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Coal helps bring Mechel back to profitability

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World Coal,

Mechel’s coal mining business has announced earnings or RUB14.4 billion in 1H16, a 10% increase on the first six months of 2015 – despite lower average prices.

“Despite the positive trends which appeared in 1Q16, the overall price level in this period was significantly lower that the previous year’s,” said CEO of Mechel Mining Management Co., Pavel Shtark. “Nevertheless, optimisation of our costs structure enabled us to increase the division’s EBITDA.”

Mechel recorded contract prices for hard coking coal of US$81 per tonne and US$84 per tonne in the first and second quarters of this year, respectively. In contrast, prices stood at US$117 per tonne in 1Q15 and US$109.5 per tonne in 2Q15.

Revenue was also hit by “the decrease in sales of several types of product as market demand weakened in 1Q16,” Shtark said. As a result, revenue from external customers stood at RUB40.1 billion for the first six months of 2016, a 7% fall on last year.

Overall the company, which also owns steelmaking and power assets, recorded a profit of RUB8.3 billion in 1H16, compared to a loss of RUB16.7 billion the previous year, despite static revenues. It also said that it expected strengthening hard coking coal prices to see the company stay in the back through 2016.

“Currently we see a weaker activity on the metals market, which is offset by a major growth in spot prices for hard coking coal,” said Mechel’s CEO, Oleg Korzhov. “That will enable use to retain the group’s profitability as a whole.”

The company also said that it has completed the sale of a 49% stake in the Elga coal project to Gazprombank, allowing it to repay loans totalling RUB32.9 billion, as well as making overdue interest payments.

The company remains in talks with foreign banks to restructure the company’s debt, which it took on to fund expansion during the commodities boom years.

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