PROVEN LEADERSHIP -...

PROVEN

LEADERSHIP

ANNUAL REPORT 2015

/ CONtENt

UNIQUE RESOURCE BASE

DEMAND-DRIVEN PRODUCtION

LOW CONtROLLABLE CASH COStS

DIVERSIFIED SALES GEOGRAPHY

NO. 2 IN tHE WORLD 01The Company owns the world’s second-largest proven iron ore reserves – approximately 14.2 billion tonnes, which ensures a mine life of around 150 years at current production levels.

INDUStRY LEADER 03Metalloinvest is a leading global producer of merchant hot briquetted iron (HBI), iron ore, metallised products and high-quality steel.

UNRIVALLED PRODUCtION 02HBI/DRI and pellet production costs at Metalloinvest are significantly lower than at global peers’ operations.

LEADING SUPPLIER 04Metalloinvest’s products are supplied to all major markets worldwide. Russia, Eastern and Western Europe, Asia and the Middle East are its priority regions.

PROVEN LEADERSHIP

Metalloinvest is Russia’s largest iron ore producer. Metalloinvest is a global player in the metals market focusing on high value-added products, such as merchant HBI/DRI and pellets.

5.4million tonnes

of HBI/DRI

39.5

million tonnes of iron ore

2.5

million tonnes of pig iron

are produced across

Metalloinvest’s enterprises

4.5

million tonnes of steel

23.8

million tonnes of pellets

>2,000 steel grades

Above figures refer to Metalloinvest’s 2015 operating results.

14.2

billion tonnes of iron ore reserves

/ CONtENt / 12ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENT OVERVIEW

FINANCIAL AND OPERATING RESULTS

CORPORATE GOVERNANCE

SUSTAINABLE DEVELOPMENT

CONTACTS W W W. M E T A L L O I N v E s T . C O M / E N

http://www.metalloinvest.com/en

/ CONtENt

Vale (Brazil)

~50 years

Metalloinvest (Russia)

~150 years

BHP Billiton (Australia)

~15 years

19.6 billion tonnes

14.2billion tonnes

5.4billion tonnes

4.2billion tonnes

Rio tinto (Australia)

~20 years

Cliffs Natural Resources(USA)

FMG(USA)

ERG (ENRC)(Kazakhstan)

Ferrexpo(Ukraine)

Kumba(South Africa)

Reserve supply based on production lev-

els

Largest iron ore reserves

Proven and probable reserves (billion tonnes)

2.6billion tonnes

2.4billion tonnes

1.5billion tonnes

1.4billion tonnes

0.9billion tonnes

~15 years ~20 years~5 years

39.5 million tonnes

of iron ore produced in 2015

14.2

billion tonnes

2nd largest iron ore reserves globally

UNIQUE

RESOURCE BASE

Source: Company data


COMPANY PROFILE







/ CONtENt

200

0

400

0 5 10 15 20 25 30 35

100

0

200

0 50 100 150 200 250

EXTENsIvE HIGH-QUALITY REsOURCE BAsE

IN-HOUsE MINE DEvELOPMENT WITHOUT THIRD PARTY INvOLvEMENT

UsE OF LOW-COsT MAGNETIC sEPARATION IN IRON ORE BENEFICIATION

Mining segment(Pages 38–39)

Asset structure(Page 14)

Mining segment(Page 39)

AvAILABILITY OF REQUIRED INFRAsTRUCTURE (GAs, ENERGY, ROADs)

HBI/DRI market(Page 36)

ADvANCED PRODUCTION TECHNOLOGIEs

R&D (6)

LOW IRON ORE sHIPMENT COsTs

51.8%

(UsD 2,275 million)

Cost to revenue ratio in 2015

Pellet cash cost (USD/DMt)*HBI/DRI cash cost (USD/DMt)

(Lebedinsky GOK) (Lebedinsky GOK)(Mikhailovsky GOK)Metalloinvest Metalloinvest Metalloinvest

Metalloinvest (OEMK)

Production (million tonnes)

Production costs (USD/t)

Production (million tonnes)

Production costs (USD/dmt)**

* CRU, Company data for 2012** DMT – dry metric tonne

CONtROLLABLE LOW

CASH COStS


COMPANY PROFILE







/ CONtENt

DEMAND-

PRODUCtIONDRIVEN

Iron ore Pellets HBI/DRI

PRODUCtION (MILLION tONNES)

SHIPMENtS (MILLION tONNES)

For an interactive version

of the operating results,

see the Company’s website

at www.metalloinvest.com

Pig iron Steel products

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

40.1 39.8 38.4 38.7 39.5 22.4 22.6 22.6 22.7 23.8 5.0 5.2 5.3 5.3 5.4 2.5 2.1 2.2 2.3 2.5 5.8 5.6 4.7 4.5 4.5

Iron ore concentrate and pellets are used

to produce pig iron.

HBI/DRI, pellets, pig iron and scrap metal

are used to produce steel products.

12.7 12.5 11.1 11.0 10.8 13.6 14.1 13.7 13.9 14.4 2.3 2.3 2.4 2.3 2.4 1.1 0.8 1.4 1.8 1.8 5.2 5.1 4.3 4.2 4.2


COMPANY PROFILE






http://www.metalloinvest.com


/ CONtENt

>50

large consumers

in Russia, CIs, Asia, Africa and Middle East

18.3

million tonnes of iron ore products

shipped across Russia in 2015

DIVERSIFIED

SALES GEOGRAPHY

19%

19%

28%

66%

Europe AsiaRussia

See a detailed interactive map

on the Company’s website

www.metalloinvest.com/

business/geography/

4%

29%

10%

3%

Middle East and Africa

sTEEL PRODUCTs IRON ORE PRODUCTs

Source: WSA

Other

1%

27%


COMPANY PROFILE







/ CONtENt

ABOUT THE REPORT

Reporting standardsMetalloinvest’s Annual Report1 (the “Report”) has been

prepared in accordance with the Federal Law On

the securities Market, Federal Law On Joint stock Companies

and Regulation On Information Disclosure by the Issuers

of Issue-Grade securities2. MICEX and LsE Listing Rules,

the Company’s by-laws and internal procedures, GRI G4

Guidelines, including GRI G4 Metals and Mining sector

Disclosures, were also used in preparing this report.

Scope and boundaries of the ReportThe Report for 2015 has been prepared on the basis

of the consolidated IFRs financial statements and addressed

to a diverse range of stakeholders. It covers the Company’s

key financial and operating results, as well as its sustainable

development performance in Russia and abroad in 2015.

The information provided by the Company’s subsidiaries

is aligned with the IFRs reporting boundaries. The Report

is published annually covering the period from 1 January

to 31 December each year.

Liability of the Board of Directors The Report contains certain projections and forward-

looking statements, particularly (but not limited to) relating

to anticipated demand and consumption, global economic

recovery, commodity prices, management aims

and objectives, strategy, production, anticipated

investment and the anticipated completion of previously

announced transactions. Actual results may differ from

those expressed in such statements depending

on a variety of factors and risks affecting the Company

and/or any of its affiliates, and their respective operations.

Accuracy of informationThe Report has been prepared in good faith, but has

not been independently verified. The IFRs consolidated

financial statements have been independently audited.

Neither the Company nor its affiliates make any statements,

give guarantees, assume any responsibility, explicit

or implicit, regarding the reliability, accuracy, completeness

or correctness of the information or opinions contained

in the Report.

Material disclosuresThe Report’s material disclosures include changes

in the market environment, improvements in operating

efficiency, stronger investment attractiveness

and development outlook, competitive working conditions,

health, safety and environment, management framework,

risk management, and regional development.

Sustainability reportHolding Company Metalloinvest is in the process

of preparing a Corporate social Responsibility Report

to outline the key areas of its approach to sustainability

issues.

The Company follows a two-year reporting cycle for

non-financial disclosure. The previous report was prepared

for the 2013–2014 reporting period. starting from 2016,

the Company plans to publish its Corporate social

Responsibility Reports on an annual basis. Reports

are available online on the Company’s website:

http://www.metalloinvest.com/en/sustainability/ csr-reports/

2 Under Regulation of the Bank of Russia No. 454-P dated 30 December 2014.

CONTENTs

01 Company profile . . . . . . . . . . . . . . . . . . . . . . . 12

Metalloinvest Holding Company – structure 2015 14

Key events during the reporting period 15

Performance overview for the reporting period 20

Business model 22

02

Development overview . . . . . . . . . . . . . . . . 24

Chairman’s statement 26

CEO’s statement 28

strategy 30

strategic achievements in 2015 31

Key projects 33

Market overview 34

Iron ore market 34

HBI and DRI market 36

steel market 37

Key operating assets 38

Mining segment 38

steel segment 40

strategic investment programmes 42

Mining segment 42

steel segment 44

R&D 46

03 Financial and operating results . . . . . . . . . . 48

Operating performance 51

Production 51

shipments 53

Financial performance 56

04 Corporate governance

and investor information . . . . . . . . . . . . . . . 60

Corporate governance structure 62

Board of Directors 63

Committees of the Board of Directors 69

Management Board 72

Internal control and audit 74

Risk management 76

share capital and investor relations 80

share capital 80

Credit ratings 81

Investor relations 82

Debt capital markets 82

05 Sustainable development . . . . . . . . . . . . . . . 84

Approach to sustainable development 86

HR management 88

staff structure and headcount 88

Incentivisation 90

Personnel assessment and development 91

Employee engagement 93

Occupational safety 94

Environment 96

External social programmes 96

Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

1 For the purpose of this Report, the term Metalloinvest shall include the following entities: Metalloinvest Holding Company, Metalloinvest Management Company, Lebedinsky

GOK, Mikhailovsky GOK, Ural Steel, OEMK, Metalloinvestleasing and Ural Scrap Company.

The members of the management team mentioned in this report are the management of Metalloinvest Management Company.

/ 1110ANNUAL REPORT 2015

COMPANY PROFILE






http://www.metalloinvest.com/en/sustainability/%20csr-reports/

http://www.metalloinvest.com/en/sustainability/%20csr-reports/


/ CONtENt

No. 1

producer of merchant HBI/

DRI globally

5.4 million tonnes produced in 2015

No. 2

by iron ore reserves globally

(proven iron ore reserves) 14.2 billion tonnes

~150 years of operating lifetime

No. 3

producer of iron ore

pellets globally

23.8 million tonnes produced in 2015

METALLOINvEsT Is A GLOBAL LEADER IN MERCHANT HOT BRIQUETTED IRON

(HBI) PRODUCTION, A MAJOR PRODUCER AND sUPPLIER OF IRON ORE

AND METALLIsED PRODUCTs, AND A REGIONAL PRODUCER

OF HIGH-QUALITY sTEEL.

METALLOINvEsT HAs A DIvERsIFIED PORTFOLIO OF HIGH vALUE-ADDED

PRODUCTs, ENsURING ITs MARKET LEADING POsITION IN LOCAL

AND GLOBAL MARKETs.

vale(19.6)

Metalloinvest (14.2 )

BHP Billiton(5.4)

Rio Tinto(4.2 )

FMG(2.4 )

4.5million tonnes

2.5million tonnes

Regional producer of high-quality steel

Regional producer

of pig iron

39.5million tonnes

Regional leader in iron ore production

» For more details on shareholder structure,

see the section Information for investors (p.84)

54.2% 23.6%

16.0%

3.2%

3.0%

Shareholder structure as at 31 December 2015

USM METALLOINVEST LLC

USM HOLDINGS LIMITED

LEBEDINSKY GOK JSC

OEMK JSC

USM INVESTMENTS LIMITED

Global iron ore reserves in 2015, bn t

Cliffs Natural Resources(2.6)

Kumba(0.9 )

Ferrexpo(1.4)

ERG (ENRC) (1.5)

1 COMPANY PROFILE

ANNUAL REPORT 2015 / 1312

COMPANY PROFILE







/ CONtENt

Structure of Holding Company Metalloinvest in 20153

Holding Company MetalloinvestManagement Company Metalloinvest

Mining segment

Steel segment

Auxiliary business and other assets

• OEMK JSC• Ural Steel JSC• Ural Scrap Company LLC

• Lebedinsky GOK JSC• Mikhailovsky GOK OJSC

• Metalloinvest Trading AG – 100%• Metalloinvest Logistics DWC LLC – 100%• The Urban Institute of Steel Plant Design (Gipromez) – 100%• Metalloinvest Leasing JSC

• Nautilus Minerals Inc. – 20.9%• Hamriyah Steel FZC (UAE) – 80% • Norilsk Nickel (3.2% stake)

Russia’s largest ore mining and processing enterprises by iron ore, concentrate and pellet volumes.Lebedinsky GOK is the only HBI producer in Russia and the CIS.

OEMK and Ural Steel are major produc-ers of steel products for niche markets in Russia, offering over 2.000 steel grades. Ural Scrap Company is a modern ferrous scrap metal processing enterprise.

These companies are responsible for supplying maintenance services and raw materials to the mining andsteel-making facilities, as well as to the auxiliary assets.

Lebedinsky GOKGubkin

Belgorod

Mikhailovsky GOKZheleznogorsk

Kursk

100%

99.3%

OEMK

Stary Oskol

Belgorod

Novotroitsk

Orenburg Ural Steel

100%

100%

3 Company structure as at 31 December 2015.

Key events during the reporting period

the Company

Metalloinvest and EvRAZ signed a five-year formula-

based agreement for the delivery of steel grinding

balls. The products will be supplied to Mikhailovsky

GOK, Lebedinsky GOK and OEMK.

Strategy 2023

Fitch – "BB", Moody’s – "Ba2", Standard & Poor’s – "BB"

"BBB+"

The Company’s long-term ratings were affirmed

by Fitch ("BB", stable outlook), Moody’s ("Ba2", stable

outlook) and standard & Poor’s ("BB", outlook revised

from stable to negative due to increasing uncertainty

stemming from lower iron ore prices, higher country

risk and limited access of Russian corporates to capital

markets).

China’s Dagong Global Credit Rating Co. assigned

the Company a "BBB+" long-term issuer credit rating

in local and foreign currencies with a stable outlook.

Metalloinvest and ArcelorMittal signed

a contract to supply iron ore to ArcelorMittal’s

European operations. As agreed by the parties, the total

amount of iron ore products to be delivered by April

2016

is over 2 million tonnes.

2 million tonnes supply contract

Metalloinvest presented strategy 2023, an updated

development strategy. It is focused on pursuing

greater shareholder value, higher sales margins,

improved operating and management efficiency,

as well as increased investment attractiveness.

Ural steel celebrated its 60th anniversary.

Metalloinvest and sAP CIs announced the launch

of a business transformation programme whereby

a sAP-based integrated corporate management system

will be introduced in the Company. The contract was

signed at the 2015 st Petersburg International Economic

Forum (sPIEF).

ANNUAL REPORT 2015

COMPANY PROFILE






/ 1514


/ CONtENt

Production and upgrades Financial activities

4 July 2015–October 2016 under the previous maturity schedule.

Management systems Sustainable development

Mikhailovsky GOK launched Pellet Plant No. 3,

the largest such facility in Russia, with an annual

capacity of 5 million tonnes of pellets.

» For more details, see p. 42

Сasting Machine No. 5 was commissioned

at the blast furnace shop of Ural steel. It will increase

the Company’s pig iron casting capacity by 0.5

million tonnes per year.

+ 0.5 million tonnes of production capacity

A shaft furnace was installed at Lebedinsky GOK’s

HBI-3 Plant, which is currently under construction.

It will serve as the main component of the HBI

production process.

Shaft furnace

Lebedinsky GOK produced its landmark 25-millionth

tonne of HBI. The plant produced its first

iron ore briquettes in 2001.

25 million tonnes of HBI

BO-01 series bonds

Metalloinvest issued BO-01 series bonds for

a total amount of RUB 10 billion. The bonds have

a maturity period of 10 years (3,640 days) and a put

option in 6 years. The coupon rate was set at 11.85%

to be paid every six months.

Metalloinvest and Rabobank signed

an agreement to extend the maturity schedule

of a UsD 131 million loan. Under the agreement,

repayment will now be due in April 2017–October

20184.

New loan maturity date

Metalloinvest signed a UsD 750 million long-

term pre-export credit facility (“PXF”) agreement

with a syndicate of international banks.

The PXF is divided into two tranches: UsD

600 million five-year tranche with a two-year grace

period and UsD 150 million seven-year tranche with

a five-year grace period.

Long-term pre-export financing

A club of international banks provided the Company

with credit facilities of up to EUR 267 million.

The funds will be used to finance the purchase

of equipment for the Company’s HBI-3 investment

project at Lebedinsky GOK. The agreement

with the banks stipulates that the loans will be repaid

within 10 years following the launch of HBI-3 Plant.

Credit facility of up to EUR 267mn

Compliance with international standards

Mikhailovsky GOK confirmed the compliance of its

integrated quality and HsE management system

with IsO 9001, OHsAs 18001 and IsO 14001

international standards. The audit was carried out

by TÜv sÜD Management service GmbH (Germany).

The auditors observed no deviations and made

no additional comments.

Inspection audit of Lebedinsky GOK

Lebedinsky GOK successfully passed an annual

inspection audit of its environmental management

system (EMs) for compliance with GOsT R IsO

14001:2007 and Ms IsO 14001:2004. The Company’s

EMs complies with international environmental

standards.

Lebedinsky GOK successfully passed

an inspection audit of its occupational health

and safety management system for compliance

with OHsAs 18001:2007 carried out by the British

standards Institution (BsI).

Lebedinsky GOK compliance with international standard

Ural steel confirmed the compliance of its integrated

quality and HsE management system with IsO 9001,

sTO Gazprom 9001-2012, IsO 14001, OHsAs 18001

international standards. The comprehensive audit

was carried out by Bureau veritas Certification Rus

and Pronap.

Inspection audit of Ural Steel

Social and economic partnership programmes

Metalloinvest signed social and economic partnership

agreements for 2015 with the Kursk, Belgorod

and Orenburg Regions.

In 2015, the 15 best employees from the Company’s

subsidiaries and business units were honoured

and awarded generous bonuses.

