MECHEL REPORTS FULL YEAR 2005 RESULTS
 -- Revenues increased 4.6% to $3.80 billion --
-- Operating income of $515.73 million --
-- Net income $381.18 million, $2.85 per ADR or $0.95 per diluted share --

Moscow, Russia - May 18, 2006 - Mechel OAO (NYSE: MTL), a leading Russian integrated mining and steel group, today announced results for the full year, ended December 31, 2005.  

US$ thousand FY 2005 FY 2004 Change Y-on-Y Revenues 3,804,995 3,635,955 4.6% Net operating income 515,728 750 807 - 31.3% Net operating margin 13.6% 20.7% - Net income 381,180 542,724 (2) - 29,8% EBITDA (1) 726,252 907,729 (2) - 20.0% EBITDA margin 19.1% 25.0% -

(1) See Attachment A.
(2) Net income and EBITDA for FY2004 were adjusted, not to include the gain on the sale of our shareholding in MMK.

Alexey Ivanushkin, Mechel’s Chief Operating Officer, commented: “2005 was a challenging year for Mechel, as higher raw material costs and a more competitive pricing environment negatively impacted our profitability. However, we remained committed to our strategy of expanding our mining segment in order to partially offset the weakness in the steel segment. While global prices are something that we can not control, we are confident that the strategic actions we undertook during the year will benefit both segments in the long-term. We also decided to increase our dividend payout ratio to 50% of net profits under US GAAP for the year ended 31 December 2005, to reward shareholders’ confidence and underscore our commitment to the best international corporate standards.”

Consolidated Results

Net revenue in 2005 rose 4.6% to $3.80 billion from $3.64 billion in 2004. Operating income was $515.73 million, or 13.6% of net revenue, versus operating income of $750.81 million, or 20.7% of net revenue, in 2004.

For 2005, Mechel reported consolidated net income of $381.18 million, or $2.85 per ADR ($0.95 per diluted share), compared to consolidated net income of $1.34 billion, or $10.77 per ADR in 2004.

Consolidated EBITDA was $726.25 million in 2005, compared to $907.73 million a year ago, reflecting the negative impact of unstable market conditions on average realized prices for the main categories of our products in the middle of 2005. Please see the attached tables for a reconciliation of consolidated EBITDA to net income.

Consolidated results were affected by a write-off of fixed assets in Romanian operations in the amount of $12.7 million, resulting from restructuring of production processes.

Also, in the year ended December 31, 2005, foreign exchange loss was $37.4 million, as compared to a gain of $1.9 million in the year ended December 31, 2004. This foreign exchange loss is primarily attributed to losses from devaluation of our cash balances in euro accounts.

In March, Mechel revised and optimized capital expenditure program, allocating substantial additional funds for the continuing development and expansion of the mining segment and to improve efficiencies in its steel segment. The revised overall capital expenditure program for the five-year period of 2006 - 2010  totals $1.1 billion. Approximately $100 million will be allocated to the development of the Erunakovskaya deposit in southern Kuzbass area; $100 million will be directed to the development of brownfield license areas of approximately 1 billion tonnes of predominantly coking coal. Steel segment projects will be mainly focused on Chelyabinsk Metallurgical Plant (CMP), Mechel's core steel-producing facility. These projects include completion of the construction of an additional continuous caster for approximately $50 million, in line with Mechel's target to raise the proportion of steel produced through continuous casting from the current 38% to 60% in 2007. Other projects include a new coking battery and reconstruction of rolling facilities.

Mining Segment Results

US$ thousand 2005 2004 Change Y-on-Y Revenues from external customers 1,094,782 878,417 24.6% Operating income 401,252 384,053 4.5% Net income 313,736 328,350 - 4.5% EBITDA 465,710 458,068 1.7% EBITDA margin 42.5% 52.2% -

Mining segment output

Product FY 2005, thousand tonnes FY 2005 vs FY 2004, % Coal 15,646 0.0 Coking coal 8,583 - 8.0 Steam coal 7,063 + 12.0 Iron ore concentrate 4,522 + 17.0 Nickel  12.6 - 1.0

Mining segment revenue for 2005 totaled $1,094.78 million, or 28.8%, of consolidated net revenue, an increase of 24.6% over segment revenue of $878.42 million, or 24.2%, of consolidated net revenue, in the 2004 full year period. The increase in revenues reflects maintaining of good output, strong market positions four our coal, and large-scaled sales of mining products to third parties.

