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Severstal capital markets day 2012 presentation (English version)

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  • 1. SeverstalCapital Markets Day3 September 2012
  • 2. Table of Contents Introduction from Chairman of the Board 5 Severstal Today: Focus on Internal Improvements and Organic Growth 9 Market Trends and Opportunities 25 Commitment to a Prudent Financial Policy 35 Sustainable Development 45 Severstal Russian Steel – Focus on Value-Added Steel 54 Severstal Resources – In Mining We Trust! 68 Severstal International – Focused on the Future 78 Conclusions 89 Page 2
  • 3. Today’s Agenda 2.00pm First Session  Christopher Clark, Chairman  Alexey Mordashov, Chief Executive Officer  Thomas Veraszto, SVP Strategy & Corporate Development  Alexey Kulichenko, Chief Financial Officer  Vadim Saveliev, SVP Corporate Communications & IR  Q&A 4.00pm Coffee Break 4.15pm Second Session  Alexander Grubman, CEO Severstal Russian Steel  Vadim Larin, CEO Severstal Resources  Sergei Kuznetsov, CEO Severstal International  Q&A 6.10pm Cocktail Reception Page 3
  • 4. Christopher Alexey Thomas Alexey Vadim Alexander Vadim SergeiClark Mordashov Veraszto Kulichenko Saveliev Grubman Larin KuznetsovChairman of the Chief Executive SVP – Strategy Chief Financial SVP – Corporate CEO CEO CEOBoard Officer and Corporate Officer Communications Severstal Severstal Severstalof Directors Development and IR Russian Steel Resources International Today’s Presenting Team
  • 5. Introduction from Chairman of the Board Page 5 Christopher Clark Chairman of the Board of Directors Page 5
  • 6. Today’s Themes In good shape to meet the challenges in the steel and commodities markets On track with execution of our stated focused strategy Focus on further internal improvements and organic growth Well-invested assets and flexible CAPEX programme covered by operating cash flow Commitment to a prudent financial policy Leading corporate governance standards Page 6
  • 7. Corporate Governance A commitment, since IPO in 2006, to high governance standards Board includes more independent non-executive directors than executives • Constitution requires independent director authorisation of certain types of transactions Full committee system in place Board as a whole takes responsibility for HSE issues Regular board meetings • Non-executives also meet regularly between Board meetings Continuity in Independent Directors line up since IPO External evaluation of the Board functioning Consistent in-depth engagement with shareholders Page 7
  • 8. Alexey MordashovChief Executive Officer Page 8
  • 9. Severstal Today: Focus on InternalImprovements and Organic Growth
  • 10. Compelling Investment Case Unique business model  Leading margins and return on investments  Well-invested assets with low CAPEX requirements  One of the strongest balance sheets in the industry  Low-cost production platform: Full vertical integration in both iron ore and coking coal Value for shareholders  ROCE 22.8% in 2011FY - #1 in the global steel industry  Share price performance - #1 among global steel peers over last three years  Shareholders return over last five years: • Cash dividends paid US$2.7bn • Dividend policy at 25% of net profit • Distribution of US$2.8bn – worth Nordgold shares  The most liquid stock among the Russian peers: daily trading turnover is US$42m vs. US$21m of the average peers turnover YTD Page 10Note: US$2.8bn - Nordgold valuation at the split-off
  • 11. Strategic Priorities Prudent investment policy  CAPEX focused on efficiency and margin enhancement, not volumes  Limited cash-based M&A  Balance sheet strength and cash generation are top priorities in the current environment Developing strength of our business model  High value-added product mix and customer care to realize premium margins  Continuing focus on efficiency and low-cost position  Presence in consolidated and growing markets Page 11
  • 12. Strong, Global, Integrated Karelsky Okatysh Vorkutaugol (Russia) Usinskoye (Russia) Olkon (Russia) Cherepovets (Russia) (Russia) 7.6mt Potential: 2-4mt 4.7mt 11.6mt 10.1mt Coking and Coking coal Concentrate Iron Ore Concentrate Crude Steel Capacity Iron Ore Pellets Thermal Coal Starting 2018 PBS Coal (US) 3.3mt Coking and Thermal Coal Dearborn (US) Moscow 2.1mt Crude Steel Capacity Columbus (US) Tyva (Russia) 3.1mt Potential: 5.0-7.5mt Crude Steel Capacity Coking Coal Concentrate Starting 2018-2020 Amapa (Brazil) Potential: 10–20mt Iron Ore Concentrate Starting 2018–2020 Putu Range (Liberia) IMBS (South Africa) Potential: 20–30mt Potential: 0.05-1.5 mt Iron Ore Concentrate Briquetted Iron Coking/Thermal Coal Starting 2017 Starting 2015 Iron Ore Steel Mill/DRI PlantNote: Numbers are presented for 2011 sales volumes, for steel – total capacity. Page 12
  • 13. Our Stated Strategic Targets To be the Efficiency Leader in Emerging Markets Industrial Targets Financial Targets Vertical Integration TOP 5 by EBITDA Globally EBITDA Margin >20% Over the Cycle Business System HVA Product Mix of Severstal In Top 10 Global Steel Companies by ROCE Consolidated & Net Debt/ EBITDA between Growing Markets 0.5x and 1.5x Page 13
  • 14. Executing Our StrategyKey Achievements 2011–2012  Separation of Nordgold Asset Structure Aligned  Disposal of a 22% stake in Intex Resources nickel company with Strategic Priorities  SNA portfolio optimization completed Implementation of  $248m of EBITDA contribution in 2011 Business System of  1,800 mid-level managers across the company passed through a Severstal comprehensive development program  Completed modernization and expansion of SNA Organic Growth  Launch of 0.2 mtpa color-coating line #2 in Cherepovets Through Targeted Investments  Strong mining production in 2011 on the back of multiple initiatives: iron ore output +1.0 mt, coking coal concentrate +0.3 mt  Leadership in profitability and efficiency Reached Financial  Strongest financial position among Russian peers Targets  Financial Strength confirmed by rating upgrade from S&P, Moody’s and Fitch Page 14
