Annual report and accounts 2012

Subsidiaries, associates and joint ventures

OAO Severstal and Subsidiaries
Notes to the Consolidated Financial Statements
28. Subsidiaries, associates and joint ventures

for the years ended December 31, 2012, 2011 and 2010
(Amounts expressed in thousands of US dollars, except as otherwise stated)

The following is a list of the Group’s significant subsidiaries, associates and joint ventures and the effective ownership holdings therein:

 December 31,  
Company201220112010LocationActivity
Severstal Russian Steel segment:     
Subsidiaries:     
CJSC Severgal100.0%100.0%100.0%RussiaHot dip galvanizing
Severstal SMC-Kolpino LLC100.0%100.0%100.0%RussiaSteel constructions
Severstal TPZ-Sheksna LLC100.0%100.0%100.0%RussiaSteel constructions
CJSC Severstal Steel Solutions100.0%100.0%100.0%RussiaSteel constructions
ZAO Severstal LPM Balakovo100.0%100.0%100.0%RussiaIron & steel mill
SSM-Tyazhmash LLC100.0%100.0%100.0%RussiaRepairs&construction
JSC Domnaremont65.5%65.5%65.5%RussiaRepairs&construction
Severstal-Promservice LLC99.9%99.9%99.9%RussiaRepairs&construction
JSC Metallurgremont75.0%75.0%75.0%RussiaRepairs&construction
Victory Industries Inc99.9%99.9%99.9%USARepairs&construction
Aircompany Severstal Ltd100.0%100.0%100.0%RussiaAir transport
Severstal Export GmbH99.8%99.8%99.8%Switzerland*Steel sales
JSC Severstallat100.0%84.2%84.2%Latvia*Steel sales
AS Latvijas Metals100.0%84.2%84.2%Latvia*Steel sales
ZAO SeverStalBel100.0%100.0%100.0%Belarus*Steel sales
Severstal-Ukraine LLC100.0%100.0%51.0%Ukraine*Steel sales
JSC Neva-Metall100.0%100.0%100.0%RussiaShipping operations
Upcroft Limited100.0%100.0%100.0%Cyprus*Holding company
Varndell Limitedn/an/a100.0%Cyprus*Holding company
Baracom Limited100.0%100.0%100.0%Cyprus*Holding company
JSC Vtorchermet85.6%85.6%85.6%RussiaProcessing scrap
ZAO Rospromresursy100.0%100.0%100.0%RussiaProcessing scrap
JSC Murmanskvtormet74.6%74.6%74.6%RussiaProcessing scrap
JSC Arhangelski Vtormet75.0%75.0%75.0%RussiaProcessing scrap
ZAO Trade House Severstal-Invest100.0%100.0%100.0%RussiaMetal sales
ZAO North Steel Company99.9%99.9%99.9%RussiaLeasing
JSC Rostovmetall100.0%84.8%95.0%RussiaLeasing
PPTK-1 LLC100.0%100.0%100.0%RussiaLeasing
JSC RC Group100.0%100.0%100.0%RussiaLeasing
CJSC Izhora Pipe Mill100.0%100.0%100.0%RussiaWide pipes
JSC Severstal-Metiz100.0%100.0%100.0%RussiaSteel machining
JSC Dneprometiz98.7%98.7%98.7%UkraineSteel machining
Redaelli Tecna S.p.A.100.0%100.0%100.0%ItalySteel machining
UniFence LLC100.0%100.0%100.0%RussiaSteel machining
Associates:     
ZAO Air Liquide Severstal25.0%25.0%25.0%RussiaProduction liquid oxygen
Lucchini S.p.A.49.2%49.2%n/aFranceHolding company
G.S.I. Lucchini S.p.A.34.1%34.1%n/aItalySteel spheres
Servola S.p.A.49.2%49.2%n/aItalyAsset holding
Sideris Steel S.A.S49.2%49.2%n/aFranceInvestment holding
Lucchini Holland B.V.49.2%49.2%n/aThe NetherlandsInvestment holding
Bari Fonderie Meridionali S.p.A.n/a49.2%n/aItalyForgings

(*) – Severstal Russian Steel segment contains Russian production entities, foreign trading companies, which sell products primarily produced in Russia, and other foreign companies, which either provide services to Russian production entities or are managed from Russia.

