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ExportExport accounted for 17.9% of our total sales byrevenue in 2008. The principal exports were pellets(45.9%), gold (22.0%) and coking coal concentrate(11.8%). The share of other products was negligible.The main destinations for these products were Europe,the US and the CIS (Ukraine and Belarus principally).Export sales by products, FCA based with discounts/price premium2008 2007 Change year-on-year %Thousand tonnes US$ million Thousand tonnes US$ million Thousand tonnes US$ millionCoking coal 74 6.3 80 3.1 (7.5) 103.2Coking coal concentrate 572 51.5 814 62.5 (29.7) (17.6)Steam coal 260 13.8 601 15.0 (56.7) (8.0)Pellets 1,959 201.0 2,187 124.6 (10.4) 61.3Iron ore concentrate 151 12.9 - - n/a n/aFerroniobium - - - - n/a n/aGold (tonnes) 3.3 96.2 - - n/a n/aTotal sales by products - 381.7 - 205.2 n/a 85.9Other and shipping - 56.5 - 67.5 n/a (16.3)Total export salesRevenue - 438.2 - 272.7 n/a 60.7Inter-segment transactions (794) (87.0) (357) (53.5) n/a n/aCostsCost of sales structure2008 2007 Change yearon-year%US$ million % of total US$ million % of totalMaterialsGrinding balls and rods 40.0 2.9 28.6 2.4 39.9Explosives 36.8 2.7 30.5 2.6 20.7Metal - roll 21.0 1.5 7.9 0.7 165.8Technological coals 12.2 0.9 20.8 1.8 (41.3)Other materials 143.0 10.4 103.5 8.8 38.2Integral implements and spares 49.9 3.6 34.7 2.9 43.8Total materials 302.9 22.1 226.0 19.1 34.0EnergyElectric power 140.7 10.3 125.6 10.6 12.0Gasoline 62.7 4.6 33.4 2.8 87.7Other energy resources 74.2 5.4 54.1 4.6 37.2Total energy 277.6 20.2 213.1 18.0 30.3Staff costs 403.1 29.4 321.2 27.2 25.5Depreciation and amortisation 223.5 16.3 196.9 16.7 13.5Services 207.7 15.1 183.8 15.5 13.0Change in inventories (60.8) (4.4) (1.2) (0.1) n/aOther 17.3 1.3 42.3 3.6 (59.0)Total 1,371.3 100.0 1,182.1 100.0 16.0Exports of coking coal concentrate and steam coal decreased by 29.7% and 56.7% in volume, 17.6% and 8.0% inrevenue respectively. This was due to the sale of Kuzbassugol in April 2008.Capital expenditureWe invested a total of US$415 million in our Miningbusiness in 2008, 8.1% more than in 2007. We spentUS$161 million of this modernising and developing theVorkutaugol mines, US$72 million on new equipmentat OAO Karelsky Okatysh, US$54 million on OAO Olkon,and US$100 million on gold entities.As part of our development strategy, we made thefollowing investments in 2008:• Investment in coal-producing projects: US$171million in 2008• Investment in projects to increase extraction andrefining of iron ore: US$126 million in 2008• Investment in projects to increase our extractionand refining of gold: US$100 million in 2008In 2008, costs in the Mining segment increased byUS$189.3 million, or 16.0%. This was due to a 34.0%increase in the cost of raw materials, a 30.3% increasein the cost of energy and a 25.5% increase in labourcosts. The increase in the cost of raw materials was duenot only to the increase in the volume of production, butalso to price rises.Decisive management actionsSeverstal’s management has taken decisive action tomitigate the impact of the global economic downturnon the company, and to preserve cash. Since November2008, we have taken certain measures to adjust ouroperations to the new environment:• Cost reduction measures – decreasing theadministrative headcount, reducing overheads,and optimising production plans to meet reduceddemand. We are also rescheduling beneficiationand pelletisation levels to optimise equipmentproductivity.• Working capital measures – renegotiating contractconditions, daily control of accounts receivable, anddecreasing inventory levels.• Minimising capital expenditure – for 2009, wehave scheduled only critical maintenance projects,amounting to US$218.6 million. We have postponedother projects.• Minimising M&A activity – we do, however,continue to monitor market opportunities. Forexample, we acquired a majority stake in High RiverGold Mines Ltd in the fourth quarter 2008, as weconsider this a good market opportunity.54 55