Full Year 2012 Mechel OAO Earnings Conference Call

Apr 15, 2013 AM EDT
MTLR.MZ - Mechel PAO
Full Year 2012 Mechel OAO Earnings Conference Call
Apr 15, 2013 / 02:00PM GMT 

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Corporate Participants
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   *  Vladislav Zlenko
      Mechel OAO - IR
   *  Evgeny Mikhel
      Mechel OAO - CEO
   *  Stanislav Ploschenko
      Mechel OAO - CFO
   *  Oleg Korzhov
      Mechel OAO - SVP for Economics and Management

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Conference Call Participants
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   *  Anton Rumyantsev
      Sberbank - Analyst
   *  Sergey Donskoy
      Societe Generale - Analyst
   *  Vasiliy Kuligin
      Renaissance Capital - Analyst
   *  Victor Drozdov
      VTB Capital - Analyst
   *  Alec Trepowski
      BCS - Analyst
   *  Denis Gabrielik
      Otkritie - Analyst
   *  George Buzhenitsa
      Deutsche Bank - Analyst
   *  Igor Fedorov
      ING Bank - Analyst

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Presentation
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Operator   [1]
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 Welcome to the Mechel reports 2012 financial results conference call. My name is Sarah and I will be your coordinator for today's conference. For the duration of the call, you will be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions). I am now handing the call over to your host, Vladislav Zlenko, Head of Investor Relations to begin. Thank you.

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 Vladislav Zlenko,  Mechel OAO - IR   [2]
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 Thank you and good day, everyone. I would like to welcome you to Mechel's conference call to discuss our full-year 2012 financial results, which were reported today. With us from management today are Mr. Evgeny Mikhel, Mechel's CEO; Mr. Stanislav Ploschenko, Mechel's CFO; and Mr. Oleg Korzhov, Mechel's Senior Vice President for Economics and Management. After management has made their formal remarks, we will take your questions to the presentation team.

 Please note that, during this call, management will make forward-looking statements, some of which may have been made in the press release. Some of the information on this conference call 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 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 US Securities and Exchange Commission, which contain identifying important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

 In addition, we will be using non-GAAP financial measures, including EBITDA in our discussion today. Reconciliation of non-GAAP financial measures to the most directly comparable US GAAP financial measures are contained in the earnings press release, which is available on our website at Mechel.com. At this point, I would like to turn the call over to Mechel's CEO, Mr. Mikhel. Please go ahead.

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 Evgeny Mikhel,  Mechel OAO - CEO   [3]
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 (interpreted) Hi, good afternoon and good morning, ladies and gentlemen. We are happy to welcome you to the conference call on the Company's financial results for 2012. The past year has been very difficult for the world economy in general and for the mining industry in particular. Over this entire year, we have been looking at declining prices in all the markets, which are major for our Company. This certainly brought about deterioration of the financial performance of Mechel compared to the previous year.

 Significant impact on the performance was provided by the results of the fourth quarter when we saw coking coal prices dropping by 29% and rebar prices fell by 14%. Besides, the financial results of 2012 were significantly impacted by nonrecurring paper write-offs in some of the investments we had in our steel companies and also the provisions for deteriorating issued loans. Therefore, as a result of 2012 performance, consolidated revenue of Mechel amounted to $11.3 billion, EBITDA was $1.3 billion and net losses amounted to $1.7 billion.

 Despite the negative dynamics in the markets and our financial performance in the reporting year, we were able to achieve some success and create serious foundation for 2013, which is already bringing certain results. Our main priority is to reduce leverage. As you know, in 2012, we have passed a program for sales of non-core assets. We have already made serious advances in this direction. In particular, a significant part of assets in which we have had scalable paper write-offs at this time have already been sold. These companies no longer bring negative contribution to the financial state of our Company and this has a positive effect on the operational cash flow.

 As a result, we have created conditions for deleveraging. The remaining non-core assets are more valuable financially. The sales of these assets are supposed to bring our Company significant funds, which will make it possible for us to further reduce leverage. The work on sales of these assets is underway. We have already received price indications on some of them and we are now in an advanced phase of negotiations with potential buyers.

 It is very important to be disciplined and responsible in distribution of capital at the time of uncertainty in the world economy and high level of volatility in commodity markets. In light of this, we have, to a large extent, reduced the volume of our CapEx in 2012, reducing it by 50% compared to the previous year. The main focus was placed on development of Elga deposits and completion of construction of the universal rolling mill at Chelyabinsk metallurgical plant. These are two strategic projects, which have the biggest potential for creation of shareholders' value and a return from this project can be expected in the near future.

 In October of 2012, at Elga, we have launched a seasonal washing plant. Therefore, at this deposit, we have created all necessary primary infrastructure to put Elga deposits into industrial level of production and washing of coal. We have built the railroad to the deposit, we have built a temporary retentional camp and we have allocated necessary money, equipment and vehicles. We have practically completed the construction of the universal rolling mill. In the near future, we are planning to start hot testing the equipment of the mill.

 When this mill is launched into production, this will not only allow Mechel to master new technology, a new type of products with high added value; it will also put Chelyabinsk Plant at a new level of its development. It will greatly increase its level of efficiency. It will reduce costs and it will provide compliance of the Company's operations with the highest industry standards and with environmental standards as well.

 I must say that despite the difficult macroeconomic situation and the issues that the mining industry has faced, overall, in 2012, we have demonstrated positive dynamics in most operational indicators. The volume of coal production compared to the previous year has increased by 1%.

 I must note that we have seen a change in the structure of production of our mining division and the change was towards the increase of high-margin types of coal. In production of PCI coals for the steel industry compared to the previous year, we have had an increase of 23%. Certainly that happened due to a reduction of production of cheaper steam coal.

 In the steel division, the production of steel increased by 7%. Sales of bar products have increased by 7% compared to the previous year. At the same time, we have confirmed our leadership in production of such high-margin type of metal projects as metalware. The increase in production here amounted to 2%.

 In conditions when a number of coal producers are forced to reduce the volume of their production, in those assets where, with current pricing on coal production is making losses, Mechel, being a leader in the industry in terms of profitability, is increasing its production and it is actively expanding the geography of its markets. It is also working on the expansion of the customer base.

