Contents:

Key Events of 2017

Operations and business

HBI-3 Plant launched at Lebedinsky GOK

Metalloinvest’s third HBI production facility was launched on 14 July 2017 at Lebedinsky GOK. With a design capacity of 1.8 million tonnes of HBI per year, it is one of the largest HBI plants in the world.
The project investment totalled over USD 660 million.

For more details,
see here

Concentrate intake facility launched at Mikhailovsky GOK

The facility takes in and unloads iron ore concentrate from Lebedinsky GOK, and passes it on to production units to make high quality pellets from a mixture of concentrates from Mikhailovsky GOK and Lebedinsky GOK.

New air purification equipment installed at Mikhailovsky GOK

A new exhauster was installed at Mikhailovsky GOK to remove dust from the air, ensuring better air quality to a capacity increase of over 20% compared to the previous equipment. The new exhauster has thicker walls, which provides for an extended lifetime of up to 20 years.

Mining and transportation fleet renewal at Metalloinvest’s mining and processing plants

Lebedinsky GOK and Mikhailovsky GOK received eleven new BelAZ haul trucks with lifting capacities of 220 and 130 tonnes, four new locomotives with a set of dump cars, two drilling machines, and two excavators.

Reduction and calibration section installed at OEMK Rolling Mill 350’s mid-size production line

The new machine will facilitate the production of hot-calibrated rolled steel products with precise tolerances and no need for finishing. The project enables the Company to increase its SBQ output by 67,000 tonnes per year while reducing SBQ production costs.

For more details,
see here

Productivity improvements at OEMK’s DRI Plant #2

OEMK successfully completed a re-equipment project at DRI Plant #2. The installation of modern equipment, including the total replacement of the reformer tubes and catalyser, improved the unit’s productivity from 88 to 110 tonnes per hour and reduced expenditures on scrap purchases.

Third stage waste disposal facility project completed at OEMK

OEMK completed the construction of the third production and consumption waste disposal facility, with a capacity of 1 million tonnes. The project investment totalled over RUB 200 million.
The facility was designed for safe collection and disposal of production and consumption waste generated by OEMK, as well as by its subsidiaries and thirdparty companies. Its launch will minimise the environmental impact from fourthand fifth-class wastes, and protect the local environment and public health.

Lighting system upgrades at OEMK, Lebedinsky GOK, and Mikhailovsky GOK

Philips Lighting upgraded lighting systems at 17 production facilities at OEMK, Lebedinsky GOK, and Mikhailovsky GOK. The upgrade project led to 70% energy consumption cuts at the sites and reduced the aggregate energy demand of the light systems by 4.5 MW. Conversion to modern lighting systems is expected to pay for itself within two years and will generate savings of 30.5 million kWh per year.

Continuous Casting Machine #1 upgrade at Ural Steel

Ural Steel’s Continuous Casting Machine #1 was launched into operation following the successful completion of an upgrade project. The project aimed to enhance the Company’s customer-centric approach and change its product mix towards products with higher-margins (rail blooms and railway wheel billets).

New industrial waste landfill facility commissioned at Ural Steel

Ural Steel commissioned a new landfill site for safe industrial and consumption waste disposal. The facility is designed for 25 years of operation.
Advanced technological and construction solutions were employed to build the facility, along with state-of-the-art materials with low filtration properties.

Ural Steel successfully passed a supplier audit for steel billets used in seamless railway wheel production

Ural Steel successfully passed a supplier audit for its 455 mm steel billets supplied to Vyksa Steel Works (VSW) and used in seamless railway wheel production. The audit was part of an EU market certification procedure for VSW-produced railway wheels.
The audit was carried out by experts from Transportowy Dozor Techniczny, Poland, and a VSW representative.

Ural Steel successfully passed a shipbuilding steel production audit

Ural Steel successfully passed an audit by DNV GL, a leading international certification body, and received documents certifying that its steel and rolled steel products meet the DNV GL (shipping) classification requirements and the DNV GL maritime standards.

