— Revenues increased 48.9% to $9.95 billion —
— Operating income increased 82.9% to $2.6 billion —
— Net income increased 24.9% to $1.1 billion, or $2.74 per ADR /diluted share —

Moscow, Russia – June 03, 2009 – Mechel OAO (NYSE: MTL), a leading Russian integrated mining and steel group, today announced financial results for the full year ended December 31, 2008.

* See Attachment A.

Consolidated Results for the fourth quarter of 2008

Igor Zyuzin, Mechel’s Chief Executive Officer, commented on the full year results: “Overall, despite crisis developments in the world economy the fourth quarter, the year of 2008 was a successful one. Once again we managed to achieve record figures in revenue, operating income, and net profit, which allowed us to obtain a certain degree of security before market conditions for Mechel’s products changed for the worse. Moreover, even during the most challenging fourth quarter on operating level, not taking into consideration inventory provision, Mechel’s subsidiaries generated profit.

Throughout the year we also continued to develop the company by M&A transactions, strengthening vertical integration and laying solid base for the company’s growth in the future. As a result of testing on asset impairment there were no goodwill write-offs, which testifies about Mechel’s well balanced and carefully planned approach to M&A transactions.

Unfortunately like many other companies because of significant and sharp decline in market conditions we de-jure breached a number of covenants on our debt obligations. That is why most of our long-term obligations were reclassified as short term ones, which resulted in a significant increase of this position in our balance sheet. Most lending banks show understanding for this situation and take reasonable approach to it. We have already reached agreements on conditions for restructuring the main part of the debt and expect that the restructuring papers will be signed in July.”

Net revenue in 2008 rose by 48.9% to $9.95 billion compared to $6.68 billion in 2007. Operating income rose by 82.9% to $2.6 billion or 25.7% of net revenue, versus operating income of $1.4 billion, or 20.9% of net revenue, in 2007.

For 2008, Mechel reported consolidated net income of $1.14 billion or $2.74 per ADR/ordinary share, an increase of 24.9% over consolidated net income of $913.1 million, or $2.19 per ADR/ordinary share in 2007.

Consolidated EBITDA rose by 23.4% to $2.05 billion in 2008, compared to $1.7 billion in the year ago period. Depreciation, depletion and amortization in 2008 were $463.3 million, an increase of 59.6% over $290.3 in the 2007.

Mining Segment Results*

* - Results of 2007 are recalculated to reflect separate reporting for the ferroalloys segment.
** - See Attachment A.
*** - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Mining Segment Output

* The coal concentrate has been produced from the part of the raw coal output.

Mining Segment Results for the fourth quarter of 2008

* - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
 

Mining Segment Output for the fourth quarter of 2008

* The coal concentrate has been produced from the part of the raw coal output.   

Mining segment revenue from external customers for 2008 totaled $3.3 billion, or 33% of consolidated net revenue, an increase of 142.9% over segment revenue from external customers of $1.4 billion, or 21% of consolidated net revenue, in the 2007.

Operating income in the mining segment in 2008 increased by 215.1% to $1.8 billion, or 44,7% of total segment revenue, compared to operating income of $571.5 million, or 29.0% of total segment revenue, a year ago. EBITDA in the mining segment in 2008 increased by 165.8% to $1.9 billion over segment EBITDA of $713.6 million in 2007. The EBITDA margin for the mining segment was 47.0% for the 2008 full year period, versus 36.2% in 2007. Depreciation, depletion and amortization in mining segment in 2008 amounted to $280.3 million, an increase of 105.3% over $136.5 million a year ago.

Mechel’s Senior vice-president Vladimir Polin commented on the mining segment operating results: “Out of four company’s divisions the best results were delivered by our mining segment. For the most part it was due to a favorable market conditions for coal and iron ore in the first three quarters of 2008. We took full advantage of the growing prices and increased sales volumes on the back of increased production as well as consolidation of Yakutugol. Relatively smoothly we were operating during the challenging fourth quarter owing to the long term contracts according to which we continued delivering coal to our main customers. Given general downturn in the world economy and falling demand we undertook a number of measures aimed at reducing strip ratio and increasing output of steam coal, which saw a better demand than coking coal.