10th Person of the Year competition

Metalloinvest confirmed that it will take part

in the international Climate Action Programme

of the World steel Association. Under this Programme,

Metalloinvest collects, calculates and discloses annual

data on greenhouse gas emissions (CO2).

Climate Action Programme

OEMK launched an upgrade project at the second gas

purification unit in the electric arc furnace shop.

Investment project implementation

Metalloinvest continues to support comprehensive

programmes implemented in partnership

with educational institutions in the regions where it

operates and in Moscow. The Company is financing

the construction of the main building of the stary

Oskol Technological Institute, a branch of the National

University of science and Technology MIsis.

In addition, Metalloinvest awards monthly scholarships

to the 12 best performing students from the Moscow

state Institute of International Relations MGIMO.

Partnerships with educational institutions

+ 5 million tonnes of production capacity

Metalloinvest co-organised the first Dobro Educational

Conference for charitable foundations and non-profit

organisations.

Dobro conference

ANNUAL REPORT 2015

COMPANY PROFILE






/ 1716


/ CONtENt

Awards Events after the reporting date*

• Winner of the 9th Russian Mining Excellence

Awards in the Corporate social Responsibility

category;

• Runner-up in the overall rankings

of the 8th annual Leaders in Corporate Charity

international competition;

• Winner of the Russian Business Leaders:

Dynamics and Responsibility 2014 national

competition in the Environmental Responsibility

category;

• Winner of the international vision Awards

Annual Report Competition (League

of American Communications Professionals,

UsA);

• Winner of the prestigious WebAwards 2015

international competition (Web Marketing

Association, UsA); the Company’s corporate

website was among the top 25 global

internet projects and won in two categories:

B2B standard of Excellence and Manufacturing

standard of Excellence. The Company’s

corporate website also won the Digital platform:

B2B corporate website category at the 3rd annual

Digital Communications AWARDs (Germany).

Metalloinvest

Mikhailovsky GOK

Named the Most Environmentally Responsible Company

in the Kursk Region at the 3rd Russian Industrial

and Environmental Forum RosPromEco 2015.

Metalloinvest issued BO-07 series 10-year

bonds for a total amount of RUB 5 billion

with a coupon rate of 11.90% and an early

redemption option for the issuer in 7 years.

standard & Poor’s affirmed the Company’s long-term

foreign and local currency ratings at BB with a negative

outlook.

Metalloinvest signed a UsD 400mn long-term

pre-export credit facility (“PXF”) agreement

with a syndicate of international banks

with an option to increase the amount

up to UsD 450 million.

The PXF is divided into two tranches:

UsD 150 million five-year tranche with a three-year

grace period and UsD 250 million seven-year

tranche with a five-year grace period. UniCredit

Bank Austria AG and sberbank of Russia acted as

coordinators and mandated lead arrangers of the deal.

Metalloinvest issued BO-02 and BO-08 series

bonds totalling RUB 15 billion. The bonds have

a maturity period of 10 years (3,640 days)

and a put option exercisable in 5 years (1,820 days)

at the bondholders’ request.

Metalloinvest was victorious at the Russian Business

Leaders: Performance and Responsibility 2015

nationwide contest, winning the “For contributions

to solving regional social problems” category.

Moody’s Investors service affirmed the Company’s

corporate rating at Ba2 with a stable outlook.

BO-07 series bonds

Standard & Poor’s credit rating

Long-term pre-export financing

BO-02 and BO-08 bonds

Moody’s Investors Service credit rating

Winner of the Russian Business Leaders: Performance and Responsibility 2015 competition

Ural Steel

• Winner of the Orenburg Quality Leader 2015 regional

competition in the stable Quality and High Level

of Competitiveness category (in non-food products)

for rolled steel used in bridge construction;

• Winner of the 12th Metals and Mining Companies

with a High Level of social Efficiency industrial

competition in the Environmental Activity

and Resource Conservation category.

OEMK

3rd place in the “Russian Organisation with Highly

Effective CsR” regional competition in the “For

contribution to solving social problems in local

communities and corporate charity development”

category.

Enterprises

* from 1 January to 1 April 2016

ANNUAL REPORT 2015

COMPANY PROFILE






/ 1918


/ CONtENt

Performance overview

2011 2012 2013 2014 2015

EBITDA margin, %

3331

33 31

39

2011 2012 2013 2014 2015

Net income, USD billion

0.20.1

1.7

1.1

1.4

2011 2012 2013 2014 2015

Revenue, USD billion

4.4

6.4

8.2

7.3

9.9

2011 2012 2013 2014 2015

EBITDA, USD billion

1.4

2.0

2.7

2.3

3.8

Financial highlights Operating highlights

2011 2012 2013 2014 2015

Capital expenditure, USD billion

0.4

0.6

0.5 0.5 0.5

2011 2012 2013 2014 2015

HBI/DRI production, million tonnes

5.45.3 5.2 5.3 5.0

2011 2012 2013 2014 2015

Pig iron production, million tonnes

2.5

2.3

2.1 2.2

2.5

2011 2012 2013 2014 2015

Iron ore production (including sintering ore),

39.538.7 39.8 38.4

40.1

million tonnes

2011 2012 2013 2014 2015

Pellet production, million tonnes

23.822.7 22.6 22.6 22.4

2011 2012 2013 2014 2015

Crude steel production, million tonnes

4.54.5

5.6

4.7

5.8 « When developing Strategy 2023, we factored in a possible

decline in global iron ore prices. A sharp drop in ore prices

in 2015 reaffirmed our strategic focus on high value-added

products.

Andrey VarichevCEO

«In the challenging market environment, the Company’s

management focused on deleveraging and maintaining

the EBITDA margin at the current level. In 2015, the Company

exceeded its target and improved its EBITDA margin to 32.6%.

Ivan StreshinskyChairman of the Board of Directors

« «

ANNUAL REPORT 2015

COMPANY PROFILE






/ 2120


/ CONtENt

Business model

METALLOINVEST — IS AN EFFICIENT MINING COMPANY WITH FULL-CYCLE PRODUCTION:

FROM IRON ORE MINING AND PROCESSING TO PRODUCTION OF HIGH-QUALITY STEEL

FOR A VARIETY OF INDUSTRIAL CONSUMERS BOTH IN RUSSIA AND ABROAD.

The Company’s mining and processing plants develop the reserves of the unique Kursk Magnetic

Anomaly, home to magnetite ores with an average

iron content of 34–39%. The Company owns the world’s

second-largest proven iron ore JORC5 reserves – about

14.2 billion tonnes, which guarantees approximately

150 years of operation at current production levels.

The iron ore concentrate is mostly processed into products

with high added value, such as pellets and HBI/DRI

shipped to third-party consumers or further processed

at the Company’s steel segment operations.

Metalloinvest’s metallurgical plants produce pig

iron and steel products, including long steel, pipe

and metal billets, bridge and bearing steel, rail track

and casting billets.

The combination of iron ore mining, processing into high added-value products and manufacture of advanced steel products give the Company a strong

competitive edge. The Company’s mining and processing

facilities meet the needs of its steelmaking plants

in iron ore and HBI/DRI.

Сo-ordination of operations and centralised marketing

and sales functions ensure effective cost control

and management of volatility risks in the feedstock

and steel markets.

A diversified sales system enables the Company

to adjust promptly to customer demands and benefit

from developments in the domestic and international

markets.

5 Company data calculated as at 31 December 2015 based on Mineral Expert’s Report

by IMC Group Consulting Ltd. in 2010.

» For more details on global iron ore reserves, see p.34

ProductionIron ore

ProductionMetallIsed raw MaterIals

Productionsteel products

SalescoMMercIal products

pelletIsIng

Pellets

BenefIcIatIon

Concentrate

productIon

pellets

sInterIng

Sinter

procureMent

Scrap

DRI Pig iron

HBI

HBI

steel productIon

Steel

concentrate

including other products

sInterIng ore

including blast furnace ore

reserves 14.2 BIllIon tonnes

drI

pIg Iron

flat products

long steel

square BIllets

Mining segment

Lebedinsky GOK/Mikhailovsky GOK

Creating added valueFor saleFor processing

Steel segment

OEMK /Ural Steel /Ural Scrap Company

Commercial products

ANNUAL REPORT 2015

COMPANY PROFILE






/ 2322


2 DEVELOPMENT OVERVIEW

Metalloinvest’s Development Strategy strives to increase output of products with high added value

20132011 2015Source: Company data

25 25

30 30

35 35

40 40

45 45

20 20

15 15

1010 10

55 5

Production and shipments, million tonnes

Production and shipments,

million tonnes

HBI/DRI production

Pellet production

5.45.0 5.3

22.4

12.7

40.1

22.6

11.1

38.4

23.8

10.8

39.5

Iron ore shipments

Iron ore production

Increase in HBI/DRI production from 2011 to 2015

Increase in pellet production from 2011 to 2015

Iron ore shipments from 2011 to 2015

6 %

8 %

15 %

/ CONtENt

Statement from Ivan Streshinsky, Chairman of the Board of Directors

Dear shareholders and colleagues,

Yours faithfully,

Ivan Streshinsky

Chairman of the Board of Directors

Management Company Metalloinvest

In 2015, metals and mining companies faced a challenging

macroeconomic environment, including lower global

demand for steel, unprecedented growth in iron ore

production, and volatile exchange rates. Together, these

factors put significant pressure on businesses in the sector.

In 2015, Metalloinvest presented an updated strategy 2023,

focused on growing shareholder value, increasing investment

attractiveness, achieving higher sales margins and driving

improved operating and management efficiency. The targets

set out in the strategy are aligned with the current market

situation and macroeconomic fundamentals. In the face

of increased price volatility, we will be adjusting our

strategy implementation plans subject to emerging risks

and opportunities, but keeping our key strategic priorities

unchanged.

In the reporting period, the Company’s EBITDA declined

by 27% to UsD 1,432 million, largely as a result of lower

EBITDA in the mining segment due to a sizable drop in global

iron ore prices. Against this backdrop, the management

team focused on deleveraging and maintaining the overall

EBITDA margin at above 30%. In 2015, the Company

improved its EBITDA margin by 1.8 p.p. year-on-year to 32.6%,

thus exceeding its target. Moreover, the Company received

strong credit ratings from international rating agencies,

which attested to its balanced credit policy and financial

stability.

Metalloinvest is committed to corporate governance

best practices and the diversity and effectiveness

of the Board of Directors is on par with Russia’s leading

public companies. The pro-active approach and expertise

of the members of the Board of Directors’ and the involvement

of individual committees in resolving the most important

issues have been instrumental in maintaining growth

momentum in these challenging market conditions.

I would like to thank all members of the Board of Directors

and the Management Board of the Company for their

professionalism and hard work in 2015.

Commitment to the principles of sustainable development

is another important element of strategy 2023. In

2015, Metalloinvest continued its social and economic

co-operation with the Kursk, Belgorod and Orenburg

regions, which has proved its efficacy. To foster the social

and economic well-being of communities where the Company

operates, we implement joint initiatives together

with the residents of stary Oskol, Gubkin, Zheleznogorsk

and Novotroitsk, also involving the authorities, NGOs, trade

unions, environmental organisations, industry associations

and other stakeholders. Metalloinvest continues to support

comprehensive programmes in partnership with local

and federal educational institutions.

Our effective governance framework, strong qualifications

and the co-ordinated efforts of our people, along

with consistent progress in implementing our

production and investment programmes mean that we

can look to the future with confidence.

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 2726


/ CONtENt

Statement from Andrey Varichev, CEO

Dear colleagues and partners,

Yours faithfully,

Andrey Varichev

CEO

Management Company Metalloinvest

In 2015, Metalloinvest faced a number of considerable

challenges.

Lower steel consumption and a significantly higher global

iron ore supply resulted in an almost 50% drop in iron ore

prices. To succeed in such an environment, a business must

have a strong corporate culture and maintain maximum

production efficiency, along with strict financial discipline.

Looking back at our performance in 2015, I am pleased to say

that our business model incorporates all of these elements.

When developing strategy 2023, we factored in a possible

decline in global iron ore prices. Our analysis has shown

that products with low added value are most affected

by volatility. so, a sharp drop in ore prices in 2015 and lower

volatility in high-quality product prices have reaffirmed

our focus on high added value products as a strategic

priority for the Company. The stress tests carried out as part

of the strategy update showed the viability of investment

in high added value products.

Our key investment projects in 2015 included

the construction of Pellet Plant No. 3 at Mikhailovsky

GOK, which launched in september last year and boosted

pellet output capacity by 5 million tonnes per annum,

and the construction

of a third HBI plant at Lebedinsky GOK.

Both projects are aimed at strengthening Metalloinvest’s

position in the global arena, where the Company is the leader

in merchant HBI production and No. 3 in pellet production.

Another focus area of strategy 2023 is improving

the Company’s corporate governance framework. We have

launched a large-scale transformation programme designed

to reduce costs, boost margins and ensure business process

transparency and timely decision-making. The programme

will also improve and automate business processes, create

a cross-functional shared services centre to enhance planning

accuracy and manage the implementation of the Company’s

plans.

Metalloinvest maintains high standards of corporate

social responsibility. We partner with local governments

for sustainable development programmes. As part of this

long-term social and economic cooperation, we develop

and implement social initiatives that address key challenges

in local regions. The most effective initiatives and practices

are then rolled out across our locations.

Minimising the Company’s environmental footprint is also

a top priority for Metalloinvest.

In 2015, the Company passed compliance audits launched

across its operations to measure the efficiency of the existing

environmental management system.

The audits certified that our production processes

are complaint with IsO 14001 requirements. As a member

of the World steel Association’s Climate Action Programme,

Metalloinvest collects, calculates and discloses

data on greenhouse gas emissions (CO2).

Overall, a balanced development strategy, meaningful

governance framework at all levels, high qualifications

and the co-ordinated efforts of our people allow us to achieve

strong results today and in the future.

I would like to thank our employees, customers and partners

for their invaluable cooperation.

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 2928


/ CONtENt

Strategy

The updated strategy presented in 2015 is designed

to strengthen the Company’s global leadership

in the merchant hot briquetted iron segment, increase

output of high value-added products, increase

product quality and improve the efficiency of R&D

and production operations.

The Company has updated its strategic priorities,

long-term goals and objectives to respond to the latest

trends in the global iron ore, HBI and steel products

markets and utilise its competitive advantages,

such as industry-leading cash costs for HBI/DRI

and pellets.

Metalloinvest is focusing on further deleveraging

and seeks to finance investment projects primarily

from internally-generated cash flow. The Company

plans to maintain its EBITDA margin above 30%

by boosting operational efficiency and sales margins,

and reducing costs.

Corporate social responsibility remains an important

prerequisite for the Company’s sustainable growth.

strategy 2023 provides for the launch of projects

designed to minimise the Company’s environmental

impact in the regions where it operates, maintain safe

working conditions and ensure fair salaries, sufficient

recreation and healthcare opportunities for its

employees, and an improved social and cultural

environment for local communities.

Increase the Company’s value:

• Enhance the scale and quality of business

• Ensure sustainable growth and higher long-term

value

Grow sales margins:

• Increase share of the global market for high-quality

Metallics stocks, mainly HBI/DRI

• strengthen the Company’s position

in the high-quality rolled steel market

Improve operational and management efficiency:

• Focus on efficient development of existing

iron ore deposits

• Reduce cash cost of production and processing

operations

• Optimise existing processes and integrate new

technologies

Increase investment attractiveness:

• Improve transparency

• Promote a balanced approach to ensure talent

development and protection of communities

and the environment

•

Strategic activity in 2015

Efficient development of existing iron ore deposits

Increase in global market share for metallised feedstock

Increase in global market share

Optimisation of production processes and introduction of new technologies

Decrease in production costs

Strategic priorities

» FOR MORE DEtAILS ON StRAtEGY IMPLEMENtAtION AND KEY PROJECtS, SEE P. 32–33

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 3130


/ CONtENt

Efficient development of existing iron ore depositsMetalloinvest develops 14.2 billion tonnes of JORC-compliant iron ore reserves,

which guarantees approximately 150 years of operation at current production levels.

Larger share in the global market for metallised raw materialsLong-term sustainable demand for HBI will be driven by:

° an increase in the share of steel produced in electric furnaces;

° stricter environmental and product quality requirements;

° higher demand for scrap, as well as lower quality of scrap materials.

Wider global reachA large product mix and flexible logistics chain (multimodal - land and sea - routes to Asia and Europe via the Black sea and Baltic

sea ports) make the Company a strong competitor against both leading global suppliers and local producers.

The Company seeks to significantly enlarge the share of high-quality, high-margin products that it produces. For this purpose,

it is upgrading Rolling Mill 350 at OEMK and Rolling Mill 2800 at Ural steel, it is constructing HBI-3 Plant at Lebedinsky GOK and has

launched Pellet Plant #3 at Mikhailovsky GOK .

Improved production processes and new technologiesTo boost the efficiency of the Company’s operations to develop its iron ore deposits, Metalloinvest is implementing

a beneficiation technology improvement programme and plans to market new products such as high-quality concentrate

from Lebedinsky GOK with an iron content of over 70%, high basic iron ore pellets with an iron content of over 65.8%

and basicity between 0.9 and 1.1. The modernisation and replacement of equipment at OEMK and Ural steel will improve

the quality of the products.

Lower production costsHBI/DRI and pellet production costs at Metalloinvest’s enterprises are significantly lower than those of its global

peers. According to Company data, in 2015 Metalloinvest maintained its cash cost position in the top quartile of global

manufacturers. The key factors supporting the low cost of pellet and HBI/DRI production are:

° availability of an extensive high-quality resource base;

° in-house mine development;

° use of low-cost magnetic separation as the primary method of iron ore beneficiation;

° “zero operational costs” for shipping iron ore concentrate from Lebedinsky GOK to OEMK through a 26 km slurry

pipeline;

° energy-efficient production technologies;

° availability of necessary infrastructure (natural gas, electricity, railways and roads, etc.).

Introduction of a cyclical and continuous transportation methodDesign and pre-project planning works are taking place at Lebedinsky GOK and Mikhailovsky GOK

to introduce a cyclical and continuous method of transporting rock mass from mine to beneficiation plant.

This method will allow the Company to significantly decrease the cash cost of iron ore products due

to the optimisation of mining and transportation processes.

