%
18%24% 26% 24%
12%12% 14% 12%
8%9% 8% 9%
4% 4% 5% 4%
11% 13% 12% 13%
6% 7% 8% 7%3% 3% 3% 3%
10% 10% 8% 10%
1Q11 1Q12 4Q11 1Q12
Semi-finished products Rebar HardwareCarbon flat Alloyed long Engineering steelForgings and stampings Stainless flat products Other
584713
920965
787
2,398
591715
976992
848
2,726
637744
966 925822
2,760
585 686
904 860 742
2,703
546
692866
880
734
2,647
Billets Rebar Engineering steel
Wire Carbon flat Forgings and stampings
1Q11 2Q11 3Q11 4Q11 1Q12
CASH COSTS, US$/TONNE COS STRUCTURE
Nickel
FERROALLOYS SEGMENT
REVENUE, EBITDA(1)
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
Sales volume growth in all ferroalloys products pushed the
1Q12 revenue up by 16% q-o-q to $153 mn decreasing gross
loss by 43%
Cash costs of Cr under control, while heading down for Cr
concentrate and FeSi as production of both grows
Growing sales and improved economics slash EBITDA loss by
32%
9
$ Mln
$146 mn $168 mn
124 132104 116 125
53
71
6016
28
20%
10%
2%
-9%
-5%
-12%
-7%
-2%
3%
8%
13%
18%
23%
-20
30
80
130
180
230
1Q11 2Q11 3Q11 4Q11 1Q12
Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)
40%50%
11%
8%
24%18%
15% 15%
10% 9%
1Q11 1Q12
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
1Q11 2Q11 3Q11 4Q11 1Q12
20.6K
21.4K
22.2K
23.9K
20.6K
882
2.3K
834
2.4K
873
2.2K
912
2.1K
877
2.1K
Ferrosilicon Chrome
239 178 169 184 172
Chrome Ore Concentrate
26.3K 25.2K
21.4K
18.1K 19.1K
Nickel
33%24% 23% 24%
51% 66%
55%
66%
4%
4%
14%
4%12%6% 8% 6%
1Q11 1Q12 4Q11 1Q12
Russia Europe Asia Other
51% 56% 55% 56%
24% 12% 12% 12%
17% 25% 27% 25%
4% 5% 4% 5%4% 2% 2% 2%
1Q11 1Q12 4Q11 1Q12
Nickel Ferrosilicon Chrome Chrome ore Other
FERROALLOYS SEGMENT
10
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
EXTERNAL SALES STRUCTURE
Flat to positive price dynamics across all products support
better economics
Share of exports to Europe grew to 66% as:
• Some sales of FeCr rederected from Asia supported by
better price environment in Europe
• Demand for FeNi from own plants decreased allowing for
increased export sales
1.8K 1.6K
1.4K 1.3K 1.3K
Ferrosilcon
1Q11 2Q11 3Q11 4Q11 1Q12
2.6K
2.3K
2.3K
2.2K 2.2K
Chrome
POWER SEGMENT
11
AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH COS structure
REVENUE, EBITDA(1)
Financials improve as due to high season for electricity and
heat consumption:
• Revenue up 16% q-o-q
• EBITDA up x9 to $28 mn q-o-q
• Net income up to $11 mn vs operating loss of $6 mn in 4Q11
Cash costs at Southern Kuzbass Power Plant down 24% as
sales grow on lower input materials and maintenance
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
225
177 164
211243
143124
113
126
136
10%
2%
-3%
1%
7%
-4%
-2%
0%
2%
4%
6%
8%
10%
0
100
200
300
400
1Q11 2Q11 3Q11 4Q11 1Q12
Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs)
$ Mln
56,1
51,5 53,551,5 51,9
28,4 29,8
50,1
33,825,8
1Q11 2Q11 3Q11 4Q11 1Q12
Sales price Cash costs
90% 90%
3% 3%4% 4%
2% 1%1% 2%
1Q11 1Q12
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
$259 mn $278 mn
WITHSTANDING MARKET VOLATILITY