Metalloinvest’s progress on Industry 4.0 business transformation programme

The Company made further progress on its Industry 4.0 business transformation programme. The programme is aimed at reducing costs, boosting margins, increasing accounting transparency, and ensuring timely decision making. In 2017, the Company completed the design stage and moved to the implementation stage and preparations for the commercial launch of an integrated financial and business management system.

Long-term contracts

Contract with OMK

In January 2017, Metalloinvest and United Metallurgical Company (OMK) announced a long-term contract for the supply of steel billets for the production of seamless railway wheels. The contract is set to expire at the end of 2027.

Contracts with EVRAZ

In August 2017, Metalloinvest and EVRAZ signed new contracts for the supply of 1.6 million tonnes of pellets and 1.8 million tonnes of iron ore concentrate from Mikhailovsky GOK to EVRAZ ZSMK, valid until 30 June 2018.

Contract with Severstal

In August 2017, Metalloinvest announced a new long-term contract with Severstal for the supply of 1.8 million tonnes of iron ore concentrate from Lebedinsky GOK before 30 June 2018. The contract also provides for the supply of dry iron ore concentrate during the winter season.

Contracts with Mechel

In August 2017, Metalloinvest announced a long-term contract with Mechel. Under the contract, Mikhailovsky GOK will sell 0.6 million tonnes of pellets and ca. 1 million tonnes of iron ore concentrate and sintering ore to the Chelyabinsk Metallurgical Plant before 30 June 2018.

Memorandum with KAMAZ

In November 2017, Metalloinvest and PJSC KAMAZ signed a three-year collaboration memorandum for the supply of high-quality rolled steel products (SBQ) produced by OEMK. KAMAZ intends to place orders with OEMK to meet up to 80% of its needs in long products.

Financial highlights

Metalloinvest secured a 2017 PXF facility for USD 1.05 billion

The Company signed a USD 1.05 billion syndicated pre-export finance facility (the “2017 PXF Facility”) agreement. The 2017 PXF Facility consists of two tranches: a five-year tranche for USD 800 million repayable in 2020–2022 and a seven-year tranche for USD 250 million repayable in 2022–2024. Both tranches have a floating rate linked to 1-month LIBOR. The funds secured under the new agreement were used to partially refinance the existing PXF facilities on improved terms. A total 17 financial institutions from Europe, USA, China, Japan, and Russia are parties to the deal.

Metalloinvest executed a tender offer for its Eurobond maturing in 2020 and placed a USD 800 million Eurobond due in 2024

The Company placed a USD 800 million 7-year guaranteed Eurobond, which carries a coupon of 4.85% and matures in 2024. Proceeds from the Eurobond placement were used to finance a tender offer for its 5.625% note due in 2020 and for general corporate purposes. A participation rate of 66.7% was achieved in the tender offer announced on 13 April 2017, i.e. a total principal amount of USD 667 million of notes was tendered.

Metalloinvest renewed its loan agreement with ING BANK

In February 2017, the Company signed an additional loan agreement with ING BANK (EURASIA). The Bank increased the limit of its revolving credit line from USD 100 million to USD 150 million, extending its maturity by two years. Better terms were also secured on the LIBOR-linked floating rate.
The extension provides a secure additional source of liquidity to support the Company’s financial position and stability.
In April 2017, the limit of the two-year committed revolving credit line was increased from USD 150 million to USD 200 million.

Metalloinvest signed credit facility agreements for EUR 16.7 million guaranteed by export credit agencies (ECAs)

The Company and ING BANK signed two long-term credit facility agreements for EUR 16.7 million guaranteed by export credit agencies (ECAs). The funds will be used to purchase equipment for capex projects at Ural Steel.

Credit ratings

S&P changed its outlook on Metalloinvest’s long-term rating to ‘Stable’

S&P upgraded its outlook on Metalloinvest’s long-term rating from ‘Negative’ to ‘Stable’, affirming the rating at ‘BB’. The outlook change was triggered by the improvement in iron ore prices, and the measures taken by the management to reduce debt while maintaining profitability above industry average levels.

