Mechel Announces Acquisition of Bratsk Ferroalloy Plant

JSC Mechel  announces acquisition of 100% stake in the charter capital of Bratsk Ferroalloy Plant OOO (BFP OOO).

The acquisition is in line with Mechel’s strategy aimed at developing its steel segment, improving its operational efficiency, reducing production costs, and leveraging synergies within its business.

JSC Mechel  acquired 100% stake in the charter capital of Bratsk Ferroalloy Plant. 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 Plant is the largest enterprise in Eastern Siberia producing high grade ferrosilicon. Located in the Irkutsk Region, the plant was founded on the basis of the crystalline silicon workshop of Bratsk Aluminium Smelter in 2003 and has advantageous geographical position and operates within stable markets. The plant’s ferrosilicon output totals 84 thousand tn annually and comprises 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.

Ferroalloys are used by steel melting enterprises, including Mechel’s steel subsidiaries. Bratsk Ferroalloy Plant’s operating within Mechel group of companies will enable the plant to significantly reduce its production costs and improve its performance by utilizing the synergies between Mechel’s raw material, steel, and power business segments.

Mechel Management 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 Plant 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.”