Mechel expands coal assets

RUSSIAN mining and metals company Mechel announced its 2005 results yesterday, reporting an expansion in coal reserves that has significantly enhanced the capabilities of its coal segment.
Mechel expands coal assets Mechel expands coal assets Mechel expands coal assets Mechel expands coal assets Mechel expands coal assets

Mechel coal mining in Russia

Staff Reporter

The company, an integrated producer of coal and steel products, said higher raw material costs and a more competitive pricing environment had, however, negatively impacted its forecast profitability.

Net revenue in 2005 rose 4.6% to $US3.8 billion while operating income was $US515.73 million or 13.6% of net revenue, versus operating income of $US750.81 million or 20.7% of net revenue in 2004.

For 2005, Mechel reported a consolidated net income of $US381.18 million, compared to consolidated net income of $US1.34 billion in 2004.

Mining segment revenue for 2005 totalled $1 million, or 28.8% of consolidated net revenue, an increase of 24.6% over segment revenue in the 2004 full-year period.

Mechel chief operating officer Alexey Ivanushkin said the increase in mining revenues reflected a steady output, strong market positions for coal and large-scale sales of mining products to third parties.

“While the global steel market remains uncertain due to excessive supply, the market fundamentals for coal continue to strengthen,” he said.

“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.”

Ivanushkin said while this decline in demand negatively impacted profitability in the segment, the company was able to intensify its continued cost control initiatives to minimise 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 licences for licence areas with total reserves of 1.15 billion tonnes according to Russian reserve valuation standards,” he said.

In March, Mechel revised its capital expenditure program, allocating substantial additional funds for the continued development and expansion of the mining segment and to improve efficiencies in its steel segment.

It announced $100 million would be directed to the development of Brownfield licence areas of approximately 1 billion tonnes of predominantly coking coal.

“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,” Ivanushkin said.