Annual report 2007 - Magnitogorsk Iron & Steel Works ...

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2 Greeting of the President of Russia Vladimir Putin on the occasion of the 7 th Anniversary of MMK: “Built within a record time, the legendary Magnitka became not only the most important industrial enterprise in the area, but also a symbol of the country’s industrialization and its power. I am confident that you will continue to make significant contributions to the strengthening of the national economy”. 18.07.07 History The Magnitogorsk Iron and Steel Works sprang up on the left bank of the Ural River in the first half of the last century, next to a unique deposit of iron ore of Mountain Magnitnaya (“Magnetic Mountain).. This relatively small tract of land contained almost half a billion tonnes of high grade iron ore. That there is magnetic ore in the place was known as far back as the XVIII century. In 1743, not far from Mountain Magnitnaya, the governor of Orenburg founded a fort of the same name (“Stanitsa Magnitnaya”). In the late XIX century a Russian government committee lead by D.Mendeleyev, a world-renowned scientist, explored the Urals Mountains and highly praised the quantity and quality of the ore in Mountain Magnitnaya. The design of the Magnitogorsk Works started in May of 1925. Construction began in 1929 and was completed within a record time. In spite of extremely hard conditions in which builders of Magnitka had to work, on February the 1st of 1932 Blast Furnace # 1 produced first pig iron, with Blast Furnace # 2 following suit in the summer of the same year. 1933 saw the start-up of Blast Furnaces ## 3 and 4, and four open-hearth furnaces, thus marking the start of steel smelting at the Works. In August 1934, the first section mill (500 mm) was brought on line. The mill turned the Works into a large supplier of long products and a fully integrated steel mill. In the period from 1935 to 1938 the Works put 5 more long products mills into operation. Before the Second World War the Works processed about 25% of all iron ore mined in the USSR, produced 12% of pig iron and 10% of steel sheets. Soon after the start of the war, the Works received an order for armour steel, and within a month such steel was smelted. Thanks to an innovative solution, for the first time in the history of world steel making, armour plate was rolled on a blooming mill. Another pioneering move was to smelt armour steel in a large-capacity open hearth furnace. With the commissioning of the USSR’s most powerful 4,500 mm armour plate mill MMK’s production of armour plate was significantly increased. In 1942–1943 the world’s largest Blast Furnaces ## 5 and 6 were started up at the Works. In the years of WWII every third shell and every second tank’s armour was made from Magnitogorsk steel. After the war MMK remained “the flagship” of the Soviet steel industry. In 1966 the Works was operating 10 blast furnaces, 10 open-hearth furnaces and 15 rolling mills. In 1989 MMK reached its highest ever level of steel production of 16 million tonnes. In 1990 a new BOF (converter) steel making division was commissioned at MMK. . In 1992, in accordance with the state privatization program, the Magnitogorsk Works was converted into an open joint stock company (OJSC MMK). The key goal at this stage was to continue revamping and modernizing the main production assets. In 1994 a 2,000 mm hot rolling mill with a capacity of 5 million tpy was brought on stream. 1999 saw the commissioning of the third BOF Converter and of the coke gas treatment plant. The blast furnace and sinter divisions were significantly upgraded. In 2002 two first-of-its-kind facilities were started up at MMK: a 1,700 mm two-stand reversing cold mill with a capacity of 800,000 tpy of cold rolled strip, and the country’s largest hot dip galvanizing line with a capacity of 500,000 tpy. This was followed in 2004 by a 200,000 tpy colour coating line.