 One of the results of this work is a recent contract on supply of coking coal to one of the world's leading steelmakers, Baosteel. We are currently completing negotiations on long-term contracts with a number of other leading world producers.

 In general, last year, we not only have reviewed the model of the group's development, but we have made several specific steps towards implementation of the reviewed strategy. We have identified and partially sold some non-core assets, which significantly impacted the shareholding value of the Company. It is important that despite deteriorating prices and a significant volume of capital investment, we were able to reduce the level of leverage within the group by $320 million not counting for currency exchange fluctuations.

 We are fully dedicated to the goal of reducing leverage optimization of the structure of our business. I am confident that further implementation of our strategy will allow us to strengthen our leaders' positions in the mining industry and in steel production and it will contribute to the growing shareholding value of Mechel. And now I am passing the floor to Senior Vice President for Finance, Stanislav Ploschenko who is going to give you more details on the financial performance in all segments of our business. Thank you.

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 Stanislav Ploschenko,  Mechel OAO - CFO   [4]
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 Good morning and good evening, ladies and gentlemen. The unprecedented turbulence on the commodity markets we witnessed in the fourth quarter could not leave the results of the mining segment unaffected. At certain times, the contract and spot price for coking coal differed by as much as 17%, inevitably influencing volumes and revenue, making Q4 the worst quarter in the reported year.

 Overall sales were down 13% to $676 million. The main factors affecting the revenue were a 25% decrease in sales of coking coal and a 10% decrease in sales of anthracites and PCI. The lower quarter-on-quarter coking coal revenue was due to a 15% decrease in average sales price and a 12% decrease in volumes. Most of the volume shortfall was driven by lower shipments to Ukraine in South Korea with China where sales volumes grew by 23% quarter-on-quarter being the balancing factor, albeit at the lowest spot price for the reported periods.

 Another factor contributing to lower sales volumes was the halt of US mining operations in Q4 restarting in January this year, which drove volumes back in Q1. As a result, the average FCA price for export sales decreased by 29% to $86 a tonne. Whereas the domestic market demonstrated a higher resilience with price only 8% down to $117 a tonne. The PCI and anthracites sales volumes were lower due to weaker demand from Europe and Asia partially compensated by increased sales to [Gardel], Brazil resulting in just a 3% downtick in sales volumes in the reported period. The 15% reduction in the average export FCI prices was the main contributor to the revenue decrease.

 Thermal coal sales revenue was up by 5% mainly due to lower volumes as the third quarter was boosted by winter fuel stocking, which was not the case in the fourth one. The decrease was partially offset by $10 per tonne FCA increase in export thermal prices primarily driven by sales to Turkey. Where we managed to take the full advantage of the price volatility was the iron ore sales. Despite a 14% decrease in the average sales price, the revenue was slightly up at $108 million.

 That was due to several factors. First of all, we managed to increase sales to the domestic market more than twofold, taking advantage of the 10% average FCA price growth. Less than half of that increase came from sell-down of stock; the rest coming from the direction of sales. Firstly, due to reduction of exports to China where the average FCA price on the country fell by 18% and secondly, through a 96% reduction of intersegment sales volumes to Chelyabinsk Steel Plant where price arbitrage had a compelling case for purchasing from third parties rather than using our own product.

 Overall cost of sales increased by 7%. The increase was driven by seasonal inflation in energy costs due to the switch to winter fuel and the need to begin drying iron ore at Korshunov Mining Plant. However, the cash cost did not change significantly. They edged only $2 up at Southern Kuzbass compared to just $1 at Yakutugol. A similar $2 increase took place at the iron ore operations.

 Additionally, inventory write-downs increased by $19 million. Production at Elga was the most significant factor behind that. Most of the mining at Elga during Q4 related to overburden removal. Given this balance between salable production and overburden-related mining costs, we booked an expense of $8 million. The rest of the write-downs is attributable to the average sales price drop.

 Sales and distribution expenses increased by 12%. About 40% of that increase is related to the geography of iron ore sales as we increase CPT sales to domestic buyers at the expense of delivery to Chelyabinsk Plant, which had been done on the FCA basis. The rest was mostly driven by an increase of CIF and CFR sales from 41% to 52% of export sales as opposed to FOB, which came with an increase of sales in coking coal to China.

 In the fourth quarter, we posted a one-off $27 million accrual of mineral extraction tax risk, which was only partially compensated by a $13 million gain at Bluestone resulting in a $17 million increase in nonprofit taxes. This accrual relates to ongoing litigation with respect to the determination of a tax base. The accrual recognizes the difference between the amount actually paid for the previous four years and the amount claimed by the tax authorities. Again, Bluestone relates to an agreement reached with local tax authorities with respect to the proper base against which the West Virginia franchise tax should be calculated.

 Another one-off event affecting the profitability of the segment was the recognition of $17 million cost associated with settling between our Bluestone operations and several customers, which related to events prior to its acquisition. Although we took a one-off reduction to our EBITDA, this settlement substantially widened the North American market for Bluestone product, which had been rather limited with outstanding lawsuits. This is crucial for the immediate future of Bluestone as sales to the domestic market offer much better economics than depressed sales to Europe or export to China where spot price volatility and freight make economics unstable.

 We also made accruals of $5 million in expenses relating to our ongoing litigation with Glencore and several construction contractors. We also reassessed the gain from restructuring of accounts payable of $17 million recognized in Q3 and decided that these gains should reduce the amount of construction and progress related to Elga project on our balance sheet in Q4 based on the substance of the transaction. Stripped of this reversal, the difference between the segment's EBITDA between Q3 and Q4 should be reduced by $32 million.

 The selling and distribution costs were partially offset by personnel, consulting and miscellaneous administrative expenses saving us about $6 million. For the quarter, the combined effect of lower revenue increased cost of sales and one-off accruals posted in operating expenses drove the EBITDA significantly lower quarter-on-quarter to just $33 million.

