Moscow, Russia – May 29, 2008 – Mechel OAO (NYSE: MTL), a leading Russian integrated mining and steel group, today announced financial results for the full year ended December 31, 2007.

Igor Zyuzin, Mechel’s Chief Executive Officer, commented on the full year results: “We achieved record financial results for the second consecutive year and benefited from our balanced business model, combining mining and steel assets.  Based on our strategy of developing our base of raw materials and increasing market share of high value added products, we ramped up production volumes and improved our financial performance, nearly doubling operating income for the year.  Mechel’s strong performance was also due to synergistic acquisitions that supported our production capability and created a foundation for future growth.”      

Consolidated Results

Net revenue in 2007 rose by 52.0% to $6.7 billion from $4.4 billion in 2006. Operating income rose 92.6% to $1.4 billion, or 20.9% of net revenue in 2007, compared to operating income of $725.7 million, or 16.5% of net revenue in 2006.

For 2007, Mechel reported consolidated net income of $913.1 million, or $2.19 per ADR / diluted share, an increase of 51.4% over consolidated net income of $603.2 million, or $1.48 per ADR / diluted share, in 2006.

Consolidated EBITDA rose 55.3% to $1.7 billion in 2007, compared to $1.1 billion in the year ago period, reflecting the positive impact of favorable market conditions, new assets acquisitions, entering into more effective market segments and a structured expense management approach.

Mining Segment Results¹

1 - Results of 2006 are recalculated to reflect separate reporting for the power segment.
2 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Mining Segment Output

Mining segment revenue for 2007 totaled $1.8 billion, or 28% of consolidated net revenue, an increase of 41.3% over segment revenue of $1.3 billion, or 30% of consolidated net revenue in the 2006. The increase in revenue reflects production growth at our principal coal producer Southern Kuzbass, production growth at Yakutugol, and the acquisition of the remaining assets of Yakutugol, the largest Russian coking coal producer. These factors resulted in strengthened market position and increased sales of mining products to third parties for the year.

Operating income in the mining segment in 2007 increased by 177.9% to $886.7 million, or 34.7% of total segment sales , compared to operating income of $319.0 million, or 19.0% of total segment sales a year ago. EBITDA in the mining segment in 2007 increased by 146.0% to $995.7 million compared to EBITDA of $404.7 million in 2006. The EBITDA margin of the mining segment was 38.9% for the 2007 full year period, versus 24.1% in 2006.

Igor Zyuzin commented on the mining segment operating results: “Mechel’s mining segment experienced a breakthrough year in 2007. As demand and the pricing environment continued to improve significantly, Mechel increased production, successfully raising coal production by 25% and nickel production by 19%. With the acquisition of strategic assets, such as Yakutugol and Elgaugol, we have strengthened Mechel as global company with significant growth potential. As a result of favorable pricing and increased production, net income for 2007 increased 3 times compared to 2006. Profitability in the mining segment was also positively affected by cost control efforts and successful execution of the technical upgrade program for segment’s mining plants technical upgrade program. As a part of the program, new highly productive extractive equipment is being commissioned at our facilities on a regular basis. Looking forward, favorable pricing at the end of last year has continued to improve in 2008. We intend to capitalize on the current market environment by increasing sales, controlling expenses and operating in the most attractive and promising markets.”

Steel Segment Results³

3 -  Results of 2006 are recalculated to reflect separate reporting for the power segment.
4 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.  

Steel Segment Output 

Revenue from Mechel’s steel segment increased by 42.5% in 2007 to $4.3 billion, or 65% of consolidated net revenue, from $3.0 billion, or 69% of consolidated net revenue, in 2006.

Operating income in the steel segment increased by 37.3% to $558.2 million, or 12.6% of total segment sales, compared to operating income of $406.5 million, or 13.2% of total segment sales , in the 2006 full year period. EBITDA in the steel segment for 2007 increased by 10.6% to $733.5 million over segment EBITDA of $663.2 million in 2006. The EBITDA margin of the steel segment was 16.5% in 2007 compared to 21.5% in 2006.

