Moscow, Russia — March 7, 2006 — Mechel OAO (NYSE: MTL) announces that, following an internal review process, it has optimized its capital expenditure program, allocating substantial additional funds for the continuing development and expansion of its mining segment. This rebalancing reflects Mechel’s overall strategy of seeking strong growth in its mining segment, both through organic growth as well as acquisitions.
The revised overall capex program for the five-year period of 2006 – 2010 is $1.1 billion. It is targeted at expansion of the mining segment and increasing the efficiency of the steel segment. The split of approximately $750 million in mining and approximately $350 million in steel shows the continuing importance of the strong-performing mining segment for Mechel.
In the mining segment, in line with its target to produce 25 million tonnes of coal in 2010, Mechel will direct approximately $100 million to the development of the Erunakovskaya deposit, which will together produce approximately 3 million tonnes of coking coal annually; and $100 million will be directed to the development of brownfield license areas of approximately 1 billion tonnes of predominantly coking coal. Other major mining projects are also aimed at improving quality, and include the construction of Sibirginskaya coal washing plant for approximately $60 million. In the iron ore segment Mechel will invest approximately $70 million in Korshunov Mining Plant.
Steel segment projects are targeted at improving efficiency while maintaining existing output, and will be mainly directed to Chelyabinsk Metallurgical Plant, Mechel’s core steel-producing facility. This includes completion of the construction of an additional continuous caster for approximately $50 million, in line with Mechel’s target to raise the proportion of steel produced through continuous casting from the current 38% to 60% in 2007. Other projects include a new coking battery and reconstruction of rolling facilities.
“The revised capex program reflects our consistent strategy of further expansion of the mining segment. Across both segments we will focus on major projects that will further enhance our solid performance, increase production of higher-margin products, and improve our efficiency”, Mechel’s COO, Alexei Ivanushkin, said.
Mechel OAO also announces that it will increase its dividend from 15% to 50% of net profits under US GAAP, starting with the dividend paid in respect to the 2005 fiscal year.
“We feel that the current market situation and Mechel’s strong performance allows us to offer a new dividend payout ratio moving forward. The new dividend policy is in line with Mechel’s strategy and efforts to reward shareholders’ confidence and implement best international corporate standards,” – Mechel’s Chairman of the Board, Igor Zyuzin, said.
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