» For more details on the Company’s investment projects, see p. 42

Building an optimal structure with separation of powers and responsibilitiesTo improve business unit performance, Metalloinvest is creating a shared centre for repair planning

and control. The new centre will streamline repair services, standardise planning and repairing processes

and put in place a unified repair schedule co-ordination system. Going forward, the Company plans to unify

the equipment and technologies used across its operations.

Increased efficiency and productivity due to automation of business processesThe Company plans to implement an ERP-based planning system to increase the overall efficiency

of interrelated management processes, switch to a rolling planning process and enable partners

and customers to track their orders and delivery.

Prompt response to internal and external changesIn 2015, Metalloinvest continued to develop its corporate risk management system as planned.

The Company has launched a mechanism to categorise possible risk events and issued guidelines

and policies to regulate related processes. Metalloinvest is also introducing risk response procedures

and implementing quantitative assessments of potential damage.

» For more details on the risk management system, see p. 76

Key projectsImplementation of Strategy in 2015

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 3332


/ CONtENt

Market Overview

METALLOINVEST SELLS ITS PRODUCTS IN ALL OF THE WORLD’S LARGEST MARKETS.

RUSSIA, EASTERN AND WESTERN EUROPE, ASIA AND THE MIDDLE EAST ARE PRIORITY

REGIONS FOR THE COMPANY.

Iron ore market

The global iron ore market remains highly consolidated.

Four leading companies (vale, BHP Billiton, Rio Tinto,

and FMG) control over 72% of the world iron ore trade. The

leading countries that produce commercial iron ore are

Australia, Brazil, China, India and Russia, together

accounting for around 80% of total global output. In 2015,

global iron ore production fell to 2 billion tonnes, down 3%

y-o-y due to lower global demand for steel and pig iron.

However, taken separately, Australia and India recorded

higher output, while other countries saw relative

stabilisation (Brazil, Russia) and considerable decline

(China, others) in output.

Metalloinvest continues to assess the factors influencing

the iron ore raw materials market to take them into account

for the purpose of mid-term and long-term growth

planning.

2011 2012 2013 2014 2015

Iron ore production of leading producing countries, million tonnes

*

AUSTRALIA

BRAZIL

CHINA

INDIA

RUSSIA

OTHERS

450

365

338

158

93

410

495

375

343

131

94

420

582

362

354

121

93

471

700

392

328

95

92

460

759

383

246

116

95

403

Key fundamentals such as lower global demand for steel

and an unprecedented ramp-up of iron ore output by major

producers contributed to further iron ore price decreases,

aggravated by a sharp decline in energy and ferroalloy

prices and currency depreciation in producing countries.

Higher supply of iron ore with low iron content resulted

in the deterioration of the average quality of iron ore raw

materials. The drop in global metal prices constrains

mid-term investment in commodity assets. In addition,

the global slump in rolled steel prices and weaker financial

performance of the majority of steel producers had

a negative impact on the premium paid for high quality

raw materials.

2011 2012 2013 2014 2015

Price for iron ore 62% Fe, CFR China (USD/t)

55

97

130135

169

Source : Bloomberg

In 2015, the average annual price for iron ore dropped

from UsD 97 to UsD 55 per tonne CFR China as compared

to 2014. On 15 December 2015, the price dipped

to its lowest level of UsD 38.5 per tonne.

In Q1 2016, global prices returned to growth and exceeded

UsD 40 per tonne CFR China.

Iron ore marketvarious factors affect the iron ore market in the long

term. On the one hand, ore quality in the global market

is gradually deteriorating. Lower quality raw materials

increase the cost of steel production and lead to higher

harmful emissions by steelmakers. On the other hand,

environmental requirements are becoming more stringent.

In particular, China, the driving force of the world’s

demand for iron ore, has set the course for tougher

environmental requirements purporting to mitigate

the harmful environmental impact of metallurgical

facilities, inter alia, by improving the quality of consumed

iron ore.

2011 2012 2013 2014 2015

Steel output in China, million tonnes

803.8822.8

731.0

822.0

702.0

Source: WSA

stricter environmental requirements looming over

the ferrous metals industry and lower iron ore quality

will lead to higher margins for raw materials with high

iron content.

At present, price levels are determined by spot

market prices in China, using the steel Index,

MetalBulletin or Bloomberg indices. The transition to price

formation on the spot market continues as price-related

information becomes more accessible. Metalloinvest

closely monitors the physical markets on a daily basis as

well as commodity trading across global exchanges.

The Company’s wide range of products, consistent efforts

to increase product quality and long-term partnerships

with key consumers enable us to maintain our sales margins

even in a highly volatile market environment.

Nazim EfendievFirst Deputy CEO, sales Director

«

«

Source: AME,

* – estimates

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 3534


/ CONtENt

Hot briquetted and direct reduced iron market

HBI/DRI is an important component

in the production of high-quality steel grades that help

to cut the cost of steel production. HBI/DRI is a multi-

purpose, high-quality and viable alternative to pig

iron and scrap metal that can be used at integrated

facilities in blast, basic-oxygen and electric arc furnaces

and at mini plants.

This enables the Company to ensure the high quality

of its products, while also keeping its environmental

impact to a minimum.

Global production and export of HBI/DRI, million tonnes

2011 2012 2013 2014 2015*

PRODUCTION

EXPORT

73.2

8.2

73.4

9.0

73.8

7.2

73.2

6.9

70.0

4.8

Source: WSA,

* – estimates

Global HBI/DRI production is highly concentrated.

According to preliminary data from the World steel

Association (WsA), HBI/DRI produced in 2015

totalled 70.0 million tonnes, two thirds of which was

manufactured by five countries (India – 25%, Iran – 20%,

Mexico – 8%, saudi Arabia – 7%, and Russia – 7%).

At present, the majority of metallised raw materials

(over 90%) are consumed by captive integrated metal

manufacturers with only a limited amount shipped

to third-party consumers.

In 2015, lower production of HBI/DRI was observed

in traditional producing counties such as India,

saudi Arabia, Egypt, and Trinidad and Tobago.

Output stabilised in venezuela. Lower supply of HBI/DRI

allowed Metalloinvest to strengthen its position

in the global merchant HBI market.

Metalloinvest has at its disposal high quality iron ore

resources and access to a gas pipeline to secure

uninterrupted supply of natural gas used in the direct

iron reduction process.

Metalloinvest not only possesses the required resources,

but also the necessary expertise and technologies

for HBI/DRI production. The Company’s long-term

strategy is largely focused on the development

of production of iron ore products with high added value,

primarily HBI.

In 2015, its HBI/DRI output reached 5.4

million tonnes, up 3.1%. HBI production volumes

amounted to 2.6 million tonnes, 12% of which was

shipped to the Company’s own steel segment. The

largest consumers are steelmaking companies

in Russia and Western Europe. With a 50% share

of the world’s commercial HBI market in 2015*,

Metalloinvest pursues all available opportunities to meet

the growing demand from high-grade steel producers.

Source: WSA

Steel output growth by region, 2011–2015, %

2011

2.8

6.4

9.8

–5.4

15.0

8.4

2012 2013 2014 2015

–5.2

2.4

–3.7

–2.5

7.4

3.1

–1.4–2.1

–1.3

4.6

7.3

9.4

1,7 2.0

–1.4–0.7

7.7

1.4

–1.8

-–8.6

–2.5–1.8

–2.4–2.3

EU NORTH AMERICA SOUTH AMERICA AFRICA MIDDLE EAST ASIA

HBI – key benefits:• stable homogeneous chemical composition,

low content of harmful elements

• High bulk density (ca. 5 g per cubic cm)

and homogeneous size

• Energy-efficient and environmentally-safe

production process

• No seasonality factor influencing supplies

Steel market

According to the WsA, steel output in 2015 declined

by 2.9% to 1,599.5 million tonnes. In Asia, the largest

steel producing region in absolute terms, output declined

by 2.3% y-o-y (1,096.3 million tonnes). The highest

production decline rate was recorded in North America,

where steel output in 2015 dropped by 8.6% to 110.7

million tonnes.

* Source: Company’s estimates.

Output in the EU, south America and the Middle East,

declined by 1.8%, 2.5% and 2.4%, respectively.

In China, it dropped by 2.3% to 803.8 million tonnes.

Lower domestic consumption of rolling steel and China’s

currency policy aimed at yuan depreciation contribute

d to higher steel exports totalling 112.0 million tonnes

in 2015.

2011 2012 2013 2014 2015

Russia 68.9 70.2 69.0 71.5 71.1

China 702.0 731.0 822.0 822.8 803.8

Japan 107.6 107.2 110.6 110.7 105.2

UsA 86.4 88.7 86.9 88.2 78.9

India 73.5 77.3 81.3 87.3 89.6

south Korea 68.5 69.0 66.0 71.5 69.7

Others 430.1 415.6 413.2 395.2 381.2

Steel output by major producing countries, 2011–2015, million tonnes

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 3736


/ CONtENt

Key production processes at Lebedinsky GOK

Ка р ь е р

Об о г а ти те л ь н а яф а б р и к а (ОФ)

Ком п л е к с с у ш к и к о н ц е н тр а та ОФ

Пу л ь по н а с о с н а я с та н ц и я ОЭМК

Фа б р и к а о к о м к о в а н и я

За в о д ГБЖ

Отд е л е н и е ф и л ь тр а ц и ид оо б о г а щ е н н о г ок о н ц е н тр а та

Отд е л е н и е ф и л ь тр а ц и и р я д о в о г о к о н ц е н тр а та

Це х о б о г а щ е н и я №4 ОФ д о о б о г а щ е н и ер я д о в о г о к о н ц е н тр а та

Не о ф л ю с о в а н ны е о к а ты ш и

Оф л ю с о в а н ны е о к а ты ш и

Су ш е н ы й ко н ц е н тр а т

Ко н ц е н тр а т

Пульпа на ОЭМК

Бр и к е ты

Пр о и зв о д с тв о То в а р н а я п ро д у к ц и я

Key operational assets

Mining segment

Lebedinsky GOKLebedinsky GOK is the only supplier of hot

briquetted iron in Russia and the CIs, as well as

Russia’s largest iron ore mining and processing

facility producing high-quality iron ore and metal

products. Through open-pit mining, Lebedinsky GOK

develops an iron ore deposit with proven reserves

of 3.9 billion tonnes.

In 2015, Metalloinvest continued to implement

the programme to upgrade and renovate its mining

transportation systems, under which Lebedinsky GOK

received two locomotive units, 70 dump cars and two large

frontal loaders with 9.3 cubic metre buckets.

Mikhailovsky GOKMikhailovsky GOK is one of the largest iron ore mining

and processing facilities in Russia and the CIs.

Through open-pit mining, Mikhailovsky GOK

develops an iron ore deposit with proven reserves

of 10.3 billion tonnes.

Under the 2015 production modernisation programme,

Mikhailovsky GOK’s mining transportation division receiv

ed two NP–1 locomotive units equipped with dump cars,

one EKG–15M excavator and two sBsH–250 MNA drilling

rigs.

Key production processes at Mikhailovsky GOK

Пр о и зв о д с тв о То в а р н а я п ро д у к ц и я

Ка р ь е р

Оф л ю с о в а н ны е о к а ты ш и

Су ш е н ы й ко н ц е н тр а т

Не о ф л ю с о в а н ны е о к а ты ш и

Ко н ц е н тр а т

Дробильно-обогатительный комплекс (ДОК)

Дробильно-сортировочная фабрика

Доменнаяруда

Доменныйко н ц е н тр а т

Агломерационнаяруда

Фа б р и к а окомкования

Отделение флотации ДОК

open-pIt MIne

BrIquettes

slurry at oeMK

concentrate

BenefIcIatIon plant

BenefIcIated concentrate fIltratIon sectIon

roM concentrate fIltratIon sectIon

pellet plant

drIed concentrate

concentrate dryIng facIlIty at tHe BenefIcIatIon plant

unIt #4 at tHe Ben-efIcIatIon plant (roM concentrate BenefIcIatIon)

slurry puMp statIon at oeMK

HBI plant

non-fluxed pellets

fluxed pellets

Blast furnace concentrate

fluxed pellets

drIed concentrate

crusHIng and BenefIcIa-tIon plant (cBt)

concentrate

pellet plant

sInterIng ore

open-pIt MIne

non-fluxed pellets

Blast furnace ore

cBt flota-tIon unIt

crusHIng and sortIng plant

Production

Commercial products

Production

Commercial products

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 3938


/ CONtENt

Steel segment

OEMKOEMK is the only full-cycle steelmaking company

in Russia that uses direct iron reduction technology

and electric arc furnaces for smelting. This enables

OEMK to produce steel that is virtually free from harmful

impurities and residual elements.

In 2015, OEMK completed a number of projects to upgrade

its existing production facilities:

• Purchased the required amount of mill rolls for Rolling

Mill 700 to ensure smooth mill operation and achieve

OEMK’s long steel output targets.

• Revamped the ventilation system

at the pelletisation and metallisation shops’

filtration section, and upgraded process gas

compressors as part

of the DRI Unit #4 overhaul.

Ural SteelUral steel is a full-cycle company operating sintering, coke,

blast furnace, steelmaking and metal rolling facilities.

In 2015, Ural steel took steps to upgrade and revamp

its existing production facilities:

• Purchased the required amount of mill rolls for QUARTO

and DUO cages of Rolling Mill 2800 at Rolling Mill #1

to ensure seamless mill operations.

• Constructed a new surplus furnace gas burning bleeder

stack #2 to improve occupational safety and ensure

uninterrupted operation of blast furnaces in case

of an accidental failure of bleeder stack #1.

• Replaced a steam turbine of TK turbocharger #8

at Ural steel’s thermal power plant to ensure a reliable

supply of suitable hot blast to the blast furnace shop.

• Constructed an automated coal concentrate sampling

section at the coke production site enabling Ural steel

to check the quality of coal concentrate coming from

suppliers upon receipt and thereby mitigate the risk

of deteriorating coke quality due to the poor charge

composition.

Key production processes at Ural Steel

Коксующий уголь

Окатыши ЛГОКаи МГОКа

Металлолом УралМетКома

Концентрат ЛГОКа и МГОКа, аглоруда МГОКа

Пр о и зв о д с тв о То в а р н а я п ро д у к ц и я Сы р ь е д л я п р о и зво д с тв а

Литая заготовка

Листовой прокат КоксЧугун

Агломерационный цех

Космохимическое производство

Прокатное производство

Сталеплавильное производство

Доменныйцех

Key production processes at OEMK

Пр о и зв о д с тв о То в а р н а я п ро д у к ц и я Сы р ь е д л я п р о и зво д с тв а

ПВЖ Литая заготовка

Трубная и квадратная заготовка, высокока - чественный сортовойпрокат

Офлюсованные окатыши ЛГОКа

Металлолом УралМетКома

Прокатное производство

Сталеплавильное производство

Дообогащенный концентрат ЛГОКа по 26-километровому пульпопроводу

Отделение окомкования

Отделение металлизации

Production

Commercial products

Raw materials

BenefIcIated concentrate froM leBedInsKy goK vIa a 26-KM long slurry pIpelIne

pellet sectIon

scrap froM ural scrap coMpany

MetallIsatIon plant

steelMaKIng

Metal rollIng

drI

cast BIllets

pIpe and square BIllets, HIgH-grade long steel products

fluxed pellets froM leBedInsKy goK

concentrate froM lgoK and MgoK, and sInterIng ore froM MIKHaIlovsKy goK

sInterIng plant

Blast furnace sHop

Blast furnace sHop

steelMaKIng

Metal rollIng

pIg Iron

cast BIllets

flat rolled products

pellets froM lgoK and MgoK

Production

Commercial products

Raw materials

СoKInIg coal

scrap froM ural scrap coMpany

coKe productIon

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 4140


/ CONtENt

Mining segment

Boosting HBI market position

Construction of HBI-3 Plant at Lebedinsky GOKThe project will enable Metalloinvest to meet increasing

demand from steel companies for high-quality metallised

raw materials and retain its leading position globally

in merchant HBI production.

The project is being implemented by a consortium made up

of Primetals Technologies and Midrex Technologies (contract

signed in 2012), and Russian design company GIPROMEZ

(part of Metalloinvest). Rudstroy (also part of Metalloinvest)

is responsible for construction, assembly and equipment

installation works.

The Plant’s production capacity is set to amount

to 1.8 million tonnes per annum.

HBI–1 Plant: briquetting system upgradeIn 2015, the Company completed the upgrade of HBI–1

Plant’s briquetting system. This allowed the Company

to reduce unscheduled briquetting equipment downtime,

boost customer satisfaction due to the improved marketable

appearance of HBI briquettes, and keep the briquettes’

strength properties unchanged while increasing furnace

output rates. The overhaul of HBI–1 Plant made it possible

to increase production capacity by 22,000 tonnes per annum.

Strengthening position in the high added-value iron ore products segment

Construction of Pellet Plant #3 at Mikhailovsky GOKThe construction of Pellet Plant #3 is a unique project,

both in terms of scale and significance, encompassing all

processing stages, from iron ore concentrate filtration and pe

lletisation to pellet roasting and shipments to customers.

The new roasting plant embraces the newest technological

solutions, including automated systems to monitor

processing data and manage production processes.

When compared with existing roasting plants, Pellet Plant #3

features higher output rates, an enhanced energy efficiency

profile, and state-of-the-art gas flow systems minimising air

pollutant emissions.

The plant will enable Metalloinvest to increase

Mikhailovsky GOK’s pellet production capacity

to 15 million tonnes per annum (up 50%).

Beneficiation technology improvement programme

»tHE PLANt’S PRODUCtION CAPACItY IS SEt tO AMOUNt tO 1.8 MtPA.

at Lebedinsky GOK The programme is expected to launch new products

into the market, including high-grade concentrate

with an iron content of ca. 70% and high basic iron ore

pellets with an iron content of 65.8%.

Efficient development of iron ore resources

Construction of a crushing and conveyor facility at Mikhailovsky GOKIn 2015, Metalloinvest began the construction of a crushin

g and conveyor facility at the south-eastern tip of the open

pit for Mikhailovsky GOK’s mining transportation division.

