MAGNITOGORSK IRON & STEEL WORKS MAGNITOGORSK IRON & STEEL WORKS Organic Growth Strategy Organic Growth Strategy Presentation for Investors Presentation for Investors November 2009 2009 November
MMK highlights № 23 in the global 2008 steel-makers rating; № 1 among crude and finished steel producers in Russia, MMK share of the domestic market in 2008 – 20%; Conservative strategy with focus on organic growth; The broadest products range among Russian and CIS peers; The largest stand-alone production site in Russia; Unique plate mill facilities - Plate Mill 5000 complex; The acquisition of Belon coal company secures supplies of coking coal (including those of deficit grades) to MMK; Low debt level: Debt/EBITDA – 0,78х (as of Dec 31, 2008); BB/Ba3/ВВ credit ratings (S&P/Moodys/Fitch); MMK shareholders’ structure: 87% - beneficially owned by Chairman of MMK Board of ENRC Directors (Victor F. Rashnikov), 13% - free float (LSE, MICEX, RTS); GDRs listed on London Stock Exchange. 2
MMK assets geography Single-site production complex in Magnitogorsk Mining and processing assets, including Belon ZAO Profit - the integrated network of scrap collectors Metal-service centers network International assets: ММК–Atakas (Turkey) Moscow ММК-Метиз MMK-Metiz SSGPO ENRC Kuznetsk coal basin Белон Belon Kazakhstan 3
MMK products MMK products, 2008 Further application of MMK products Hot-rolled sheet Picture 5.66 mln tons (51,9%) Cold-rolled sheet Picture 1.36 mln tons (12,5%) Long products Picture 1.58 mln tons (14,5%) Downstream Picture 1.36 mln tons (12,5%) Billets ang slabs 0.95 mln tons (8,7%) Products of Plate Mill 5000 Further application of Plate Mill 5000 products Steel plates, up to 4800 mm wide, strength class up to X120 4
MMK key advantages Broad product mix Low debt level Modernized assets base High level of self- Competitive edge in costs sufficiency in raw materials and electricity Successful crisis- management programme 5
Leading positions in the industry Sales strategy Leading positions in HVA products % of MMK Products MMK share in № 1 in Russia in finished steel products production Russia's total The leader among high value added steel producers HR flat products 1 52% 42% The largest Russian steel producer. Domestic market CR flat products 12% 3 30% share - 20% 4% Galvanized flat products 26% 2 № 1 in Russian flat steel production 53% 3% CR narrow strip 1 The leader among special steel types producers Tin plate 2% 100% 1 Special sections 55% 1 2% 21% Color-coated rolled products 3 1% The leader in finished steel production No 1 in Russian steel production th. tons 17% 13000 20% MMK Severstal 11000 3% NLMK ENRC Ural Steel 6% 9000 ZSMK NTMK 18% 7000 8% ChMK NKMK 5000 9% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Others 5% 14% MMK Severstal NLMK 6
Efficient sales policy Sales strategy Sales structure by products, 1H09 Th. tons Domestic market takes the largest part of MMK 1500 100% sales. It allows MMK to get the domestic market 90% 1000 80% price premium - up to 15-20% (in comparison 70% with export) 500 60% The largest part of HVA products sales are on 0 50% 40% the domestic market -500 30% MMK expands access to perspective export 20% -1000 markets - Middle East, Asia 10% -1500 0% Billets and Slabs HRC CRC Long products Dow nstream Domestic market Export % shipped to domestic market Source: ММК Source: ММК Domestic market premium Sales breakdown by region USD/t 1H09 7% Asia and Far East 500 7% 450 China 400 8% 350 Middle East ENRC 300 2% Italy 250 200 Other Export 150 12% markets 100 64% Domestic market 50 0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 Total: 2 003 mln USD 7
Strong domestic market position Domestic market growth strategy Domestic market sales structure by products FY08 Increase of high-value added products output 17% Creation of metal-service centers network and 21% Long products effective logistics system Integration with MMK products consumers HRC 12% Ural, Siberia, Volga are major domestic regions CRC of MMK Downstream 50% Total: 7 155 th. tons Domestic market sales dynamics Industrial sales distribution, 2008 Th. tons 8000 0,2% 2,0% 7 155 6,1% Spot sales 7000 9,2% Pipe manufacturing 6000 5000 27,5% Machinery-building ENRC 3 722 4000 Metalware and processing 3 755 13,2% 3000 Automotive industry 2000 2 141 Construction 1000 Food industry 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 15,3% Bridge construction 26,5% Domestic market, CIS Export 8