ANNUAL REPORT OPEN JOINT-STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS SEASON 2007 2006 saw the replacement of the open hearth furnace production with an electric arc furnace complex capable of smelting 4 million tonnes of steel per year. The conversion to state-of-the-art steelmaking technologies and billet continuous casting allowed OJSC MMK to increase the number of steel grades produced. 2006 was also marked by the drastic revamping of the MMK Long Products Division which resulted in the total replacement of the old section and bar mills with new fully automated facilities. The blast furnace division started of the installation of bell-less top charging devices. As of the end of 2007 such devices were installed on three out of eight blast furnaces. In April of 2007 MMK performed its IPO for an amount of over USD 1 billion, with subsequent listing on the London Stock Exchange. In the same year MMK proceeded to the implementation of the projects for the construction of a 5,000 mm hot rolling plate mill and a 2,000 mm cold roling mill and continued the revamping of the sintering, coke and blast furnace divisions. For the purpose of developing its own raw materials supply base, MMK acquired stakes in the Bakal Mine Administration coal company and the Belon coal company. Preparation started for the development of the Prioskolsky Iron Ore Deposit. To develop its value added production, in 2007 MMK acquired a 75% stake in Intercos-IV, a company specializing in the manufacturing of stamped parts for the automotive and the white goods sectors. To strengthen its presence on the international markets, in 2007 MMK started the construction of a steel mill in Turkey with an annual capacity of 2.3 million tons. All in all, over the recent years MMK has succeeded in creating a basis for its developement to the level of one of the major players in the world steel sector. 27
Page 2 and 3: DISCLAIMER The present Annual Repor
Page 4 and 5: Victor Rashnikov, Chairman of the M
Page 6 and 7: Description Capitalization (as at y
Page 8 and 9: Content INTRODUCTORY ADDRESS of Vic
Page 10 and 11: In 2007 the Magnitogorsk Iron and S
Page 13 and 14: ANNUAL REPORT OPEN JOINT-STOCK COMP
Page 23 and 24: Human Resources The average payroll
Page 25: ANNUAL REPORT OPEN JOINT-STOCK COMP
Page 29 and 30: Using these mills, MMK manufactures
Page 33 and 34: as regards the organization of thei
Page 35 and 36: Relations with Local Communities in
Page 43 and 44: • • • ANNUAL REPORT OPEN JOIN
Page 49 and 50: 10,000 8,000 6,000 4,000 2,000 0 AN
Page 51 and 52: 70 60 50 40 30 20 10 0 Assets Curre
Page 53 and 54: 4 3 2 1 0 Liquidity dynamics of MMK
Page 55 and 56: In accordance with its borrowing po
Page 59 and 60: 1.0 0.8 0.6 0.4 0.2 Trends in OJSC
Page 65: The growing demand and buoyant pric
Page 68 and 69: 8 Major Regional Markets for OJSC M
Page 70 and 71: 70 LLC Uralsibtrade OJSC Uraltrubpr
Page 72 and 73: 72 The changes in the domestic sale
Page 74 and 75: 7 Victor Kutischev, OJSC MMK’s Co
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7 Overview of the Iron Ore and Coal
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ANNUAL REPORT OPEN JOINT-STOCK COMP
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• • Expenditures on major capit
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tons thanks to the installation of
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Currency Risk A significant portion
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Goals Planned value Actual value Ac
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The average wages at MMK are 35% hi
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# Causes of injuries 2003 200 200 2
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Environmental Expenditures 2007 saw
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6.00 5.16 5.00 4.00 3.00 2.00 1.00
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128 Exhaustive, precise and timely
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130 Report on Payment of Declared (
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132
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13 Information on Equity Capital As
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13 Liubov Gamper, OJSC MMK’s Dire
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138 Audit Committee Chairman of the
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1 0 # 5. 6. 7. Provisions of the Co
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1 2 # 18. 19. 20. 21. 22. 23. Provi
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1 # 45. 46. 47. 48. Provisions of t
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1 8 # Provisions of the Code of Cor
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1 0 # 73. 74. 75. Provisions of the
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1 2 Director for Sales Director for
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1 Commercial Director Director for
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1 • • • • • • • •
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1 0 Protection Policy which regulat
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1 2 Sergey V. Krivoshchekov (born i
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1 - exercises the authorities of th
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1 Victor A. Kutischev (born in 1958
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1 8
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172 1. Date of Publication of the L
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• settlement procedure - by insta
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24) Services Agreement # 150577 bet
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• • • validity period - till
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The following persons are recognize
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The following persons are recognize
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61) rental agreement # 152445 betwe
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• validity period - from the date
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days from the receipt of invoice;
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• • • settlement procedure -
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The Body which approved the transac
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• • • validity period - till
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• • • • ANNUAL REPORT OPEN
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• settlement procedure - funds tr
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164) paid service agreement # 16001
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There are no beneficiaries under th
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during the shipment, with a discoun
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• supply period - until next Annu
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CONSOLIDATED BALANCE SHEETS AS OF D
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Note Years ended December 31, 2007
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ASSETS I. NON-CURRENT ASSETS Line c
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LOSS AND PROFIT STATEMENT for 2007
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BREAKDOWN OF INDIVIDUAL PROFITS AND
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3.3 Reporting cycle Date of Publica
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EN10 Percentage and total volume of
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The OJSC MMK’s Annual Report is e
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