  • 15. Strong Cost Position Vertical Integration Efficiency in Steelmaking Global Cost Competitiveness Leading Position in Iron Ore Gradual Optimisation: Russian Steel HRC Global Cost Curve LTM, US$/t Integration, % Division Headcount 2008–1H12 Evraz 109% -7% CAGR 800 58,730 Severstal 97% 50,213 48,013 47,054 45,483 750 NLMK 92% Usiminas 76% 700 SAIL 70% ArcelorMittal 59% 650 POSCO 33% 600 MMK 30% 2008 2009 2010 2011 1H12 550 Leading Position in Share of Substandard Product at CherMK, Coking Coal Integration, % % of Total Production 500 Severstal 119% -12% CAGR Evraz 82% 3,37% 450 MMK 43% 2,88% CherMK 2,39% 400 POSCO 33% 1,96% 1,82% 1,81% 1,69% ArcelorMittal 22% 350 SAIL 7% Usiminas 0% 300 0 100 200 300 400 500 NLMK 0% Cumulative Capacity, mt 2006 2007 2008 2009 2010 2011 1H12Source: Companies’ data Source: WSD, Severstal analysis Page 15
  • 16. Vertical Integration Must Be Efficient Successful Steps to Reduce Production Costs in Mining Coking Coal Cash Cost Dynamics Among Russian Producers, Efficient Brownfield Expansion to Reduce Costs: 2007–2011 CAGR, % Vorkuta vs. Usinskoye Cash Cost, US$/t 92 50-60 Vorkutaugol Usinskoye Note: Vorkutaugoal coking coal concentrate cash cost for 2011 Usinskoye Brownfield: Another Milestone in Vorkuta Efficiency Key Benefits of the Project Usinskoye and Vorkuta Location  Premium quality of coal (HCC)  Potential to produce 2-4 mtpa of coking coal Vorkuta concentrate  Proximity to Vorkuta – established coal mining region Usinskoe • Existing railway infrastructure Coal Deposit Existing Railway Station • Skilled workforce Block 1 • Access to established water and electricity suppliers  Full scale drilling not requiredSource: Companies’ data Page 16
  • 17. Focus on Right Products and Markets The Largest Share of HVA Highly Consolidated Russian Market Average EBITDA per Tonne Excluding Products Among Russian Peers 2011, % Top-5 Share, % Mining 2011 , US$/t 23% 133 35% 32% 45% Others 9% 80 32% 55% 46% 66% 33% 22% 1% 9% Top-5 Severstal NLMK Evraz MMK 91% Severstal Russian Peers Russian Steel HVA HR Product Semi-finished SNA: Focus on HVA and Auto Highly Consolidated NA Market 130 Products 2011, % Top-5 Share1 Others 30% 48 HVA 46% 23 Other 54% TOP-5 70% US minimills SNA US integrators Notes: Russian peers: Evraz, Mechel, MMK, NLMK 1. US and Canada HRC capacities. US peers – minimills: average of Nucor , SDI US peers – integrators: average of AK Steel, US SteelSource: Companies’ data Page 17
  • 18. Leading Profitability, Margin and ROCEImproved Ranking in All Metrics Versus Prior Year EBITDA FY2011, US$m EBITDA Margin FY2011, % ROCE FY2011, % 1st 1st 1st 2nd 2nd 2nd 3rd 3rd 3rd 4th 4th 4th 5th 5th 5th 6th 6th 6th 7th 7th 7th 8th 8th 8th 9th 9th 9th 10th 10th 10thEBITDA for Severstal represents profit/(loss) from operations plus DDA of productive assets, adjusted for gain/(loss) on disposals of PPE and intangible assetsFor the Russian, European and Latin American companies EBITDA calculation companies data is used and converted in US$ at average rate for the period; for others - EBITDA is operating income + DD&AROCE is calculated by the following formula: LTM profit from operations/total assets minus current liabilities (average for the period), as reported in 2011 FS.Source: Companies’ data, Bloomberg. Page 18
  • 19. Robust Financial Position Steady Deleveraging of our Balance Sheet since 2008 Advantageous Position by Leverage Net Debt/EBITDA vs. Key Peers, 1Q12 3.1 3.0 2.8 1.1 Developed Markets Emerging Markets Russian Peers Severstal Peers Peers Notes: Notes: 1. 2011–1H12 data are excl. Nordgold. DM peers include 10 companies from Top-30. 2. 2010 data are excl. USW, Lucchini, incl. Nordgold, as reported in corresponding years. EM peers include 13 companies from Top-30. 3. 2008–2009 data are incl. USW, Lucchini, Nordgold, as reported in corresponding years. Russian peers include Mechel, MMK, NLMK, Evraz (as of December 2011).  Maintain more than US$1bn cash on hand  Rating upgrades in June 2012 • S&P upgraded Severstal to BB+/Stable • Moody’s upgraded Severstal to Ba1/Stable • Fitch upgraded Severstal to BB/StableSource: Companies’ data, Bloomberg. Page 19
  • 20. Strong Business ModelResilient to Cyclical Downturns Fundamental Industry Outlook Volatile and Uncertain Overcapacity in Fundamental Strength in OPEX and Environment Global Steel Raw Materials CAPEX Inflation Strong Business Model Resilient to Cyclical Downturns Efficient Vertical Integration Principles of Business Model Strong Downstream, Focus on HVA and Customer Focus Business System Organic Growth Limited cash-based M&A Growth Drivers  Efficiency  Limited growth in steel  Customer Service  Low-cost mining brownfields  Greenfields optionality Superior return to shareholders Page 20
  • 21. Business System of SeverstalEmphasis on Efficiency Improvement Business System of Severstal will be the Main Contributor to EBITDA Growth in Mid-term BSS is Expected to Contribute US$520m to EBITDA in 2012  Cost reduction  Production growth Continuous  Quality improvement Improvement  Optimisation of personnel Safety Business System of Severstal Cumulative Expected EBITDA Effect of BSS in 2012–2015, Customer US$m 1,270 Focus 1,009 799 520 People of Severstal 248 2011A 2012E 2013E 2014E 2015E Page 21
  • 22. Investment Policy: Looking Ahead Key management focus is on Business System deployment and Balakovo Construction efficiency improvement, not on volumes We do not plan to add steel capacities after finalization of the ongoing projects: Columbus Phase II and Balakovo mini-mill Modest organic expansion of mining capacities via low-cost brownfields Strategic optionality with mining greenfields, however we will limit Severstal cash exposure Putu Iron Ore Project Greenfields development principles: • invest only in low-cost high-quality assets competitive under any price scenario • phased development approach: proceeds from the first stages to finance large-scale developments • employ various financing options to limit Severstal cash contribution: Strategic partnerships, IPO, project financing Page 22