Operating income in 2005 in the mining segment increased 4.5% to $401.25 million, or 36.7%, of segment revenues from external customers, compared to operating income of $384.05 million, or 43.7% of segment revenues from external customers a year ago. EBITDA in the mining segment in 2005 was $465.71 million, 1.7% higher than EBITDA of $458.07 million in 2004. The EBITDA margin of the mining segment was 42.5% in 2005.

Mr. Ivanushkin commented on the results of the mining segment: “While the global steel market remains uncertain due to excessive supply, the market fundamentals for coal continue to strengthen.  During the year we were able to offset a decline in demand for coking coal resulting from a decline in demand from steel producers by increasing our output of steam coal and iron ore concentrate. While this decline in demand negatively impacted profitability in this segment, we were able to intensify our continued cost control initiatives to minimize negative consequences. In line with our strategy, we continued to further expand our coal reserves in 2005 through a number of transactions that have significantly enhanced the capabilities of our coal segment, acquiring additional coking coal licenses for license areas with a total reserves of 1.15 billion tonnes according to Russian reserve valuation standards. We remain committed to further expanding our mining segment, and believe it will provide significant value for our shareholders.”

Steel Segment Results

US$ thousand 2005 2004 Change Y-on-Y Revenues from external customers 2,710,213 2,757,538 - 1.7% Operating income 114,475 366,754 - 68.8% Net income 67,443 214,374 (1) - 68.5% EBITDA 260,542 449,661 (1) - 42.1% EBITDA margin  9.6% 16.3% -

(1) Net income and EBITDA were adjusted not to include the gain on the sale of our shareholding in MMK.

Steel segment output

Product FY 2005, thousand tonnes FY 2005 vs FY 2004, % Coke 2,589 - 12.0 Pig iron 3,349 - 14.0 Steel 5,899 - 5.0 Rolled products 4,600 - 2.0 Hardware 557 0.0

Revenue from Mechel’s steel segment decreased 1.7% in 2005 from $2.76 billion to $2.71 billion, or 71.2% of consolidated net revenue, as compared to 2004. 

For the 2005 full year period, the steel segment generated operating income of $114.48 million, or 4.2%, of segment revenues from external customers, compared to operating income of $366.75 million, or 13.3%, of segment revenues from external customers in the 2004 full year period. EBITDA in the steel segment for 2005 was $260.54 million. The EBITDA margin of the steel segment was 9.6% in 2005.

In April of 2005, the Company announced the commissioning of a new sinter palnt at CMP.  The first lines of this plant generated approximately $36.27 million in cost savings, as it allowed CMP to switch to iron feed based more on sinter, produced from Mechel’s iron ore concentrate. The expected effect in 2006 will be $37.21 in cost savings.

Mr. Ivanushkin commented, “Although pricing levels improved in the fourth quarter, the pricing environment remained difficult in the steel segment throughout 2005, and our profitability continued to be affected by higher raw material costs. In light of this, we have focused on controlling our cost structure, and began a number of initiatives during the year that will result in a steel segment better positioned to perform in the marketplace. While we expect these challenging conditions to continue in the short-term, we have seen a continued improvement in demand into the early part of 2006. The commissioning of our new sinter plant and concasting facilities at Chelyabinsk is progressing well and, as pricing firms, we would expect performance to return to more normalized levels.”

