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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

Metallurg Holdings Inc.

Metallurg Holdings Inc. and the North American employees of AMG currently maintain offices in a building leased by Safeguard International. The Company pays an allocation of Safeguard’s costs related to the office and the utilities. In addition to the lease and utility expenses, certain amounts related to travel and entertainment and the salaries of certain employees are cross-charged to Metallurg Holdings by Safeguard. During the years ended December 31, 2008 and 2007, Metallurg was billed $191 and $96 by Safeguard for its portion of costs related to the building. Amounts due to Safeguard at December 31, 2008 and 2007 were $316 and nil, respectively. All outstanding balances with these related parties are priced on an arm’s length basis. None of the balances are secured. 39. Subsequent events On February 3, 2009, Timminco completed an equity offering of 7.04 million common shares at a price of C$3.55 per share for aggregate gross proceeds of $20,269. Net proceeds of the financing were $19,621 and will be used for general corporate purposes, which includes repayment of funds drawn on Timminco's revolving credit facility. The Company subscribed for a total of 3.94 million Timminco common shares pursuant to the offering, for aggregate proceeds of $11,351, representing 55.9% of the financing. As a result, the Company now owns 56.50 million common shares of Timminco, representing 50.7% of Timminco's total issued and outstanding share capital. On February 18, 2009, Timminco announced that consistent with its strategy of positioning its magnesium business for profitability and strategic divestiture, it has entered into a non-binding letter of intent with Winca Tech Limited ("Winca"), a leading Chinese-based producer of magnesium products, to merge the principal components of Timminco's magnesium and specialty metals business, including its manufacturing facility in Nuevo Laredo, Mexico, with all of Winca's magnesium operations. Timminco expects to retain a minority equity interest in the combined business, which will be known as Applied Magnesium International (“AMI”). The head office of AMI is expected to be in Denver, Colorado. The proposed merger is subject to a number of conditions, including financing and the negotiation and execution of definitive agreements, and is expected to be completed in the second quarter of 2009. Timminco will immediately start winding down production operations at its existing magnesium extrusion facility in Aurora, Colorado, and close this facility later this year. This facility currently employs 52 people. Some of the existing staff and management are expected to be transferred to AMI, along with certain assets and technology. The closure of the Aurora magnesium extrusion operations will result in severance payments and other cash closure costs of approximately $2.5 million, which will be incurred in 2009. Timminco expects to record charges in the first half of 2009 relating to these costs. The majority of the production assets of the Aurora facility were deemed to be impaired during 2006 and written down to fair market value at that time. To the extent that estimated proceeds of disposition, if any, are less than the carrying value of such assets, a charge will be taken in the first half of 2009. Timminco currently expects to recover a significant portion of its investment in working capital as the business is transitioned to AMI. Timminco expects to generate net cash proceeds from these announced plans during 2009. On March 17, 2009, Timminco announced that it will temporarily curtail production of silicon metal starting in the second quarter 2009 in recognition of difficult market conditions. Timminco will produce solar grade silicon at levels that will bring production in line with customer orders and will defer further capacity expansion of its solar grade silicon facility. The decrease of Timminco's silicon metal production will result in a temporary workforce reduction. 142 Notes to the Consolidated Financial Statements

AMG Advanced Metallurgical Group, N.V. Parent Company Balance Sheet As at December 31 Note 2008 2007 In thousands of US Dollars Assets Property, plant and equipment, net 2 616 – Investments in subsidiaries 3 181,854 156,425 Loans due from subsidiaries 3 58,291 102,221 Investment in equity securities 4 1,000 – Deposit 5 66 Total non-current assets 241,827 258,646 Trade and related party receivables 8 14,241 13,056 Loans due from subsidiaries 3 127,351 104,501 Derivative financial instruments 13 5,644 – Prepayments 6 371 175 Cash and cash equivalents 7 3,989 5,751 Total current assets 151,596 123,483 Total assets 393,423 382,129 Equity Issued capital 8 724 722 Share premium 8 379,297 392,304 Foreign currency translation reserve 8 (10,115) 150 Other reserves 8 7,900 (10,073) Retained earnings (deficit) 8 (123,110) (137,439) Total equity attributable to shareholders of the Company 254,696 245,664 Liabilities Provision for negative participation 3 111,984 119,583 Long-term debt 10 17,000 – Total non-current liabilities 128,984 119,583 Taxes and premium 134 – Trade and other payables 11 5,031 1,928 Loans due to subsidiaries 9 – 11,488 Amounts due to subsidiaries 12 2,140 1,597 Derivative financial instruments 13 2,438 1,869 Current taxes payable – – Total current liabilities 9,743 16,882 Total liabilities 138,727 136,465 Total equity and liabilities 393,423 382,129 The notes are an integral part of these financial statements. AMG Advanced Metallurgical Group, N.V. Parent Company Income statement For the year ended December 31 2008 2007 In thousands of US Dollars Income from subsidiaries, after taxes 36,695 11,870 Other income and expenses (22,242) (166) Net income 14,453 11,704 The notes are an integral part of these financial statements. Parent Company Financial Statements 143

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