  • 23. Efficiency, Growth and Value-creation through theCycleRobust long-term business model resilient through cyclical downturn Maintain low-cost position through efficient vertical integration and cost control Focus on downstream development and client relationships in steelConservative approach to mid-term development Severstal Business System is the major EBITDA driver for the mid-term Cautious organic growth through efficient brownfield expansion and downstream projectsPrudent and conservative financial policy Strong balance sheet: target Net Debt/EBITDA below 1.5x through the cycle Maintain strong cash generation and dividend payout Limited cash-based M&A Page 23
  • 24. Page 24Thomas VerasztoSVP – Strategyand Corporate Development Page 24
  • 25. Market Trends and Opportunities
  • 26. Mixed Economic Outlook US – Slow 2% Growth Subdued by Fiscal Austerity Europe – Stagnation Due to Debt Crisis 3.0% 2.8% 1.7% GDP Growth, % Y-o-Y GDP Growth, % Y-o-Y 1.9% 1.9% 1.8% 1.7% 1.5% 0.2% 0.3% -4.1% -0.3% -0.2% -3.5% 2007 2008 2009 2010 2011 2012E 2013F 2007 2008 2009 2010 2011 2012E 2013F China – Slower Pace, but Still Substantial Growth Russia – Moderate Growth 8.5% 14.2% 5.2% 4.0% 4.3% 3.6% GDP Growth, % Y-o-Y 3.5% GDP Growth, % Y-o-Y 10.3% 9.6% 9.2% 9.2% 7.8% 8.0% 2007 2008 2009 2010 2011 2012E 2013F -7.9% 2007 2008 2009 2010 2011 2012E 2013FSource: Broker research. Page 26
  • 27. Steel Prices have Bottomed Out in USA/Europe, butstill Declining in China Global HRC Prices, US$/t Global Capacity Utilisation and Steel Production $1 000 (Annualised) Russia Black Sea export FOB USA domestic FOB Midwest mill 1 800 100% $900 China domestic Shanghai (incl. 17% vat) S.Europe domestic EXW 1 500 90% 1 200 80% $800 mt, annualized 900 70% $700 600 60% $600 300 50% 0 40% $500 J F M A M J J A S O N D J F M A M J J J F M A M J J A S O N D J F M A M J J A 2011 2012 2011 2012 China Ex-China Utilization rate (rhs) PMI is Falling in the Key Regions  Economic slowdown in mature and emerging markets 65 60  Overcapacity has put pressure on the steel market 55  Demand has been restrained by destocking 50  Potential for a short-term price rebound: 45 • High-cost steelmakers start to become loss-making 40 • Production cuts in high cost regions J F M A M J J A S O N D J F M A M J J A 2011 2012 • Inventories are at cyclical lows in many regions USA Eurozone ChinaSource: OECD, CEIC, Worldsteel, CRU, SBB, Severstal analysis.Note: Prices will be updated up to August; CU will be updated up to July. Page 27
  • 28. Developing World’s Appetite for Steel Continues Cumulative ASU per Capita, Finished Steel, Urbanisation Rate, % of Population Tonnes per Capita 25 100% Japan Сотни 90% USA 20 80% China 70% Indonesia tonnes per Capita 15 60% 50% India 10 40% 30% 5 20% 10% 0 1950 1960 1970 1980 1990 2000 2010 0% 1950 1960 1970 1980 1990 2000 2010 2015 2025 2035 2045 USA Russia China India  Cumulative steel stock per capita is relatively low in  Urbanisation trend in developing countries set to China and India remain intact until 2050Source: United Nations, Worldsteel. Page 28
  • 29. China has Huge Potential for Growth in the MajorSteel Consuming Industries Automobile Industry, Motor Vehicles per 1000 People Rail Lines, km per 1000 People 900 0,8 USA USA 14.9x 11.5х 800 0,7 700 0,6 Japan 600 EU 0,5 EU 500 0,4 400 0,3 300 0,2 Japan 200 100 China 0,1 China 0 0,0 Electricity Production, kWh per 1000 People Floor Space, m2 per Capita 14 USA 100 Japan 3.9x 4.9х 90 12 80 USA 10 70 Japan 60 8 EU EU 50 6 40 4 China 30 China 20 2 10 0 0 2x Leader vs China China data is for 2011; other regions data is for 2009, except for GDP, which is 2011 for all regionsSources: World Bank , CEIC, Severstal analysis. Page 29
  • 30. Growth Drivers for Raw Materials Prices Steel production growth by 4% per  Sound steel consumption growth in developing regions will push up demand annum in the next for iron ore and coking coal 5 years  New projects are pushed back: 3 year average delay for mining projects Raw materials supply is  Lack of new high quality deposits, especially in met coal lagging behind  Resource depletion: 3-4% annually  CAPEX & OPEX inflation: global cost curve is constantly moving up by over Increasing costs 10% per annum (in US dollar terms)  Permission from 54 governmental bodies is required to start mining in Australia Regulation tightening  Widening environmental restrictions  Tax pressure Page 30
  • 31. Iron Ore: Support from China and Project Delays Iron Ore Fines Supply Curve to China, 2012 Incremental Iron Ore Seaborne Market Supply, mtpa $180 800 Production in China $160 700 $140 600 $120 Spot price, Aug 27 500 $100 400 $80 39% 300 $60 46% $40 200 41% Peer 4 Peer 2 Peer 3 Peer 1 $20 100 15% $0 0 0 250 500 750 1000 1250 1500 2008 2009 2010 2011 Cumulative supply, mmt Total supply announced Supply realised Iron Ore CAPEX and Price Growth, US$/t  Chinese high cost domestic supply supports iron $200 ore prices • Rapid mining costs inflation outperforming CPI (over 10% y/y in 2010–2011) $100 • RMB appreciation (+8% since June 2010) • Decreasing Fe grades (already below 20%)  Chinese high cost production will not be displaced $0 due to project implementation delays 2005 2006 2007 2008 2009 2010 2011 CAPEX/t Spot price 62% Fe CFR ChinaSources: Platts, CRU, Brokers reports, Severstal analysis. Page 31
  • 32. Robust Import Demand to Support Coking Coal Prices Met Coal International Demand from Key Importers 160  Robust demand for imported coking coal in China, 140 India and Brazil – 12% yoy growth on average in 120 2013–2017 100 80  High cost coking coal exports from USA will support 60 the market price 40 20  Modern large-scale blast furnaces (>3,000 m3) in 0 China require high-quality hard coking coal 2007 2008 2009 2010 2011 2012e 2017f China India Brazil Hard Coking Coal Costs Growth, 2002=100 Index 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Hyundai Steel’s New Blast FurnaceSources: CRU, BHP Billiton, Severstal analysis. Page 32