Recent Highlights

• Mechel announced that it would increase its annual dividend from 15% to 50% of net profits under US GAAP, starting with the dividend paid with respect to the 2005 fiscal year.
• In March of 2006, Mechel established a 100%-owned subsidiary, Mechel Hardware OOO to sell hardware produced at its Beloretsk Metallurgical Plant, Vyartsilya Metal Products Plant, and Mechel Nemunas to the Russian and international markets.
• Mechel recently placed two issues, Series 02 and 03, of documentary interest-bearing inconvertible bonds with the par value of RUR 1,000.00, the amount of each issue to be RUR 5.0 billion, at the Moscow Interbank Currency Exchange (MICEX).  The funds from the bond placement will be utilized to refinance the debt under the previous bond issues and to finance the long term investment programs of the Company's subsidiaries.
• In April of 2006, Mechel announced the acquisition of a 100% stake in Metals Recycling OOO, a Chelyabinsk-based metal scrap processing company through its subsidiary, Mechel Service OOO for approximately US$6.0 million. The transaction was a part of Mechel's policy to ensure its steel segment's self-sufficiency in raw materials.
• During 2005, Mechel announced a number of transactions that have significantly expanded the capabilities of its coal segment. These include various successes at license auctions to develop coal deposits in the Olzherasskaya Mine plot, Razvedochny plot, Sorokinsky plot, Erunakovskaya-1 Mine and Erunakovskaya-3 Mine plots. Total license areas attributable to new licenses acquired is  1.15 billion tonnes, according to Russian reserve valuation standards, of which the vast majority is coking coal of high quality.
• In January of 2005, Mechel also won an auction for the sale of ordinary shares in Yakutugol OAO that constitute 25 % + 1 share of the company's charter capital for approximately $411.2 million. Yakutugol’s annual output is approximately 9 million tonnes, of which approximately 5.0 million tonnes is coking coal. The acquisition further expands Mechel’s mining holdings while also increasing its exposure to the Asia-Pacific region.
• Continued progress on Mechel’s commitment to investing in its operations to reduce operating costs and increase efficiency. In April of 2005, Mechel announced the start-up of the first line of a new, four-line sinter plant at its Chelyabinsk Metallurgical Plant subsidiary. The new plant will increase Mechel’s ability to internally source its iron ore requirements from its iron ore mine, Korshunov Mining Plant. Once fully operational, the plant, which will cost approximately $150 million, will generate approximately $70 million in annual cost savings.
• To diversify the cargo flow of our coal and steel products and to improve our logistics, Mechel acquired 90.36% stake in Kambarka Port OAO - one of Russia’s largest river ports. The facility specializes in the transshipment of bulk cargo, including ore, iron ore concentrate and coal.

Mr. Ivanushkin concluded, “We have always believed that Mechel’s position as an integrated producer of both coal and steel products would benefit us in difficult market periods. This was proven in 2005, as the diversity of our operations allowed us to remain significantly profitable despite the challenging conditions we faced in several of our markets. Over the course of the year we have taken a number of actions that we believe position us well for the future. We have made significant investments in our coal operations, and undertaken actions to improve the profitability of our steel business.  At the same time, we have seen indications of a recovery in demand within the steel sector, which should benefit both sides of our business. As we move into 2006, we will continue to concentrate on the overall profitability of our business, by controlling costs and enhancing operational efficiencies. We are confident that the continued execution of our strategy will drive our results going forward.” 

Financial Position

Cash expenditure on mineral licenses, property, plant and equipment for the 2005 full year amounted to $520.6 million, of which $260.1 million was invested in the mining segment and $260.5 million in the steel segment.

For the 2005 full year, Mechel spent $488.6 million on acquisitions, comprised of $411.2 million for 25%+1 share of Yakutugol Holding Company OAO, $3.5 million for 90.4% of the shares of Port Kambarka OAO, $16.0 million for 25.1% of the shares of Izhstal OAO, $52.9 million for 6.8% of the shares of Chelyabinsk Metallurgical Plant OAO,  $3.4 million for 10.5% of the shares of Korshunov Mining Plant and $1.6 million was spent on acquisition of minority interest in other subsidiaries. 

As of December 31, 2005, total debt  was at $435.0 million. Cash and cash equivalents amounted to $311.8 million at the end of the year and net debt amounted to $123.2 million (net debt is defined as total debt outstanding less cash and cash equivalents).

* One American Depositary Share is equivalent to three diluted shares.

The management of Mechel will host a conference call today at 10 a.m. New York time (3 p.m. London time, 6 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.

¹Total debt is comprised of short-term borrowings and long-term debt.