Fitch affirmed the long-term issuer default rating at ‘BB’

Fitch affirmed Metalloinvest’s ‘BB’ rating with a ‘Stable’ outlook. Fitch noted that the Company had demonstrated financial stability during the period of price volatility on global iron ore and steel products markets while making consistent efforts over the last four years to reduce its debt.
The agency affirmed its ‘BB’ rating on the USD 1 billion Eurobond issued by Metalloinvest Finance D.A.C. and maturing in 2020.

Eurobonds 2024 were assigned ratings by Fitch, Moody’s и S&P

Eurobonds issued by Metalloinvest Finance D.A.C. in May 2017, to the amount of $800 million with a maturity date of 2024, were assigned ratings by three international ratings agencies: Fitch - BB, Moody’s - Ba2, S&P - BB.

Dagong affirmed the long-term issuer default rating at ‘BBB+’

Dagong affirmed the Company’s long-term foreign and local currency issuer credit ratings at ‘BBB+’ with a ‘Stable’ outlook, noting that its verticallyintegrated structure, significant iron ore reserves, and focus on growing the output of high value-added products would enable the Company to generate a significant operating cash flow to meet its debt obligations.

Expert RA assigned a ‘ruAA–’ credit rating

RAEX (Expert RA) assigned Metalloinvest a ‘ruAA–’ credit rating with a ‘Stable’ outlook. The agency’s rating was supported by the Company’s strong business profile, the dominant share of exports in total revenue, and debt repayment schedule, and also reflected a high degree of debt diversification across lenders.

Management systems

Lebedinsky GOK confirmed compliance of its management systems with international standards

Lebedinsky GOK successfully passed a recertification audit of its environmental management system for compliance with the ISO 14001 standard, and an annual inspection audit of its occupational health and safety management system for compliance with the OHSAS 18001:2007 standard.
In addition, the British Standards Institution confirmed the compliance of Lebedinsky GOK’s quality management system with the new version of the ISO 9001:2015 standard.

Mikhailovsky GOK confirmed compliance of its management system with international standards

Mikhailovsky GOK passed an external audit of its Integrated Management System. Specialists from TUV SUD Management Service GmbH, Germany, conducted recertification audits of the plant’s quality management system for compliance with the ISO 9001:2015 standard and the occupational health and safety management system for compliance with the OHSAS 18001:2007 standard, as well as a control audit of the environmental management system for conformity with the ISO 14001:2015 standard.

OEMK confirmed compliance of its environmental management system with international standards

OEMK successfully passed a periodic audit of its environmental management system and confirmed its compliance with the ISO 14001:2004 standard. The audit was conducted by DNV GL, a leading international certification body.

Ural Steel successfully passed the second compliance audit of its integrated management system

Ural Steel confirmed compliance of its integrated management system with international and industry standards. The unified Integrated Management System developed in line with PAS 99 standard passed an integrated audit which looked at three related areas – quality management (ISO 9001:2015), environmental management (ISO 14001:2015), and occupational health and safety management (OHSAS 18001:2007).

Awards and industry recognition

Metalloinvest received an award for the best results of initiatives implemented as part of the Year of Environment held in Russia in 2017. The Company’s key initiatives included the HBI-3 Plant project at Lebedinsky GOK and a waste disposal facility at OEMK.

The HBI-3 Plant project won two titles at the Russian Mining Excellence Awards 2017 as the Investment Project of the Year and The Main Event in the Russian Steel Industry.

OEMK, Mikhailovsky GOK, and Ural Steel were among the winners of the 13th Russian National Contest Russian Environmental Leader 2017.

Metalloinvest once again won awards of the Leaders of Corporate Charity contest , ranking second overall in the 10th annual international competition. The corporate grant programme “Let’s Do It Together!” was recognised as the best initiative highlighting the social investment principles.

Events after the Reporting Date