  • 33. Responding to Major Market Trends Key Trends Severstal Strategy  Fully vertically integrated Higher raw materials prices  Invest in upstream operations due to supply constraints  Portfolio of attractive greenfields  Organic improvements Overcapacity & volatility in steel  Efficient & flexible facilities markets  Focus on HVA products  Customer relationships  High margins High macro risks environment  Maintain strong balance sheet & uncertainty  Flexible phased CAPEX  Limited cash-based M&A Page 33
  • 34. Page 34Alexey KulichenkoChief Financial Officer Page 34
  • 35. Commitment to a Prudent Financial Policy
  • 36. Severstal Financial Policy Our Targets Our Achievements Our Principles  0.5–1.5x Net  1.2x Net Debt/EBITDA as of  M&A, Dividends, CAPEX capped by Debt/EBITDA Q2 12 leverage target; monthly scrutiny of compliance with 1.5x Net debt/EBITDA  Liquidity (Cash on  Liquidity c.US$2.8bn as of  Strong liquidity: cash cushion, sizable balance + committed Q2 12 committed facilities, and access to facilities) >US$1bn financing even in adverse market conditions.  Dividend policy at 25%  Stable dividend payments at c.  Subject to prevailing market conditions and of net income 25% payout strategic financial targets  ROCE >20%  ROCE – 23% in FY11  Constant monitoring of all projects’ return  NWC – c.18% of revenues  NWC – 15% of revenues  Expected to remain at a similar level and in FY11 move with the business cycle; focus on inventory and accounts payable management Page 36
  • 37. Solid Balance Sheet Liquidity and Debt Position , US$m Strong Liquidity Position  Solid cash cushion of around US$2bn, covering 838 FY12 and almost all of FY13 repayments  Committed unused credit lines of US$838m 1,943 Well-Managed Debt Profile 1,581 1,121 579 567 737 657 71  Smooth repayment schedule focusing on long- 164 169 term maturities Liquidity 3Q 12 4Q 12 1Q 13 2Q 13 H2 2013 2014 2015 2016 2017 & as of Q2 2012 after  Full access to diverse range of funding sources Cash Short-term Debt to be Repaid Unused Committed Credit Lines Long-term Debt to be Repaid at any time • Eurobond programme for US$1,500m Changes in Debt* • Exchange Bond programmes for RUB95bn: 7000 х 3,0 new programmes of RUB80bn were 6,142 5,976 6,043 6000 5,692 registered in July-August 2012 5000 4,112 4,116 х 2,0 Reasonable Leverage 3,799 3,749 4000 х 1.3 3000 х 1.2  Net debt/EBITDA of 1.2x as of H1 2012 which is х 1.1 х 1.1 х 1,0 below the target level of 1.5x 2000 1000  Strict control over net working capital – 0 х 0,0 NWC/revenue ratio 15% in 2011, below target EOY 2010 EOY 2011 Q1 2012 Q2 2012 of 18% Gross debt Net debt Net debt/EBITDA Page 37 *For 2010 the data exclude USW, Lucchini, include Nordgold
  • 38. Shareholder Returns Recent Dividend History 0,7 40% 0,6 Dividend Play 30% 0,5  Severstal resumed dividend payments in 3Q10 0,4 20% 0,3  Over the last quarters Severstal has paid no less 0,2 10% than 25% of net income and expects to continue 0,1 to do so if the market allows 0 0% Q1 11 Q2 11 Q3 11 Q4 11 Q1 12  Severstal is the only company in its peers group EPS, $ dividend per share, $ payout ratio, % to pay dividends on a quarterly basis Note: The dividends in US dollars are taken on the date of their recommendation by the Board Severstal’s Market Beta vs. Peers: The Lowest Volatility Stock Among the Peers 2,3 2,0 Low Volatility 1,7  Stable high earnings, conservative capital 1,4 structure and improved asset portfolio 1,1 contribute to low volatility 0,8 0,5 2007 2008 2009 2010 2011 SVST peers high peers low Page 38Source: Bloomberg. Peers include Evraz, Mechel, MMK, NLMK
  • 39. Investment KPIs TargetOur key metrics to assess Profitabilityprojects Index above 1.5 Target EBITDA Target ROCE Margin above Success above 20% 20% Target IRR above 20% Page 39
  • 40. CAPEX 2012 Selected 2012 CAPEX Projects FY2012 Target CAPEX Structure Segment Project Effect Launch Severstal Russian Balakovo mini-mill +1 mtpa of long 2013 Steel products capacity Maintenance Development US$820m US$849m SAP implementation Efficiency 2012 49% 51% Full reconstruction Higher coke output, 2013 of coke battery #7 efficiency Severstal Resources Construction of Higher coal output, 2012–15 incline shafts at the efficiency Vorgashorskaya and Average Maintenance for Steel Divisions Zapolyarnaya mines  Russian Steel US$37/t Equipment Higher iron ore 2012  Severstal International US$16/t modernisation at output, efficiency Karelsky Okatysh Group’s FY2012 Target CAPEX and Olkon Preparation of the Pre-feasibility study 2012–2013 pre-feasibility study at the Putu Range project Severstal Environmental, Efficiency 2012 Total International health & safety, IT- US$1,669m infrastructure and customer care projects Page 40
  • 41. CAPEX Flexibility Base Case US$1,669m Low Case US$1,005m US$74m US$400m US$531m Severstal Russian Steel Severstal Resources Severstal International Base Case: reflects current market conditions and Low Case: takes into account further deceleration of corresponds to the forecasted inflows from Chinese growth and continuing European financial operating activity problems leading to overall stagnation of GDP growth Page 41
  • 42. Flexible Leverage Position Well-balanced, Manageable Debt Structure (1) Crisis-tested Debt Portfolio Structure Source Currency Mix  Diversification across instruments, products and lenders Private  Keeping access to domestic and international 32% debt markets Public  Focus on long-term financing 68%  Maximising unsecured debt (c.70%)  US$ denominated funding is naturally hedged with Fixed/Float Security steady export flows PXF 7% Secured 22% Unsecured 71% Proven access to domestic & international debt markets Comfortable debt level: Net debt/LTM EBITDA level below the targeted 1.5x through the cycle(1) As of 30.06.2012. Page 42
  • 43. Ratings History  Since 2010 Severstal has been regaining ratings agencies’ confidence and seeing consistent upgrade  In 2012 S&P upgraded Severstal’s rating to BB+/Stable, Moody’s – to Ba1/Stable, Fitch – to BB/Stable BB+/Ba1 BB/Ba2 BB-/Ba3 B+/B1 Feb-04 Dec-04 Oct-05 Aug-06 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 S&P Moodys Fitch Page 43Note: Fitch ratings for Severstal are unsolicited.