Commenting on operating results in the steel segment, Igor Zyuzin said: “Although we successfully executed our plans to increase production capacity, the pricing environment for metallurgical products especially in the second half of the year remained challenging. With higher transportation costs and steadily growing prices for raw materials, scrap, electric power and gas, our steel products prices were flat to down. Record high nickel prices also affected profitability in Mechel’s steels segment, which is Russia’s largest stainless flat products producer. In addition, rebar market overstocking led to decreased pricing in the latter half of 2007, which put pressure on our profitability as we have a significant market share for long steel products. As a primary objective for the steel segment, we are continuing to concentrate on increasing output of high value-added products and achieving earnings growth through modernizing production facilities and controlling costs. Despite the ongoing high materials costs, we continue to see an improving economic environment for our products, which makes us optimistic regarding improved financial performance in the steel segment.”

Power Segment Results⁵

5 - Results of 2006 were previously reported as part of the mining and steel segments.
6 - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Revenue in Mechel’s power segment from sales to 3rd parties totaled $503.3 million, or 8% of consolidated net revenue, an increase of 917.6% over revenue from sales to the third parties of $49.5 million or 1% of consolidated net revenue in the 2006.

Operating income in the power segment in 2007, was $12.6 million, or 2.1% of total segment revenues, an increase of 46% compared to operating income of $8.6 million, or 7.0% of total segment revenues a year ago. EBITDA in the power segment in 2007 increased 191.2% totaling $26.8 million, compared to EBITDA of $9.2 million in 2006. EBITDA margin of the segment was 4.5% in 2007, compared to 7.5% in 2006. Net loss of the power segment was $13.0 million and was primarily the result of interest payments on an intersegment loan that was given to Mechel’s subsidiary called OOO Mechel Energo by other Mechel subsidiaries.

Commenting on the results of the power segment Igor Zyuzin said: “Mechel began to develop its power business in 2007 and the acquisition of the coal-fired Southern Kuzbass Power Plant and Kuzbass Power Sales Company made Mechel one of the main players in the energy market in the Kemerovo region, Russia’s principal coal mining area. In 2007, Mechel also developed its power segment abroad by acquiring a 49% share of Toplofikatsia Rousse JSC, located in Bulgaria to extend its presence into new steam coal markets. Our power assets will require significant efforts to modernize the production facilities and integrate them into the Group’s production chain. The segment’s profitability in 2007 was primarily affected by interest payments of “in-group” loans obtained to make the strategic acquisitions during the year. Looking forward, we are very optimistic about the prospects for power generating facilities in Russia, where many regions lack energy. We expect that the forthcoming deregulation of the electricity market will drive the development of the Russian power industry and benefit Mechel. Based on these factors, we plan to continue developing Mechel’s power segment, which will increase the Group’s stability, decrease costs due to the generation of our own electric energy and build value for the shareholders of the company.”