Access to growing export markets Export market strategy Export sales structure by products Key export regions - fast growing markets of 4% FY08 Billets and Slabs Middle East, Asia and Pacific Rim 13% 25% Long products MMK expands access to perspective export markets by building new mills and metal-service HRC centers 1,5% CRC Flexible export market sales Downstream Total: 3 755 th. tons 56% Domestic/Export sales Sales structure by region 100% FY08 7% 34% Asia and Far East 40% 46% 50% 13% 51% Middle East 50% ENRC Europe 10% 66% 60% Africa 54% 49% 50% 3% North America 1% 66% 0% Domestic market 2004 2005 2006 2007 2008 Total: 10 911 th. tons Domestic market Export 9
Sufficiency in Electricity, Iron Ore and Coal Iron ore supplies structure Coal supplies structure 100% 100% 90% 90% 80% 80% 70% 70% 71% 71% 73% 68% 72% 71% 74% 75% 60% 81% 81% 84% 60% 86% 50% 50% 40% 40% 30% 30% 20% 20% 29% 29% 27% 32% 29% 28% 25% 26% 10% 19% 19% 16% 10% 14% 0% 0% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 Own Iron ore Long-term contracts Belon supplies Long-term contracts Self-sufficiency in electricity, 2008 MMK’s unique position in electricity self-sufficiency US$ / th. kWatt*Hrs 100% 80 68,47 24% 70 119% 45% 60 57% 60% 50 ENRC 40 50% 31,26 30 76% 55% 20 43% 40% 10 0 0% 2008 MMK Sev erstal NLMK Ev raz Purchased electricity price In house generated Outsourced Cost if internally produced electricity Source: ММК, Deutsche Bank 10
Effective crisis-management programme Key measures Profitability dynamics 30 000 1 200 RUR/t th. tons Re-negotiation of raw-material prices with key suppliers 1 000 25 000 Increase of in-house production of raw materials 800 20 000 Decrease of consumption ratios 600 15 000 Optimization of production portfolio 400 10 000 200 5 000 0 июл.08 авг.08 сен.08 окт.08 ноя.08 дек.08 янв.09 фев.09 мар.09 апр.09 май.09 июн.09 Finished steel production Production cost (per ton) Av erage price Slab cash-cost and raw material price dynamics HVA share in production portfolio USD/t mln USD 3500 70% 600 200% 552 3060 2846 3000 60% 500 150% 448 449 2500 50% 400 100% ENRC 2067 321 306 2000 40% 300 50% 207 208 1500 30% 200 0% 989 856 1000 829 20% 795 801 578 100 -50% 387 334 500 10% 243 0 -100% 0 0% 2007 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 11 Slab cash-cost, USD/t Iron ore, % Coal, % Scrap, % HVA sales Ov erall production HVA share
Investment programme Crude steel and finished steel production dynamics th. tons 14000 11 957 10 911 12000 10000 6 688 8000 5 863 6000 4000 2000 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Crude steel Finished steel Source: ММК CAPEX dynamics, mln. USD 1 595 Effect of the investment programme 1500 • Doubled production growth • Product mix expansion, quality improvement ENRC 1200 945 • Increased downstream processing • Lowered consumption ratios 900 621 • Enhanced production efficiency 524 600 300 0 12 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Plate Mill 5000 Further application of Plate Mill 5000 products Only 8 companies (located in Germany, France and Japan) are able to produce plate with comparable characteristics Project completion time under SMS Demag contract: 32 months Investments: USD 1.4 billion Construction pipeline: Nov. 7, 2006: signing of the contract Nov. 2007: foundation works 2008: construction of the building, erection and Plate Mill 5000 products have a number of technological installation certificates to meet requirements of key customers May 2009: functional tests July 2009: rolling of the first plate Characteristics Year of start-up 2009 ENRC Capacity, mtpa 1,5 Width, mm up to 4 800 Thickness, mm 8-160 Rolling force, kt 12 Length, m 24 Strength class up to X120 13
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