Metinvest Announces Q4 and 12 Months 2012 Operational Results

OREANDA-NEWS. Metinvest B.V., the parent company of the international vertically integrated steel and mining group of companies (jointly referred to as “Metinvest”), today announces its operational results for the fourth quarter of 2012 and 12 months ended 31 December 2012.

2012 HIGHLIGHTS

Steel production down 13% y-o-y to 12,459 thousand tonnes

Mining of coking coal up 3% y-o-y to 11,623 thousand tonnes

Iron ore concentrate production (total) up 1% y-o-y to 36,224 thousand tonnes

4Q 2012 HIGHLIGHTS

Steel production up 2% q-o-q to 2,881 thousand tonnes

Mining of coking coal up 4% q-o-q to 2,808 thousand tonnes

Iron ore concentrate production (total) up 1% q-o-q to 9,059 thousand tonnes

METALLURGICAL DIVISION

Production of hot metal

(thousand metric tonnes)	2012	2011	change	4Q 2012	3Q 2012	change
Pig iron	11,010	12,385	-11%	2,680	2,535	6%
Azovstal	4,026	4,862	-17%	979	940	4%
Ilyich Steel	4,519	5,180	-13%	1,105	978	13%
Yenakiieve Steel	2,465	2,343	5%	596	617	-3%

Production of crude steel

(thousand metric tonnes)	2012	2011	change	4Q 2012	3Q 2012	change
Crude steel	12,459	14,375	-13%	2,881	2,832	2%
Azovstal	4,589	5,584	-18%	1,059	1,084	-2%
Ilyich Steel	5,138	6,122	-16%	1,203	1,072	12%
Yenakiieve Steel	2,732	2,669	2%	619	676	-8%

In 2012, Metinvest produced 11,010 thousand tonnes of hot metal, representing an 11% y-o-y decrease. At the same time, crude steel production fell 13% y-o-y to 12,459 thousand tonnes due to decline in production at Azovstal Iron and Steel Works (“Azovstal”) and Ilyich Iron and Steel Works (“Ilyich Steel”) by 995 thousand tonnes and 984 thousand tonnes, respectively. Meanwhile, Yenakiieve Iron and Steel Works (“Yenakiieve Steel”) increased production of crude steel by 63 thousand tonnes y-o-y following the commissioning of new blast furnace #3 in late 2011. In 4Q 2012, crude steel production increased by 49 thousand tonnes q-o-q.

Production of metal products1

(thousand metric tonnes)	2012	2011	change	4Q 2012	3Q 2012	change
Semi-finished products	2,731	3,574	-24%	765	660	16%
Pig iron	585	600	-3%	274	110	149%
Slabs	1,329	2,460	-46%	286	339	-16%
Square billets	817	514	59%	205	211	-3%
Finished products	8,601	9,317	-8%	1,979	1,925	3%
Flat products	5,809	6,407	-9%	1,368	1,205	14%
Long products	2,448	2,618	-6%	544	631	-14%
Rail products	344	292	18%	67	89	-25%
Tubular products	435	678	-36%	70	65	8%
Large diameter pipes	384	631	-39%	57	53	8%
Other pipes	51	47	9%	13	12	8%
TOTAL	11,767	13,569	-13%	2,814	2,650	6%

In 2012, output of merchant semi-finished products decreased by 24% y-o-y, largely due to a decline in slab production at Azovstal and Ilyich Steel by 951 thousand tonnes and 180 thousand tonnes, respectively. Meanwhile, merchant square billet production at Yenakiieve Steel increased by 303 thousand tonnes. A decline in merchant slab output was the result of low sales due to unfavourable conditions in key slab consumption regions (Asia and Europe). Thus, slab oversupply (and higher competition as a result) and a continued decline in flat product prices led to a decrease in slab prices from January to December on average by USD 100 per tonne. At the same time, billet production increased having been spurred by short periods of growing demand in the merchant billet market caused by a relatively favourable situation in the Middle East (the key billet consumption region) and a positive trend in the scrap market. As a result of these contrasting trends, slab prices, in 2012 were on average USD 80 per tonne lower than billet prices.

In 4Q 2012, Metinvest’s production of semi-finished products increased by 16% q-o-q as a result of a rise in the production of merchant pig iron by 164 thousand tonnes, mostly at Ilyich Steel.

In 2012, an 8% y-o-y decline in finished product output was due to three major reasons:

flat product output dropped by 598 thousand tonnes due to stronger competition in key sales markets, especially in Europe, caused by a continued decline in demand and prices in the plate market;

large diameter pipe production decreased by 247 thousand tonnes following the completion of the Beineu-Shymkent project (Kazakhstan) and the postponement of the next phase of the East-West project (Turkmenistan);

long product output declined by 170 thousand tonnes on lower demand levels from European consumers, which had a negative impact on capacity utilisation at Promet Steel (Bulgaria). Furthermore, the Group decided to mothball the operation of Yenakiieve Steel's rolling mill 360 due to unprofitability of its light section unit as a result of declining demand for this type of product. At the same time, the improved consumption of heavy sections in Ukraine and other CIS countries resulted in higher shipment volumes of those products.

4Q 2012 saw improved dynamics of the flat product segment. This led to an increase in the production of flat products by 163 thousand tonnes owing to plate production growth at Ilyich Steel (74 thousand tonnes) and Azovstal (19 thousand tonnes), as well as a coil production increase at Ilyich Steel (53 thousand tonnes) and Ferriera Valsider (31 thousand tonnes). However, growth in flat product output was limited by a 14 thousand tonne cutback in production at the European re-rolling plants.

