Under the agreement, Mechel will construct a modern rail and structural steel mill at Chelyabinsk Metallurgical Plant (CMP OAO) over the next two years with the annual capacity of over 1.0 million tonnes of high value added products. The new equipment will enable Mechel to manufacture, among other products, railroad rails up to 100 meters in length using state of the art technologies for steel melting, rolling, tempering, straightening, finishing, and rail quality control. Technical solutions will enable manufacturing products that surpass their world analogues in a number of key parameters, which are determined by the climate conditions of the rail service in Russia.

Rail manufacturing volume for RZhD OAO will be up to 400 thousand tonnes annually and include product specifically designed for high-speed operation, enhanced durability and contact wear resistance, and for operation at a low temperature environment.

Mechel OAO will obtain the necessary certificates for safe use of the rails in the railway system and will carry out work systematically under the programs, which will be aimed at enhancing rail production technology.

RZhD OAO will construct a complex rail welding train (RWT) and an approach track following the legal completion of its land relationship with CMP OAO in 2008. The complex will be commissioned in 2010.

To ensure a smooth production process at Mechel’s Chelyabinsk Metallurgical Plant, RZhD OAO undertakes to continuously deliver the rolling stock, including its own rail carrying cars, to be used for shipping finished products.

“One of the important components of Russia’s economic development is its modern, well developed railway system. Pursuant to the “Strategy of the Russian Federation Railway Transport Development Until 2030,” which was developed by RZhD OAO and approved by the Russian Federation Government, over 20,000 kilometers of new railroads will be constructed in Russia before 2030. Implementation of this program may be hindered in part by a sharp deficit of quality rails, which is currently felt in Russia. Mechel OAO came forward with an initiative of mastering and implementing, at its Chelyabinsk Metallurgical Plant subsidiary, a unique technology, unparalleled in Russia, to produce high quality rails up to 100 meters in length conforming to the most stringent requirements set by RZhD OAO. The company plans to invest more than US$500 million in the new production development. Mechel highly appreciates the opportunity to participate in this strategic state project and the role it plays in developing Russia’s economy,” Mechel OAO Chief Executive Officer Igor Zyuzin commented.