 The steel segment, on the contrary, demonstrated a remarkable resilience in the fourth quarter. On the one hand, the robust sales we witnessed in Q3 slowed down towards the year-end reflecting seasonal factors. The volumes were also affected by our production adjustments aimed at curbing lossmaking manufacturing lines, which went as far as idling entire mills. For example, our former Romanian plants. The pressing environment was also volatile with a general downward trend counted only by hardware products where prices were up as much as 4% quarter-on-quarter due to a change in a product mix and long stainless products where average sales price edged 7% higher.

 On the other hand, the production adjustment efforts mentioned above began to bear fruit already in the fourth quarter resulting in a significant decrease of cost of sales, which led to an 8% quarter-on-quarter growth of gross profit and an improvement of the gross margin from 13% to 15% even against the background of decreasing revenue.

 That improvement is entirely attributable to the better production and sales planning and the cash cost of billet and rebar remained almost flat demonstrating that the effect of decreasing raw materials prices did not reach the production yet in the reported period.

 The selling and distribution expenses grew by 10% quarter-on-quarter entirely due to the consolidation of [Cokina], the steel distribution business in the Central and Eastern Europe. Without that effect, the dynamics of the expenses were in line with the revenue.

 The items that affected the operating expenses most significantly were impairments of long-lived assets and goodwill and provision for the receivables from the related parties. The former posted $205 million impairment of goodwill on the Donetsk steel mill, which we idled in Q4 due to negative economics and a likewise outlook at the Ukrainian market. The plant is now for sale as we announced previously. Another $63 million came from impairment of goodwill in (inaudible) due to the extended European market weakness and lack of positive prospects for its recovery.

 Due to worsening outlook at steel production based on scrap and not integrated into raw materials, we revised the recoverability of loan to Estar and decided to create a 100% provision on that, which affected the P&L with another $619 million.

 We also revised the economics of Estar's scrap collecting business, which we decided to integrate earlier in the year and reverse the deal. We still keep the business, but it will not compensate for the outstanding loan to Estar. For the time being, we also decided not to integrate [Rostock's] steel mill as we previously announced.

 Since the goodwill impairment and the provision for the amounts due from Estar did not affect the EBITDA, the latter was entirely driven by increased profitability brought about by production adjustments, which overpays the downward dynamics in revenue and resulted in a slight uptick in EBITDA even over the successful third quarter to $76 million with EBITDA margins recovering to a level of Q4, the best in the year 2012 of 4.6%.

 It is notable that, on the annual basis, our steel segment also demonstrated a remarkable economic resilience. Despite increased volatility in the markets, which resulted in revenue reduction, the gross margin remained flat where the EBITDA decreased only 9% on a virtually unchanged percentage of the revenue.

 The performance of the ferroalloys segment was heavily influenced by our decision to shut down the Southern Urals Nickel Plant in October due to its continuous lossmaking given the present nickel price trend. Consequently, nickel sales were down 75% quarter-on-quarter representing a $24 million fall in the revenue. This was somewhat offset by a 25% growth in ferrochrome sales coming from cleaning out the stock at our trader accumulated in the previous period while sales of ferrosilicon remain unchanged.

 The combined price trends mirror the general downward pace with chrome average price down 7%, ferrosilicon down 3%, while a 6% uptick in nickel price could not visibly improve the economics. As a result, the third-party revenue went down 25% quarter-on-quarter to $69 million while intragroup revenue dropped 37% as nickel sales to the steel segment fell.

 While the revenue was down due to a cut in nickel production, our cost-cutting efforts brought down the cost of sales faster, resulting in the positive gross income versus the $7 million loss recorded in the third quarter. This was mostly due to the shutdown of the nickel plant and the reduction of chrome ore cash cost, which was the effect of better geological conditions in our mining operations.

 The selling and distribution expenses fell by 28%, mostly due to the reduction in nickel sales and the effect of Russia entering the WTO, which affected the export tax on ferrochrome sales with a 20% reduction. The administrative expenses grew by 176% to $28 million entirely due to the provision for the layoff of staff at the Southern Urals Nickel Plant due to its foreclosure. Another $23 million of operating expenses came from impairment of mineral license at Shevchenko nickel deposit in northern Kazakhstan, which was acquired together with the chrome business of Oriel Resources.

 On the provisions for the layoff of personnel at the Southern Urals Nickel Plant and the provisions for bad receivables from certain uptakers turned the EBITDA into more negative territory than in Q3 with a [$30] million loss. The overall EBITDA for the year 2012 posted $49 million negative number versus the $46 million positive only in 2011 mostly due to the deterioration in nickel prices.

 The power segment's performance was not a surprise in the reported period with a 57% growth in the top line, enhanced and almost 2 times growth of the gross income to $92 million or 27% of the revenue versus only 19% in Q3. The similar dynamics in the cost of sales, however, could not compensate for the growth in revenue in the high season, ending up with a $15 million EBITDA in the reported period versus $6 million loss in the previous one.

 The segment's bottom line was affected by the discontinued operations represented by the result of the (inaudible) for which an SPA was signed in the end of Q4. Almost the entire negative effect is attributable to the impairment of goodwill and long-lived assets in line with the selling price.

 Overall, for the year 2012, this segment demonstrated a 3% improvement in the revenue on an almost flat gross margin and an 11% improvement of EBITDA to $45 million year-on-year. On a consolidated basis, the revenue went down by 7% to $2.5 billion as the coal in the mining, steel and ferroalloy segments were only 30% compensated by the growth in the power segment's revenue even after accounting for discontinued operations. That could not prevent the gross income reducing by 13% to $640 million with the gross margin edging down to 25% of the revenue.

 The year's D&A expenses were up 16% entirely due to the changed basis of delivery and one-off accruals in the mining and ferroalloy segment and consolidation of (inaudible) in the steel segment. The revenue reduction across all the segments, but the power one, coupled with the given increase in the operating expenses, resulted in a decline of the consolidated EBITDA to $100 million.

 The net interest expenses grew 16% to $167 million mostly due to posting of the previously capitalized on the international debt due to its refinancing in December 2012. The positive FX effect was $83 million. The income tax expense was 40% down to $42 million, mostly due to reduction in the profitability in the mining segment.