  • 44. Page 44Vadim SavelievSVP – CorporateCommunicationsand Investor Relations Page 44
  • 45. Sustainable Development
  • 46. Commitment to Sustainability  Long-term commitment to sustainability focused on three main areas: 1. Health, safety and development of our people 2. Environment 3. Support for local communities and regions where we operate  Single HSE policies for all assets  Board oversees activity in this area  Transparency: Regular public reporting based on GRI guidelines Page 46
  • 47. Health & Safety Corporate Health and Safety Policy In 2011, we spent over US$100m on health and safety 19% decrease in the LTIFR compared to 2009 Strategic objective is to eliminate all fatal accidents by 2015, and we think it’s achievable Severstal’s Lost Time Injury Frequency Rate (LTIFR) Performance 1.92 1.91 1.56 2009 2010 2011 Page 47
  • 48. Environmental Protection  ISO 14001 Environmental Management Systems at 7 key assets in Russia and the USA  In 2011 we invested c.US$74m in environmental programs  Severstal is a member of the Sustainability Committee of the Worldsteel Environmental Performance of Cherepovets Steel Mill in 2000–2011 Atmospheric Emissions, kg/ Tonne of Rolled Products River Water Consumption, m3/ Tonne of Rolled Products 41 40 65 65 36 58 33 53 31 31 50 49 30 2000 2002 2004 2006 2008 2010 2011 2006 2007 2008 2009 2010 2011 Page 48
  • 49. Energy Efficiency  20% energy consumption reduction at Cherepovets Steel Mill from 2000 to 2011  Employee rewards for the best energy saving idea 3  68 mln m of gas and 33 kt of coal saving per annum Improving Energy Efficiency at Cherepovets Steel Mill Energy Consumption Dynamics, Gcal/t of Steel Gas and Electricity Consumption per Tonne of Steel in % to 2000 Base 7.02 100% 100% 6.70 -20% 94% 94% 90% 88% 88% 86% 86% 84% 6.26 80% 79% 6.05 76% 75% 5.88 5.70 5.62 2000 2002 2004 2006 2008 2010 2011 2000 2002 2004 2006 2008 2010 2011 electricity/t of steel natural gas/t of steel Page 49
  • 50. Converter Shop UpgradeWe are complying with the existing regulation. The projects mentioned on that and thenext slides are our additional commitment in this areaCherepovets Steel Mill Converter Shop Upgrade: A 3-year project with investments of approximately US$100m No idling of converter operations Growing level of safety Expected Air Emissions Reduction Effect, tpa 4,636 -78% 1,011 Before After (as of 2015) Page 50
  • 51. Radical Reduction of Emissions at SinterProduction and Electric Arc Furnace Shop Sinter Production Units in Cherepovets Expected air Emissions Reduction  In 2012, Severstal launched a at Sinter Production Units, tpa c.US$30m modernisation project 1,679 of six dust exhausters of the sinter production units at the Cherepovets Steel Mill -90%  Following completion dust 171 pollution will decrease by 90% Before After (as of 2015) Electric Arc Furnace #1 in Cherepovets Expected Air Emissions Reduction  In 2012, Severstal launched a at Electric Arc Furnace #1, tpa c.US$30m upgrading of the gas 3,808 treatment unit of the EAF at the Cherepovets Steel Mill -97%  Following completion dust pollution will decrease by 97% 123 Before After (as of 2013) Page 51
  • 52. Personnel Development and Community Support Personnel Development and Ethical Standards  Corporate Code of Conduct and Ethical Committee in Place  Workplace equality: women account for around 30% of our personnel  Annual 360° feedback including the company CEO  Training: in 2011 40% of our staff passed through training courses  Management development programme “Achieve More Together” in place to develop leaders of the future Social Investment  Signed Communities development agreements with local governments  The “Road Home” program against child neglect and support orphans has achieved national recognition Page 52
  • 53. Page 53Alexander GrubmanCEO of SeverstalRussian Steel Page 53
  • 54. Severstal Russian Steel –Focus on Value-Added Steel
  • 55. OverviewStated Strategic Priorities Focus on high value-added products Increasing share of domestic sales Efficiency and cost control • Targeted CAPEX programmes • Severstal Business SystemMain Achievements to date: Largest share of HVA products among Russian peers Highest domestic sales volumes among Russian peers Operational records (in sinter, converter steel, large diameter pipes production) Business System’s targets exceeded Successful launch of Customer Care and Business Standard projects Launch of color-coating line #2 in Cherepovets Key investment projects delivered on time and within budget Page 55
  • 56. Our Positioning in Russia Severstal Russian Steel is the leading Russian steel producer with a focus on leadership in supplying high value-added products to the domestic market #3 by crude steel production The highest share of high value-added #1-2 by steel supply to the in Russia (2011) products among Russian peers (2011) domestic market (2011- H1 2012) Imports Severstal 23% 14% 35% 32% 16% 45% Other Evraz Imports Severstal 16.3% 18.0% 18% 16% Mechel 32% 55% ММК ММК 7.6% 46% 67% Others Others 15% 18% Metallo MMK invest 17.0% 20% 20% 33% NLMK 8.4% ОМК 22% 1% Evraz 11% 9% 5% NLMK Mechel 8% Severstal 7% 16.3% Severstal NLMK Evraz MMK ОМК NLMK 16.4% Russian Steel HVA HR Product Semi-finished 5% Mechel 12% Evraz 7% 8% FY2011 – internal ring, H1 2012 – external ringSource: Metal Courier, companies data. Page 56
  • 57. Russia is a Strong Market For Steel ProductsSteel Consumption in Russia, mt  Russia’s steel demand potential: CAGR 4.7% • localization of foreign carmakers, handling and agricultural equipment manufacturers • realization of national programs to upgrade the railroad truck set and agricultural equipment • modernization and technological upgrade in ship-buildingGrowth Forecast by Industry (CAGR 2011-2017) • large-scale infrastructure projects e.g. 2018 FIFA World Cup  Fuel and energy segment consumption is to decrease due to major projects completion by 2016  Further increase in demand for high- quality rolled steel products and HVA products Page 57
  • 58. Focus on the Domestic Market Severstal Russian Steel’s Sales by Market Key Competitive Advantages 2010 2011  Self-sufficiency in raw materials  Favorable geographic position Exports • Proximity to major steel-consuming regions, Exports 10.8 Domestic 41% 11.0 Domestic (North-West and Central Russia) 46% mt market mt market 54% 59% • Proximity to the Baltic sea ports Saint Petersburg  Broad product range Kolpino  Extensive distribution network Cherepovets Moscow  High-tech production facilities R ≈ 600 km c. 70% of the Cherepovets Steel Mill sales to the domestic market are sold in 600 km proximity from Cherepovets Page 58
