Annual Report 2007 - Severstal

Mining
Severstal’s Mining segment is one of Russia’s three largest
producers of iron ore concentrate (with a market share
of 9.1%), pellets (30%) and coking coal (14.7%).
In 2007, after diversifying into other metals and minerals,
we moved into the promising areas of gold production and scrap
metal collection. By acquiring various assets, as outlined below,
Severstal has become Russia’s fourth largest gold producer and
the leading scrap metal collection company in the north-western
region of Russia.
In 2007, we extracted 1.847 million tonnes of coking coal, and
also produced 5.789 million tonnes of coking coal concentrate,
4.651 million tonnes of iron ore concentrate, and 10.045 million
tonnes of pellets. Revenues from our Mining business amounted
to US$2,197 million in 2007, while EBITDA was US$501 million.
Structure
Our Mining businesses are grouped around four main areas:
– Iron ore
– Coal extraction
– Gold production
– Scrap collection and processing.
Iron ore
Karelsky Okatysh extracts iron ore and produces pellets. Located in
Kostomuksha, a town in the Republic of Karelia, in the north-west
of Russia, the business operates four major deposits that have an
estimated life of 33 years based on the segment’s estimates of
JORC reserves plus expected reserves extension.
Olkon also extracts iron ore and produces iron ore concentrate.
Located in Olenegorsk, in the Murmansk region in north-west Russia,
the deposit has an estimated life of 23 years based on the segment’s
estimates of JORC reserves plus expected reserves extension.
Coal extraction
Vorkutaugol is Russia’s largest producer of coking coal, and
comprises five mines (Vorkutinskaya, Severnaya, Zapolyarnaya,
Komsomolskaya and Vorgashorskaya), the Yunyaginsky quarry
and various beneficiation plants. Vorkutaugol extracts both coking
and steam coal. Located in Russia’s European North, in the city of
Vorkuta in the Komi Republic, with an estimated life of 38 years
based on the segment’s estimates of JORC reserves plus expected
reserves extension, and one open pit located within the
Vorkutinskoye deposit.
Kuzbassugol operated two mines, Berezovskaya and
Pervomayskaya, located in the northern part of the Kuzbass coal
basin (in the Kemerovo region), as well as a modern beneficiation
plant, in the Berezovskaya mine complex. The mines specialise in
extracting semi-solid concentrate and raw coking coal with an
estimated life of 34 years. Based on the 2006 JORC evaluation,
Kuzbassugol has reserves of 276 million tonnes. In April 2008,
we sold the business to ArcelorMittal for US$652 million.
The principal reason for selling Kuzbassugol was that it was
no longer a strategic asset (its revenues amounted to less than
9.7% of our total Mining revenue) and, after the acquisition of
Vorkutaugol, it was less crucial to the operations of the Cherepovets
Steel Mill. In addition, the temporary deficit of coking coal on the
Russian and global markets enabled us to sell the company at a
good price. We will spend the proceeds on developing Vorkutaugol
and our other mining businesses.
Gold production
We also own a number of companies that extract and refine gold
ore, and also develop new gold ore fields:
– Nerungri-Metallic (the Tabornoye field) is located in the Republic
of Sakha-Yakutia. Its balanced gold reserves in the C1+C2
category amount to approximately 15 tonnes, while its P1+P2
resources exceed 70 tonnes
– Aprelkovo Mine (the Pogromnoye field) is located in the Chita
region. The field’s reserves in the C1+C2 category are estimated
at 25 tonnes. We extract the gold ore at both fields using an
open-quarry method and the gold using a heap leaching
method. In 2007, production at the two mines amounted to
approximately 2.4 tonnes (about 75,000 ounces)
– Celtic Resources Holdings (the Suzdal and Zherek fields) is based
in Kazakhstan. The company’s gold resources, evaluated by
JORC, amount to approximately 60 tonnes. In 2007, it produced
about 2.9 tonnes (about 95,000 ounces)
– Severnaya Zolotorudnaya Kompaniya (the Northern Gold-ore
company) acquires and develops gold fields. In the second half
of 2007, the company won the rights to geological exploration
and subsequent gold production at:
– the Uryakhskoye gold ore field, located in the Irkutsk region
(which has P2+P3 category resources of 100 tonnes)
– Sagan-Golsky (which has P1+P2 category resources estimated
at 60 tonnes), and
– the Vitimkansky plots (which have estimated resources of
15 tonnes) in the Republic of Buryatia.
Scrap collection
This year, we acquired the following businesses, which carry out
the collection, refining, stocking and sales of scrap metal:
– Vtorchermet and Rospromresursy, in St. Petersburg
– Arkhangelsky Vtormet, in Archangelsk (north Russia)
– Vtorchermet SPb-Rostov, in Rostov-na-Donu (south Russia) and
– Vtormet SPb, in Tula (central Russia).
Severstal Annual Report 2007 35