 In the fourth quarter, we posted another $291 million of impairment of goodwill and long-lived assets, consistent of impairment of goodwill on both the Donetsk steel mill and (inaudible) and the investments in the nickel deposits on the balance of Oriel Resources.

 On top of that came $619 million of additional provisions of the amount due from Estar discussed above in the steel segment analysis. All of that combined into a $1.1 billion loss in the fourth quarter. The revenue for the year 2012 decreased by 10% to $11.3 billion with EBITDA posting $1.33 billion versus $2.4 billion a year ago, largely affected by the volatility in the mining segment's result due to the negative price trend throughout the year.

 The net interest expense totaled $600 million, the FX effect stood at $89 million for the year. Provisions on amounts due from related parties and impairments of goodwill and long-lived assets totaled $1.627 billion for the full year resulting in a $1.7 billion net loss for the year, after taking into account a $108 million loss from discontinued operations.

 Let's now turn to the cash flow statements. I am proud to say that our efforts aimed at improving the business cash generation capability continued to pay off in the last quarter of the year. Despite the fact that the reported period is usually marked with investment in stock of raw materials and a slowdown of sales, which was particularly exacerbated by a very high volatility in our core markets and despite a substantial working capital divestment we had undertaken in the previous part of the year, we managed to optimize the working capital even further, reducing it by a near $300 million. $148 million only came from inventory management, totaling $635 million of working capital reduction for the year, which completely fulfills our expectations announced almost one year ago of the ability to optimize the working capital in the next 12 months.

 Thus, the cash flow from operations totaled $208 million in Q4, making up $1.311 billion for the year, which is the highest result since 2008 and almost 50% more than in the previous year. The investment cash flow or cash outflow totaled $1 billion for the year. The difference between the cash flow from operations and investments was used to repay the debt. The net debt reduction before the effect of exchange rate for the year totaled $577 million, which we regard as a great achievement in a year of volatile markets given our CapEx program.

 The fact that most of the debt reduction took place in Q4 where the market demand and price levels are particularly subdued gives a certain comfort about the cash flow capability of our group in the year 2013. Reporting now in April, I can say that the first three months did not give us any surprise in our expectations to keep debt under control.

 The net debt stood at $9.6 billion as of the reporting date. The short-term debt being $1.46 billion, or 16% of the total debt. Since then, we have been undertaking a number of steps to further improve the maturity profile of our debt portfolio. The biggest contribution to this picture was the recently announced five-year RUB40 billion loan agreement with VTB, the proceeds from which will be mostly used to refinance existing indebtedness with VTB Bank, as well as to refinance other debt, including redemption of ruble bonds.

 With this loan, cash and other outstanding undrawn facilities, we now have enough resources to cover all the repayments falling due till the end of the year, which dramatically differs from the situation one year ago when we had $2.65 billion short-term debt we had to deal with with limited resources.

 Having deteriorating markets, we are faced with a necessity to revise the debt covenants we agreed a year ago, which we successfully renegotiated with our creditors opening room for further refinancing with both Russian and foreign banks in the year 2013. Our next task is to provide additional cushion for repayments in 2013 and begin to tackle the same issue for the period 2014, 2015 before we move towards the year-end.

 To conclude, ladies and gentlemen, the fourth quarter proved to be the most challenging in the year. The volatility in our commodity markets, especially in the mining segment, weighed on the EBITDA margin, which were also suppressed by one-off accruals in the mining and ferroalloys segments. Nonetheless, the efforts we have been undertaking since the beginning of the year in aligning our production with the current markets, foreclosing lossmaking operations and adjusting our working capital translated into significant efficiency improvement in our steel division and resulted in a record operating cash flow for the last four years.

 Looking ahead, I can say that after the demonstration of resilience on the part of the steel segment in the reported period, the main feature of our business model, the ability to adapt, was fully realized in the first quarter of 2013 by our mining segment. We were able to redirect all the excessive volumes from Europe to Asia where prices stabilized and restarted our North American operations following growth of the order book after we settled our disputes with domestic offtakers.

 At the same time, the steps we have been taking in optimizing our business structure as we announced one year ago already began to materialize in divestment of lossmaking assets, which further improved the economics of our steel division in 2013.

 The last, but not the least, we are proud to report that after its first introduction in 2006, we successfully certified in 2012 the system of internal controls for the preparation of financial statements under the Sarbanes-Oxley Act, which establishes the highest standard of the Company's financial reporting quality. Thank you for your attention, ladies and gentlemen. The management now is ready to take your questions.

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 Vladislav Zlenko,  Mechel OAO - IR   [5]
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 We will now take questions. We would ask that participants please state their name and company before asking their question and allow some time after for translation. When questions are answered in Russian, they will be followed by a translation. So you may ask your question in Russian also and we will translate.



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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Anton Rumyantsev, Sberbank.

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 Anton Rumyantsev,  Sberbank - Analyst   [2]
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 Good evening, gentlemen. Thank you for the presentation. I have got several questions. The first one is, given the pretty hard fall of coking coal prices, which you have shown in your statements in the fourth quarter, could you please share with us your outlook for the average realized coking coal price dynamics in the first quarter? Maybe you could share with us your outlook even for the first half of the year if you have got the available -- actually the (inaudible) amount of contracts signed.

 And I am also interested in your expectations on the mining cash cost dynamics in the first quarter should they stay flat or maybe fall for some reason? And the last thing, you told that you plan to cut CapEx in 2013 by 50%. Could you please give us a breakdown of how much you plan to spend on Elga development, universal mill and other projects? Thank you.

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 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [3]
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 (interpreted) We are not prepared to give you our forecast for as long as six months, but if we compare the first quarter to the fourth quarter of last year, we see that the spot prices have grown by $15, $20 and the contract prices have been down by $5. In the second quarter, the spot prices have been down 10% and contract prices have been up $7.

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Unidentified Company Representative   [4]
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 The remaining questions will also be answered by Oleg Korzhov.