The project envisages two crushing and conveyor facilities

– one each at the south-eastern and north-eastern tips

of the open pit.

The facilities will help the Company achieve annual

magnetite concentrate production targets, ensure

the required quality, bring down the stripping ratio, improve

railway transport performance, reduce the number of mining

vehicles and loading devices, and start developing

previously inaccessible ore reserves to provide an industry-

leading ore charge makeup.

The Company signed a contract with NKMZ to prepare

a feasibility study and supply equipment for the upcoming

crushing and conveyor facility at the south-eastern tip

of the open pit.

Construction of cyclical and continuous ore mining facilities at Lebedinsky GOK’s open pitIn 2015, Lebedinsky GOK launched pre-project planning

to introduce a cyclical and continuous method of rock

mass transportation. The new cyclical and continuous

mining facilities and related infrastructure will bring ore

production costs down and address the issue of maintaining

the production capacity of a non-oxidised quartzite open-pit

mine.

Strategic investment projects

Construction of the cyclical and continuous mining facilities

at the southern tip of Lebedinsky GOK’s open-pit mine will

make it possible to deliver most of the crushed ore straight

from the open pit to the beneficiation plant, significantly

reducing ore transportation costs.

Production of up to 10 mtpa of concentrate from oxidised quartzites at Mikhailovsky GOKIn 2015, the Company continued commercial testing

of a technology to beneficiate oxidised ferruginous

quartzites at the reconstructed processing section #14

of the crushing and beneficiation plant. The testing

utilised the combined beneficiation process involving

the application of low- and high-intensity magnetic

separation, and reverse cationic flotation. To beneficiate

quartzites in the strong magnetic field, the Company used

high-intensity magnetic separators produced by Eriez

Maqnetics, Longi and Outotec.

The testing at processing section #14 proved the possibility

of obtaining iron ore concentrate from oxidised ferruginous

quartzites with a mass fraction of 66.0%. The tests

also provided the data required to develop an optimal

ore processing scheme and the beneficiation technology

for oxidised ferruginous quartzites.

Technical upgrade

In 2015, Lebedinsky GOK received two locomotive

units, 70 dump cars and two large frontal loaders

with 9.3 cubic metre buckets as part of the Company’s

programme to upgrade and renovate its mining

transportation facilities. Mikhailovsky GOK’s mining tra

nsportation division received two NP–1 locomotive units

equipped with dump cars, one EKG–15M excavator and two

sBsH–250 MNA drilling rigs.

IN 2015, THE COMPANY’S CAPEx

TOTALLED USD 417 MN.

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 4342


/ CONtENt

Construction of Coke Oven Battery #6 (COB–6) at Ural SteelCOB–6 reached its design capacity of 690,000 tonnes

per annum of 6% moisture bulk coke. Quality targets

for the produced coke have also been met. The project

enabled the Company to normalise the quality of blast

furnace charge, reduce its dependence on third-party

suppliers, and cut production costs. Merchant coke is now

also shipped to external consumers.

Construction of Casting Machine #5 at Ural Steel’s blast furnace shopIn Q4 2015, Casting Machine #5 (CM–5) was commissioned

at the blast furnace shop to cast molten iron into ingots.

This investment project will increase casting capacity

for merchant pig iron by 0.5 million tonnes per annum.

The machine’s design draws on the know-how of Russia’s

leading market players, with operation and control

processes being completely automated and computerised.

The machine operator can choose between different

casting modes and speeds. During the construction,

the Company paid special attention to environmentally

friendly solutions in order to mitigate its environmental

impact.

Renovation of Blast Furnace #4 at Ural SteelThe Company completed the first-class renovation of Blast

Furnace #4 (BF–4) with a design capacity

of 1.5 million tonnes of pig iron per annum. The BF–4

overhaul and CM–5 construction are part of Ural steel’s

modernisation and development programme. The

completion of these two projects will enable the Company

to process its own iron ore and achieve higher pig

iron production and shipment volumes.

Steel segment

Maximising returns in the steel segment

Installation of a reducing and sizing block (RSB) in the medium section of OEMK’s Rolling Mill 350The RsB in the medium section of Rolling Mill 350

will allow the Company to significantly improve the quality

of rolled steel (most notably, sBQ bars), reduce metal

losses from turning, and ramp up production at Rolling Mill

350 and the finishing shop.

For the purposes of this project, sMs group GmbH

(Germany) was contracted as an equipment supplier

and a service provider, while GIPROMEZ, a Metalloinvest

subsidiary, was tasked with the preparation of design

specifications and estimates.

The focus on medium-sized products is due to the high

demand for this product category in the Company’s key

sales markets.

The project completion is scheduled for 2017.

On top of that, the Company continues to assemble

a hydraulic descaling unit at Rolling Mill 700 and started

the upgrade of the second gas purification unit

in the electric arc furnace shop.

Construction of an air separation unit at OEMKOEMK commenced the commercial operation of an oxygen

plant complete with a cryogenic air separation unit (AsU).

The plant can produce 20,000 cubic metres of gaseous

oxygen or nitrogen and 1 tonne of liquid argon per hour.

The equipment was supplied by Linde Engineering

Dresden GmbH (Germany).

The new plant was constructed to replace the old one,

which had exceeded its useful life. The project enabled

the Company to increase total production volumes

by 75% for oxygen (required to make steel and metallised

products) and 24% for nitrogen, and start its own

argon production. The plant is designed to satisfy OEMK’s

current and prospective air separation needs.

Environmental responsibility

Upgrade of gas purification units at OEMK’s electric arc furnaces (DSP–150) #1 and #2A project is underway to upgrade gas purification units

at OEMK. so far, general construction works, steelwork

assembly and installation of key production equipment

have been completed.

The project’s first stage was implemented in June 2013

and covered gas purification systems at electric arc

furnaces #3 and #4. As a result, residual dust content

from waste gases fell by 40%, whereas the furnaces’ dust

emissions fell by more than two-thirds. Workplace dust

exposure decreased by an average of 50%.

The commissioning of upgraded gas purification units

at electric arc furnaces #1 and #2 is scheduled for 2016.

It is expected to reduce dust content from waste gases

by over 75%.

Technical upgrades

Along with large-scale investment projects, OEMK

took steps to upgrade and revamp its existing

production facilities, including the purchase of mill rolls

for Rolling Mill 700, modernisation of the ventilation

system at the pelletisation and metallisation shops’

filtration section, and upgrade of process gas compressors

as part of the metallisation unit #4 overhaul.

As part of a programme to upgrade and revamp existing

production facilities, Ural steel purchased mill rolls

for the QUARTO and DUO cages of Rolling Mill 2800

at rolling shop #1; constructed the new surplus furnace

gas burning bleeder stack #2 to improve occupational

safety in case of an accidental failure of bleeder stack #1;

replaced a steam turbine of TK turbocharger #8 at Ural

steel’s TPP to ensure a reliable supply of suitable hot blast

to the blast furnace shop; and constructed an automated

coal concentrate sampling section at the coke

production site to ensure incoming checks for concentrate

coming from third-party suppliers and reduce the risk

of deteriorating coke quality due to the poor charge

composition.

OEMK IS CONSTANTLY WORKING

TO REDUCE ITS ENVIRONMENTAL IMPACT.

THE MODERNISATION OF GAS PURIFICATION

SYSTEMS DECREASES POLLUTANT EMISSIONS

AND BOOSTS PRODUCTION VOLUMES.

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 4544


/ CONtENt

Structure and content of Plans for R&D, Feasibility Studies and Production-Related Science and Technology Services in 2015

Topic 1Strategic

development

Research seeking to define Metalloinvest's strategic

development options

Topic 2Environment

and occupational safety

Research seeking to bolster environmental and occupational safety

(including in line with statutory requirements)

Topic 3Improvements in production

efficiency

Research seeking to boost performance and improve production processes

at existing sites

Key focus areas:

-

Key focus areas:

-

Key focus areas:

• enhance the strength of iron ore pellets at Lebedinsky GOK (improve methods of heat treatment, introduce strengthening additives to the furnace charge);

• launch production-based research to develop technology ensuring compre-hensive processing of mineral raw materials at Mikhailovsky GOK;

• seek to optimise the mining transpor-tation network at Lebedinsky GOK;

• carry out regular studies to improve heat treatment of rolled metal for bridge construction at Ural Steel.

• launch environmental research (specify transformation ratios for air contaminants in the area surrounding Lebedinsky GOK, etc.);

• support mining operations as required by para. 6 of Safety Rules No. 03–498–02 and the Federal Law on Occupational Safety at Hazardous Production Sites;

• build geomechanical models and develop production procedures for mining operations at deposits with planning horizons of 20–30–50 years.

• develop technical solutions to bolster the reliability of production-related equipment (power supplies to OEMK, etc.);

• improve equipment capacity and production processes (increase the efficiency of metal-cutting tools used by OEMK, improve technologies used in Ural Steel's coke production shops, etc.);

• certify finished products and confirm their compliance with standards and regulations by engaging third-party laboratories (corrosion resistance tests at Ural Steel, etc.).

In 2015, a total of 23 R&D projects were completed

at the Company’s initiative with eight more nearing

completion. The research on 20 focus areas was started

in 2015 and will continue through 2016.

Research & Development (R&D)

Number of projects in Plans for R&D, FS and Production Related Science and Technology Services

MGOKLGOK OEMK Ural Steel

6

11

5

15

5

13

10

14

2014 2015

Actual costs of Plans for R&D, FS and Production Related Sci-Tech Services, RUB million

STRATEGIC DEVELOPMENT

ENVIRONMENT AND OCCUPATIONAL SAFETY

IMPROVEMENTS IN PRODUCTION EFFICIENCY AT EXISTING SITES

15.7

2.9

10.6

7.2

17.9

0.5

5.1

7.2

19.5

MGOKLGOK OEMK Ural Steel

Metalloinvest’s R&D production support function is

responsible for making quarterly adjustments

to the Company’s plans for R&D, feasibility studies

and production-related science and technology services,

which enables the Company to promptly include critical

orders in its planning. such orders may require changes

to the existing process and technology modes to ensure

the high quality of produced goods.

Given the scale and complexity of orders, Metalloinvest

is expanding its co-operation with leading R&D institutions

and industry experts. In 2015, the Company collaborated

with a number of R&D institutions and universities,

including:

• NPvP TOREX (Yekaterinburg);

• Branch of the National University of science

and Technology MIsis (stary Oskol);

• MIPT Centre for Engineering and Technology

of Hard-to-recover Reserves (Moscow);

• Bardin Central Research Institute for Ferrous Metallurgy

(Moscow);

• Techno-Chermet (Moscow);

• NORD Engineering Company (Moscow);

• vIOGEM (Belgorod);

• Branch of the National University of science

and Technology MIsis (Novotroitsk);

• Ivs (st Petersburg);

• GIPROMEZ (Moscow, part of Metalloinvest), and others.

In addition, Metalloinvest is working to consolidate its R&D

base. For example, the Company refitted its facilities

with new laboratory and analysis equipment to enhance

the potential of its in-house facilities. The Company’s

technical experts participate in laboratory tests,

piloting and applied scientific research. Going forward,

Metalloinvest seeks to further develop its in-house R&D

capacities.

The Company places orders for R&D projects focusing

on three key topics:

ANNUAL REPORT 2015

COMPANY PROFILE

DEVELOPMENTOVERVIEW





/ 4746


3 FINANCIAL AND OPERATIONAL RESULTS

Despite the drop in global iron ore prices, the Company’s EBItDA margin remains consistently high

of products are high added value 88 %

of the Company’s costs denominated in roubles80 %

of revenue in USD57 %

Drop in Company revenue (2015 vs 2013)–36 %Drop in EBItDA (2015 vs 2013)–36 %

2014 2015

%USD/t

130

100

70

2013

10

20

EBITDA margin

Source: Bloomberg (62% Fe, CFR China), Company data

Adjusting to market conditions

Ore price

31.3 % 30.8 % 32.6 %

30

Maintaining operational efficiency despite the changing market environment with an EBITDA margin of over 30%

Drop in global iron ore prices (2015 vs 2013)–54 %

/ CONtENt

FINANCIAL AND OPERATIONAL REsULTs

A major part of the Company’s revenue is earned from

shipments to Russian consumers, which is why the state

of the Russian economy has a significant impact

on the Company’s performance.

International sanctions and low oil prices resulted in lower

economic growth rates forecast by the International

Monetary Fund for Russia (-3.7% in 2015, -1.0% in 2016,

1.0% in 2017).

However, the obvious need to support economic activity

in Russia will result in the development of infrastructure

projects. In view of this, Metalloinvest closely monitors

the largest federal investment programmes and strives

to take advantage of the opportunities provided by these

projects.

In 2015, the Company continued to implement its initiatives

aimed at decreasing ore extraction and processing costs

and improving competitiveness in the global market through

the optimisation of ore processing and by increasing

operational efficiency.

The modernisation of the Company’s production assets

and better operational efficiency enabled us

to achieve our production targets in 2015. With

the commissioning of key production facilities, we are

able to expand production and improve the quality of our

iron ore, HBI/DRI and steel products.

Andrey UgarovFirst Deputy CEO, Production Director

«

» IN 2015, tHE COMPANY CONtINUED tO WORK tOWARDS DECREASING ORE EXtRACtION AND PROCESSING COStS.

Production at Lebedinsky GOK in 2011–2015, million tonnes

CONCENTRATE

PELLETS

HBI

2011 2012 2013 2014 2015

21.8

8.9

2.3

21.2

8.8

2.4

20.3

8.9

2.6

20.5

9.0

2.4

21.1

9.0

2.6

Production at Mikhailovsky GOK in 2011–2015, million tonnes

CONCENTRATE

PELLETS

SINTERING ORE

2011 2012 2013 2014 2015

16.4

9.9

2.0

17.0

10.1

1.6

16.6

9.9

1.5

16.7

9.9

1.5

16.8

11.0

1.5

Production

In 2015, the Company increased output

of key products y-o-y:

Annual HBI production at Lebedinsky GOK increased

by 8.1% y-o-y (in 2014, the enterprise was undergoing

long-term renovation and partial upgrade of HBI-2 Plant).

Operational results

Mining segment

Both Lebedinsky GOK and Mikhailovsky GOK increased

concentrate production. At Lebedinsky GOK, this was

due to higher magnetic iron content in the ore and its

recovery into concentrate. At Mikhailovsky GOK, the results

came on the back of shorter repair times and higher

production rates driven by a change in the physical,

mechanical and technological properties of the ore

mixture. In 2015, concentrate production at Mikhailovsky

GOK grew by 0.6% to 16.8 million tonnes.

The launch of Pellet Plant #3 and the scheduled

reduction in repair time significantly increased pellet

production at Mikhailovsky GOK (up 10.3% y-o-y). Pellet

production at Lebedinsky GOK increased by 0.3% due

to optimisation works at the pellet plants.

Core products, million tonnes

IRON ORE (INC. SINTERING ORE)

PELLETS

HBI/DRI

hot metal

crude steel

38.7

22.7

5.3

2.34.5

39.5

23.8

5.4

2.54.5

2014 2015

«

ANNUAL REPORT 2015

COMPANY PROFILE






/ 5150


/ CONtENt

Steel segment

Pellet production at OEMK reached 3.8 million tonnes

(up 2.4% y-o-y) on the back of shorter repair times

and the improved performance of the pellet plant.

OEMK saw a record growth in steel production: up 2.6%

y-o-y to 3.5 million tonnes due to improved productivity

at its electric arc furnaces. steel production at Ural

steel dropped by 8.1% y-o-y, down to 1.0 million tonnes

following changes in the demand structure.

scheduled renovation of metallisation units led to a minor

drop in OEMK’s DRI production by 1.1% y-o-y.

Improved blast furnace processes resulted in higher output

at the blast furnace shop at Ural steel, thus boosting pig

iron production by 7.6%.

Production volumes at OEMK in 2011–2015, million tonnes

DRI

STEEL

PELLETS

2.7

3.3

3.7

2.8

3.3

3.7

2.8

3.2

3.8

2.9

3.4

3.7

2.8

3.5

3.8

2011 2012 2013 2014 2015

Production volumes at OEMK in 2011–2015, million tonnes

2011 2012 2013 2014 2015

STEEL

PIG IRON

2.6

2.5

2.3

2.1

1.5

2.2

1.1

2.3

1.0

2.5

» RECORD GROWtH IN StEEL PRODUCtION At OEMK: 3.5 MIL-LION tONNES

Shipments

Iron ore product shipments

In 2015, pellets accounted for the majority of iron ore

products shipped by Metalloinvest (52.2% of the total

volume), with iron ore (concentrate and sintering ore),

HBI/DRI and other products making up 39.1%, 8.6%

and 0.1%6, respectively.

Iron ore product shipments, billion tonnes

2011 2012 2013 2014 2015

IRON ORE

PELLETS

HBI/DRI

OTHER

12.7

13.6

2,3

0.4

12.5

14.1

2.3

0.3

11.1

13.7

2.4

0.04

11.0

13.9

2.3

0.2

10.8

14.4

2.4

0.2

2011 2012 2013 2014 2015

Iron ore product shipments in 2011–2015,

27.627.5 29.2

27.3

29.1

billion tonnes

In 2015, the share of domestic iron ore shipments grew

to 66% (59% in 2014). These changes are attributable

to an increase in shipments to Russian consumers

(MMK, NLMK, Evraz and severstal). shipments

to European and Asian customers decreased on a pro-

rata basis by 4 p.p. and 1 p.p., respectively, amounting

to 19% and 10%. shipments to the Middle East and North

Africa (MENA) remained flat y-o-y.