  • 59. Achievements in Production and SalesMajor Production Achievements in 2011 Sinter production: Over 9 mt Converter steel output: 9.6 mt Color-coated sheets: Over 220 kt (from a single line) Large-diameter pipes at Izhora Pipe Mill: Over 500 ktSeverstal’s Domestic Market Share 32% 29% 26% 26% 18% 17% 15% 15% 14% 13% 8% 7% Hot Rolled Products Cold Rolled Products Long Products Coated Products Structural Tubes Large Diameter Pipes 2010 2011Source: Metal Courier In 2011 Severstal increased its y/y share in color-coated sheet, structural tubes and large diameter pipes. Key drivers: reconstruction of continuous hot dip galvanizing line, commissioning of color coating line #2 and Sheksna Tube Plant The decreased share in long steel products is the result of overall market growth, with Severstals facilities operating at maximum capacity. The launch of the Balakovo Mill in 2013 will enable the company to restore and further improve its market share to 14% in 2014 Higher HVA products sales led to decreased market share in cold-rolled steel Page 59
  • 60. Current Status of Business System Projects:Continuous ImprovementContinuous improvement Bigger number of initiatives allowed to beat the 2011 plan $m 190Ways of optimization in 2011 Net effect, US$m 160Raw materials mix 77 114Conversion rate of resources 56 50Cost of scrap 13Other 14 2011 plan 2011 actual 2012 plan H1 2012 actual Parameter Before project After project Steelmaking Melting cycle from Converter steel Average - 56.2 min Average - 55.3 min charge to charge, min Steelmaking Number of heats Average - 75 Average - 80 Converter steel per day Services Downtime for core 87 hours 37 hours (Sheet rolling-shop HSM-1) process equipment Blast furnace process Coke consumption 463.7 kg/t 453.5 kg/t Page 60
  • 61. Business System: Health & Safety, Customer Care,Business Standard Lost Time Injury Frequency Rate (LTIFR) Health & Safety Securing operational safety conditions, -69% prevention of fatal accidents Customer Care Achievements in 2011 - H1 2012 Client orientation in all processes allows  Greater customer satisfaction compared with peers additional synergies via intimate understanding (2011 questionnaires) and satisfaction of client’s requirements  Expected effect in 2012 – US$41m  US$19.2m in H1 2012 Business Standard Achievements in 2011 - H1 2012 ERP system implementation, unification,  Launch of SAP ERP across Severstal Russian Steel efficiency increase and leaner business  Launch of Unified Service Center HR and Unified processes Service Center Finance Page 61
  • 62. Long-term Objectives of the Business System Additional EBITDA gain from realization of Continuous improvement the Business System projects ($m) • Improvement of equipment and personnel performance, production quality and procurement process +US$640m • Cost reduction Customer care • Price premium +1.5% vs. peers 800 Business standard • SAP ERP introduction in all business units. Higher efficiency of business processes, incl. − CAPEX down 3% − Raw materials inventory turnover ratio down 5% − Maintenance down 2% 350 − Equipment down-time period down 3% − Warehouse storage expenditures down 10% 186 160 − HR personnel headcount reduction down 22% Health&Safety • Zero fatal accidents • Significantly reduced number of accidents that lead 2011 actual 2012 plan H1 2012 actual 2015 to disability Page 62
  • 63. Sales ObjectivesGeography of Severstal Russian Steel Sales Breakdown by Destination, mtSales 2011 2015 CIS & Baltics Other Exports 10% 16% CIS & Baltics 10% Other Exports Russia 31% 59% Russia 74%Consuming Severstal Russian Steel’s Share in the Key Domestic Consuming Industries, mtIndustries 29% 23% 22% 21% 20% 18% 18% 14% 15% 10% Automotive Large Diameter Pipes Strip for Pipe Industry Machine Building Construction and Metal Distribution 2011 2015 Page 63
  • 64. Key Investment Projects Launch Date Balakovo Mini-Mill to produce Long Products for construction, 1 mtpa 2013 capacity Service metal center in Vsevolozhsk to process rolled steel products for 2013 automotive sector, household appliances and regional distribution, up to 170 ktpa capacity Reconstruction of the 4-strand cold rolling mill at Cherepovets to improve 2015 quality of CRC products and add 30 ktpa Electric welded pipe units (TESAs) at the Cherepovets Steel Mill to add 120 2014-15 ktpa of longitudinal welded structural tubes Distribution network development in core regional markets 2013-17 Severstal Steel Solutions: 2014-19 • Engineering center to design-build solution • Research and Development Center for development and introduction in all aspects design, construction and building materials • Industrial complexes to produce steel structures Page 64
  • 65. Balakovo Mini-MillRationale Targeting rapidly growing domestic market Focus on long products for construction sector Entering new sales marketsKey Advantages Cutting-edge equipment and high degree of automation Favorable geographic position (Povolzhye region) • Proximity to customers • No scrap deficit • Access to water- and railways • Cheap electricity (Balakovo Nuclear Power Plant) • Rebar deficit area with growing steel consumption Capex US$697m Start-up 2013 Capacity 1.0 mtpa of long products Average EBITDA, 2013-2017 US$119m ROCE 12.4% Page 65
  • 66. Severstal Steel SolutionsProject Scope New area of development in the downstream Entry to the high-margin and continuously growing construction solutions market HVA steels (plate & coated steel)Step 1. Entry to the Construction Solutions Market Step 2. New industrial complex Timeframe: 2012-2014 Launch: 2014 to 2019 Capacity: +1.35 mtpa EBITDA: +US$465m pa ROCE 26% Products: Products:  Steel structures for construction purposes  Construction materials and steel structures  Pre-engineered buildings  Polygon supports  Construction materials  Road fences  Engineering center and Research and Development Center  Galvanizing serviceProductions Volumes Targeted by 2017 Heavy steel structures: 0.23 mt Light steel structures: 1 mt Structural units, power transmission line towers and road fences: 0.12 mt Page 66
  • 67. Vadim LarinCEO of Severstal Resources Page 67
  • 68. Severstal Resources – In Mining We Trust!