We also revised our capex program postponing a number of projects. Presently our main efforts in this respect are focused on continued implementation of Elga project. Most of the financing will be secured using external sources. Currently we are witnessing a stabilization of prices for coal and iron ore. Under such conditions we directed our efforts at exploring new markets. Having increased sales of iron ore concentrate to China we started shipping there our coal as well. Very promising in this regard is our recent acquisition of Bluestone Coal, which opened up for us markets of the United States and Latin America. Despite a rather sharp decline in the mining industry, overall it remains fundamentally very attractive.”

Steel Segment Results*

* -  Results of 2007 are recalculated to reflect separate reporting for the ferroalloys segment.
** - See Attachment A.
*** - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.  

Steel Segment Output  

 Steel Segment Results for the fourth quarter of 2008  

* - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.  

Steel Segment Output for the fourth quarter of 2008   

Revenue from external customers in Mechel’s steel segment increased by 27.6% in 2008 to $5.5 billion, or 55% of consolidated net revenue, from $4.3 billion, or 64% of consolidated net revenue, in 2007.

In 2008 the steel segment generated operating income of $770.4 million, or 13.3% or total segment revenue, an increase of 43.4% over operating income of $537.3 million, or 12.2% of total segment revenue, in the 2007 full year period. EBITDA in the steel segment for 2008 decreased by 11.3% to $629.6 million, compared to EBITDA of $709.5 million in 2007. The EBITDA margin of the steel segment was 10.9% in 2008 compared to 16.1% in 2007. Depreciation, depletion and amortization in steel segment rose by 10.7% to $137.5 million in 2008, compared to $124.2 million in 2007.

Commenting the results of the steel segment Vladimir Polin noted: “The crisis of the world economy resulted in the significant drop in demand for steel products. Thus we had to decrease output and work hard on the cost-cutting. In line with that we have shut down ineffective open hearth furnaces at Izhstal plant, optimized capacity utilization by supplying more billets from Chelyabinsk Metallurgical Plant and increased efficiency of repair and maintenance works, improved usage ratios through all segment.

Also we have significantly reconsidered our capex program: we continue only the top priority projects, such as the construction of the Universal rolling mill facility at our Chelyabinsk Metallurgical Plant and modernization of the electric-arc smelting at Izhstal. Also we plan to built universal mill using external financing. We should take into consideration that even during significant decrease in demand for steel products, we managed to keep high capacity utilization across the segment. Largely it was possible due to existence of our own steel trading divisions and steel retail and service network of Mechel-Service with its vast network, servicing end users. Against the drop in wholesale orders at other steel plants, Mechel-Service managed to keep our plants filled with orders. This was supported by the HBL holding, which we acquired in September 2008. HBL unites eight service and trading units in Germany.

Today we see that steel prices have reached the cost levels of most producers, so we do not foresee further price decrease on the rolled steel market. After working hard on cost cutting and sales redirection to better markets, we have put into operation Blast Furnance #4 at CMP, restoring it’s capacity back to 100%. We keep focusing on further increasing steel segment efficiency, utilizing all benefits of our vertical integration”.

Ferroalloy Segment Results

* - See Attachment A.
** - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Ferroalloy Segment Output

Ferroalloy Segment Results for the fourth quarter of 2008

* - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Ferroalloy Segment Output for the fourth quarter of 2008

Ferroalloy segment revenue form external customers for 2008 decreased by 13.4% to $434.0 million, or 4% of consolidated net revenue, compared with segment revenue from external customers of $501.1 million, or 7% of consolidated net revenue, in 2007.

Operating loss in the ferroalloy segment in 2008 was $50.5 million, a decrease of 114.4% compared to operating income of $350.1 million, or 55% of total segment revenue, a year ago. EBITDA in the ferroalloy segment for 2008 was -$420.1 million, 229.7% lower than segment EBITDA of $323.8 million in 2007. The EBITDA margin for the ferroalloy segment was -71.9%. For ferroalloy segment depreciation, depletion and amortization in 2008 were $22.7 million, an increase of 69.4% over $13.4 million in 2007.