 December 31,  
Company201220112010LocationActivity
Severstal Russian Steel segment (continue):     
Joint ventures:     
Todlem S.L.25.0%25.0%25.0%SpainHolding company
Severstal-Gonvarri-Kaluga LLC50.0%50.0%50.0%RussiaIron & steel mill
Gestamp-Severstal-Kaluga LLC25.0%25.0%25.0%RussiaProduction car body components
Gestamp Severstal Vsevolozhsk LLC25.0%25.0%25.0%RussiaProduction car body components
Subsidiary classified as held for sale:     
OOO Severstal-metiz: welding consumablesn/an/a100.0%RussiaWelding consumables
Severstal International segment:     
Subsidiaries:     
Severstal US Holdings LLC100.0%100.0%100.0%USAHolding company
Severstal Dearborn LLC100.0%100.0%100.0%USAIron & steel mill
Severstal Columbus LLC100.0%100.0%100.0%USASteel mill
Associate:     
Delaco Processing LLC49.0%49.0%49.0%USASteel slitting
Joint ventures:     
Spartan Steel Coating LLC48.0%48.0%48.0%USAHot dip galvanizing
Double Eagle Steel Coating Сompany50.0%50.0%50.0%USAElectro-galvanizing
Bethlehem Roll Technologies LLCn/an/a50.0%USAGrinding steel mill rolls
Ohio Coatings Companyn/an/a50.0%USATin plate steel
Mississippi Steel Processing LLC20.0%20.0%20.0%USASteel service center
Mountain State Carbon LLC50.0%50.0%n/aUSACoking coal
Subsidiaries classified as discontinued operations*:     
Severstal Warren LLCn/an/a100.0%USAIron & steel mill
Severstal Sparrows Point LLCn/an/a100.0%USAIron & steel mill
Severstal Wheeling Incn/an/a100.0%USASteel mill
Mountain State Carbon LLCn/an/a100.0%USACoking coal
Lucchini segment (classified as discontinued operation)*:     
Subsidiaries:     
Lucchini S.p.A.n/an/a49.2%FranceHolding company
Ascometal S.A.Sn/an/a49.2%FranceSteel manufacturing
Ascometal GmbHn/an/a49.2%GermanySales
Bari Fonderie Meridionali S.p.A.n/an/a49.2%ItalyForgings
G.S.I. Lucchini S.p.A.n/an/a34.1%ItalySteel spheres
Lucchini Asia Pacific Pte Ltdn/an/a49.2%SingaporeSales
Lucchini Holland B.V.n/an/a49.2%The NetherlandsInvestment holding
Lucchini Iberia SIn/an/a49.2%SpainSales
Lucchini USA Incn/an/a49.2%USASales
Servola S.p.A.n/an/a49.2%ItalyAsset holding
Sideris Steel S.A.Sn/an/a49.2%FranceInvestment holding
Associates:     
ESPRA S.A.Sn/an/a17.2%FranceSteel scrap
Tecnologie Ambientali Pulite S.p.A.n/an/a12.2%ItalyEnvironmental services
GICA SAn/an/a12.3%SwitzerlandCarbon dioxide trading

(*) – Note 27.

 December 31,  
Company201220112010LocationActivity
Severstal Resources segment:     
Subsidiaries:     
JSC Karelsky Okatysh100.0%100.0%100.0%RussiaIron ore pellets
JSC Olcon100.0%100.0%100.0%RussiaIron ore concentrate
Severstal Liberia Iron Ore Ltd100.0%61.5%61.5%LiberiaIron ore
JSC Vorkutaugol99.0%88.1%88.1%RussiaCoking coal concentrate
PBS Coals Limited100.0%100.0%100.0%USACoking coal concentrate
SPB-Giproshakht Limited100.0%100.0%100.0%RussiaEngineering
Mining Holding Company LLC100.0%100.0%100.0%RussiaHolding company
Lybica Holding B.V.100.0%100.0%100.0%The NetherlandsHolding company
7029740 Canada Limited100.0%100.0%100.0%CanadaHolding company
Altcom Limited100.0%100.0%100.0%CyprusHolding company
Associates:     
Iron Mineral Beneficiation Services (Proprietary) Ltd33.0%33.0%25.6%Republic of South AfricaResearch & investing
Intex Resources ASAn/a21.7%21.7%NorwayMining and exploration
SPG Mineracao SA25.0%25.0%n/aBrazilIron ore
Gold segment (classified as discontinued operation)*:     
Subsidiaries:     
OOO Neryungri Metallicn/a100.0%100.0%RussiaGold mining
ZАO Mine Аprelkovon/a100.0%100.0%RussiaGold mining
Celtic Resources Holdings Ltdn/a100.0%100.0%IrelandHolding company
JSC FIC Aleln/a100.0%100.0%KazakhstanGold mining
Zherek LLPn/a100.0%100.0%KazakhstanGold mining
High River Gold Mines Ltdn/a75.1%72.6%CanadaHolding company
OJSC Buryatzoloton/a63.8%61.6%RussiaGold mining
Berezitovy Rudnik LLCn/a75.0%72.6%RussiaGold mining
Societe Des Mines de Taparkon/a67.6%65.4%Burkina FasoGold mining
Semgeo LLPn/a100.0%100.0%KazakhstanGold mining
Crew Gold Corporationn/a100.0%93.4%CanadaHolding company
Societe Miniere de Dinguirayen/a100.0%93.4%GuineaGold mining
Nord Gold N.V.n/a100.0%100.0%The NetherlandsHolding company

