Striving for Excellence
Annual Report and Accounts 2009
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Striving for Excellence
Annual Report and Accounts 2009 |
We group Severstal Resources as follows:
Our ferroniobium production business is smaller than other Severstal Resources businesses. We plan to increase our production volumes of ferroniobium in 2010.
Our iron ore business includes two extracting companies: OAO Karelsky Okatysh, producing pellets, and OAO Olkon, producing iron ore concentrate. In 2008, we also acquired African Iron Ore Group Ltd, located in Liberia and involved in the early stages of evaluation and exploration. After acquisition the Company was renamed Severstal Liberia Iron Ore Ltd.
OAO Karelsky Okatysh is located in Kostomuksha, a town in the Republic of Karelia in north-west Russia. The estimated life of its reserves is 44 years, based on an analysis of optimal mine development.
OAO Olkon is located in Olenegorsk, a town in the Murmansk region in north-west Russia. The estimated life of its reserves, according to our geological statistics report, is 35 years.
Our coal production business includes Vorkutaugol and PBS Coals Ltd (which we acquired in November 2008).
Vorkutaugol comprises five mines (Vorkutinskaya, Severnaya, Zapolyarnaya, Komsomolskaya and Vorgashorskaya), the Yunyaginsky open pit, and several washing plants. It extracts both coking and steam coal, and is located in Russia’s European North, in the city of Vorkuta in the Komi Republic. Its estimated economic life is 77 years, based on an analysis of optimal reserves development.
PBS Coals Ltd operates strip mines (Leon Paul, Trent, Rhoads) and deep mines, all using the room and pillar method, at continuous miners, Quecreek, Miller, Geronimo, Agustus, Roytown and Kimberly Run. The Company is based in Somerset County, Pennsylvania, US. It extracts coking and steam coal, and produces coking coal concentrate. One of the principal benefits of our acquisition of PBS Coals Ltd is the economic hedge of supplying coking coal to Severstal’s North American steel operations.
Our gold production business includes the following entities:
In July 2008, we acquired TOO Semgeo, operating in the Kazakhstan Balazhal mine, which is now in the exploration and evaluation stage.
In November 2008, we acquired High River Gold Mines Ltd, operating in Russia and Burkina Faso at the following mines:
Our corporate centre carries out administrative and control functions.
Since January 2008, Severstal Resources has also included ferroniobium production, which is carried out by OAO StalMag, in Krasnoyarsk, East Siberia, Russia. The Company has reserves with an estimated life of 11 years, according to our geological statistics report.
During 2009, the principal change was a restructuring of our gold production entities, and the aggregation of all gold-related assets into one separate business.
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In 2009, revenue from Severstal Resources decreased by 23.7%, to US$1,870.8 million. This was primarily due to lower sales volumes and prices for products. EBITDA amounted to US$393.4 million, 54.2% lower than in 2008, and the EBITDA margin decreased from 35.0% in 2008 to 21.0% in 2009. Our gold business added US$158 million to the 2009 EBITDA increment, with an EBITDA margin of 45.5%. OAO Karelsky Okatysh made a negative contribution of US$327 million to the 2009 EBITDA increment, with an EBITDA margin of 18.6%. OAO Olkon also made a negative contribution in 2009. This amounted to US$128 million, with an EBITDA margin of 19.0%. The negative contribution from Vorkutaugol in 2009 was US$185 million, with an EBITDA margin of 6.0%. These decreasing numbers were due to lower sales prices during 2009.
The average number of Severstal Resources employees during 2009 was 27,735, which was 3,695 more than in 2008.
Severstal Resources' coal businesses are among Russia’s top five coking coal producers (source: Rasmin).
Sales by products, FCA based on discounts/price premium
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Our iron ore businesses, which produce iron ore concentrate and pellets, are among the leaders in terms of extraction volumes in their respective markets. Our share of the overall Russian iron ore concentrate production increased from 9.0% in 2008 to 9.8% in 2009. Our share of Russian pellet production decreased from 33.7% in 2008 to 31.9% in 2009 (source: Rudprom).
We can guarantee our stable market position, because we have the following competitive advantages:
We forecast that, in spite of the downturn in economic activity, our share of raw materials production for metallurgy (iron ore, coking coal) on the Russian market will increase in 2010. This will be due to our introduction of customer-oriented programmes, and changes in the supply chain of our vertically integrated metallurgical holdings. Our share of steam coal on both the Russian and world markets will grow.
