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Russia's Mechel profit hit by mining weakness
June 20, 2012 / 11:17 AM / 5 years ago

Russia's Mechel profit hit by mining weakness

MOSCOW (Reuters) - Profits of Russian coking coal and steel producer Mechel (MTLR.MM) (MTL.N) fell 29 percent in the first quarter as its mining operations were hit by weaker demand and lower prices.

A Mechel's advertising billboard is seen in the town of Mezhdurechensk in the Kemerovo region July 29, 2008. REUTERS/Andrei Borisov

Net profit fell to $218 million from a year-earlier $309 million, but this was more than analysts’ forecasts of $127 million. Revenue rose to $3 billion from $2.93 billion.

“The (mining) segment had to work in difficult conditions,” Mechel Mining Management Company CEO Boris Nikishichev said in a statement on Wednesday.

“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”.

The mining operations’ net income attributable to shareholders dropped 16.9 percent to $241.5 million from $290.7 million a year ago.

CEO Yevgeny Mikhel said that Mechel managed to make progress in some areas despite challenges in certain countries importing its products.

“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,” Mikhel said in a statement.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped to $463 million from $567 million a year ago.

The company expressed satisfaction with the operations of its steel segment, which posted a 6.1 percent fall in revenue to $1.65 billion but saw higher sales volumes.

“Despite a seasonal low in demand for steel products, we managed to increase sales, significantly reducing stock,” Mechel-Steel Management Company CEO Andrey Deineko said.


“The results were mainly in line with the negative market trend,” Pavel Yemelyantsev of Investcafe said in a research note.

“The main concern is the company’s debt load, albeit Mechel managed to negotiate its net debt/EBITDA ratio to 5.5 times (with its creditors), which temporarily reduces the acuteness of the problem.”

Mechel’s total debt, which stood at $9.9 billion at the end of last year, decreased to $9.6 billion as of March 31.

In April, Mechel said that it had reached an agreement with lenders to renegotiate debt covenants on its loans, but did not provide the details.

The company’s shares were trading down 1.1 percent at 0644 EDT underperforming the global MICEX index which was down 0.57 percent.

Reporting By Alexei Anishchuk; Editing by Lidia Kelly and Hans-Juergen Peters

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