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Mechel profits down

RUSSIAN coal giant Mechel suffered a cut in profits in the first quarter of 2012 compared to the same period last year, despite increasing production of both coking coal and steel.

Justin Niessner
Mechel profits down

The Moscow-based miner logged a $US218 million net income in Q1, down 30% from $309M a year ago.

Run of mine coal production totalled 6.4 million tonnes on the quarter, up 7% from the first quarter last year.

Total coking coal sold came to 3.2Mt on the quarter, up 14% from Q1 2011.

“In this year’s first quarter, the company focused its efforts on implementing measures launched in the end of last year, aimed at optimizing operational planning and management of working capital, as well as improving our debt portfolio’s structure,” Mechel chief executive Yevgeny Mikhel said.

“As a result of the accounting period, despite the volatile market situation due to remaining difficulties in economic development of certain countries and regions that are customers of the group’s products, we managed to make good on key issues.

“We optimized the debt, retained high levels of revenue and freed significant amount of funds by reducing stock, thus significantly improving the group’s operational cash flow.”

Mechel’s total debt which stood at $9.9 billion at the end of last year has been reduced to $9.6b as of the end of the first quarter.

Mechel Steel Management chief executive Boris Nikishichev said the first quarter challenged the company’s coal mining objectives with difficult conditions.

“Despite the continuing decrease in demand and correction of prices for raw materials, as well as temporary idling of several mines in Southern Kuzbass, we managed to retain high volume of coal product sales and increase the sales of iron ore concentrate, which ultimately ensured positive financial results of the entire division’s work,” he said.

Nikishichev also noted the miner’s progress at the Elga open pit coal complex in Siberia’s coal-bearing Toko region.

“At Elga, now that rail tracks are laid along the entire way to the deposit, chief resources are focused on constructing a seasonal washing plant, in order to begin production and sales of coking coal concentrate as soon as possible.

“Once the construction of the plant is completed this summer we will ship off the first load of coking coal concentrate, starting to get returns on the large-scale investment into the project.

“Besides that, at Southern Kuzbass mining was resumed at the Sibirginskaya underground mine in May, and construction of the mine’s second line, which will boost its annual capacity up to 2.4 million tonnes of coking coal, is fully under way.”

Mechel’s business is segmented into mining, steel, ferroalloy and power, with production of coal, iron ore concentrate, nickel, steel, ferrochrome, ferrosilicon, rolled products, hardware, heat and electric power.

The company has a sizeable presence in the US as well, owning more than a dozen active surface and underground coal operations through several subsidiaries, including Double Bonus and Dynamic Energy.

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