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 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [5]
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 (interpreted) Now the second question that you asked about, the cost of production, we do not see any significant factors that could bring about changes in our costs. The only thing I can say is that the first quarter is usually showing lower volumes and that certainly has its effect. Also, we have seen a 7% increased in railroad tariffs. That also is going to make its contribution to the picture.

 As to our investment program, the plan is to invest about $400 million during this year, out of which $130 million will be spent on supporting our existing facilities and $370 million will be spent into new projects.

 We have already said that we have three major investment projects and the way we are going to distribute our funds between them is the following. We are going to spend about $70 million to $100 million on our universal rolling mill, about $100 million will go into Elga deposit and the other project is completion of the Posiet port facilities, which will take another $20 million to $25 million.

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 Vladislav Zlenko,  Mechel OAO - IR   [6]
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 Next question please.

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Operator   [7]
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 Sergey Donskoy, Societe Generale.

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 Sergey Donskoy,  Societe Generale - Analyst   [8]
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 Oh, thank you very much. I have several questions, but if I may just first start with one follow-up. Speaking of your CapEx program for 2013, do you continue to build the second stage of Sibirginskaya underground mine at Southern Kuzbass? Or this project has been postponed? And I will ask my further questions after you answer this one.

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 Vladislav Zlenko,  Mechel OAO - IR   [9]
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 Oleg Korzhov will answer.

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 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [10]
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 (interpreted) This year, we plan to have investment into Sibirginskaya mine at a minimum level. We have most of the equipment already acquired for this project and we are going to use our own resources, company resources to further develop the second stage at Sibirginskaya mine. We are going to invest approximately $10 million this year into this project using the units that we have put together for this purpose within our Company without going to third parties.

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 Sergey Donskoy,  Societe Generale - Analyst   [11]
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 Thank you very much. Then proceeding to my questions, first, speaking of the Romanian steel assets, were they lossmaking on the EBITDA level in Q4 and for the full year 2012 and if yes, what was this loss? That is question number one.

 Question number two, by our estimates, Bluestone coal production in Q4 was less than 200,000 tonnes of raw coal, including zero output of thermal coal. Is this correct? What was the situation in Q1 and your outlook for the full year, especially taking into account the successful settlement of lawsuits?

 Question number three, could you just clarify what was the total net effect of all one-offs that impacted EBITDA of the mining segment? You have mentioned a few of them and it would probably help if you could just also give the net total.

 And lastly, could you discuss the realized prices for coking coal in Q4 by division? Thank you.

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 Sergey Donskoy,  Societe Generale - Analyst   [12]
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 The last question was what was the total net effect of one-offs that affected the mining segment in the fourth quarter.

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 Vladislav Zlenko,  Mechel OAO - IR   [13]
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 The first and the third questions will be answered by Stanislav Ploschenko.

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 Stanislav Ploschenko,  Mechel OAO - CFO   [14]
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 As far as the negative EBITDA contribution to our consolidated accounts coming from the Romanian assets are concerned, in 2012, the total negative EBITDA was $80 million. $21 million was posted to the fourth quarter only. Total amount of one-offs in the mining segment in the fourth quarter was $71 million.

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 Vladislav Zlenko,  Mechel OAO - IR   [15]
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 The second question will be answered by Oleg Korzhov.

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 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [16]
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 (interpreted) In fact because of the economic situation in Q4, we started reduction of output at Bluestone. We started this in October and by the year-end, the production came to a halt. We had fairly good stocks in our warehouses and therefore, we continued to sell Bluestone products from the warehouses from the stocks.

 So in Q4, we had the following situation. We have produced about 300,000 tonnes of coal. We have produced 160,000 tonnes of final product. And our sales amounted to 450,000 tonnes of coal, out of which 150,000 tonnes was steam coal.

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 Vladislav Zlenko,  Mechel OAO - IR   [17]
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 Could you please repeat the fourth question?

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 Sergey Donskoy,  Societe Generale - Analyst   [18]
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 Well, actually, there was also a second part to this question. This part was what is the production outlook for Bluestone for the current year given the successful settlement of the lawsuits. That was the second part of this question. And my last question was some color on Q4 realized prices for coking coal by division.

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Unidentified Company Representative   [19]
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 (interpreted) In Q1 of 2013 because of the economic situation, we have started putting some of the Bluestone assets back into production mode. We are going to keep a close eye on the economic situation and if it remains unchanged compared to what we see today, the production at Bluestone may amount to 3 billion to 3.5 billion tonnes. And the volume of the final product may amount to 2 million to 2.5 million tonnes.

 As of the Q4 prices by divisions, at South Kuzbass, we produced mostly coking coal concentrate and the prices were $120 CSE. PCI prices amounted to $115 to $120 FOB with logistics costs FCA amounted to $55 to $60. Thermal coals sold at $50 to $55 FCA. At Yakutugol, spot prices were in the neighborhood of $135, $140 CIS and FCA was $80 to $85. Contract prices to Japan and Korea were $145 to $155 FOB and FSA was $105 to $115.

 At Bluestone, we produced two types of products, one with high volatility and the prices there were between $140 and $150 FOB and FCA were $90 to$100. The first number was for low volatility. The high volatility went at $120 FOB, FCA being at the level of $70.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [20]
------------------------------
 Next question, please.

------------------------------
Operator   [21]
------------------------------
 Vasiliy Kuligin, Renaissance Capital.

------------------------------
 Vasiliy Kuligin,  Renaissance Capital - Analyst   [22]
------------------------------
 Good evening, gentlemen. Thank you for your presentation. Three questions from me. First, are you going to consolidate your power segment in first quarter '13 financial results? And the second part of the question is what is the progress with the ferroalloys segment spinoff, if any.

 The second question is can we expect any further one-off items negatively affecting your bottom line, your net income line in the first quarter '13 or further? And the third question relates to dividends. Do you plan to pay any dividends for preferred shares for 2012 or we can expect them to become voting? Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [23]
------------------------------
 All these questions will be answered by Stanislav Ploschenko.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [24]
------------------------------
 The power segment and the ferroalloys segment will continue to be reported in segmental analysis in the Q1 because they still existed as independently managed divisions inside our group. As we divest the assets belonging to the power segment and the ferroalloys segment, we will revise our approach whether they should be separately managed and if not, then we will cease to report them in our segmental accounting.