Shipments from Lebedinsky GOK in 2011–20157,

2011 2012 2013 2014 2015

IRON ORE

PELLETS

HBI/DRI

OTHER

11.2

5.3

2.4

0.5

10.7

5.2

2.4

0.5

9.5

5.0

2.6

0.5

9.6

5.4

2.4

0.5

10.4

5.2

2.6

0.3

billion tonnesShipments from Mikhailovsky GOK in 2011–20158, billion tonnes

2011 2012 2013 2014 2015

CONCENTRATE

PELLETS

SINTERING ORE

5.4

10.1

1.7

5.8

10.2

1.4

5.7

9.9

1.9

5.8

9.9

1.3

4.7

10.9

1.3

6 HBI and pellet fines.7 Including intra-group shipments.8 Including intra-group shipments.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 5352


/ CONtENt

Iron ore product shipments by region in 2011–2015, billion tonnes

2011 2012 2013 2014 2015

РОССИЯ ЕВРОПА АЗИЯ БЛИЖНИЙ ВОСТОК И СЕВЕРНАЯ АФРИКАПРОЧИЕ

9,1

7,0

10,9

1,1 0,9

14,8

6,6 6,9

0,6 0,3

16,2

5,44,7

0,7 0,3

16,2

6,3

3,1

1,1 0,7

18,3

5,2

2,7

1,00,4

Shipments of pig iron and steel products

steel products still account for 70% of steel

segment shipments. In 2015, this figure fell slightly

with a proportional increase in pig iron shipments.

Pig iron and steel product shipments in 2011–2015, %

2011 2012 2013 2014 2015

1.1

5.2

0.8

5.1

1.4

4.3

1.8

4.2

1.8

4.2

PIG IRON

STEEL PRODUCTS 2011 2012 2013 2014 2015

Pig iron and steel product shipments in 2011–2015, million tonnes

6.05.95.95.7

6.4

Shipments from OEMK and Ural Steel in 2011-2015, million tonnes

2011 2012 2013 2014 2015

DRI (OEMK)

PIG IRON (URAL STEEL)

STEEL PRODUCTS (URAL STEEL)STEEL PRODUCTS (OEMK)

0.1

1.1

2.1

3.1

0.1

0.8

2.0

3.1

0.1

1.4

1.2

3.1

0.2

1.8

1.0

3.2

0.1

1.8

0.9

3.3

Domestic shipments accounted for 28% of the total

volume of steel product shipments (down 4 p.p. y-o-y).

At the same time, shipments to European customers grew

to 20% (up 8 p.p.), mainly driven by increased shipments

to Italy. In 2015, an increase in shipments to Algeria,

Tunisia and Turkey triggered a 3 p.p. y-o-y growth to 29%

in the share of shipments to the MENA region.

Steel product shipments by region in 2011–2015, million tonnes

2011 2012 2013 2014 2015

РОССИЯ ЕВРОПА АЗИЯ БЛИЖНИЙ ВОСТОК И СЕВЕРНАЯ АФРИКАПРОЧИЕ

2,4

0,6 0,5

1,6

1,2

2,3

0,4

0,6

1,4

1,2

2,0

0,6

0,2

1,6

1,4

1,9

0,7

0,2

1,5 1,6 1,7

1,2

0,2

1,7

1,3

повторяющийс абзац

IN 2015, DOMESTIC STEEL PRODUCT SHIPMENTS

INCREASED BY 12.9%, WHILE SHIPMENTS

TO EUROPEAN CUSTOMERS DROPPED BY 17.4%

Over the last four years, pig iron shipments have consistently

grown, while steel product shipments have decreased.

High-margin product shipments remain largely unchanged

since 2012.

Domestic shipments of steel products have substantially

declined over the last five years. In 2015, they declined

by 10%. At the same time, 2015 shipments to the MENA

region grew by 13%.

STARTING FROM 2014, THE SHARE OF PIG IRON

SHIPMENTS FROM URAL STEEL AS A PROPORTION

OF THE TOTAL GREW SUBSTANTIALLY.

IN 2014, IT AMOUNTED TO 28%

AND 1.8 MILLION TONNES, REMAINING

UNCHANGED IN 2015.

2011 2012 2013 2014 2015 2015 vs 2014

Russia 9.1 14.8 16.2 16.2 18.3 +13.0%

Europe 7.0 6.6 5.4 6.3 5.2 –17.5%

Asia 10.9 6.9 4.7 3.1 2.7 –12.9%

MENA 1.1 0.6 0.7 1.1 1.0 –9.1%

Other 0.9 0.3 0.3 0.7 0.4 –42.9%

2011 2012 2013 2014 2015 2015 vs 2014

Russia 2.4 2.3 2.0 1.9 1.7 –10.5%

Europe 0.6 0.4 0.6 0.7 1.2 +71.6%

Asia 0.5 0.6 0.2 0.2 0.2 0.0%

MENA 1.6 1.4 1.6 1.5 1.7 +13.0%

Other 1.2 1.2 1.4 1.6 1.3 –18.7%

ANNUAL REPORT 2015

COMPANY PROFILE






/ 5554


/ CONtENt

IN 2015, METALLOINVEST WORKED TO SUSTAIN

ITS LIQUIDITY POSITION AND OPTIMISE

THE COMPANY’S DEBT STRUCTURE. FUNDS RAISED

ON THE DOMESTIC AND INTERNATIONAL CAPITAL

MARKETS ALLOWED THE COMPANY TO IMPROVE

ITS DEBT REPAYMENT SCHEDULE.

Revenue

In 2015, the Company’s revenue dropped by 31.0%

to UsD 4,393 million (2014: UsD 6,367 million) due to a sharp

slump in global iron ore and steel prices (by 42% and 32%,

respectively).

The mining segment generated revenue of UsD 2,089 million

or 47.6% of the Company’s consolidated revenue

(2014: 48.7%). The 32.7% y-o-y decrease in the segment’s

revenue was due to declining prices for iron ore products an

d the depreciation of the rouble.

20 %

12 %

11 %

41 %

4 % 12 %

2015 revenue by product

IRON ORE

PELLETS

HBI

PIG IRON

STEEL PRODUCTS

OTHER

42.7 %

22.0 % 21.0 %

14.7 %

13.1 % 41.1 %

2014–2015 revenue by market

RUSSIA

EUROPE

ASIA (INCL. CHINA)

MENA

OTHER

16.1 %

16.4 %

5.8 %

7.1 % 2014

2015

The steel segment accounted for 48.3% of the Company’s

consolidated revenue (2014: 48.1%). The decrease

in the segment’s revenue by 30.6% to UsD 2,123 million was

triggered by declining prices for pig iron and steel products

and the depreciation of the rouble.

In 2015, the domestic market share of the Company’s

consolidated revenue increased to 42.7% from 41.1%

in 2014. Europe and the Middle East accounted for 22.0%

and 16.4% of the Company’s revenue, respectively.

Asia generated 5.8% of revenue.

Cost of sales, distribution, general and administrative expenses

In 2015, the Company’s cost of sales amounted

to UsD 2,275 million or 51.8% of revenue (2014:

53.1%). The 32.7% decrease (2014: UsD 3,381 million)

is attributable to the rouble depreciation and implementa

tion of an operational improvement programme to reduce

the cost of natural gas, energy and other items.

Distribution expenses totalled UsD 690 million,

representing a 28.5% decrease y-o-y, primarily due

to the rouble depreciation and partial shift

of iron ore shipments to the domestic market under

existing long-term contracts. In 2015, distribution expenses

made up 15.7% of the Company’s revenue compared

to 15.2% in 2014.

General and administrative expenses in 2015 decreased

by 35.9 % to UsD 289 million, amounting to 6.6%

of the Company’s revenue, which is slightly lower

than the 7.1% figure in 2014.

Cost item, % 2014 2015

Raw materials and supplies 45.4 48.2

Energy costs 20.8 18.5

Labour costs 18.8 18.9

Depreciation,

amortisation and impairment costs9.2 8.9

Land, property and other taxes 2.5 2.5

Amortisation of mineral rights 1.6 1.5

Repair and maintenance 0.4 0.2

Other 1.4 1.2

» GENERAL AND ADMINIStRAtIVE EXPENSES DROPPED BY 35.9%

Despite the challenging conditions in the global

iron ore market and rouble fluctuations, the Company

continued to deliver solid financial results.

Pavel MitrofanovDeputy CEO, Chief Financial Officer

«

«

Cost of sales in 2014–2015

Financial performance

ANNUAL REPORT 2015

COMPANY PROFILE






/ 5756


/ CONtENt

Financial position

As at 31 December 2015, the Company’s total assets

amounted to UsD 6,619 million (as at 31 December 2014:

UsD 7,266 million). The 8.9% decline in the Company’s

Us dollar-denominated total assets is mainly attributable

to the rouble depreciation.

At the end of the reporting period, cash and cash

equivalents stood at UsD 424 million (31 December 2014:

UsD 550 million). The Company’s total liquidity amounted

to UsD 824 million, including short-term bank deposits

of UsD 400 million.

At the end of the reporting period, the Company’s net debt

decreased to UsD 3,563 million (2014: UsD 4,185 million).

The net debt/EBITDA ratio amounted to 2.49x compared

to 2.13x as at 31 December 20149. The share of long-term

debt fell slightly to 83.9% of the total (2014: 86.4%).

In 2015, net cash generated from operations amounted

to UsD 952 million, a 29.4% decrease compared

to UsD 1,348 mn in 2014.

Funds used for investment activities amounted

to UsD 987 mn (2014: UsD 427 million).

Funds used for financing activities totalled UsD

24 million (2014: UsD 550 million). This decrease was

mainly driven by dividend payments in 2014.

9 To calculate the net debt/EBITDA ratio, short-term bank deposits

of USD 400 million were accounted for as cash and cash equivalents.

Margin and net income

In 2015, the Company’s EBITDA declined by 27.0%

to UsD 1,432 million (2014: UsD 1,961 million). The EBITDA

margin grew by 1.8 p.p. y-o-y amounting to 32.6%.

The decrease in consolidated EBITDA was primarily due

to lower EBITDA in the mining segment, hit by a sharp

drop in global iron ore prices. The mining segment’s

EBITDA totalled UsD 872 million, representing a 36.2%

or UsD 494 mn decrease y-o-y. The share of the mining

segment in consolidated EBITDA reduced from 69.7%

in 2014 to 60.9% in 2015.

In 2015, the steel segment share of consolidated EBITDA

was 27.4%. The steel segment’s EBITDA also decreased

y-o-y, amounting to UsD 392 million. However, this decline

was much lower than that of the mining segment due

to lower prices for supplies used in steel production.

In addition, the Company grew sales of merchant pig

iron and changed the structure of its steel product

shipments.

In 2015, the Company earned net income

of UsD 218 million compared to UsD 66 million in 2014.

Despite a considerable decline in operating income,

the Company’s net income increased by 3.3 times,

mainly due to decreases in foreign exchange rate

differences accrued on the Us dollar-denominated part

of the Company’s debt and lower net interest payments.

Capex programme

In 2015, the Company’s capex decreased by 29.9%

to UsD 417 million (2014: UsD 595 million).

A major part of the Company’s capex

(UsD 33 million or 7.9% of total expenditures) was used

for the construction of Pellet Plant #3 at Mikhailovsky GOK,

which was completed in 2015.

At the end of the year, the construction of HBI-3

Plant at Lebedinsky GOK accounted for a large part

of the Company’s capex. In 2015, UsD 161 million or 38.6%

of the total capex was invested in this project.

In 2015, apart from major investment projects,

Metalloinvest continued to purchase high-capacity

equipment for mining and transport operations,

as well as upgrade and modernise existing

production facilities.

» For more details on the Company’s investment projects, see Strategic

Investment Programmes on p. 42.

» EBItDA MARGIN GREW BY 1.8 P.P. tO 32.6%

In July, we signed a USD 750 million long-term pre-export

credit facility agreement with a syndicate of international

banks, which will be drawn on to fully repay all amounts

maturing in 2016.


«

«

ANNUAL REPORT 2015

COMPANY PROFILE






/ 5958


Metalloinvest is committed to the continuous implementation of best international corporate governance practices. Improvements in stakeholder relations and increased transparency for analysts drive Metalloinvest’s long-term investment case.

4 CORPORATE GOVERNANCE AND INVESTOR INFORMATION

20132011

30

500

600

40

700

800

900

40020

300

20010

100

Investor base by country

total investor

base

73

6

27

34

640

83644.44%33.40%

60

40

20

Metalloinvest Russia

Share of independent directors on the Board

Board structure by gender

92.40%7.60%

66.67%

33.33%

52.853.1

100

80

60

40

20


0

48

21

60

40

20


Number of Board meetings

54

53

52


Average director age, years

Total investor base*

Investor base by country*

2015Source: 2015 Russia Board Index, www.spencerstuart.com Copyright © 2015 Spencer Stuart; Company data

Male Female

*Data based on the Company’s distribution list

/ CONtENt

CORPORATE GOvERNANCE AND INvEsTOR INFORMATION

Corporate governance structureTHE COMPANY VIEWS CORPORATE GOVERNANCE AS A SYSTEM OF INTERACTION BETWEEN

THE COMPANY’S GOVERNING BODIES AND STAKEHOLDERS, REFLECTING THE BALANCE

OF THE PARTIES’ INTERESTS AND AIMED AT IMPROVING THE COMPANY’S PERFORMANCE.

Metalloinvest’s Governance Structure

Общее собрание акционеров

Генеральный директор

Правление

Совет директоров

Департамент внутреннего аудита

КомитетыСовета директоров

Комитет по аудиту

Комитет по финансам, бюджетированию и стратегии

Комитет по компенсациям и льготам

Board of Directors

The Board of Directors is responsible for the strategic

management of the Company. The Board of Directors’

key objectives are efficient corporate governance,

setting and implementation of the Company’s

strategic goals, determination of risk management

principles and approaches, risk assessments,

and creation of favourable conditions for long-term

sustainable development.

The neutrality and independence of the Board of Directors

are the key principles the Company draws on to improve

the efficiency of its governance framework. Independent

and non-executive directors are included on the Board

of Directors to ensure control over the Company’s senior

management. In defining the directors’ independence,

the Company abides by the Corporate Governance Code

recommended by the Central Bank of Russia.

The Board of Directors is balanced in terms of:

• the number of independent and non-executive

directors,

• gender and age.

In 2015, the Board of Directors held 48 meetings

related to the delivery of investment projects,

transaction and budget approvals, operational efficiency,

production and implementation of the Company’s

development strategy.

The Board of Directors has three committees:

• Audit Committee

• Finance, Budgeting and strategy Committee

• Remuneration Committee

By gender

MALE FEMALE


66.733.3

92.47.6

Number of Board meetings, %

48Metalloinvest 21

Russia

Share of independent directors on the Board, %

Metalloinvest

Russia

44.433.4

Average director age, years

53.2Russia 52.8

MetalloinvestFOUR OUT OF NINE DIRECTORS

ARE INDEPENDENT

coMMIttees of tHe Board of dIrectors

general MeetIng of sHareHolders

Board of dIrectors

ceo ManageMent Board

audIt coMMIttee

reMuneratIon coMMIttee

fInance, BudgetIng and strategy coMMIttee

Internal audIt departMent

ANNUAL REPORT 2015

COMPANY PROFILE






/ 6362


/ CONtENt

Natalia Chumachenko

Non-executive director.

Chairman of the Finance, Budgeting and strategy Committee

Valery Kazikaev

Independent non-executive director

Sergey Soldatenkov


Chairman of the Compensa-tion and Benefit Committee

Andrey Varichev

Executive Director

Ivan Streshinsky

Chairman of the Board of Directors

Dmitry tarasov

Executive Director

Nikolai Krylov


Irina Lupicheva

Non-executive director

Galina Aglyamova

Independent non-executive director.

Chairman of the Audit Committee

BOARD OF DIRECTORs

ANNUAL REPORT 2015

COMPANY PROFILE






/ 6564


/ CONtENt

Members of the Board of Directors

GALINA AGLYAMOVAIndependent non-executive director.

Chairman of the Audit Committee, member

of the Remuneration Committee.

Member of the Board of Directors since October 2013.

Education1985 - Graduated from the Moscow Institute of steel

and Alloys (MIsis) with a PhD in Economics.

ANDREY VARICHEVExecutive Director.

CEO of Management Company Metalloinvest.

Member of the Finance, Budgeting and strategy

Committee.

Member of the Board of Directors since April 2007.

Education1991 Graduated from the Tsiolkovsky Moscow Institute

of Aviation Technology (MATI) with a degree in Aircraft

Mechanical Engineering.

Professional experience2013 – present CEO of Management Company

Metalloinvest.

2009 – 2014 CEO of Holding Company Metalloinvest.

2009 – 2009 CEO of Management Company Metalloinvest.

2008 – 2009 First Deputy CEO of Management Company

Metalloinvest.

2006–2008 Commercial Director at Management Company

Metalloinvest.

2005–2006 CEO of Mikhailovsky GOK.

2003–2004 First Deputy sales Director at Ural steel;

from 2004 - Deputy CCO at Ural steel.

2001–2002 Deputy and Export sales Director

at TD NOsTA-OKhMK.

1991–2001 Held senior management positions

with a number of Russian steelmaking companies,

including InterUral and NTMK.

IVAN STRESHINSKYChairman of the Board of Directors.

Member of the Board of Directors since February 2013.

Education1992 - Graduated from the Moscow Institute of Physics

and Technology with an honours degree in Aeromechanics

and Flight Engineering.

Professional experience2012–present CEO of UsM Advisors.

CEO and member of the Board of Directors of Garsdale services

Investment Limited.

Currently serves as:

Member of the Board of Directors of MegaFon,

Member of the Board of Directors of Management Company

Metalloinvest LLC,

Member of the Board of Directors of Kommersant,

Member of the Board of Directors of UTH Russia Limited,

Member of the Board of Directors of UsM Holdings Limited,

Member of the Board of Directors of Mail.ru Group Limited,

Member of the Board of Directors of CITY.

2008–2012 CEO of Telecominvest.

2006–2008 As a member of the Board of Directors

of Gazmetall and then Metalloinvest, he oversaw

the consolidation of Metalloinvest Holding’s assets.

2006–2007 CEO of Gazmetall.

1994–2006 Held various senior management positions

at Coalco Group.

1993–1994 Member of the Board of Directors of Perm

Motors.

Professional experience2006–2012 vice President for Finance at NLMK.

2005–2006 Deputy CEO for Economics and Finance at NLMK.

2000–2005 Director for Economics and Finance at NLMK.

1997–2000 Deputy Director for Economics at NLMK.

Launched her career in 1985 by joining NLMK as a planning

economist.