Recent Highlights

• In December 2007, Mechel acquired 49% of the shares of Toplofikatsia Rousse JSC (TPP “Rousse”), located in Rousse, Republic of Bulgaria. The acquisition is part of the development of Mechel’s power segment and is in line with the Company’s plans to enter new markets for steam coal.
• In January 2008, Mechel announced its victory in Russian Railway’s (RZhD OAO) tender for sale of port Temryuk production complex. The acquired property complex is located in the immediate proximity to Temryuk-Sotra seaport, which is already owned by Mechel. The operations of the complex are supported by the same railway branch owned by Temryuk-Sotra, which creates an opportunity to join the two facilities into a high capacity port transshipment complex.
• In February 2008, the contract for designing and constructing the railway spur track to connect Ulak railroad station of the Baikal-Amur Mainline with the Elga coal deposit (Yakutia) was signed by Mechel and Transstroy Engineering Corporation, a subsidiary of Transstroy Design and Construction Company. Construction of the railroad is the first stage of the development of the Elga deposit.
• In February 2008, Mechel signed an agreement on a long–term, partnership with RZhD OAO. Mechel will provide RZhD OAO with rolled products for transportation purposes, which will be manufactured at Mechel’s subsidiaries. Under the agreement, from 2008 until 2010, Mechel will construct a modern rail and structural steel mill at Chelyabinsk Metallurgical Plant with the annual capacity of over 1.0 million tonnes of product. Rail manufacturing volume for RZhD OAO could be up to 400 thousand tonnes annually.
• In April 2008, Mechel announced its purchase of 100% stake in Ductil Steel of Romania. The purchase is in line with the further strategic development of Mechel’s steel segment, and is also aimed at maintaining Mechel’s position in the Romanian rolled and wire product markets. Ductil Steel has the following production facilities: Ductil Steel Buzau plant (Buzau, Romania), which produces carbon and low alloyed steel rolled and wire products, and Otelu Rosu plant (Otelu Rosu, Romania), which produces steel and billets for rolling.
• In April 2008, Mechel announced that all conditions of the Offer made by Mechel for the entire issued and to be issued share capital of Oriel Resources plc have been satisfied or waived and that, accordingly, the Offer is declared unconditional in all respects.
• In May 2008, Mechel announced that its Bratsk Ferroalloy Plant OOO subsidiary has won the tender to acquire the rights to utilize the subsoil plot on the Uvatsk deposit of quartzite and quartz sandstones. This acquisition is in line with the development of the ferroalloy division of Mechel's business and implementation of Mechel’s strategic objective to increase its base of mineral resources. Following the commencement of the Uvatsk deposit development, the company will completely cover Bratsk Ferroalloy Plant’s need for high quality quartzite ore.

Igor Zyuzin concluded: “Our results for 2007 demonstrate the advantages of Mechel’s business-model, which utilizes balancing of mining and steel assets. We plan to continue our strategy to grow our business through both organic growth and acquisitions, increasing shareholder’s value. To support the growth of our coal production, we plan to actively develop our logistic capacities such as we have done through the acquisition of Port Temryuk, allowing us to be more flexible in our sales and reach more attractive customers. We will also continue to strengthen our position in the ferroalloy market, building upon the acquisition of Bratsk Ferroalloy Plant in 2007, producing ferrosilicon, with the pending acquisition of Oriel Resources, producing ferrochrome. The ferroalloy market is a significant opportunity for Mechel, especially given that Mechel is currently the largest producer of specialty steel, utilizing ferrochrome and ferronickel. On acquiring the rights to utilize the subsoil plot on the Uvatsk deposit of quartzite, currently, each of Mechel’s ferroalloy subsidiaries has their own raw material bases. This enables Mechel to decrease its dependence on market fluctuations, provides Mechel with additional competitive advantages, and strengthens its market positions as a whole. In summary, our efforts to modernize existing capacities as well as increasing output, supported by current market trends, allow us to have a positive outlook for the future of our company.”

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 2007 full year amounted to $834. million, of which $516 million was invested in the mining segment, $310 million in the steel segment and $7 million in the power segment.

For the 2007 full year, Mechel spent $2,565 million on acquisitions, including281 million (excluding monetary resources acquired) on Southern Kuzbass Power Plant OAO acquisition; $78 million (excluding monetary resources acquired) on Kuzbass Power Sales Company OAO acquisition; $187 million on Bratsk Ferroalloy Plant OOO acquisition; $6 million on Temryuk-Sotra seaport acquisition; $1.9 billion on acquisition of 75% less one share of Yakutugol OJSHC and 68.86% of the shares of Elgaugol OAO; $$73.5 million on acquisition of 49% of the shares of Toplofikatsia Rousse JSC as well as $2.4 million spent on acquisition of minority interest in other subsidiaries.

As of December 31, 2007 total debt was at $3.5 billion. Cash and cash equivalents amounted to $236.7 million at the end of the year 2007 and net debt amounted to $3.2. billion (net debt is defined as total debt outstanding less cash and cash equivalents).

The management of Mechel will host a conference call today at 9:00 a.m. New York time (2:00 p.m. London time, 5:00 p.m. Moscow time) to review Mechel’s financial results and comment on current operations. The call may be accessed via the Internet at https://www.mechel.com, under the Investor Relations section.