Vladimir Polin noted: “Ferroalloys segment – is the youngest in our company and was formed only in the second quarter of 2008, when we acquired Oriel Resources Ltd. Financial performance of the segment was seriously affected by decline of nickel and chrome prices. Also because of drop in demand for stainless steel and reduction of its output, our plants remained with high inventories of expensive raw materials, bought during price hikes. This negatively affected the final profitability of the segment. Still we managed to use our vertical integration to minimize the production decline on our ferroalloy smelters, thus providing additional demand for our mining segment products. Since the beginning of 2009 we witness some growth in nickel prices, allowing us to restore production levels at Southern Urals Nickel Plant, which reached 100% after recent commissioning of the previously idled shaft furnace. As for ferrochrome production, I would like to underline that Tikhvin ferroalloy plant has stop purchasing chrome ore at third parties and switched to smelting our own feed from Voskhod-Chrome, launched in September 2008 and now is being brought to projected capacity. Supplying Tikhvin plant from Voskhod-Chrome allows us to improve financial performance of the segment. Bratsk Ferroalloy Plant, which produces ferrosilicon, was the best performer in the segment in 2008. Some decline in tonnage output was caused by switching of production from 65% Fe-Si to 75% Fe-Si, since 75% Fe-Si allows more efficient sales. So the overall production of Fe-Si remained 100%.”

Power Segment Results*

* -  Results of 2007 are recalculated to reflect separate reporting for the ferroalloys segment.
** - See Attachment A.
*** - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

Power Segment Output 

Power Segment Results or the fourth quarter of 2008 

* - EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.  

Power Segment Output or the fourth quarter of 2008 

Mechel’s power segment revenue from external customers for 2008 totaled $688.1 million, or 7% of consolidated net revenue, an increase of 36.7% over segment revenue from external customers of $503.3 million, or 8% of consolidated net revenue, in the prior year.

Operating income in the power segment in 2008 was $29.4 million, an increase of 132.9% compared to operating income of $12.6 million a year ago. EBITDA in the power segment in 2008 increased 97.5% totaling $51.8 million, compared to EBITDA of $26.2 million in 2007. The EBITDA margin for the power segment increased from 4.4% to 5.0%. Depreciation, depletion and amortization in power segment in 2008 rose 39.9%, compared to previous year, from $16.3 million to $22.8 million.

Recent Highlights

· In December 2008, Mechel announced that VTB Bank has opened one-year credit lines totaling 15 billion rubles for Yakutugol OJSHC, Southern Kuzbass Coal Company OAO and CMK OAO, subsidiaries of Mechel. The credit facilities are used to fund the operations of these subsidiaries.

· In January 2009, Mechel entered into an agreement with Gazprombank OAO to arrange for the financing of a universal rolling mill installation project at its Chelyabinsk Metallurgical Plant OAO (CMP OAO) subsidiary. Pursuant to the agreement, Gazprombank OAO provides fundraising services amounting up to US$255 million.

· In February 2009, Mechel announced that it has signed a long-term agreement with Hyundai Steel, Korea, to supply coking coal. The agreement was signed within a visit to South Korea of the Russian delegation headed by the Russian Federation Vice-Premier Igor Sechin, in which Mechel OAO Chief Executive Officer Igor Zyuzin also participated. Pursuant to the agreement, the arrangement was reached for Mechel to deliver K-9 grade coking coal mined from Neryungri open pit to Hyundai Steel for five years beginning on April 1, 2010. The planned delivery volume ranges between 100,000 to 300,000 tonnes of coal annually.

· In February 2009, Mechel announced that Gazprombank Open Joint-Stock Company has opened credit lines totaling $1 billion for Mechel's subsidiaries. Credit facilities provided will be used mainly for short-term debt repayment. The credit facilities provided have a three-year term.

