Mechel expands its ferroalloy position

Mechel OAO, one of the leading Russian mining and metals companies, has acquired a 100% stake in the charter capital of Bratsk Ferroalloy Plant OOO. The acquisition is in line with Mechel’s strategy that aims at developing its steel segment, improving its operational efficiency, reducing production costs, and leveraging synergies within its business.

The plant’s revenues for 2006 on a Russian Accounting Standards basis amounted to RUR1.3 billion (approximately $51.0 million) and net profit was approximately RUR151.0 million (approximately $6.0 million). The plant’s net assets on a Russian Accounting Standards basis amounted to about RUR4.2 billion (approximately $165.0 million) as of the end of 2006.

Bratsk Ferroalloy is the largest enterprise in Eastern Siberia producing high grade ferrosilicon. Located in the Irkutsk Region, the plant was established on the basis of the crystalline silicon workshop of Bratsk Aluminium Smelter in 2003 and has an advantageous geographical position and operates within stable markets. The plant’s ferrosilicon output totals 84,000 t/y and holds a 13% market share of Russia’s total output. The plant’s share in the Russian ferrosilicon domestic supplies market amounted to 16% in 2006 and increased to 20% in the first quarter of 2007. The plant’s share in the Russian ferrosilicon export market amounted to 11% in 2006. The main competitive advantage of the plant is its access to inexpensive electric power supplied by Irkutskenergo OAO.

Bratsk Ferroalloy operating within the Mechel group of companies will enable the plant to significantly reduce its production costs and improve its performance by using the synergies between Mechel’s raw material, steel, and power business segments. Mechel Management OOO Chief Executive Officer Vladimir Polin commented on the transaction, “We continue to implement our strategy to improve the efficiency of our steel segment. The acquisition of Bratsk Ferroalloy enables Mechel to increase its competitiveness by entering new markets and operating within the steady business of ferroalloy production. Developing the ferroalloy business, in which energy costs are dominant, will enable us to gain synergetic effect both due to the plant’s consumption of Mechel’s own coal and its supplies of ferroalloys to our steel subsidiaries for subsequent processing into high margin marketable products."