Download PDF - Severstal

MiningSeverstal’s Mining segment is one of Russia’s three largest producers of iron oreconcentrate (with a market share of 8.9%, source: marketing agency Rudprom), pellets(34.1%, source: Rudprom), coking coal (11%, source: marketing agency Rasmin) andferroniobium (5%, source: management estimation).In 2008, we continued our expansion into the goldproduction business through several acquisitions.As a result, Severstal’s gold division has becomeRussia’s second largest gold producer. After gatheringa pool of entities in the CIS, we have entered the NorthAmerican market and acquired the medium-sized coalproducer, PBS Coals Limited. This company is locatedin Pennsylvania, US, close to international seaportsin Baltimore and Norfolk, and near to Severstal’sNorth American steel companies. In November 2008,we acquired African Iron Ore Group Ltd (renamed toSeverstal Liberia Iron Ore Ltd), to carry out geologicalsurveys and explore iron ore deposits in the PutuRange, Liberia.Our production in 2008 included 723 thousand tonnesof coking coal, 2,222 thousand tonnes of steam coal,4,574 thousand tonnes of coking coal concentrate,4,674 thousand tonnes of iron ore concentrate, 9,363thousand tonnes of pellets, 147 tonnes of ferroniobiumand around 6.2 tonnes (199,881 ounces) of gold.Revenues from our Mining businesses amounted toUS$2,452.7 million in 2008, with EBITDA totallingUS$859.4 million.StructureWe group our Mining businesses as follows:• Iron ore production• Coal production• Gold production• Corporate centre• Ferroniobium production.Within our small ferroniobium production business, weproduced 147 tonnes in 2008.Iron ore productionOur iron ore division includes two extractingcompanies: OAO Karelsky Okatysh, producing pellets,and OAO Olkon, producing iron ore concentrate.OAO Karelsky Okatysh is located in Kostomuksha, atown in the Republic of Karelia in north-west Russia. Theestimated life of its reserves is 39 years, based on ananalysis of optimal mine development.OAO Olkon is located in Olenegorsk, a town in theMurmansk region in north-west Russia. The estimatedlife of its reserves, according to our geological statisticsreport, is 19 years.Coal productionOur coal production division includes Vorkutaugol,PBS Coals Ltd (which we acquired in November 2008)and Kuzbassugol (until April 2008, when we sold itto ArcelorMittal for a total consideration of US$652million).Vorkutaugol comprises five mines (Vorkutinskaya,Severnaya, Zapolyarnaya, Komsomolskaya andVorgashorskaya), the Yunyaginsky open pit, and severalwashing plants. It extracts both coking and steam coal,and is located in Russia’s European North, in the city ofVorkuta in the Komi Republic. Its estimated economiclife is 29 years, based on an analysis of optimalreserves development.PBS Coals Ltd operates strip mines (Leon Paul, Trentand Rhoads) and deep mines – all using the methodof room and pillar, with continuous miners, Quecreek,Miller, Geronimo, Agustus, Roytown and KimberlyRun. The company is based in Somerset County,Pennsylvania, US. It extracts coking and steam coal,and produces coking coal concentrate.We sold Kuzbassugol mainly because it was no longera strategic asset; its revenue became less than 12.2%of the Mining segment’s total revenue in 2007. Also,the temporary deficit of coking coal on the Russian andglobal markets in early 2008 enabled us to sell thecompany at a good price. We used the proceeds fromsale to finance our Vorkuta operations.Gold productionOur gold production division includes the followingentities (data about reserves comes from the officialstatistical reports of each entity):• OOO Nerengri-Metallik (the Tabornoye field)is located in the Republic of Sakha-Yakutia.Its gold reserves of C1+C2 category amount toapproximately 10 tonnes.• ZAO Mine Aprelkovo (the Pogromnoye field) islocated in the Chita region. The mine’s reserves ofC1+C2 category amount to 7.8 tonnes.• Celtic Resources Holdings Plc (the Suzdal andZherek fields) is located in Kazakhstan. Itsgold reserves of C1+C2 category amount toapproximately 31 tonnes.• Severnaya Zolotorudnaya Kompaniya acquires anddevelops gold fields. In the second half of 2007 thecompany won rights to geological exploration andsubsequent gold production at:- Uryakhskoye gold ore field, located in the Irkutskregion (P2+P3 category resources of 100 tonnes)- Sagan-Golsky (P1+P2 category resourcesestimated at 60 tonnes)- Vitimkansky plots (estimated resources of 15tonnes) in the Republic of Buryatia- Kunikansky gold ore field, located in the Chitaregion (P2 category resources of 15 tonnes)- Nerchinsky gold ore field, located in the Chitaregion (P2+P3 category resources of 58 tonnes).In July 2008, we acquired TOO Semgeo, operating inthe Kazakhstan Balazhal mine with 30.4 tonnes of goldreserves of C1+C2 category.In November 2008, we acquired High River GoldMines Ltd, operating in Russia and Burkina Faso withmeasured and indicated CIM Classified Resources(including reserves) of 105 tonnes of gold. We alsoacquired a 50 % share of the licence for Prognoz, with3,351 tonnes of silver.Corporate centreOur corporate centre carries out administrative andcontrol functions.48 49