------------------------------
 Vasiliy Kuligin,  Renaissance Capital - Analyst   [25]
------------------------------
 (spoken in Russian)

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [26]
------------------------------
 As far as the further write-offs are concerned and impairment, we believe that as of today, also bearing in mind the negative background of the price trends and macro situation globally in our core markets, we have impaired and we have cleaned up the balance sheet of the group to the utmost extent. Therefore, we do not expect any further write-offs as of today in the future.

 As far as the dividends are concerned, clearly, we have a net loss for the year. Nevertheless, under the -- since we Russian registered legal entity we are paying dividends under Russian accounting, which -- where we have substantial accumulated net income, but take into account the scarcity of projected cash flow for the group, we will recommend to the Board of Directors not to recommend to the shareholder meeting to pay any dividend on the ordinary stock and we will recommend a minimum amount to be paid on the preferred shares so that they do not become voting.

------------------------------
 Vasiliy Kuligin,  Renaissance Capital - Analyst   [27]
------------------------------
 Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [28]
------------------------------
 Okay, next question please.

------------------------------
Operator   [29]
------------------------------
 Victor Drozdov, VTB Capital.

------------------------------
 Victor Drozdov,  VTB Capital - Analyst   [30]
------------------------------
 Hello. Thank you for your presentation. I have several questions. Firstly, given the recent news flow and (inaudible) potential participation in Elga project as a strategic investor, could you please comment on the 25% sale in national mining? The next question is as for net debt level of $9.1 billion you mentioned in your press release, could you please provide info on the amount of short-term bank deposits being included into this fund amount?

 And one follow-up question. You have highlighted that now our total net effect of all one-offs on EBITDA level was at $71 million. Will this amount be included into net debt to LTM EBITDA calculation as of the end of 2012? Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [31]
------------------------------
 All these questions will be answered by Stanislav Ploschenko.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [32]
------------------------------
 We are continuing negotiations with a number of interested parties globally and precisely in Asia with regard to the sale of the minority stake in Mechel Mining. The negotiations are not over yet and I can't comment on how far the proceedings have gone and who is leading, but we are negotiating with all the major mining and steel companies in the region, including Baosteel.

 As far as the number, the amount of deposits is concerned, it is pretty negligible. I guess your question comes from the difference between $9.6 billion net debt reported in our presentation and $9.1 billion reported in the press release. $9.6 million is calculated according to the formula for calculation of a net debt for the purpose of calculating the debt covenants in our loan agreements and that -- and net debt in our covenant includes leasing, which is not included in a more standard net debt calculation.

 The one-offs, which I reported, affect the EBITDA. We calculate and report the EBITDA in the way which is taken for the covenant calculation. So anything affecting the EBITDA in our reporting is included for the purposes of covenant calculation.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [33]
------------------------------
 Next question please.

------------------------------
Operator   [34]
------------------------------
 [Erlag Petropolosky], BCS.

------------------------------
 Alec Trepowski,  BCS - Analyst   [35]
------------------------------
 Good evening, gentlemen. Thanks for your presentation. It is [Alec Trepowski] from BCS. A couple of questions on your EBITDA. First of all, could you please share with us -- maybe you have some estimates what EBITDA you would have reported if there were no one-offs in the fourth quarter of 2012. And also, do you have any estimates for the potential effort of divestment on your EBITDA in first quarter 2013 or maybe in 2013 as a whole?

------------------------------
Unidentified Company Representative   [36]
------------------------------
 Stanislav Ploschenko will answer.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [37]
------------------------------
 As I already commented, we had about $71 million of one-off effects in the mining segment and about $20 million in the ferroalloys segment totaling $91 million. So without those one-offs, the total EBITDA would be in the range of $191 million in the fourth quarter.

 The EBITDA of the assets that we have divested so far, which are remaining assets or remaining steel mills was and I already mentioned in today's conference call $80 million negative for the year 2012 if that answers your question.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [38]
------------------------------
 Next question please.

------------------------------
Operator   [39]
------------------------------
 Alexander (inaudible), Softlink.

------------------------------
Unidentified Participant   [40]
------------------------------
 Good evening. In my site, there is three questions. First, what is your production plan on steel coking coal and iron ore for the production? The second, your target structure on your debt, what is share for (inaudible) and what debt do you see in 2013 and for the future periods? The third question, where do you see your debt effective rate in Poland in context of loans please converted in dollars? Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [41]
------------------------------
 The first question will be answered by Oleg Korzhov.

------------------------------
 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [42]
------------------------------
 (interpreted) The volume of our production in terms of steel and raw products, it will depend on the market situation. Much will depend on the situation in the Ukraine. For now, the plan is to produce, within the group, 5.5 million to 6 million tonnes of steel. Raw products will be produced in the amount of 6.5 million tonnes. As of the production and shipment of iron ore concentrate, this situation is quite clear and the corresponding number will be 4.5 million tonnes. Coal in 2013, we are going to have the output of 24.5 million to 25 million tonnes.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [43]
------------------------------
 Next question will be answered by Stanislav Ploschenko.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [44]
------------------------------
 (interpreted) As of the structure of our debt in terms of our ruble-denominated and foreign currency-denominated debt, I would not set any goals in terms of such distribution. The main thing is to get funds at the most attractive price. Ideally, we would be looking at a 50/50 split between our ruble-denominated and other currency-denominated debts because of our structure of sales. As of the interest rate, I can tell you the accumulated number for the year, which was 7.8%.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [45]
------------------------------
 Next question, please.

------------------------------
Unidentified Participant   [46]
------------------------------
 If I may, the last question from me about your covenants for the 2013, do you plan to enlarge it as the market conditions stay terrible? Thank you.

------------------------------
Unidentified Company Representative   [47]
------------------------------
 (interpreted) You called the situation terrible, which is not how we see it. We don't see it further deteriorating either. I can say that we have come to an agreement with our lenders on the level of covenants and we are not planning to review it.

------------------------------
Unidentified Participant   [48]
------------------------------
 Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [49]
------------------------------
 Next question, please.