12
REVENUE DYNAMICS REVENUE, EBITDA(1) AND NET PROFIT
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
Reduction of the Mining Segment top line offset by growth in revenue in other segments which translated in flat q-o-q sales at $2,950 mn
EBITDA down 14% q-o-q, but margin is at 16% - still one of the most attractive in the industry
Net income up by 8% q-o-q to $218 mn with $171 accounted for by FX gain
1Q2012 FINANCIAL PERFORMANCE Q-O-Q HIGHLIGHTS:
$ Mln $ Mln
2,929 2,950
141- 120
0
1 000
2 000
3 000
4 000
4Q2011 Volume Price 1Q2012
2,934
3,4723,210
2,929 2,950
567 612678
536 463309
19226
201 218
19%18%
21%
18%16%
0%
10%
20%
30%
0
500
1 000
1 500
2 000
2 500
3 000
3 500
1Q11 2Q11 3Q11 4Q11 1Q12
Revenue (lhs) Adj. EBITDA (lhs) Net profit (lhs) Adj. EBITDA
CASH GENERATION CAPACITY
13
OPERATING CASH FLOW DYNAMICS NET CASH FLOW
Measures to adjust production to current demand and optimize the working capital bear fruit: cashflow from operations at $345 mn in Q1
with $118 mn coming from working capital release
Operating cashflow exceeds investments, facilitating debt repayment.
$ Mln FY’10 FY’11*
-347
314
-15
270*
345
(350)
(150)
50
250
450
1Q11 2Q11 3Q11 4Q11 1Q12
Operating cash flow
1Q12
(147)
404 345
(1 119)
(1 676)
(276)
1 210
2 079
(305)
Operating activities Investment activities Financial activities
* Excluding the effect of loan to Estar * Excluding the effect of loan to Estar
Total debt reduced in Q2 to date to under $9bn.
Financial ratios as of Q1 well within the renegotiated covenant
levels.
Cash and available credit lines as of June 15 amount to $2 bn.
DEBT PROFILE AS AT JUNE 15, 2012
DEBT PROFILE
FINANCIAL RATIOS
14
$ Mln
567 612678
536463
3,4 3,5 3,53,9
4,24,2 4,2 4,2 4,4
3,3
0,00,51,01,52,02,53,03,54,04,55,05,5
0
200
400
600
1Q11 2Q11 3Q11 4Q11 1Q12Adj. EBITDA (lhs)
Net Debt / Adj. EBITDA for covenants testing (rhs)
Adj. EBITDA/Interest expense, net, per quarter (rhs)
RUR 48%
Other
<1%
EUR 9%
USD 42%
Russian Banks
45%
Foreign Banks
30%
RUR Bonds
25%
LOANS REPAYMENT SCHEDULE AS AT JUNE 15, 2012
701
1 251
1 721
1 087
334 354
153
460
614
154
1228
556
22815 47
2012 2013 2014 2015 2016 2017 and after
Renewable working capital and trade finance lines
RUB Сommercial papers and bonds (incl. put
options)
Repayment of other term loans (incl. capex financing)
$ Mln
Net Debt / Adj. EBITDA level agreed with creditors
for the end of 2012 (rhs)
Adj. EBITDA / Interest Expense level agreed with creditors
for the end of 2012 (rhs)
Revenue 2,950 2,929 0.7%
Cost of sales (1,975) (1,995) -1.0%
Gross margin 33.0% 31.9%
Operating profit 314 377 -16.7%
Operating margin 10.6% 12.9%
Adjusted EBITDA(1) 463 536 -13.6%
Adjusted EBITDA(1) margin 15.7% 18.3%
Net Income 218 201 8.5%
Net Income margin 7.4% 6.9%
Sales volumes(2), „000 tonnes
Mining segment 6,001 6,124 -2.0%
Steel segment 1,941 1,791 8.4%
FINANCIAL RESULTS OVERVIEW
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
(2) Includes sales to the external customers only
US$ MILLION UNLESS OTHERWISE STATED 1Q12 4Q11 CHANGE, %
15