Mechel comments on Q1 results

Mechel, a leading Russian integrated mining and steel group had hosted a conference on Friday, July 21, to comment the results of the first quarter of 2006. As it was commented at the conference, the mining segment saw production and profit decreases due to challenging market environment, including a decline in the world prices for coking and steam coal, introduction of a one-time additional tax on extraction of mineral resources at Mechel's iron ore facility, and unusually low temperatures in the first quarter that had significantly complicated open-pit extraction at the company's mining segment and power supply for the steel segment. On the future plans, Mechel said it would continue to develop the mining segment, aiming to raise coal production to 25 million tons and invest total of $1.1 billion into the segment by 2010. Going further, Mechel expressed the understanding that the ability to develop the mining sector is limited in Russia in general due to lack of technology. Mr. Ivanushkin, Mechel Chief Operating Officer, and one of the presenters said that the company is targeting the higher production in its mining segment rather than increasing profitability of it. The company also confirmed its intensions to gain control over Yakut Ugol as a part of the strategy of expanding Mechel's position in Russian mining sector. Although the tender, which was won by Mechel, was canceled by the current owner, Russian railways, the company is looking forward toward the future resolution. As far as the steel segment is concern, Mechel believes that increased cost of raw materials and energy supplies as well as lower prices of the steel products in the quarter of 2006 were responsible for the fell in the profits. However, the company is confident that this situation is to change for the second quarter results due to improvement of the market conditions. On the future plans for the steel segment, the company said that it would invest in development and modernization of the plants to increase their efficiencies and the company lays its hope on Chelyabinsk Steel Rolling Plant. However, Mechel does not intend to raise the volumes of steel production rather it intends to raise its steel segment EBITDA. On the dividends policy, Mechel said that it would stick to its previous announcement that dividends payment would be equal to 50 percent of 2005 net profit.