------------------------------
Operator   [50]
------------------------------
 Denis Gabrielik, Otkritie.

------------------------------
 Denis Gabrielik,  Otkritie - Analyst   [51]
------------------------------
 Hello, thanks for the presentation. A couple of questions from my side. Firstly, on CapEx, you said that, in 2013, you plan to spend $400 million. What about 2014 and '15? Should we expect some increase or you plan to keep CapEx at this level?

 Second question regarding Bluestone, looking at the current situation in the market, at what price, coking coal price Bluestone would be breakeven at the EBITDA level? Yes, that's it.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [52]
------------------------------
 The first question will be answered by Oleg Korzhov.

------------------------------
 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [53]
------------------------------
 (interpreted) We were saying earlier that we have changed our strategy in terms of our capital expenditures. This year, we are finalizing two big projects. That is the universal steel mill and the [Bessette forward] facilities. We are not (inaudible) to fund our Elga deposit project through our operating money. We are going to use project financing to fund that development. With the current market situation, we do not plan to launch any other new investment projects in 2014 or '15.

 So within our CapEx program for 2014 and 2015, we are going to be spending about $130 million, $150 million to maintain our current operating facilities. We may be spending negligible amounts of money onto other projects, but such investments will be very minor. We are not planning, like I said, to launch any major investment projects.

 As of your Bluestone question, when it will work at breakeven level, the coking coal price should be at $90 to $95 to make that happen.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [54]
------------------------------
 On the same basis.

------------------------------
 Denis Gabrielik,  Otkritie - Analyst   [55]
------------------------------
 Yes, on the FOB basis, transportation is $60?

------------------------------
Unidentified Company Representative   [56]
------------------------------
 (interpreted) $50.

------------------------------
 Denis Gabrielik,  Otkritie - Analyst   [57]
------------------------------
 Okay, thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [58]
------------------------------
 Next question please.

------------------------------
Operator   [59]
------------------------------
 Sergey Donskoy, Societe Generale.

------------------------------
 Sergey Donskoy,  Societe Generale - Analyst   [60]
------------------------------
 Yes, thank you. I have two -- two or three small follow-ups. First, could you please clarify if the mentioned write-downs in the ferroalloys segment in the amount of $23 million also included provisions for bad debts, which were mentioned in the presentation?

 Second question, given the reduced amount of CapEx, do you plan to somehow revise your development plans for Elga? Do you think that you will try to slow track this project? And I may also ask one question later.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [61]
------------------------------
 The first question will be answered by Stanislav Ploschenko.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [62]
------------------------------
 No, the mentioned number does not include bad debt provision. It is entirely attributable to the provision for layoff of personnel at South Urals Nickel Plant. The bad debt provision for the fourth quarter in the ferroalloys segment was around $8.5 million.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [63]
------------------------------
 Next question will be answered by Oleg Korzhov.

------------------------------
 Oleg Korzhov,  Mechel OAO - SVP for Economics and Management   [64]
------------------------------
 (interpreted) Whether or not the implementation of Elga deposit development will slow down will depend on when we find a project financing solution for this project. As of today, we have done a lot of preparation work and if we find a source of funding for the project or we are clear with the source of funding, we can quickly catch up with the rate of work and be back at the rate that we used to have after the current slowdown.

 There were several points, several items that affect the completion of the Elga project. One of them is that we have full clarity on the equipment and all the hardware that is needed for the project. We are also in good shape in terms of the construction site for the facilities there and the most sensitive issue is completion of bridge construction for the project and in this final area, we are not slowing down our work. We are going at a constant pace.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [65]
------------------------------
 Next question, please.

------------------------------
 Sergey Donskoy,  Societe Generale - Analyst   [66]
------------------------------
 If I may, just one small follow-up on this. Could you please clarify just how much CapEx remains to be invested into the first stage of Elga, including construction of the first stage of the processing plant? Thank you.

------------------------------
Unidentified Company Representative   [67]
------------------------------
 (spoken in Russian)

------------------------------
 Sergey Donskoy,  Societe Generale - Analyst   [68]
------------------------------
 Excuse me. I was speaking about just the first stage or the full-scale production and processing facility of 30 million tonnes just to clarify.

------------------------------
Unidentified Company Representative   [69]
------------------------------
 We are talking about production and processing capability of 12 million tonnes with the existing capability for 3 million tonnes and an additional plant under construction for 9 million tonnes.

------------------------------
 Sergey Donskoy,  Societe Generale - Analyst   [70]
------------------------------
 Thank you very much.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [71]
------------------------------
 Next question please.

------------------------------
Operator   [72]
------------------------------
 George Buzhenitsa, Deutsche Bank.

------------------------------
 George Buzhenitsa,  Deutsche Bank - Analyst   [73]
------------------------------
 Good evening, gentlemen. Thank you for the conference call. I have a couple of short questions. First is on the effective interest rate in 2013. Can you please give us your view on what is it going to be?

 Second one is on the revised financial covenants. I mean you have earlier reported receiving lenders' approval on waivers and amendments to some credit facilities. Can you update us on the revised financial covenants there?

 The third one would be on your application to the [VTB] for project financing. You mentioned that you are seeking project financing for Elga. So if this is successful, how is it going to impact your plans to sell a non-controlling stake in Mechel Mining?

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [74]
------------------------------
 Stanislav Ploschenko will answer.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [75]
------------------------------
 (interpreted) The interest rates in 2013 are going to grow somewhat, but it does not -- it is not because of the greater risks associated with our Company as viewed by the banks. It is because of the growing cost of funds for the banks. As of the financial covenants that were reviewed and coordinated, we are going to have the following $7.5 --.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [76]
------------------------------
 7.5 net debt to EBITDA for the first half of 2013 and for the full year of 2013, 6.1 in the first half of 2013 and 5.5 for the full year of 2014.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [77]
------------------------------
 (interpreted) We were saying that we are seeking project financing for the Elga deposit and we have made applications to a number of financial organizations, including (inaudible). If we receive project financing for Elga, then the need to sell the minority stake in Mechel Mining is going to be significantly less relevant for us and we will be much more scrupulous in deciding on which terms we could possibly sell.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [78]
------------------------------
 Next question, please.