VALERY KAZIKAEVIndependent non-executive director.


Committee.


Education1976 Graduated from the Moscow Mining Institute

with a PhD in Economics.

Professional experience2015 – present CEO of BMC LLC.

2014 – present Chairman of the Board of Directors

of BMC LLC.

2013 – present Member of the Board of Directors

of Management Company Metalloinvest.

2010–2013 First Deputy CEO for strategic Development

at sheremetyevo International Airport.

2001–2010 CEO of TZK-sheremetyevo.

NIKOLAI KRYLOVIndependent non-executive director.

EducationMember of the Board of Directors since April 2015.

Doctor of Law, J. D. degree from Yale Law school.

Professional experience2012–present sector Head at the Institute of state

and Law of the Russian Academy of sciences.

1994–1999 various positions at international law firms

in New York, including Paul, Weiss, Rifkind,

Wharton & Garrison LLP, and Cadwalader,

Wickersham & Taft LLP.

IRINA LUPICHEVANon-executive director.

Member of the Audit Committee.

Member of the Board of Directors since February 2013.

SERGEY SOLDATENKOVIndependent non-executive director.

Chairman of the Remuneration Committee, member

of the Audit Committee.


Education1986 Graduated from the Leningrad Institute

of Aviation Instruments with a degree in Radio Engineering.

2007 Received an MBA from Moscow Technical University

of Communications and Informatics.

Professional experience2012–present Chairman of the Board of Directors

of MegaFon.

2003–2012 CEO of MegaFon.

2002–2003 vice President at United Company GROs.

2000–2002 Deputy CCO, Acting CEO, and CEO

of Petersburg Telephone Networks (later restructured

into North-West Telecom).

1999–2000 Deputy CEO of Telecominvest.

1994–1999 CEO of Delta Telecom.

1993–1994 CEO of ARs, a Russo-British Jv.

1992–1993 Executive Director at Impex Group.

EducationGraduated from the Moscow state Institute of International

Relations with a degree in International Economics

and holds a postgraduate degree from Moscow Finance

Academy.

Professional experience2012 – present Managing Director, Head of Risk

and Control at AF Holding (UsM Advisors since 2012).

2004–2012 Held senior management positions

in companies later consolidated into UsM Holdings

overseeing finance, internal audit and securities

operations. Participated directly in the creation of UsM

Holdings.

1992–2004 Held senior management positions at MBG

and MB Group Impex.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 6766


/ CONtENt

DMITRY TARASOVExecutive Director.


Committee.


Education1985 Graduated from the Moscow Institute of steel

and Alloys (MIsis) with a degree in Metallurgical

Engineering.

1990 Received a PhD in Engineering science from MIsis

specialising in Ore Processing and Development of Rare

and Precious Metals.

Professional experience2005–present Executive Director at Metalloinvest.

2007–2016 CEO of Ukrainian Ore Metallurgical Company.

2005–2007 Chairman of the Board of Directors

of Mikhailovsky GOK.

2002–2007 Member of the Expert Committee for

Metals and Mining of the Russian state Duma; member

of the Co-ordination Committee for the Metal and Mining

sector under the Presidential Administration of Russia;

Deputy Chairman of the Committee for Metallurgy under

the Russian Chamber of Commerce and Industry; member

of the Management Board of the Russian Union of Metal

Product Exporters.

2002–2005 Deputy Director for strategy and Future

Development at Gazmetall.

2001–2002 Deputy CEO of the Agency for

Foreign Investments under the Presidential

Administration of Russia.

1999–2001 Advisor to the Head (Deputy Head)

of the Russian state Fund for Precious Metals and stones

(Gokhran).

1992–1999 vice President for Investments and Capital

Construction at MIsis.

1985–1992 Held various positions with gold-mining

enterprises under the UssR Council of Ministers’

Main Directorate of the Diamond and Gold Mining Industry

(Glavalmazzoloto).

NATALIA CHUMACHENKONon-executive director.

Chairman of the Finance, Budgeting and strategy

Committee, member of the Remuneration Committee.


Education1994 Graduated from the voronezh state Academy

of Architecture and Civil Engineering.

2001 Graduated from voronezh state University

with a degree in Management.

A qualified Master Trainer at Door International Training

and Coaching Centre.

Professional experienceJuly 2013 – present First Deputy CEO of UsM Advisors.

2012–2013 vice President for Asset Management

at summa Group.

2011–2012 Executive vice President for Mass Market

Business Development in Russia at vimpelCom.

1999–2011 Held various management positions

at vimpelCom.

Committees of the Board of Directors

The Committees are responsible for the preliminary review

of the most important issues within the remit of the Board

of Directors and provide recommendations on the relevant

decisions.

Report of the Finance, Budgeting and Strategy Committee

Members of the Committee: Natalia Chumachenko (Chairman of the Committee),

Andrey varichev, valery Kazikaev and Dmitry Tarasov.

Committee functions:• draft proposals on the Company’s priority areas;

• assess and draft proposals on investment projects

and M&A transactions;

• draft proposals on selected transactions, such as sale

and purchase of shares in other companies (including

derivatives);

• draft proposals on the conclusion of sPA and supply

agreements for steel, iron ore and other products,

if the value of the transaction or several related

transactions exceeds RUB 1.5 billion (excluding

intra-group transactions);

The updated Strategy 2023 factors in the latest market

scenarios. Focus on output of high value-added products

enables the Company to increase sales margins.

Despite challenging conditions in global markets,

the Company continues to keep its leverage ratio

at an acceptable level. We closed a number of important deals

in the capital markets, which, along with positive cash flow,

ensured Metalloinvest’s financial stability.

Natalia ChumachenkoChairman of the Finance, Budgeting and strategy Committee

«

«

• draft proposals on the conclusion of credit

and loan agreements and security agreements

thereto, bank deposit contracts, agreements

to issue promissory notes and other fund-raising

instruments, if the value of the transaction or several

related transactions exceeds RUB 1 billion (excluding

intra-group transactions);

• draft proposals on the Company’s dividend policy.

Committee activity in 2015In 2015, the Committee held 14 in-person

and 36 in-absentia meetings.

In line with its key functions, the Committee provided

methodological guidance and drafted recommendations

on the development of and updates to:

• the Company’s development strategy focus areas;

• the Company’s annual budget and capex programme

for 2015 and 2016;

• key performance indicators, operational and financial

targets;

• key management tasks with a focus on business

sustainability and operational efficiency, including:

° reorganisation of Management Company

Metalloinvest,

° cost management,

° re-organisation of subsidiaries,

° margin management,

° effective implementation of the investment

programme,

° introduction of a mid- and long-term planning

framework,

° creation of budget responsibility centres across

departments.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 6968


/ CONtENt

Many companies achieve higher labour productivity not only

through more efficient production processes, but also through

dedicated incentive programmes.

The holistic nature of staff development projects boosts

employee engagement, which has a positive impact on labour

productivity. Social programmes, occupational safety

initiatives, employee healthcare plans, and staff recruitment,

motivation and adaptation programmes are all equally important

to us.

Sergey SoldatenkovChairman of the Remuneration Committee

«

«

In addition, the Committee monitored the Company’s

operations (commercial, manufacturing and procurement

functions), analysed costs and sales margins,

and controlled the implementation of department budgets

and the fuilfilment of the Company’s operational targets.

In 2015, the Committee also drafted recommendations

and proposals for the Board of Directors concerning

the conclusion of share sale and purchase agreements,

sPA and supply agreements for steel and iron ore products,

credit agreements and security agreements thereto,

and bank deposit contracts.

Report of the Remuneration Committee

Members of the Committee: sergey soldatenkov (Chairman of the Committee),

Galina Aglyamova and Natalia Chumachenko.

Committee functions:• draft proposals to be approved by the Board

of Directors concerning remuneration policies

for directors, the CEO, and members

of the Management Board.

• draft proposals on staff development and incentives;

• draft HR and social policies;

• draft resource planning principles.

Committee activity in 2015In 2015, the Remuneration Committee held seven

in-person meetings.

In line with its key functions, the Committee provided

methodological guidance and drafted recommendations

on the development of:

• KPIs for key managers at the Company

and its controlled entities, and approaches

to Metalloinvest’s 2015 employee

remuneration system;

• the corporate university concept, principles

for the determination of training needs, multiple

training formats, and principles for the assessment

of training and development efficiency;

• the corporate competency model;

• programmes to boost employee engagement

and performance.

In 2015, the most significant risk for the Company was a potential

drop in product prices. The Company successfully mitigated

the impact of this risk on its financials through comprehensive

sales structure management, involving both sales market

expansion and product mix optimisation (including quality

improvements). Thanks to the Company’s systemic approach

to risk management, investment project implementation,

credit and interest rate risks did not have a material impact

on performance in 2015.

Galina Aglyamova Chairman of the Audit Committee

«

«

Report of the Audit Committee

Members of the Committee: Galina Aglyamova (Chairman of the Committee),

Irina Lupicheva and sergey soldatenkov.

Committee functions:• supervising the preparation of financial statements;

• monitoring the performance of internal control and risk

management systems;

• monitoring internal audit performance;

• making recommendations on external auditor

selection and their remuneration;

• ensuring the independence, neutrality and effective

performance of external auditors.

Committee activity in 2015In 2015, the Audit Committee held 9 meetings

in person and 3 meetings in absentia. In line with its key

functions, the Committee provided methodological guidance

and drafted recommendations on:

• approval of the 2014 IFRs statements and 2015 interim

IFRs statements;

• approval of the Company’s comprehensive risk

management programme, including the level of risk

appetite;

• improvement of the credit risk management system;

• re-organisation of the procurement price control system;

• improvement of accuracy control for management

reports on KPI achievement by the Company’s senior

management;

• assessment of the efficiency of measures taken

by the Company’s senior management to eliminate gaps

in the internal control framework identified by internal

auditors;

• external auditor selection and their remuneration.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 7170


/ CONtENt

Management Board

The Company’s collegial executive body is

the Management Board, which includes the Managing

Directors of Lebedinsky GOK, Mikhailovsky GOK, OEMK

and Ural steel. This enables the Board to identify

the most effective ways to ensure the Group’s overall

development.

The Management Board is responsible for

the resolution of key issues related to the Company’s

ongoing operations and co-ordination of work

ANDREY VARICHEVChairman of the Management Board and CEO

of Management Company Metalloinvest.

Mr. varichev has been in his current role since October

2013 and has been a member of the Board of Directors

since April 2007.

» For more details about the CEO, please see page 66.

Members of the Management Board in 2015

PAVEL MITROFANOVDeputy CEO and Chief Financial Officer.

Graduated from Moscow state University with a degree

in Economics; received a master’s degree in Accounting,

Analysis and Audit, and an MBA from the Business school

of Imperial College London.

Mr. Mitrofanov joined the Company in 2004. He has held

various executive positions since 2008, and has been

in his current role since April 2010.

performed by the management company’s services

and divisions, submission of proposals to the Board

of Directors concerning the key businesses and related

implementation plans.

In 2015, the Management Board held 18 meetings

to review the following items: budgeting, capex

programme, operational efficiency, production,

trade, strategy, implementation of target projects

and organisational changes.

NAZIM EFENDIEVFirst Deputy CEO and CCO.

Graduated from the Military Institute of Foreign Languages;

received an MBA from the Russian Academy of National

Economy and completed a course in International

Management at Kingston University.

Mr. Efendiev has held various executive positions

at the Company and its production operations since 2002,

and has been in his current role since March 2012.

ANDREY UGAROVFirst Deputy CEO and COO.

Graduated from the Lipetsk Polytechnical Institute.

Mr. Ugarov joined the Company in 1999, holding

various executive positions with Metalloinvest

and its production operations since 2004.

He was Managing Director of OEMK in 2004–2011,

and has been in his current role since December 2013.

YEVGENY MASLOVManaging Director of Ural steel.

Graduated from Cherepovets state University.

Mr. Maslov has held various executive positions


and has been in his current role since April 2014.

YURIY NADEEVDeputy CEO, Chief security Officer.

Graduated from the Moscow Law Institute

with a PhD in Law.

Mr. Nadeev has held various executive positions

at the Company since 2009, and has been in his current

role since March 2010.

MARINA NOVIKOVADeputy CEO for Organisational Development

and Human Resources.

Graduated from Maurice Thorez Moscow state

Pedagogical Institute of Foreign Languages. In 2015,

Ms. Novikova obtained a Certificate in Business

Administration from INsEAD.

Marina has held various executive positions

at the Company since 2013, and has been in her current

role since November 2013.

OLEG MIKHAILOVManaging Director of Lebedinsky GOK.

Graduated from the Leningrad Mining Institute.

Mr. Mikhailov has held various executive positions


and has been in his current role since October 2011.

NIKOLAY SHLYAKHOVManaging Director at OEMK.

Graduated from the Lipetsk Polytechnical Institute.

Mr. shlyakhov has held various executive positions


and has been in his current role since April 2011.

SERGEY KRETOVManaging Director of Mikhailovsky GOK.

Graduated from Patrice Lumumba People’s Friendship

University.

Mr. Kretov has held various executive positions


and has been in his current role since July 2006.

YURIY GAVRILOVDirector for strategy and Development.

Graduated from the Moscow Institute of Physics

and Technology with a degree in Aeromechanics and Flight

Engineering.

In 1999, Mr. Gavrilov received a master’s degree

in Finance from the Business and Economy Institute

of the Russian Academy of National Economy, and an MBA

in Business Administration, Finance Option from

the University of California Business school.

He has been in his current role since May 2014.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 7372


/ CONtENt

The Company’s internal control and audit system has been

developed using a risk-based approach. It encompasses

the ongoing processes for:

• identification, monitoring, and assessment of risks;

• development, implementation, and improvement

of internal control tools to prevent risks and mitigate

any adverse impact on the Company’s operations,

as well as to achieve the goals of the Company

and its shareholders.

The management team is responsible for the efficient

implementation of control, risk management,

and corporate governance processes, which are assessed

through internal audit procedures in terms of how they

ensure that:

Internal Control and Audit

• the Company’s assets are protected against

the misconduct of employees and third-parties;

• the Company’s operations comply with internal rules

and regulations, applicable laws and Metalloinvest’s

contractual obligations;

• the Company’s financial and operating activities

are adequately reflected in management accounts

and financial statements.

Metalloinvest’s internal audit framework consists of:

• the Audit Committee of the Board of Directors chaired

by an independent director;

• Internal Audit Department of the Managing Company

reporting to the Audit Committee;

• internal audit functions of controlled entities reporting

to the Director of the Internal Audit Department.

Metalloinvest's Internal Control and Audit Framework

положение о внутреннем аудите

Комитет по аудиту

Управляющая компания «Металлоинвест»

Департамент внутреннего аудита

Службы внутреннего аудита управляемых обществ

Руководители управляемых обществ и структурных подразделений

Контроль и аудит

Оперативное управление

Аудит

Отчет

Internal audIt regulatIon

audIt coMMIttee

Internal audIt departMent

Internal audIt functIons of controlled entItIes

Control and Audit

Audit

Operational Management

Reporting

The internal audit framework is structured to cover

all levels of governance, ensuring the independence

and neutrality of the internal audit functions. Its targets,

objectives and principles are formalised in the Internal

Audit Regulation of the Group.

The internal audit findings are used to produce

recommendations for improving control procedures

and mitigating the adverse impact of risks, and their

fulfilment is monitored on an ongoing basis.

Twice a year, the Audit Committee reviews a consolidated

internal audit report, which covers completed audits, their

findings and remedial actions taken by the management

to deliver on internal audit recommendations. The most

significant findings are also reviewed by the Audit

Committee at its regular and extraordinary meetings.

To determine key focus areas for audits, the Company uses

a risk-based approach, which factors in the Company’s

targets, requests of the Board of Directors, and proposals

of the Company’s management and business units.

In 2015, the internal audit covered material risks

in the following areas:

• operational efficiency management;

• procurement and supply management;

• investment project management;

• inventory management;

• repairs and maintenance of property, plant

and equipment;

• material flow management.

The Board of Directors pays particular

attention to the internal control and audit system to ensure

its effectiveness and compliance with global best

practices.

External Audit

Metalloinvest prepares its financial

statements in accordance with the applicable

Russian and international standards (RAs and IFRs).

The Company engages an external auditor to conduct

an independent review of its financial and accounting

statements. The Audit Committee provides

its recommendations on external auditor candidates

to the meeting of shareholders and the meeting

of members, which eventually approve one

of the candidates. In 2015, the Company’s IFRs financial

statements and RAs accounting statements were audited

by PricewaterhouseCoopers.

The auditor is selected through negotiations

with candidates subject to their credentials and service

fees.

ManageMent coMpany

ManageMent coMpany MetalloInvest

ANNUAL REPORT 2015

COMPANY PROFILE






/ 7574


/ CONtENt

The Company’s management pays special

attention to the corporate risk management framework

to ensure that it continues to increase efficiency

and compliance with international best practices.

In order to identify, classify and assess potential risks

and make effective management decisions, Metalloinvest

has put in place a multi-level risk management framework

covering the Board of Directors and functional managers

of production operations and business units.

In 2015, the Audit Committee’s mandate was broadened

to include not only financial risks, but also the entire range

of corporate risks and internal controls10.

To ensure timely and accurate risk assessment,

the Company continued to develop and implement

the Corporate Risk Management Framework (CRMF) in 2015.

Due to the CRMF, risk management processes will become

an integral part of ongoing management, internal controls

and audit, annual and strategic planning, and year-round

performance assessments.

In 2015, the Company adopted the Corporate Risk

Management Framework and Risk Management

Procedure standards, which establish a single approach

and methodology to identify, assess and manage risks.

In 2015, the Company’s corporate risk portfolio

included some 100 items that Metalloinvest kept track

of and updated regularly to reflect changes in the business

environment.

3 %

56 %

15 % 21 %

Estimated financial impact of key risks by category

MACROECONOMIC

OPERATIONAL

FINANCIAL

INVESTMENT

LEGAL


2 %

3 %

Product pricing risks

Credit obligation risks

FX risk

Purchases of raw materials

Corporate governance risks

Investment project implementation/efficiency risks

Loss of markets

Changes in legislation / action state bodies

Political risk (sanctions)

Operational risks (accidents and emergencies, lower output, disruptions to production technology)

Estimated financial impact of risks, %

10 Changes are to take effect in 2016.

In the reporting year, Metalloinvest began to upgrade

its risk management system, seeking to further increase

the sustainability of its business. Efficient risk management

is a key focus area of the Company’s strategy.

