Mechel 2010 First Quarter Financial Results

Mechel’s CEO Yevgeny Mikhel commented on the 2010 first quarter results: “In the first quarter of 2010 Mechel focused its efforts on the final overcoming of the global financial crisis consequences. In particular, reaching the pre-crisis coal production volumes has become one of the most important priorities of our company’s operations. We continued developing and improving the structure of Mechel’s sales network. We launched investment projects, which had been postponed earlier, and intensified works on implementation of the most important current projects, such as Elga Coal Deposit development and construction of the Universal Rolling Mill.
Even taking into consideration that not all achievements and success of the 2010 first quarter were reflected in full measure in the financial results of that period and will be witnessed only in the next periods, we consider that the company successfully worked through this hard but important stage of its life and laid the foundation for the further improvement of its operational and financial results.”
Starting from 2010 Mechel changed the method of EBITDA calculation. Here we give the EBITDA cleaned of effects of CVR change, forex gain/(loss) and interest income.
Net revenue in the first quarter of 2010 increased by 61.1% and amounted to $1.9 billion compared to $1.2 billion in the first quarter of 2009. Operating income rose by 971.2% and amounted to $147.6 million or 7.8% of net revenue, compared to operating income of $13.8 million or 1.2% of net revenue in the first quarter of 2009.
For the first quarter of 2010, Mechel reported consolidated net income attributable to shareholders of Mechel OAO increased by 112.0% to $82.6 million compared to consolidated net loss attributable to shareholders of Mechel OAO of $690.7 million in the first quarter of 2009.
Consolidated EBITDA in the first quarter of 2010 increased by 120.9% to $257.6 million, compared to $116.6 million in the first quarter of 2009. Depreciation, depletion and amortization in the first quarter of 2010 for the Company were $120.6 million, an increase of 60.0% compared to $75.4 million in the first quarter of 2009.
Mining segment revenue from external customers for the first quarter of 2010 totaled $461.2 million, or 24.3% of consolidated net revenue, an increase of 34.0% over net segment revenue from external customers of $344.2 million, or 29.2% of consolidated net revenue in the first quarter of 2009.
Operating income in the mining segment in the first quarter of 2010 increased by 66.6% to $83.3 million or 14.3% of total segment revenue, compared to operating income of $50.0 million, or 12.6% of total segment revenue for the first quarter of 2009. EBITDA in the mining segment in the first quarter of 2010 went up by 61.1% and amounted to $147.3 million compared to segment EBITDA of $91.5 million in the first quarter of 2009. The EBITDA margin for the mining segment in the first quarter of 2010 was 25.4% compared to 23.1% in the first quarter of 2009. Depreciation, depletion and amortization in mining segment amounted to $67.5 million that is 77.2% higher than $38.1 million in the first quarter of 2009.
Chief Executive Officer of Mechel Mining Management Company Boris Nikishichev commented of the mining segment operating results: “It is important to note that Mechel’s mining segment in the first quarter of 2010 continued very intensive work on accelerated increase of coal production that allowed us already in the second quarter of 2010 to achieve the pre-crisis production volumes, and even to exceed them at Yakutugol. Our US-based coal mining company Mechel-Bluestone significantly surpassed its best historical results of coking coal production as well. Active production volumes increase demanded for significant additional investments in the first quarter in stripping works, equipment repair, procurement of spares for mining equipment, that caused similar temporary cash costs increase as in the 4Q 2010. With reaching planned mining volumes in the 2Q 2010 cash costs began normalizing. We continued work on our strategic investment projects – Elga Coal Deposit development and construction of it’s railway link. Complications with financing of the project in the heat of the global crisis in the beginning of 2009 forced us to apply and get changes in the terms of the license on Elga Coal Deposit development, extending the completion of railway construction by the end of 2011. At the same time our constructors were able to rapidly start works directly on the deposit itself, and that will allow us already in the 4Q 2010 to start mining the first coal of deficit coking grades there.”