High-value-added products accounted for the largest part of our sales in 2009. Gold accounted for 27.4% of total sales, coking coal concentrate accounted for 24.0%, pellets accounted for 21.6% and iron ore concentrate accounted for 9.6%. Coking and steam coal accounted for 0.2% and 8.3% of revenue respectively.
The negative economic environment affected Q1 2009, leading to a decline in demand for iron ore. However, Q4 2009 was characterized by very strong price performance from October to December. This positive change reflects primarily an improvement in demand in the Russian and North American markets.
Revenue in 2009 was US$1,871 million (financial year 2008: US$2,453 million) as a result of lower year-on-year sales volumes and prices. As the majority of our sales are made in the spot markets, we expect to be able to take advantage of rising commodity prices.
Our gold business has grown rapidly over the last couple of years, making us the second largest Russian gold producer. Our goal is to improve further our operational and financial efficiencies.
Coking coal sales fell by 75.9% in volume and 91.0% in revenue in 2009 compared with 2008, as a result of maximizing sales of coking coal concentrate. Coal concentrate sales increased by 12.9% in volume and decreased by 30.9% in revenue, due to the acquisition of PBS Coals Ltd (volume) and a fall in prices (revenue). Sales of steam coal increased by 95.9% in volume in 2009, compared with the previous period, and grew by 118.2% in revenue due to similar reasons: the acquisition of PBS Coals Ltd (volume) and an increase in prices (revenue). Pellet sales fell by 4.4% in volume and decreased by 56.9% in revenue. Iron ore concentrate sales increased by 7.2% in volume and decreased by 47.2% in revenue. Gold sales increased by 140.5% in volume and 169.1% in revenue, due to the acquisition of High River Gold Mines Ltd late in 2008 (volume) and growth in prices (revenue). Ferroniobium sales increased by 102.9% in volume and 105.6% in revenue, as a result of organic growth.
Russia is the principal market for our mining businesses. Our main customer is Severstal’s Russian Steel division.
Our share of sales on the Russian market in 2009 was 64.1% of revenue. The largest part of our revenue on the Russian market resulted from sales of coking coal concentrate (26.8%), gold (25.0%), pellets (22.5%) and iron ore concentrate (15.0%).
Domestic sales by products, FCA based on discounts/price premium
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Export accounted for 35.9% of our total sales by revenue in 2009. The principal exports were gold (31.7%), pellets (20.1%), coking coal concentrate (19.0%) and steam coal (14.0%). The share of other products was negligible. The main destinations for these products were Europe, the USA and the CIS (Ukraine and Belarus principally).
Export sales by products, FCA based on discounts/price premium
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The main reasons for the increase in export sales are:
We invested a total of US$242.3 million in Severstal Resources in 2009, 41.3% less than in 2008. We spent US$94 million of this modernising and developing the Vorkutaugol and PBS Coals Ltd mines, US$21 million on new equipment at OAO Karelsky Okatysh, US$10 million on OAO Olkon, and US$92 million on gold entities.
As part of our development strategy, we made the following investments in 2009:
Capital expenditure in 2009 on Vorkutaugol related to longwall mines and development (US$26.9 million and US$7.3 million respectively), as well as coal washing plants (US$10.2 million).
Capital expenditure on longwall coking coalmines amounted to US$3.0 million on the Severnaya mine, US$1.5 million on the Zapolyarnaya mine, US$1.6 million on Vorkutinskaya, and US$4.7 million on the Komsomolskaya mine. We also invested US$1.3 million to increase the production capacity of the Yunyaginskiy open pit, and spent US$14.8 million on longwall steam coalmines in the Vorgashorskaya mine. Development projects related mainly to technical purchased new equipment at the Vorgashorskaya, Vorkutinskaya, Zapolyarnaya and Severnaya mines (US$2.4 million, US$1.9 million, US$2.1 million and US$0.9 million respectively).
We also spent US$6.2 million on modernisation of equipment and US$8.0 million on industrial safety and ecology projects. Capital expenditure on Vorkutaugol also related to the modernisation of its transportation system (US$2.6 million).