(*) – Note 27.

In addition, at the reporting date, a further 70 (December 31, 2011: 111; December 31, 2010: 53) subsidiaries, associates and a joint venture, which are not material to the Group, either individually or in aggregate, have been included in these consolidated financial statements.

Information on carrying amounts of associates and joint ventures is disclosed in Note 19 of these consolidated financial statements.

Investments in associates and other equity investments

Investments in 2010

In May 2010, the Group acquired a 16.5% stake in Core Mining Limited (“СML”) for a total consideration of US$ 15.0 million. CML is a private company registered in the Isle of Man focused on the exploration, development and operation of iron ore projects in Central and Western Africa, mainly in Republic of Congo (Brazzaville) and Republic of Gabon.

In September 2010, the Group acquired a 21.7% stake in Intex Resources ASA (“Intex”) for a total consideration of US$ 13.0 million. Intex is a public mining and exploration company listed on Oslo Stock Exchange with its headquarters in Oslo, Norway. Intex’s main asset is the Mindoro Nickel Project — a substantial nickel laterite deposit in the Philippines. In addition, Intex has two molybdenum assets in Norway, as well as Maniitsoq, a diamond province in Greenland.

During 2010, the Group acquired an 11% stake in Sacre-Coeur Minerals Ltd (“SCM”) for a total consideration of US$ 6.2 million, increasing its ownership up to 18.1%.  SCM is engaged in the acquisition, exploration and development of properties for the potential mining of gold and metals in South America, initially focusing on exploration for gold on its properties in Guyana.

During 2010, the Group acquired a 25.6% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS) for a total consideration of US$ 35.7 million, of which US$ 28.2 million are payable during the next four years based on the future performance of the company. IMBS is a research and development company based in Johannesburg, South Africa. IMBS has developed a coal-based Finesmelt technology capable of processing unusable iron ore fines and thermal coal into valuable metallic products similar to DRI/HBI. Currently IMBS is developing its first commercial project in Phalaborwa, South Africa.

Investments in 2011

In March 2011, the Group acquired a 7.4% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS) for a total consideration of US$ 7.4 million, increasing its ownership interest up to 33.0%.

In May 2011, the Group acquired a 25.0% stake in SPG Mineracao SA for a total consideration of US$ 49.0 million, of which US$ 25.0 million are payable during the next three years. The Group has also entered into a call option agreement to purchase an additional 50% stake in this company, exercisable upon fulfillment of certain future conditions. SPG Mineracao SA owns exploration licenses for a number of high prospective iron ore properties in the northern state of Amapa, Brazil.

Acquisitions of subsidiaries from third parties

During October-November 2010, the Group paid a US$ 7.2 million of contingent consideration in respect of the acquired 61.5% stake in African Iron Ore Group Ltd (re-named to Severstal Liberia Iron Ore Ltd) in December 2008.

Acquisitions of non-controlling interests

Acquisition in 2011

In March 2011, the Group acquired an additional 49.0% stake in Severstal-Ukraine LLC for a total consideration of US$ 3.0 million, increasing its ownership interest up to 100%.

Acquisitions in 2012

In January 2012, the Group acquired an additional 15.8% stake in JSC Severstallat for a total consideration of EUR 6.0 million (US$ 7.8 million at the transaction date exchange rate), increasing its ownership interest up to 100%.

In April 2012, the Group acquired an additional 38.5% stake in Severstal Liberia Iron Ore Ltd for a total consideration of US$ 115.0 million, increasing its ownership interest up to 100%.

During October – December 2012, the Group acquired an additional 14.8% stake in JSC Vorkutaugol for a total consideration of US$ 70.9 million, increasing its ownership interest up to 99.0%.

Disposal of associate

In January 2012, the Group sold its 21.7% stake in Intex for a total consideration of US$ 20.0 million.