· In March 2009, Mechel reported that the Executive Body of Closed Joint Stock Company "Moscow Interbank Currency Exchange" decided to include Mechel OAO ordinary registered book-entry shares on the quotation list A1-level.

· In April 2009, Mechel announced that its Beloretsk Metallurgical Plant OAO subsidiary (BMP OAO) launched a new product – steel ropes manufactured from plastically drafted strands of 25 mm - 57 mm diameter. The main advantage of the new product is high structural density and tensile strength, durability of wires in strands and strands in ropes, low wearing of sheaves and reels due to bigger area of contact with a rope’s bearing surface. The lifetime of steel ropes with plastically drafted strands is 1.5 times longer as compared to conventional ropes.

· In April 2009, Mechel announced that blast furnace No. 4 was officially commissioned at its Chelyabinsk Metallurgical Plant subsidiary (CMP). The furnace was temporarily delayed in November 2008 due to its third category capital repair. The renewed furnace will produce about 3,000 tones of pig iron daily.

· In May 2009, Mechel announced commissioning of the Shaft Furnace No. 8 after repair at its Southern Urals Nickel Plant subsidiary. Thus, six shaft furnaces currently operate at the plant. The restart of the Furnace No. 8 resulted in the 15% increase in utilization of the plant’s capacity. Considering total output of the six shaft furnaces, Southern Urals Nickel Plant reached the level of 80% of average monthly pre-crises output. As the result of the maintenance work completion and increase in demand for the plant’s products, four shaft furnaces have been successively restarted from March 2009.

· In May 2009, Mechel announced that its subsidiaries have closed the acquisition of U.S. entities Bluestone Industries, Inc., a West Virginia corporation, Dynamic Energy, Inc., a West Virginia corporation, JCJ Coal Group, LLC, a Delaware limited liability company and some of its West Virginia affiliates (together “Bluestone”), privately-held West Virginia-based coal businesses engaged in the mining, processing and sale of premium quality hard coking coal. The aggregate merger consideration is $436 million paid in cash (including $36 million interest paid), approximately 83.3 million preferred shares, plus the assumption of approximately $132 million of net debt.

· In May 2009, Mechel announced a two month extension of its bridge loan taken to finance the acquisition of Oriel Resources Ltd. (Great Britain). The Company and creditor banks representatives agreed on the basic principles of the bridge loan refinancing for a term of up to 3.5 years, and the extension period will be used to execute the agreement. At the moment the participating banks of the syndicate are in the process of internal procedures performing in order to get the final approval of this agreement conditions.

Igor Zyuzin concluded: “Overall, 2008 was another year of development and growth for Mechel. We added to the list of Mechel’s subsidiaries a number of promising assets. We also managed to increase output along the whole range of our products. General decline in production and crisis developments in the economy that we are dealing with starting from the second half of 2008 show all the benefits of Mechel’s vertical integration model. We remain devoted to further development of the company and will continue our efforts aimed at increasing efficiency of its business segments and bringing added value to our shareholders. Industries in which we operate remain very attractive from fundamental standpoint, which has a good potential for the company’s growth when economy recovers and market conditions for our products improve”.

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 2008 full year amounted to $1.2 billion, of which $712 million was invested in the mining segment, $337 million was invested in the steel segment, $101 million was invested in the ferroalloy segment and $21 million was invested in the power segment.

For the 2008 full year, Mechel spent $2.1 billion on acquisitions, including $198 million (excluding monetary resources acquired) on Ductil Steel acquisition; $439 million on advances paid for Bluestone Industries Inc.; $1.44 billion (excluding monetary resources acquired) on Oriel Resourses acquisition; $15 million on HBL Holdings as well as $51 million spent on acquisition of minority interest in other subsidiaries.

As of December 31, 2008 total debt was at $5.4 billion. Cash and cash equivalents amounted to $254.8 million at the end of the year 2008 and net debt amounted to $5.1. 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 10:00 a.m. New York time (3:00 p.m. London time, 6:00 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.