Yuriy GavrilovDirector for strategy and Development

«

THE COMPANY’S KEY RISKS WERE IDENTIFIED BASED

ON A COMPREHENSIVE ASSESSMENT OF THE TOTAL FINANCIAL

IMPACT WITH A FOCUS ON INTERDEPENDENCIES AND STRESS

SCENARIO MODELLING DELIVERABLES.

Risk management

«

Key risks for Metalloinvest in 2015

The key corporate risks have had their outcomes mapped

to ensure business continuity through the implementation

of the respective risk management action plans.

Product pricing risksRisk factorsFall in demand, excess supply.

Actions:Long-term technical upgrade with a focus on customers,

sales market diversification, entry into new markets,

monitoring of residual risks from diversification and FX,

potential decline in procurement costs.

Credit risksRisk factorsMacroeconomic factors, delays in the repayment

of loan interest and principal from one of the Group’s

companies.

Actions:Respect of compliance regulations for loan documentation.

Prevention of a breach of financial covenants.

FX riskRisk factorsOil price fluctuations, global political instability, negative

statistics, central bank policies.

Actions:Fixing of the exchange rate in the derivatives market,

rebalancing of cash flows to minimise open positions

in non-base currencies.

Political riskRisk factorsBreach of the Minsk Agreements, conflicts in the Middle

East leading to the Company’s inclusion on sanctions lists,

supply of products to sanctioned persons (including those

added to sanctions lists after the signing of agreements).

Actions:Risk monitoring.

Business continuity plans.

A balanced funding policy with a focus on the Company’s

internal development.

Operational risks (accidents and emergencies, lower output, disruption to production technology)Risk factorsEquipment obsolescence and depreciation, non-

compliance with safety rules, low-quality and/or delayed

repairs.

Actions:Metalloinvest comprehensively assesses how various risk

factors affect production processes and output volumes.

To prevent hazardous situations, Metalloinvest applies

health, safety and environmental measures. In order

to maintain its production equipment in satisfactory

operating condition, Metalloinvest has put in place

a centralised maintenance planning, management

and delivery function, which is linked to the overall technical

upgrade and production safety capex programme.

The Company also insures its production suspension risks

as required by generally accepted industry practices.

The insurance programme covering the Company’s

production assets is administered in co-

operation with A-rated reinsurance companies and a leading

AAA–rated insurance company.

Loss of sales marketsRisk factorsForeign countries introducing restrictions or bans on transit

or import of goods, trade wars.

Actions:Technical upgrade with a focus on customers, sales

market diversification, entry into new markets. Monitoring

of political risks (sanctions), which may have a negative

impact.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 7776


/ CONtENt

Regulatory risksRisk factorsCurrent state of the national economy, human factor,

decision-making errors, lobbying.

Actions:Risk monitoring.

Raw materials and supply procurement risksRisk factorsMacroeconomic factors.

Actions:Long-term fixed-price contracts.

Flexible trade policies, long-term partnerships with key

suppliers.

Metalloinvest develops and implements action plans

focusing on cost-cutting initiatives, technological

improvements and optimisation of product flows,

including through import substitution.

Corporate governance risksRisk factorsOverlapping functions, insufficient competencies,

regulation gaps, high transaction costs.

Actions:Adoption and timely updates of a standard

for organisational set-up. Development of a business

process classifier.

Investment project implementation/ efficiency risksRisk factorsChanges in the market environment during project

implementation, primary planning (design) errors,

ill-judged contractor selection, macroeconomic changes.

Actions:Long-term fixed-price contracts, effective supplier

and contractor selection processes, improvements in internal

acceptance procedures, engagement of internal contractors,

regular monitoring of the projects’ investment indicators.

Improvements in project implementation planning and KPI

assessments.

In addition to the key risks, Metalloinvest pays

significant attention to other corporate risks and risks

of controlled entities and subsidiaries. The company

declares zero tolerance for risks associated with HsE

violations, corruption and employee misconduct.

In 2015, Metalloinvest adopted a comprehensive

Anti-Corruption Policy and, while drafting it, analysed

the risks of non-compliance with international

anti-corruption laws. The Company is now looking

into whether the applicable anti-corruption laws

can be applied and complied with across the Group’s

operations.

During 2015, a special emphasis was placed on building

a risk management culture by:

• understanding the risks and their potential financial

and reputational consequences;

• analysing the current state of the internal control

framework;

• identifying factors that could lead to a risk event;

• developing and implementing appropriate risk

management and (or) mitigation measures;

• regularly reporting on changes in risks and progress

in the implementation of risk management and/or

mitigation measures.

To accurately assess the materiality of risks, develop

response strategies and co-ordinate risk-related actions

across divisions, the Company provides conditions

for risk owners to interact in an effective way. In 2015,

the regularly updated risk database had its popu

lation and administration processes automated,

enabling all Company divisions to access relevant

information in a timely manner. During the year,

the divisions also used the feedback tool to analyse

risk-related incidents, review internal audit reports

and thus assess the adequacy and integrity of risk

management action plans.

In order to raise managerial awareness of the CRMF,

the Company developed with a training course for key

executives to identify critical risks and their impact

on the Company’s operations. From 2016, CRMF training

will become part of a mandatory training programme

for new hires.

In order to share expertise and make the Company’s

views known, at the end of 2015, employees

of Management Company Metalloinvest joined leading

Russian risk management experts to collaborate

in the «Russia» working subgroup, an exercise recently

initiated by the IsO international task force to fully

upgrade IsO 31000 Risk Management standard.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 7978


/ CONtENt

Share capital11

Share capital and investor relations

Company Holding Company Metalloinvest

Authorised capital RUB 3,745,853,000

Number of shares 74,917,060,000 shares

Type of shares Ordinary registered uncertificated shares

Metalloinvest Holding Company is wholly-owned

by UsM Holdings Limited. Alisher Usmanov is UsM’s major

beneficiary (48%), and the other major shareholders

are vladimir skoch (30%) and Farhad Moshiri (10%).

At the end of 2015, there were changes in Holding

Company Metalloinvest’s shareholder structure: 23.6%

of its shares previously owned by UsM Investments Limited

were transferred to UsM Holdings Limited, the parent

company.

In 2015, Metalloinvest Holding Company completed

the spin-off of Baikal Mining Company, which holds

a development licence for the Udokan copper deposit (over

26 million tonnes of copper). Baikal Mining Company’s

shareholders are UsM Metalloinvest (54.25%),

UsM Investments Limited (26.60%),

Lebedinsky GOK (15.96%), and OEMK (3.19%).

Share capital structure as at 31 December 2015

23.60 %

15.96 % 54.25 %

USM Metalloinvest

USM Holdings Limited

Lebedinsky GOK

OEMK

USM Investments Limited

3.19 % 3.0%

11 As at 31 December 2015.

Credit ratings

Co-operation with rating agencies is an integral part

of the Company’s work to increase its investment appeal.

Metalloinvest has received credit ratings from international

rating agencies since July 2010.

In 2015, agencies such as standard & Poor’s, Fitch,

and Moody’s upheld their “BB”/”Ba2” long-term

corporate credit ratings of the Company. standard & Poor’s

was the only one to revise their outlook from stable

to negative due to growing uncertainty as a result

of a slump in iron ore prices, higher country risk,

and limited access of Russian corporations to capital

markets. Amid the fall in steel and ore prices, coupled

with peer rating downgrades, Metalloinvest managed

to maintain its ratings by leveraging its vertically integrated

business model, some of the lowest production costs

12 Dagong Global Credit Rating Co., Ltd. was founded in 1994 and is China’s largest rating agency. It employs around 600 people and has 36 branches, two of which are

located outside of China. Dagong provides information on sovereign and corporate credit risks and is an active contributor to the development of the Asian bond market. At

the start of 2015, the agency confirmed Russia’s sovereign rating at “A” with a stable outlook.

on the market, and adequate liquidity levels.

Metalloinvest is strengthening ties with Chinese partners.

In November 2015, it became the first Russian non-

state-owned company to receive a rating from Dagong12.

China’s Dagong Global Credit Rating Co., Ltd. assigned

the Company long-term local- and foreign currency issuer

default ratings of “BBB+” with a stable outlook. A press

release by Dagong’s credit analysts stated that due

to the Company’s diversified sources of financing, western

sanctions against Russia had not restricted Metalloinvest’s

access to external capital markets. According

to the agency, the Company’s cash generating capabilities

may improve on the back of the gradual recovery

of the rouble, product line optimisation and strict cost

control. Dagong’s conclusion was that multiple financing

sources for debt repayment will allow the Company to meet

its obligations towards its creditors in a timely manner.

Credit rating changes

Fitch Moody’s Standard & Poor’s

B+ / B1

BB– / Ba3

BB / Ba2

BB+ / Ba1

BBB– / Baa3

BBB / Baa2

BBB+ / Baa1

A– / A3

Russia:Metalloinvest:

20152014201320122011

ANNUAL REPORT 2015

COMPANY PROFILE






/ 8180


/ CONtENt

Debt capital markets

In 2015, Metalloinvest worked to improve its repayment

schedule and optimise its debt portfolio.

Under the March 2015 put option, the Company

repurchased the series 01, 05 and 06 rouble bonds

at 100% of their par value for RUB 25 billion.

In June 2015, Metalloinvest and an international banking

syndicate consisting of societe Generale, sumitomo

Mitsui Banking Corporation Europe Limited, Bank

of Tokyo-Mitsubishi UFJ Ltd., CrÜdit Agricole Corporate

and Investment Bank, UniCredit Bank Austria AG and ING

Bank, a Branch of ING-DiBa AG, signed a credit facility

agreement (ECA) for up to EUR 267 million to finance

foreign equipment purchases for HBI-3 Plant at Lebedinsky

GOK. According to the agreement, the facilities will be

repaid within 10 years following the commissioning

of HBI-3 Plant. Austrian (OeKB) and British (UKEF) export

credit agencies acted as guarantors.

In July 2015, the Company signed an agreement

with Rabobank to extend the maturity schedule

of its UsD 131 million facility from April 2017

to October 2018.

Investor relations

Metalloinvest continuously enhances its public disclosure

and interaction with the investment community in a bid

to comply with international best practices of disclosure.

At present, the Company discloses information on its

financial and operational performance, social and other

activities in a level of detail and within the timeframes

that are common for public companies.

Metalloinvest participates in international conferences

organised by investment banks and arranges investor

events, including non-deal road shows and an annual

Investor Day in Moscow, continuously expanding

its base of existing and potential investors. Many

investors and analysts are invited to visit the Company’s

production assets. In 2015, Metalloinvest took part in nine

domestic and international investment conferences

and forums and held meetings with over 200 investors

and analysts.

Metalloinvest’s corporate communications projects

were recognised by the expert community. In 2015,

the Company’s annual report was victorious

at the American MarCom Awards 2015 and the LACP 2015

spotlight Awards Global Communications Competition,

and its website won gold at the World’s Best Corporate

Websites iNOvA Awards 2015 (UsA). The video for

the Company’s annual report won at the 2015 Moscow

Corporate video Forum.

Useful links:» Investor Calendar:

http://www.metalloinvest.com/en/investors/events-calendar/

» site visits:

http://www.metalloinvest.com/en/investors/site-visits/

» Analyst Coverage:

http://www.metalloinvest.com/en/investors/analyst-coverage/

In 2015, we focused on optimising our debt portfolio

and maintaining sufficient liquidity. We successfully raised

cash on the domestic and international capital markets,

and made improvements to our repayment schedule.


«

«

2016 transactions

In February 2016, Metalloinvest issued BO-07 series bonds

for a total amount of RUB 5 billion. The bonds have a tenor

of 10 years and a coupon rate of 11.90%,

with a call option available in 7 years.

In March 2016, the Company signed

a UsD 400 million long-term PXF agreement

with a syndicate of international banks

with an option to increase the amount up

to UsD 450 million. As per the agreement, the new PXF

facility is made up of a UsD 150 million 5-year tranche

with a 3-year grace period and a UsD 250 million 7-year

tranche with a 5-year grace period. UniCredit Bank

Austria AG and sberbank of Russia acted as co-ordinators

and mandated lead arrangers of the deal. The money

raised through the facility will be spent on optimising

the Company’s debt repayment schedule.

In March 2016, Metalloinvest issued BO-02 and BO-08

series bonds for a total amount of RUB 15 billion.

The bonds have a tenor of 10 years and a coupon rate

of 10.95%, with a put option available in 5 years.

In the same month, Metalloinvest and an international

banking syndicate comprising Bank of China (Hungary)

Close Ltd., ING Bank N.v., sberbank Europe AG, societe

Generale, UniCredit Bank Austria AG, Deutsche Bank AG

(Amsterdam Branch), Intesa sanpaolo Bank Ireland P.L.C.,

JsC Nordea Bank, Bank of America Merrill Lynch

International Limited, China Construction Bank (Russia)

Limited, Credit suisse AG, sGBT Finance Ireland Limited

and Industrial and Commercial Bank of China (Moscow)

signed a pre-export financing (PXF) facility agreement

for UsD 750 million. Pursuant to the agreement, the PXF

facility is made up of a UsD 600 million 5-year tranche

with a 2-year grace period and a UsD 150 million 7-year

tranche with a 5-year grace period. This money was

spent on partial early repayment of the 2014 PXF facility

in the amount of UsD 515 million, and the rest was used

to increase the Company’s liquidity.

In October 2015, the Company issued BO-01 series bonds

for a total amount of RUB 10 billion. The bonds have

a tenor of 10 years and a coupon rate of 11.85% per annum

for the first 12 coupon periods. A call option is available

in 4 years, and a put option in 6 years. Gazprombank acted

as the arranger and underwriter of the offering.

» For more details on the outstanding bonds,

see the Company’s website:

http://www.metalloinvest.com/en/investors/bonds/

ANNUAL REPORT 2015

COMPANY PROFILE






/ 8382











5 SUSTAINABLE DEVELOPMENT

2013

RUB

2011

10,000

* the reference point is the date of the first social and economic partnership agreement

Average salary at Metalloinvest’s enterprises

Average salary by region

Increase in social investments for the sustainable develop-ment of local communities

30,000

40,000

27,575

16,978

21,683

32,056

+62%

73%of employees view

the working environment

at Metalloinvest positively

20,000

Metalloinvest utilises cutting-edge production technologies that meet the highest labour and safety standards. It partners with authorities and non-profit organisations to carry out projects aimed at improving living standards and creating favourable social and cultural environments for local communities

2015

%

**Source: 2015 Metalloinvest engagement questionnaire by Hay Group

High level of employee loyalty**

25,088

38,665

+68%

of employees are ready and willing to work at Metalloinvest for the long term (5 years or more)

of employees would recommend Metalloinvest as a good employer

of the employees are proud to work at Metalloinvest

80%

78%

73%

/ CONtENt

Metalloinvest’s strategy 2023 aims to strengthen

the Company’s position as a major and highly efficient

international producer of HBI/DRI and a regional

producer of iron ore and high-quality steel. The

Company also focuses on sustainable development

through accomplishing strategic targets while balancing

the interests of all stakeholders.

The strategy focuses on a strong HR policy, improved

occupational health and safety standards, reduced

environmental impact, and social and economic

development of the local communities.

In 2015, Metalloinvest adopted the Corporate social

Responsibility and Charity Policy, which sets out uniform

CsR principles and approaches, and the stakeholder

Engagement Policy, which guides systematic dialogue

with stakeholders to take into account their interests

that may be affected by the Company’s economic, social

and environmental activities.

sUsTAINABLE DEvELOPMENT

Approach to sustainable development

Metalloinvest’s key CSR principles

Alignment with development strategy: the Company’s CsR initiatives correspond with its

business strategy and are aimed at increasing efficiency

and the long-term sustainability of the business.

Legal compliance: the Company strictly adheres to laws

and regulations, industry and ethical standards,

and contractual and other obligations.

Consistency and continuity: the Company carries out

its CsR initiatives on a consistent and continuing basis

with stakeholder involvement.

Regional approach: charitable and social projects are

implemented primarily in the regions where the Company

operates, contributing to the sustainable development

of Metalloinvest and the regions where it operates.

Targeted approach: the Company’s CsR activities centre

around a targeted approach, which includes efficiency

assessments of implemented projects and programmes.

Transparency: the Company maintains regular

communication with its stakeholders, considering their

interests and expectations in the decision-making process.

» For more details on the Company’s sustainable development

and stakeholder engagement, see the 2015 CSR Report.

Andrey VarichevCEO

» For more details on the principles of responsible business

management, see the Corporate Social Responsibility and Charity

Policy, and the Sustainability section fn the Company’s website:

http://www.metalloinvest.com/en/sustainability/

The key principles of the stakeholder Engagement Policy

are consistent communication, transparency, materiality,

completeness and responsiveness.

The Policy identifies the following key stakeholders

of the Company:

SHAREHOLDERS

CUSTOMERS

SUPPLIERS AND CONTRACTORS, OTHER MARKET PARTICIPANTS

LOCAL COMMUNITIES (LOCAL RESIDENTS, NON-PROFIT ORGANISATIONS, MUNICIPAL BODIES)

AUTHORITIES

INVESTOR COMMUNITY

EMPLOYEES

Holding Company Metalloinvest

» For more details on Metalloinvest’s stakeholder profile,

see the Company’s Corporate Social Responsibility Report

for 2013–2014, section 2.4 Stakeholder Engagement, p. 30

http://www.metalloinvest.com/upload/iblock/c86/metalloinvest_

csr_report_2013_2014_eng.pdf

The Company discloses full and accurate information on its

performance using various forms and methods

of communication and feedback.

Among other sources, Metalloinvest’s sustainable

development activities are reflected in its CsR

reports (published since 2008), which present

data on the Company’s economic, social and environmental

performance. In 2015, the Company adopted an annual cycle

for its non-financial disclosures.