  • 69. Overview  Safety is the highest priority, 2011 LTIFR targets have been achieved  We have good assets with excellent margins and FCF generation in strong markets, resilient and cost flexible in downturns  Consistent delivery on cost management targets, structural improvement in coking coal costs; Vorkuta and Karelskiy Okatysh moving to the left of the cost curve  Prudent investment programme geared towards reduction of fixed costs, labour productivity and low-cost brownfield expansion  Strong potential for further value enhancement through the Business System: US$225m of anticipated effect by 2015  Solid long-term prospects with greenfield optionality, cash generation and cost resilience remain the key priorities for the mid-term Page 69
  • 70. Severstal Resources at a Glance Severstal Resources today Olkon Vorkutaugol Usinskoe  4 established business Karelsky Okatysh Coalfield units with stable Centralny (Tyva) production PBS Coals  Continuous focus on safety, operational efficiency and volumes Amapa Putu  Portfolio of new prospective projects with prudent approach Assets by Mineral towards development Producing Prospective IMBS projectsIron oreCoalMetalizediron Page 70
  • 71. Strong Financial Performance Amid Volatile Market IN GOOD IN STRONG IN WEAKER MARKET MARKET MARKETEBITDA, US$m 2010 2011 H1 2012 Vorkuta 421 576 160 Karelsky Okatysh 548 723 316 Olkon 120 227 88 PBS Coals 66 87 48 Total 1,155 1,613 612EBITDA Margin, % 2010 2011 1H 2012 Vorkuta 43% 48% 33% Karelsky Okatysh 49% 48% 46% Olkon 43% 48% 43% PBS Coals 19% 17% 22% Severstal Resources 42% 43% 39%ROCE, % 2010 2011 1H 2012Severstal Resources 35% 40% 27% Page 71
  • 72. Cost Management Remains Our PriorityCash cost, US$/t Expected furtherAsset 2011 H1 2012 Comment cost development Longwall moved toVorkutaugol, hard coking 102 113 the most productivecoal, 2Zh grade seam in JulyVorkutaugol, semi-soft Volumes up 13% 59 49 FLATcoking coal, GZhO grade compared to 2010/11 ProductivityKarelsky Okatysh 62 57 improvements Stripping ratio upOlkon 48 49 FLAT 10% High-cost mines idledPBS Coals, coking coal 112 104 in July Page 72
  • 73. How Are We Achieving That? Examples of the BusinessSystem Improvements • Maintenance shift is every 3 days in most of the longwalls increased volumes by 6-8%, Vorkuta same goal for the development • Increase of skip productivity in Zapolyarnaya mine by 5% • Further headcount reduction to below 9,000 • Locomotives reduction from 13 to 10 due to higher utilization • Increase of utility rates of open pit dozers by 8% • “Ideal shift” has added 0.4 mt of pellets annually without CAPEX and remains the Karelkiy Okatysh lowest scheduled downtime in the industry • Increase of truck productivity by 6% since 2011 and by 16% compared to 2010 • Further increase of trucks tonnage due to board sides build-up and double side loading up to 5% to mine productivity or US$20m per annum • +5% in train productivity due to new shift coordination in the train department • Utilization rate of milling (bottleneck) at over 97% in 2012 • Modular GPS for dozers, high-precision drilling • Used of drilling sleeves to decrease explosive use by 5-7% • GPS mine fleet management system installed, fines screens installed, “Ideal shift” is Olkon being implemented to cut non productive mining time in half • Insourcing maintenance workers for domestic equipment to increase its availability rate, insourcing drilling operators to improve productivity by 5%, costs by 10% • Reduction in plant downtime from 10% to 5% due to better maintenance organization and switching from accidental to planned maintenance Total additional EBITDA in 2011 = US$88m Page 73
  • 74. Robust Health & Safety Record Severstal Resources LTIFR 10.7 -64% 6.3 5.7 4.8 4.1 3.9 3.0 2006 2007 2008 2009 2010 2011 1H2012 The Safety Program is being implemented as a part of BSS to provide further safety improvementsFigures exclude Nordgold Page 74
  • 75. Brownfields Growth and Cost Initiatives in Iron Ore Iron ore volumes expected to grow to 15.8mt in 2015 Karelskiy Okatysh, iron ore pellets, mtpa Olkon, iron ore concentrate, mtpa 10.7 5.1 4.9 10.3 10.1 4.7 2011 2012E 2015F 2011 2012E 2015F Karelskiy Okatysh: one of the most modern iron Olkon: continuous improvement focus - “Ideal ore complexes in Russia with good modern Shift”, GPS fleet management. infrastructure in place. Efforts are focused on  New thermal dryer and high-angle conveyer continuous improvement. are to be commissioned in 2015.  “Ideal Shift” programme delivered +0.4 mt of pellets with no CAPEX.  Current JORC reserves 104 mt, however 60mt will be added in 2012 and another 103mt in  Huge mining fleet modernization programme the next 3 years. close to completion. Page 75
  • 76. Brownfields Growth and Cost Initiatives in Metcoal Coal (incl. steam coal) volumes expected to grow to 12.7mt in 2015 Vorkutaugol, metcoal, mtpa PBS Coals, metcoal, mtpa 3.2 7.7 2.6 6.0 2.2 5.1 2011 2012E 2015F 2011 2012E 2015FVorkutaugol: Incline shafts at Zapolyarnaya and PBS: Highly flexible volumes well-fit to the volatileVorgashorskaya mines to deliver substantial cost reduction market.and extra volume by optimizing infrastructure and removingtransport bottlenecks.  Temporal idling of least efficient mines in H1 2012 to reduce costs and preserve cash flow. Adding 4mt of coal beneficiation capacity at a quarter of greenfield capex costs. The mines can be reopened as soon as the market picks up. Supplies to the domestic More lower-cost volumes with Usinskoye development. market remain intact. With lower costs and volume growth, Vorkuta expected to move further left on the cost curve. Methane power plant 16MW is to start in Q4 2012. Page 76
  • 77. Sergei KuznetsovCEO of SeverstalInternational Page 77
  • 78. Severstal International –Focused on the Future
  • 79. Overview  Modernization is completed – current investments are low and mostly maintenance-related  Good progress in ramping up of the new facilities to achieve planned targets  Business System of Severstal Development is building on the existing platform  US market is attractive in the long-term: • Low inflation rates • Recovery in steel demand • Scrap availability • Relatively cheap energy supply 79
  • 80. Severstal North America (SNA*) is Present on All KeyNAFTA Growing Markets Projected Steel Shipment to the NAFTA Light Vehicle Projected Steel Shipment to the US Construction, mt Industry, mt 4.9% 2.4% 20 15 12.7 13.3 13.6 14.0 15.7 15.0 15.3 12.3 12.5 13.9 13.6 13.7 14.1 14.4 10.4 11.0 15 12.3 10.3 10 7.2 10 8.5 5 5 0 0 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F Projected Steel Shipment to the US Projected Steel Shipment to the US Pipe & Service Centers, mt Tube, mt 3.1% 2.7% 14 25 23.0 11.9 12.0 22.0 22.2 11.5 11.6 20.3 21.1 12 11.0 11.2 19.0 19.7 10.4 10.5 20 17.8 17.7 9.6 10 15 8 7.2 11.3 6 10 4 5 2 0 0 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F 2016F Source: Global Insight, AISI, Severstal. Page 80 *SNA represents part of Severstal International