Disposals of subsidiaries (other than discontinued operations)

Disposal in 2010

In May 2010, the Group sold Northern Steel Group, a group of companies within the Severstal International segment, for a total consideration of US$ 124.0 million.

Disposals in 2011

In March 2011, the Group sold its 100% stake in SSM RP Holding B.V. and its wholly owned subsidiary OOO Severstal-metiz: welding consumables for a total consideration of US$ 12.9 million.
 
In July 2011, the Group sold its 91.6% stake in OAO Stalmag for a total consideration of RUB 448 thousand (US$ 14 thousand).

A summary of assets and liabilities disposed during 2012, 2011 and 2010 is presented below:

 Year ended December 31,
 201220112010
Trade accounts receivable--(49,723)
Inventories--(90,841)
Other assets--(1,547)
Property, plant and equipment--(16,433)
Intangible assets--(632)
Assets held for sale-(14,884)-
Trade accounts payable--35,307
Liabilities related to assets held for sale-23,003-
Other liabilities--5,222
    
Net identifiable assets-8,119(118,647)
Consideration in cash-12,914118,647
Net gain on disposal-21,033-
Net change in cash and cash equivalents-12,914118,647

Dilution of Group’s ownership

On June 15, 2012, ZAO Mine Vorgashorskaya 2 was merged into JSC Vorkutaugol. As a result of this merger, the Group’s ownership interest in JSC Vorkutaugol reduced from 88.1% to 84.2%.

Transactions within discontinued operations

Сrew Gold Corporation

In February 2010, the Group acquired a 26.6% stake in Crew Gold Corporation for a total consideration of US$ 90.3 million. Crew Gold Corporation is a mining company based in London, UK. Crew Gold Corporation owns and operates a gold mining project in Guinea, West Africa.

In July 2010, the Group acquired an additional 13.8% stake in Crew Gold Corporation for a total consideration of US$ 84.5 million, increasing its ownership interest up to 40.4%.

In July 2010, the Group acquired an additional 9.8% stake in Crew Gold Corporation for a total consideration of US$ 70.9 million, increasing its ownership interest up to 50.2%.

The acquiree’s profit from the beginning of the period to the date of acquisition comprised US$ 10.8 million. The acquiree’s revenue from the beginning of the period to the date of acquisition comprised US$ 140.6 million. The loss since the acquisition date included in the Group's profit/(loss) from discontinued operations amounted to US$ 14.5 million. Revenue since the acquisition date included in the Group’s revenue from discontinued operations amounted to US$ 98.6 million.

A summary of assets and liabilities acquired from third parties during 2012, 2011 and 2010 is presented below:

 Year ended December 31,
 201220112010
Cash and cash equivalents--29,929
Trade accounts receivable--16,500
Inventories--51,251
Other current assets--6,896
Property, plant and equipment--134,061
Intangible assets--675,668
Other non-current assets--9,745
Trade accounts payable--(20,037)
Other taxes and social security payable--(51)
Other current liabilities--(67,345)
Deferred tax liabilities--(120,139)
Debt finance--(113,055)
Other non-current liabilities--(11,715)
Net identifiable assets and liabilities acquired--591,708
Non-controlling interests--(294,395)
Severstal's share of net identifiable
assets and liabilities acquired
--297,313
Investments at equity--(182,846)
Fair value adjustment upon acquisition of subsidiary
to previously held interest
--(42,170)
    
Consideration:   
Consideration in cash--(70,879)
Negative goodwill on acquisition of subsidiaries--1,418
Net change in cash and cash equivalents--(40,950)

In September 2010, the Group acquired an additional 43.2% stake in Crew Gold Corporation for a total consideration of US$ 214.8 million, increasing its ownership interest up to 93.4%.

In January 2011, the Group acquired an additional 6.6% stake in Crew Gold Corporation for a total consideration of US$ 32.9 million, increasing its ownership interest up to 100%.

High River Gold Mines Ltd

In May 2010, the Group acquired an additional 18.8% stake in High River Gold Mines Ltd for a total consideration of US$ 107.3 million, increasing its ownership interest up to 68.9%.

In August 2010, the Group acquired an additional stake in High River Gold Mines Ltd upon exercise of warrants held by the Group for a total consideration of US$ 25.1 million, increasing its ownership interest up to 70.4%.

In October 2010, the Group acquired an additional 2.3% stake in High River Gold Mines Ltd for a total consideration of US$ 19.7 million, increasing its ownership interest up to 72.6%.

In August 2011, the Group acquired an additional 2.4% stake in High River Gold Mines Ltd for a total consideration of US$ 26.5 million, increasing its ownership interest up to 75.1%.