------------------------------
Operator   [79]
------------------------------
 [Igor Federov], ING Bank.

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [80]
------------------------------
 Good evening, gentlemen. Just a couple of questions with regards to your debt also. Just for clarification, do I correctly understand that you have covered all potential, all short-term debt after receiving VTB's loans, am I right? And do you have any plans with regards to your local debt (inaudible) program? Will you go really -- do you have any plans to tap the market and when it will be?

 And third question or just a question, will this facility from the potential asset sale be forward to debt [caught] or cash cushion increase? That would be my first three questions and I have also some questions with regard to your debt. Thank you much.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [81]
------------------------------
 All of these questions will be answered by Stanislav Ploschenko.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [82]
------------------------------
 (interpreted) As we can see in the presentation materials on chart 14, after we received a loan from VTB, the level of funds in our accounts corresponds to the level of short-term debt, which is maturing in 2013, which is not to say that we are not looking for a restructuring of our debt obligations.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [83]
------------------------------
 For this year and going forward beyond 2013.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [84]
------------------------------
 (interpreted) As of the prospects for issuing our ruble-denominated bonds, we can say that we have a prospect for issuance of RUB30 billion worth of such bonds for three years term. They will be exchange-traded bonds would be. However, at this point in time, we are not pursuing this possibility holding it as a potential reserve for a situation if our debt level exceeds related to the cost of debt.

------------------------------
Unidentified Company Representative   [85]
------------------------------
 Basically if the yields on our public debt falls to the levels which we -- at which we are currently borrowing from the banks. (multiple speakers).

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [86]
------------------------------
 All right, and can you just tell me what is a comfortable level for the yield on the debt market? Would it be 12% or 10% and now it's -- I suppose it's above 16%.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [87]
------------------------------
 12% at most.

------------------------------
Unidentified Company Representative   [88]
------------------------------
 12% at maximum. (inaudible) at maximum.

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [89]
------------------------------
 Thank you very much.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [90]
------------------------------
 (interpreted) As of the sales of assets mainly resulting from that will be used to repay short-term debt.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [91]
------------------------------
 Next question please.

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [92]
------------------------------
 All right. And I have two questions, last two questions. And with regards to call (inaudible), I would suppose you disclosed last year in the Form 20-F that you have negotiated with your creditors with regards to loans amounting $6.2 billion and last year, it was about two-thirds of your total debt. And you recently announced that you have negotiated -- you have received consent of incentive covenants and amendments from the bank with regards to $1 billion.

 And so I am just wondering how much of the debt, of covenanted debt you need to renegotiate this year again as you probably reach these covenants you announced last year. So I believe it was 5.5 as of the end of 2012. So can you just provide any figure of how much of covenanted debt you have for now and how much you will need -- how much of efforts you will need to take further this year just to make all your creditors comfortable with your covenant credit situation? Thank you very much.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [93]
------------------------------
 Stanislav Ploschenko will answer.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [94]
------------------------------
 (interpreted) Today, over two-thirds of our total debt is represented by the debt subject to covenant testing and they are pretty much unified across our debt portfolio. The announcement that we made about a week ago that we reached an agreement with international banks on the $1 billion syndicated facility was relating precisely to this syndicated facility. Since then, we reached an agreement with all of our creditors with respect to the new covenants.

------------------------------
Unidentified Company Representative   [95]
------------------------------
 (Spoken in Russian)

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [96]
------------------------------
 That's great news, gentleman. That is very great news. And my last question with regards to your cash flow from operating activities. As we saw, you increased it in 2012 by using working capital. And what is a target debt level of cash flow from operating activities for this year for you as you mentioned that CapEx will be $400 million? Thank you very much.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [97]
------------------------------
 Stanislav Ploschenko will answer.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [98]
------------------------------
 In the year 2012, we divested quite substantial amounts from the working capital. Therefore it is difficult to predict the dynamics of the operating cash flow, especially the portion coming from the working capital in this year. But we certainly count that we will generate sufficient operating cash flow to cover our investment program and hope to do more net debt redemption this year.

------------------------------
 Igor Fedorov,  ING Bank - Analyst   [99]
------------------------------
 Thank you very much and good luck.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [100]
------------------------------
 Next question please.

------------------------------
Operator   [101]
------------------------------
 Vasiliy Kuligin, Renaissance Capital.

------------------------------
 Vasiliy Kuligin,  Renaissance Capital - Analyst   [102]
------------------------------
 Hello once again. One follow-up question from me. On Elga financing, assuming the project financing for the Elga project development is received from (inaudible) Bank, does this mean that the (inaudible) will become the owner of minority stake in Elga or just the stake would just be pledged? And the follow-up question is what is the interest in these two cases for (inaudible) Bank to take part in this? Is the bank just receives an interest payment or it takes -- it will probably take part directly in GAAP profits? Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [103]
------------------------------
 Stanislav Ploschenko will answer.

------------------------------
 Stanislav Ploschenko,  Mechel OAO - CFO   [104]
------------------------------
 (interpreted) I cannot speak on behalf of (inaudible) Bank. From the Company side, I can say that we are not planning to offer a minority stake to the bank. As of the structure of the pledge, it is too early to talk about it because we have not structured the deal yet. We are not going to put the bank into the managing role within this project either.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [105]
------------------------------
 Next question please.

------------------------------
Operator   [106]
------------------------------
 We currently have no questions. (Operator Instructions). Thank you. We have no further questions coming through. So I will hand the call back over to Mechel management for any concluding comments. Thank you.

------------------------------
 Vladislav Zlenko,  Mechel OAO - IR   [107]
------------------------------
 Ladies and gentlemen, thank you for taking the time to join Mechel's 2012 financial results conference call today. The replay of the call will be available on Mechel's website. If you have any further questions, please contact the IR office. Thank you again from all the team here.

------------------------------
Operator   [108]
------------------------------
 Ladies and gentlemen, thank you for attending today's conference. You may now replace your handset.






------------------------------
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