  • 81. SNA Today: Well-Invested Steel Assets In 2012 SNA completed a US$3.1bn, multi-year expansion/modernization program in North America Combines the advanced product capabilities of integrated operations with the flexibility of mini-mill operationsSNA 2004–2011 Investment Program Total investment in Dearborn: US$1.67bn Total investment in Columbus US$1.43bn Columbus Columbus  Completed greenfield construction of phase I ($880m)  Completed phase II Dearborn expansion ($550m)  Entered into joint venture with Wheeling- Dearborn Dearborn Pittsburgh Steel Dearborn  Rebuild “C” blast furnace ($344m)  Completed new pickle- Corporation to secure  Acquired assets of Rouge coke supply ($160m)  Build secondary BOF emission control ($34m) tandem cold mill ($486m) Industries Inc. ($290m)  Converted caster to straight mold ($22m)  Completed new galvanizing  Modernized HSM reheat furnaces ($32m) line ($305m)Crude SteelCapacity, mtpa 2.4 2.4 2.4 3.2 3.6 3.6 3.6 4.5 5.2 2004 2005 2006 2007 2008 2009 2010 2011 2012Dearborn – Capacity, mt Columbus – Capacity, mt 2.1 2.1 2.1 3.1 1.3 1.3 1.5 1.3 0.8 1.2 1.0 0.5 Crude Steel Cold Rolled Sheet HD GL/EG Crude Steel Cold Rolled Sheet HD GL Before After Before After Page 81
  • 82. Competitive Benchmarking – H1 2012 Revenue per tonne H1 2012, US$ 1,262 1,291 897 908 953 Revenue per tonne lower due to differences in product mix… EBITDA Margin H1 2012, % 13.6% …which is partially SNA USS SDI AK Steel Nucor 7.7% 6.6% 6.7% compensated by better EBITDA per tonne H1 2012, US$ 3.9% production efficiency and cost 130 structure, leading to high 99 EBITDA margin. AK Steel USS SNA Nucor SDI 60 60 49 All this should lead to further increase in profitability by AK Steel USS SNA Nucor SDI developing product mix and maintaining cost leadership.(1) SNA sales excluding sales of steel products previously acquired from the Cherepovets Steel Mill(2) EBITDA of Nucor, US steel and AK was corrected to account the effect of LIFO to FIFO adjustment. Page 82
  • 83. SNA Targets for Market SharesSNA Products Mix Development SNA Product Mix in 2011 SNA Projected Product Mix in 2016SNA Market Share Development SNA Market Share in 2011 SNA Projected Market Share in 2016 Page 83
  • 84. Low-cost Steel FacilitiesHot Band Cumulative Conversion Cost, US$/t  Columbus – the newest US mini-mill $119  Total crude steel capacity doubled to 3.1 mt in Savings of US$40- 2011 at the cost of US$0.55bn 50m per annum  The mill is already among the most cost-effective in the US $103 H1 2011 Columbus H1 2012 ColumbusNew PLTCM in Dearborn: Launched in 2011, CAPEX US$480m Dearborn Conversion Costs: Old Cold Increases value-added downstream capacity by 0.8 mt Mill vs. New PLTCM* $93 Improved product quality and capabilities Savings of US$75- Enables production of advanced high strength steel 125m per annum Conversion costs competitive with world class facility $35 Expected to add ~US$75-$125m of EBITDA per annum FY 2011 FY2012F * PLTCM – Pickle Line Tandem Cold Mill Page 84
  • 85. Competitive Input CostsSNA Supply Sources Columbus H1 2012 Production Cost Coke Iron Ore Pig Iron 6% Scrap 4% 14% 4% Utilities/Gases 4% 63% coke supply from Labour 3% 2% MSC (50% owned by SNA) 100% secured by long- Maintenance 7% term pellet contract with Overheads 37% secured by long-term Cleveland Cliffs (through Supplies contract with DTE 2022) Electricity 56% (through 2021) Other Coking Coal Dearborn H1 2012 Production Cost Full economic hedge through PBS coals 43% of employees are non-union Labor Force 57% of workforce governed by UAW labor agreement (through March 2017) total workforce by 1H’2012: 2,201 employees, best benchmark in NA industry Page 85
  • 86. Our New Facilities: Produce HVA Products with LowAnnual Maintenance Dearborn: 1st Hot Dipped Galvanizing Line Dearborn: Pickle Line and Tandem Cold Mill Columbus: 2nd Galvanizing Line Columbus: Push-Pull Pickling Line Page 86
  • 87. Development of Severstal Business System in SNABusiness System of Severstal Focus on five Aspects of Setting Aggressive, but Achievable TargetsDevelopment Company Performance  Project business improvement of Implementation at Dearborn and  Safety US$54m per annum in 2015 vs 2011 Columbus is underway  Continuous improvement  ~50% of improvement initiatives are in Business system to be fully  Customer focus active implementation implemented in 2014  People  Procurement Business System Implementation Focused on Building People and Processes for Sustainability Projected Impact (2011 Baseline), US$m per annum Page 87
  • 88. SNA Development Strategy Dearborn Columbus  Achieve product qualifications and ramp up PLTCM and  Continue to explore opportunities for vertical integration HDG lines to rated capacity into metallics (DRI off take agreement versus building)  Develop new products with new equipment capabilities  Build scrap purchasing network in scrap-rich regions and expand the value added product offering  Single invoice painted product offering  Focus on Advanced High Strength Steel capabilities  Expand into automotive and other OEM**  Continuous Annealing Line under consideration  Further development of the industrial park  Improve quality and operational efficiency through focused investments in steelmaking and hot rolling SNA  Invest in R&D/Application engineering for auto and pipe & tube industry  New product development for key markets: automotive, pipe & tube, appliances  Enter into painted product market through a strategic agreement with major color coating processor (avoid investment into color coating line - about US$100m)  Complete Business system rollout and implementation and realize benefits  Pricing office to ensure structural margin improvement over the cycle  Extensive People training and Development program * OEM – Original Equipment Manufacturers Page 88
  • 89. Conclusions
  • 90. Key Highlights  Unique business model combining low cost production and customer reach  Committed to our established strategy  Focus on internal improvements and organic growth  Balanced mid and long-term growth projects profile  Leading margins and return on investment for shareholders  Strong balance sheet provides stability and flexibility through the cycle Page 90
  • 91. Q&A Page 91
  • 92. DisclaimerThese materials are confidential and have been prepared by OAO Severstal(Severstal) solely for your information and may not be reproduced,retransmitted or further distributed to any other person or published, in wholeor in part, for any other purpose.These materials may contain projections and other forward-looking statementsregarding future events or the future financial performance of Severstal. Youcan identify forward-looking statements by terms such as “expect,” “believe,”“estimate,” “intend,” “will,” “could,” “may” or “might”, or other similarexpressions. Severstal cautions you that these statements are only predictionsand that actual events or results may differ materially. Severstal will not updatethese statements to reflect events and circumstances occurring after the datehereof. Factors that could cause the actual results to differ materially fromthose contained in projections or forward-looking statements of Severstal mayinclude, among others, general economic and competitive environmentconditions in the markets in which Severstal operates, market change in thesteel and mining industries, as well as many other risks affecting Severstal andits operations.These materials do not constitute or form part of any advertisement ofsecurities, any offer or invitation to sell or issue or any solicitation of any offer topurchase or subscribe for, any securities of Severstal in any jurisdiction, nor shallthey or any part of them nor the fact of their presentation, communication ordistribution form the basis of, or be relied on in connection with, any contract orinvestment decision. No representation or warranty, express or implied, is givenby Severstal, its affiliates or any of their respective advisers, officers, employeesor agents, as to the accuracy of the information or opinions or for any losshowsoever arising, directly or indirectly, from any use of these materials or theircontents. Page 92