As a result of a thorough analysis, Mechel has decided to expand its capital expenditure program to $2.7 billion for 2007-2011, covering both its mining and steel segments.
With regard to its steel division, the program will allow Mechel to increase its total output by 12 percent and to up its finished steel products output by 26 percent in the period up to 2011 - compared to the 2006 results.
In addition, the program will allow the company to increase the share of higher value added products in its overall production.
The major changes are planned for Mechel's Chelyabinsk Metallurgical Plant (CMP). In line with the program, Mechel is to equip CMP with new mills for the production of structural shapes and will modernize its coil mill 250-2. As a result, a noticeable increase in the production of high value added products (to about one million metric tons per year) is expected. Moreover, CMP's billet output is to double as a result of the modernization.
In addition, Mechel will reconstruct CMP's hot and cold rolled mills to increase its stainless steel output and its stainless steel production range. As a result of the reconstruction, CMP's annual slab output is to rise to 1.2 million metric tons and its hot rolled mill 2300/1700 annual capacity is to increase to 1.1 million metric tons, including an increase to 400,000 metric tons of plates. Moreover, the modernization of CMP's cold rolled mill is expected to enable an increase in the production of stainless steel as well.
Furthermore, Mechel is planning to reduce CMP's production costs further by continuing to develop its raw material base. The current investment program aims to increase Mechel's self-sufficiency in iron ore to 70 percent. In the framework of the program, Mechel plans to invest in the development of its sinter plant No.2 in order to increase its annual capacity to 6.5 million metric tons by 2012. In addition, the company is planning to build a new blast furnace with an annual capacity of 1.7 million metric tons.
As for the other Mechel subsidiaries, the company is planning to invest in the modernization of Izhstal and Mechel Targoviste. At Izhstal, Mechel will invest in the technical re-equipping of the company (including fundamental modernization of its steel melting operations and the reconstruction of its long product facilities). Meanwhile, at its Romanian subsidiary, Mechel plans to modernize its medium and small sections mills with the aim of increasing their joint production capacity to 500,000 metric tons annually. In addition, Mechel is planning to take several steps to reduce Mechel Targoviste's production costs.
In its mining division, Mechel plans to direct its investments towards increasing the company's coal output to 25 million mt by 2010, and towards upping nickel output at the company's South Ural Nickel Plant subsidiary to 24,000 metric tons, while reducing its production costs.