Metalloinvest is a major employer in the regions where it has

operations and views the welfare of its employees and their

families as one of its key strategic priorities, no less important

than meeting production targets.

We have traditionally focused on creating favourable social

and cultural environments, promoting sports and supporting

healthcare and cultural initiatives in the communities where we

operate.

«

«

ANNUAL REPORT 2015

COMPANY PROFILE






/ 8786





http://www.metalloinvest.com/upload/iblock/c86/metalloinvest_csr_report_2013_2014_eng.pdf

http://www.metalloinvest.com/upload/iblock/c86/metalloinvest_csr_report_2013_2014_eng.pdf


/ CONtENt

Staff structure and headcount

In building its staff management system, Metalloinvest

focuses on business objectives and the sustainable

development of the regions where the Company

operates. Its key assets are located in the Belgorod,

Kursk and Orenburg regions, home to over 98.8% of its

employees.

The Company is proud of its HR achievements:

• the average length of service at Metalloinvest’s operations

is over 10 years;

• around 50% of employees have university or vocational

training degrees;

• the average monthly wage exceeds the regional average

by over 40%.

Headcount by region of operation (people, '000)

2011 2012 2013 2014 2015

BELGOROD REGION ORENBURG REGION KURSK REGION

21.0

15.8

7.5

21.3

15.4

8.4

21.5

14.0

8.4

22.3

11.7

8.6

22.6

10.9

9.0

HR management

Our values

LeadershipWith the second-largest iron ore reserves in the world,

the Company is a global leader in merchant HBI production,

a regional leader in iron ore raw materials, and a leading

producer of high-quality steel products.

ResponsibilityThe Company ensures that it complies with the law

and principles of social and environmental responsibility

in the regions where it operates, as well as maintains

accountability to its shareholders for the achievement of set

targets.

TeamworkThe Company operates as one whole. It welcomes co-

operation and strives to be a reliable business partner;

it also encourages trust, respect and mutual assistance

among its employees and partners.

EfficiencyThe Company sets goals and achieves them.

The unique expertise of Metalloinvest’s employees coupled

with state-of-the-art production technologies and rich resources

are the Company’s most valuable assets. Metalloinvest continues

to implement large-scale programmes aimed at boosting

employees’ professional growth and increasing labour productivity.

Marina NovikovaDeputy CEO for Organisational Development and Human Resources Management

«

«

Average headcount in 2011–2015 (people, ‘000)*

2011 2012 2013 2014 2015

42.542.6 45.1

43.9 44.4

Average salary (RUB ’000)

2011 2012 2013 2014 2015

38.7

35.2

30.6 32.1

27.6

Staff structure by education level, %

2011 2012 2013 2014 2015

SECONDARY HIGHER VOCATIONAL

13

31

26

31

13

30

25

33

15

31

25

28

14

31

25

29

13

29

24

34

BASIC VOCATIONAL SECONDARY VOCATIONAL

Staff structure by age (people, ‘000)Average age of Metalloinvest employees is 40 years old

10.1

24.2

11.0

9.3

23.9

10.29.0

24.5

10.3

2011 2012 2013 2014 2015

30 OR YOUNGER 30–50 50 AND OLDER

9.6

24.0

12.2

9.5

24.2

12.2

* Headcount at Metalloinvest’s key facilities: Lebedinsky GOK, Mikhailovsky GOK, OEMK and Ural Steel.

As at 31 December 2015, the Company’s total headcount stood at ca. 60,000 people.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 8988


/ CONtENt

Incentives and motivation

Compensation package

Metalloinvest’s remuneration system is based

on the performance and personal contribution of each

employee, as well as on the specifics of regional labour

markets.

In order to maintain the level of employee wages,

the Company indexes its staff salaries in accordance

with collective bargaining agreements and the Industry Tariff

Agreement.

Harmonisation of remuneration system

In 2015, the Company took the decision to harmonise its

employee compensation practices to increase the efficiency

of staff management and labour productivity and introduce

unified approaches to and mechanisms of compensation

and incentivisation. In accordance with the project schedule,

a framework to harmonise the remuneration system

was developed over the course of the year, with all

payments and withholdings made consistent and uniform

calculation algorithms designed. This project will continue

into 2016.

» IN 2015, tHE COMPANY SPENt RUB 1,418 MILLION ON SOCIAL SUPPORt FOR ItS EMPLOYEES, tHEIR FAMILIES AND PENSIONERS (FORMER EMPLOYEES)

Benefits

support for the Company’s employees is an important

aspect of Metalloinvest’s social policy. Collective

bargaining agreements are one of the social policy

instruments that form part of a system of social

programmes aimed at creating and maintaining staff

incentives.

The main areas of the Company’s social support activities

are:

• employee healthcare, welfare and recreation;

• employees’ children’s welfare and recreation;

• financial aid for employees and their families;

• support for retired employees, including regular

financial assistance, healthcare and welfare services;

• incentive-based chair (non-production);

• additional paid leave days for family emergencies;

• sporting and cultural events for employees and their

families;

• meals for employees;

• transportation for employees to and from work;

• social discounts (recreation centres, children’s wellness

camps, sports facilities, etc.);

• other social benefits.

In 2015, the Company spent RUB 1,437 million on social

support for its employees, their families and pensioners

(former employees). Additionally the Company spent

RUB 498 million on the development of the social facilities.

IN 2015, METALLOINVEST WAS RANKED 34TH IN THE RUSSIA’S MOST ATTRACTIVE EMPLOYERS

RATING

13 The corporate scholarship programme for MGIMO students was initiated

in September 2012 by Alisher Usmanov, the founder of Metalloinvest

and a MGIMO graduate, and Anatoly Torkunov, MGIMO’s rector and a member

of the Russian Academy of Sciences.

Staff assessment and development

The Company guarantees competitive and safe working

conditions, uses advanced workplace technologies

and has efficient processes for employee recruitment,

adaptation and development.

Staff recruitment and adaptation

Metalloinvest maintains close ties with over 15 local

universities and colleges. In 2015, the Company organised

several programmes for students and graduates

from universities and colleges, including scholarship

programmes for the most promising students

and internship programmes. Twelve students from

the Moscow state Institute of International Relations

(MGIMO) won named scholarships set up by the Company13

.

since 2012, 85 people have completed internships

at the management company, with over 45% still

working at Metalloinvest and making considerable

progress. One of the programme graduates received

the Person of the Year award. In 2015,

over 2,500 thousand students with relevant degrees

completed their engineering and undergraduate training

at Metalloinvest.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 9190


/ CONtENt

Performance assessment

Metalloinvest has been using a KPI system since 2014.

In 2015, the Company broadened its scope to include all

employees starting from department head and above.

A total of 555 employees received individual targets,

380 (around 70%) of whom were employed at Lebedinsky

GOK, Mikhailovsky GOK, OEMK, Ural steel, Ural scrap

Company and Metalloinvestleasing.

In 2015, in order to improve KPI processes, the Company

conducted an audit of individual targets and key KPIs,

which included analysing target-setting methods

and algorithms, as well as their functional alignment

and synergies. At the end of 2015, having improved

its KPI system, Metalloinvest issued new performance

management guidelines updating the previous target

setting, adjustment and assessment procedures.

In 2016, the Company plans to improve the quality

and transparency of existing processes and to start

working towards their automation.

In 2015, the Company continued to build a uniform job

grading framework14 with the project being successfully

implemented at Lebedinsky GOK, OEMK, Ural steel, Ural

scrap Company and the Mining Equipment Repair Factory.

Over the course of the year, the project team described

and assessed 311 separate jobs and 336 job families,

which in total covered 38,000 employees.

Project management centre

The project management centre is a programme run

by the functional department.

It offers four modules for 60 employees in the investment,

economic and production functions. The first

and second modules, which were completed in 2015,

covered the topics of investment project assessment

and large project management systems. The third

and fourth modules are scheduled for 2016 and will

focus on managing the scope, timeline, costs and risks

of projects, procurement management, and project team

building.

Professional growth and development of management competencies

In 2015, Metalloinvest held over 38,700 individual training

courses (19,500 courses for managers and specialists

and 19,200 for workers). Overall, training programmes

covered 59% of employees during the year.

In December 2015, the Company purchased a distance

learning corporate competency development programme,

which will boost knowledge exchange and increase

the number of trainees, while at the same time maintaining

consistent educational standards across all geographies.

In 2015, Metalloinvest approved its corporate university

concept designed to:

• support strategic change;

• develop management potential and professional skills;

• leverage corporate competencies and transform

corporate culture.

The university has management, functional,

and professional departments.

14 A grade groups jobs based on certain criteria (“weight”, classification) in order

to build an incentive system and compare internal job significance with market value.

Talent pool

In January 2015, Metalloinvest introduced a single policy

for talent pool management for all controlled entities

to ensure the availability of the required workforce for

the next one to three years. As at year-end, the Company’s

talent pool included 901 employees, with 196 people being

given reserve jobs.

Professional skills competition

since 2012, Metalloinvest has held professional skills

competitions aimed at improving the image of blue-

collar jobs, identifying the best workers and honing their

professional skills.

In 2015, the competition between all of the Company’s

enterprises entered its fourth year. The number

of competing professions increased to 11

(from 6 in 2012) and included steel, mining

and auxiliary areas.

During the four-year run of the competition,

250 employees of Metalloinvest’s facilities have

taken part, and 33 of them have been victorious.

The total prize fund for the winners amounts to around

RUB 1.5 million.

Employee engagement

In 2015, all of Metalloinvest’s enterprises conducted

a second anonymous engagement survey,

and 25,633 people, or around 60% of employees,

took part in it. The survey demonstrated high

employee loyalty: 80% are ready and willing to work

at Metalloinvest for the long term, 78% would

recommend Metalloinvest as a good employer, and 73%

are proud to work at Metalloinvest. Around 54%

are ready to put in additional effort and take on tasks

outside of their regular duties.

The proportion of efficient employees at Metalloinvest

totalled 47%, which is in line with the global average.

Out of all the operations taking part in the survey,

Mikhailovsky GOK accounted for the largest number

of efficient employees (69%).

The Company’s 2015 survey delivered results

ahead of the industry average. For example, 73%

of employees highly rate the opportunities offered

by the Company to achieve success, which is 8%

higher than the industry level. 76% highlighted regular

and clear feedback from management versus 58%

across the industry.

Based on the questionnaire results, the Company

developed eight corporate projects aimed at increasing

employee engagement and efficiency, which include

Development of a proposals submission system,

Management talent asset, and Adjusting the course.

In addition, each facility and the management company

have their own projects.

In 2017, a third engagement survey will be held

to measure the effectiveness of these initiatives.

EMPLOYEE ENGAGEMENT IS AN INDICATION OF HOW

PROUD EMPLOYEES ARE OF WORKING FOR

THE COMPANY, THEIR WILLINGNESS TO STAY

AND TO RECOMMEND IT TO OTHERS,

AS WELL AS HOW MUCH ExTRA EFFORT EMPLOYEES

ARE WILLING TO PUT IN TO ACHIEVE RESULTS.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 9392


/ CONtENt

In accordance with the applicable Russian law,

the Company has put in place a system to register

production-related accidents, emergencies and incidents.

In 2012, the Company developed a procedure to report all

incidents that cause downtime of more than four hours.

Lost time injury frequency rates (LTIFR)15

2011 2012 2013 2014 2015

OEMK LEBEDINSKY GOK MIKHAILOVSKY GOK URAL STEEL

0.04

0.06

0.20

0.17

0.040.06

0.03

0.070.06

0.05

0.11

0.07

0.04

0.17

0.04

0.10

0.01

0.08 0.08

0.05

15 Calculated as the total number of lost time injuries occurring

per 200,000 man-hours worked.

Metalloinvest works to improve its occupational health

and safety (OHs) system and ensure better working

conditions at its production sites. The key OHs principle

is to ensure proper management of potential risks, towards

zero production-related accidents and incidents, raise

awareness of safety requirements among all employees,

and enforce compliance with such requirements.

The Company has put in place comprehensive programmes

to improve working conditions, which have been

developed based on occupational risk assessments

and applicable collective bargaining agreement

requirements. The individual enterprises are actively

involved in the assessment of working conditions

and implementation of measures designed to reduce

employee exposure to hazards.

In 2015, the Company allocated over

RUB 300 million in targeted funding to OHs programmes,

and spent some RUB 350 million to purchase

personal protective equipment. On top of that, ca.

RUB 600 million was earmarked for comprehensive

occupational safety programmes and action plans,

and over RUB 260 million for fire prevention purposes.

Occupational safety

Occupational safety is our top priority. The Company has

been committing intellectual and financial resources

to develop dedicated technologies, enforce compliance

with safety requirements, and generally improve our

production culture.

Andrey UgarovFirst Deputy CEO, Production Director

«

«

In 2015, there were no fatal injuries.

All incidents were duly investigated to develop a set

of proactive measures and prevent re-occurrence.

For example, the Company is working to improve safety

culture in the workplace, and streamline the methodology

and the tools for line manager production controls.

The Company has also introduced stricter disciplinary

penalties for managers and workers breaching

the applicable OHs requirements.

Programme Implemented in

Food safety and Healthy Eating Principles, an initiative

to coincide with the WHO-sponsored World Health DayGubkin, stary Oskol, Zheleznogorsk and Novotroitsk

Women's Health corporate programme16 Zheleznogorsk

Beat Diabetes, an initiative to coincide with

the WHO-sponsored World Health DayGubkin, stary Oskol, Zheleznogorsk and Novotroitsk

16 Sponsored since 2012 in partnership with the Kursk region’s government,

the Zheleznogorsk municipality, the National Women’s Health Charitable Foundation,

and Blokhin Russian Cancer Research Centre.

Each year, the Company provides its production stuff

with opportunities for OHs, fire prevention and emergency

response training. The training programmes target

managers, specialists and workers, and are implemented

as and when required by the applicable government

regulations.

The Company pays special attention to programmes

focusing on the employees’ health and prevention of acute,

chronic and occupational diseases. In this connection,

the following initiatives are in place:

In 2015, a total of 574 employees became eligible under

the Freedom of Movement initiative to receive medical

treatment at the Gornyatsky and Belogorye Health Resorts.

In 2015, the rate of occupational diseases was down

13% y-o-y.

ANNUAL REPORT 2015

COMPANY PROFILE






/ 9594


/ CONtENt

Environment

Metalloinvest’s environmental management system

is based on the applicable Russian and international

standards. In 2015, the Company successfully passed

compliance audits launched across its operations

to assess the efficiency of the existing environmental

management system and confirm adherence to IsO 14001.

The Company complies with the applicable environmental

laws and is guided by the principles on sustainable

and efficient use of natural resources, and mitigatio

n of the environmental impact. In 2015, the Company

invested around RUB 2.3 billion in environmental

protection schemes and sustainable and efficient use

of natural resources, while its ongoing environmental

expenses exceeded RUB 6 billion.

The Company strives to reduce its negative impact through

numerous environmental programmes. For example, over

the past few years, Metalloinvest has consistently reduced

its air pollutant emissions and wastewater/contaminant

discharge into surface water bodies. In 2015, material

environmental impact mitigation projects included

the upgrade of gas purification systems at electric arc

furnaces #1–4 (unit 2) and the construction of a new

industrial waste storage site at Ural steel.

External social programmes

17 Stary Oskol and Gubkin (Belgorod region), Zheleznogorsk (Kursk region),

Novotroitsk (Orenburg region).

Metalloinvest is mindful of its contribution to sustainable

development, and seeks to constantly expand and improve

programmes focusing on the economic development

of local communities, creation of favourable social

and cultural environments, improvement of living

standards, use of best practices in addressing critical

social issues, and promotion of environmental health.

The Company collaborates with regional governmental

authorities to initiate and implement programmes

with a focus on reform, the development of local

communities’ potential, and improvements in selected

areas of social life. The key objective of making

the mining and steelmaking towns comfortable and more

appealing for young people is set out in the trilateral

social and economic partnership agreements signed

with the municipal and regional authorities17.

In 2015, the Company allocated ca. RUB 1 billion for

charitable initiatives and social investments in local

communities (including ivestments in development

of social facilities). The Company’s charity and social

investment priorities in the regions where it operates

include:

• creation of comfortable social and cultural environments;

• development of education;

• support for arts and culture;

• improvements in the quality of healthcare services;

• promotion of mass and children’s sport;

• aid for socially vulnerable groups of the population;

• contribution to the development of local communities.

As part of its social policy, the Company seeks to ensure

synergies between all available resources, marrying

financial opportunities with management capacities,

professional expertise, and international best practices

in the realm of sustainable development.

ContactsMANAGEMENT COMPANY METALLOINvEsT

28 Rublevskoye shosse, Moscow, 121609, Russia

Tel.: +7 495 981 5555

Fax: +7 495 981 9992

e-mail: [email protected]

www.metalloinvest.com

LEBEDINsKY GOK

Gubkin–11, Belgorod Region, 309191, Russia

Tel.: +7 472 419 4455

Fax: +7 472 417 5523

MIKHAILOvsKY GOK

21 Lenina st., Zheleznogorsk,

Kursk Region, 307170, Russia

Tel.: +7 471 489 4105

Fax: +7 471 489 4260

OEMK

stary Oskol, Belgorod Region, 309515, Russia

Tel.: +7 472 537 2707

Fax: +7 472 532 9429

URAL sTEEL

1 Zavodskaya st., Novotroitsk,

Orenburg Region, 462353, Russia

Tel.: +7 353 766 2153

Fax: +7 353 766 2789

URAL sCRAP COMPANY

Moscow28 Rublevskoye shosse, Moscow, 121609, Russia

Tel.: + 7 495 789 9997; 789 9998

e-mail: [email protected]

www.uralmetcom.ru

Novotroitsk16 Frunze st., Novotroitsk, 462359, Russia

Tel.: +7 353 760 6200

Fax: +7 353 760 6201

METALLOINvEsTLEAsING

28 Rublevskoye shosse, Moscow, 121609, Russia

Tel.: +7 495 981 5555

ANNUAL REPORT 2015

COMPANY PROFILE






/ 9796


PROVEN LEADERSHIP -...

Documents

Transcript of PROVEN LEADERSHIP -...