In 2012, Metinvest's rail product output grew 52 thousand tonnes (+18%) y-o-y due to increased orders from CIS countries (Uzbekistan and Kazakhstan) following fewer deliveries by competitors, and orders from Georgia. In 4Q 2012, rail product output decreased by 22 thousand tonnes q-o-q to 67 thousand tonnes, mainly due to a seasonal decline in orders.

MINING DIVISION

Production of iron ore concentrate and pellets

(thousand metric tonnes)	2012	2011	change	4Q 2012	3Q 2012	change
Iron ore concentrate (total)	36,224	35,741	1%	9,059	8,948	1%
Iron ore products2	21,007	18,793	12%	5,395	5,3773	0%
Iron ore concentrate	14,144	12,577	12%	4,419	3,3723	31%
Pellets	6,863	6,216	10%	976	2,005	-51%

In 2012, iron ore concentrate production totalled 36,224 thousand tonnes in 2012, up 483 thousand tonnes y-o-y. This increase was the result of:

the commissioning of sections #15 and #16 at the ore beneficiation plant #1 of Northern GOK (+134 thousand tonnes);

the launch of the second starting facility for magnetic flotation at Ingulets GOK (+205 thousand tonnes);

an increase in production at Central GOK by 144 thousand tonnes which is attributed to the implementation of measures as part of the plant's continuous improvement programme.

In 4Q 2012, concentrate production remained almost unchanged q-o-q.

In 2012, volumes of merchant concentrate to be sold to third parties increased by 1,567 thousand tonnes to 14,144 thousand tonnes representing a 12% y-o-y increase. This positive trend was conditioned by reduction in internal consumption of concentrate within the Group.

The production of pellets to be sold to third parties increased by 647 thousand tonnes (+10%) y-o-y in 2012. The output growth was the result of:

a reallocation of 918 thousand tonnes of pellets to third parties;

an increase in pellet production at Central GOK by 99 thousand tonnes due to a shortened period of repair works of its roasting machine.

However, output growth was to a certain extent limited by a 370 thousand tonne decrease in production at Northern GOK caused by the roof collapse at pelletising plant #2 in December 2012.

In 4Q 2012, merchant concentrate production increased by 1,047 thousand tonnes (+31%) q-o-q, while the production of pellets for third parties fell by 1,029 thousand tonnes (-51%) q-o-q. The latter’s decline was driven by:

a decrease in production at Northern GOK by 1,011 thousand tonnes due to a major overhaul of its Lurgi-552В roasting machine and the quarterly maintenance of other roasting machines;

a collapse of the roof at pelletising plant #2 at Northern GOK in December 2012;

a decrease in production at Central GOK by 73 thousand tonnes due to a major overhaul of its roasting machine in October 2012.

Mining of coal and production of coal concentrate

(thousand metric tonnes)	2012	2011	change	4Q 2012	3Q 2012	change
Coal mining	12,130	13,352	-9%	2,847	2,799	2%
Coking coal	11,623	11,339	3%	2,808	2,701	4%
Steam coal	507	2,013	-75%	39	98	-60%
Coal products4	2,465	3,560	-31%	646	422	53%
Coking coal concentrate	2,064	2,255	-8%	611	317	93%
Steam coal concentrate	401	1,305	-69%	35	105	-67%

In 2012, mining volumes of coking coal grew by 284 thousand tonnes (+3%) y-o-y to 11,623 thousand tonnes. This rise was driven by an increase in coking coal volume mined at the Group's US operations of United Coal Company (“United Coal”) by 537 thousand tonnes, while mining volumes at its Ukrainian operations of Krasnodon Coal Company (“Krasnodon Coal”) decreased by 253 thousand tonnes.

The increase in volumes extracted at Metinvest US mines was mainly driven by:

an increase in mining volumes at the new Affinity mine by 598 thousand tonnes;

an increase in coking coal mining volumes at the Wellmore mines by 436 thousand tonnes as a result of the launch of a new site.

At the same time, mining volumes at the Carter Roag mines decreased by 100 thousand tonnes mainly due to activities carried out to improve working conditions, while volumes extracted at United Coal's other mines fell by 397 thousand tonnes as a result of a decline in demand in the United States.

The reduction in mining volumes at the Ukrainian mines was caused by a decrease in the average number of breakage faces in operation in line with a technical schedule for face commissioning and decommissioning, as well as an ignition at the Samsonovskaya-Zapadnaya mine in September 2012 resulting in a stoppage of works and consequently lower utilisation rate of one of the longwalls.

In 4Q 2012, Metinvest's mining volumes of coking coal grew by 107 thousand tonnes (+4%) q-o-q due to:

a 269 thousand tonne increase in output at Krasnodon Coal mines after the commissioning of a new eastern Orlovskaya longwall;

stabilisation of longwalls re-commissioned in 3Q 2012.

A 162 thousand tonne decrease in mined volumes at United Coal mines in 4Q 2012 was the result of weakening demand in the US.

In 2012, steam coal mining volumes declined by 1,506 thousand tonnes (-75%) y-o-y to 507 thousand tonnes. In 4Q 2012, steam coal mining volumes decline by 59 thousand tonnes q-o-q to 39 thousand tonnes. The decrease in mining volumes resulted from suspension of development works at the Wellmore and Sapphire mines due to low demand in the US.