Mechel Signs Contract With Minmetals To Construct Rail and Structural Steel Mill

Mechel OAO, one of the leading Russian mining and metals companies, announces that it has signed a contract with Minmetals, one of China’s largest state-owned industrial corporations, to construct a rail and structural steel mill at its Chelyabinsk Metallurgical Plant OAO subsidiary.

The commercial agreement, signed today, is the first in accordance with the Memorandum of Intent signed between Mechel OAO and Minmetals on October 28, 2008 at the Third Russian-Chinese Economic Forum in Moscow. The contract with Minmetals Engineering includes the construction of a rail and structural steel mill at Mechel’s Chelyabinsk Metallurgical Plant OAO subsidiary on a turn-key basis with a tied loan being granted. Minmetals will perform construction of the workshop, installation of the mill’s equipment and commissioning of technologies to be provided by Danieli. The contract total value is approximately US$300.0 million.

The rail and structural steel mill will produce structural shapes in a wide range of sizes and sections. The mill’s main output will comprise railroad rails up to 100 meters in length and state of the art technologies for rolling, tempering, straightening, finishing, and rail quality control will be used in their manufacture. The rails will be provided to Russian Railways (RZhD OAO) through its partnership with Mechel.

Technical solutions will enable manufacturing products that surpass their world analogues in a number of key parameters, which are determined by the climate conditions of the rails service in Russia. The mill construction is scheduled for completion by late 2010.

Pursuant to the long-term partnership agreement signed with RZhD OAO in February of this year, the minimum rail manufacturing volume for RZhD OAO will be 400 thousand tonnes annually and include various types of rails specifically designed for compatible traffic, high-speed operation, enhanced durability and contact wear resistance, and for operation in a low temperature environment.

“China has been successful in constructing rail and structural steel mills worldwide. Domestically, China commissioned five similar mills, which enabled them to become the largest exporter of rails to various countries, including the U.S. This contract to construct the rail and structural steel mill is the largest Russian and Chinese agreement in metallurgy history. Collaboration with Minmetals Engineering will allow Mechel to complete the mill project efficiently and on time. The project has national importance given that through its agreement with RZhD OAO, Mechel will be the first to supply 100-meter rails to Russia,” Mechel Management OOO Chief Executive Officer Vladimir Polin noted.