The main investment projects at PBS Coals Ltd in 2009 were the completion of the
We invested in developing open pits and improving railway transport infrastructure (US$6.0 million and US$3.7 million respectively at OAO Karelsky Okatysh, and US$0.9 million and US$2.1 million respectively at OAO Olkon). We spent around US$6.3 million on equipment for beneficiating plants at OAO Karelsky Okatysh (US$2.5 million) and OAO Olkon (US$3.8 million). We also invested US$5.1 million in the pellet plant at OAO Karelsky Okatysh, and US$1.7 million in iron mines at OAO Olkon.
The major investments at OAO Karelsky Okatysh included buying dump cars and loading machinery, construction work on open pits, installation of an ore mill at the beneficiating plants, modernisation of rail roads and other activities.
Capital expenditure at OAO Olkon related to replacing production assets, carrying out construction work on the beneficiating plant, purchasing drilling equipment, increasing the productivity of open pits, and constructing an iron underground mine.
Due to the unfavourable economic environment in 2009, we had to postpone a number of investment projects.
Capital expenditure in 2009 on High River Gold Mines Ltd entities related to developing and modernising mine and metallurgical works was US$20.1 million and for exploration and evaluating works it was US$15.6 million.
Capital expenditure on developing and modernising mine and metallurgical works amounted to US$6.5 million on Burkina Faso entities, US$4.1 million on OJSC Buryatzoloto, and US$9.5 on Berezitovy Rudnik. Capital expenditure on exploration and evaluating works amounted to US$6.4 million on
We invested US$21.0 million in developing and modernising the mine and metallurgical works at Celtic Resources Holdings Plc. This will enable us to increase ore extraction to 500 thousand tonnes per year and ore processing volumes to 600 thousand tonnes per year by 2011. It will also give us the opportunity to process up to 55 thousand tonnes of third-party ore per year. We spent US$4 million on a geological survey of the Suzdal mine, with the aim of increasing proven gold reserves by 8 tonnes.
We also spent US$15.8 million on a geological survey of the Yuzhno-Uguyskaya area at OOO Neryungri-Metallic, where we expect to find gold reserves of around 60 tonnes. Also at OOO Neryungri-Metallic, we invested a further US$10.5 million to increase the existing mines’ productivity.
Improving the efficiency of existing mines was also the aim of investment projects at ZAO Mine Aprelkovo (US$3.3 million), along with modernising production facilities (US$0.6 million).
Exploration and evaluating works at the Severnaya Zolotorudnaya Kompaniya field accounted for another US$1.3 million.
In 2009, we invested US$5 million in ‘Business Standard’, a business process redesign project, based on enterprise resource planning implementation (SAP) and a Shared Service Centre.
Due to worsening economic conditions in 2009, we had to postpone our acquisition of foreign iron ore producing companies and the purchase of licences for new coalfields.
In 2009, we continued to invest in improving industrial safety and reducing the harmful emissions from our production.
Capital investment at Vorkutaugol will go mainly towards extraction, development and washing (US$13 million for the long-term perspective and US$29 million for maintenance). We are also investing to improve industrial safety measures (US$2.8 million) and renovate production facilities (US$3.6 million).
At PBS Coals Ltd, further investment projects will require US$24.4 million.
We plan to spend around US$23.8 million on investment projects at OAO Olkon. These include the renovation of production facilities (US$8.3 million), investments in long-term development projects and new technology (US$12.8 million), safety measures (US$1.2 million) and maintaining the current level of production (US$1.4 million).
Through our investment programme for OAO Karelsky Okatysh, we aim to maintain 2009 production volumes. This includes renovating production facilities (US$8.6 million), maintaining the existing level of extraction (US$10.2 million) and investing in long-term development projects and new technology (US$25.2 million).
We will spend US$28.2 million on maintaining the existing production facilities at Berezitovy Rudnik LLC (US$3.3 million), OJSC Buryatzoloto (US$11.4 million), Rudnik Aprelkovo LLC (US$6.1 million), OOO Neryungri-Metallic (US$4.6 million), Celtic (US$2.1 million) and Burkina Faso entities (US$0.7 million).
We will spend US$54.8 million on extending the existing production facilities at Celtic (US$22.5 million), OJSC Buryatzoloto (US$2.9 million), Berezitovy Rudnik LLC (US$9.3 million), OOO Neryungri-Metallic (US$11.4 million) and
We will also spend US$54.4 million on geological surveys at OJSC Buryatzoloto (US$21.3 million), Berezitovy Rudnik LLC (US$2.4 million),
We will spend around US$1.5 million on developing ferroniobium production.
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In 2009, costs in Severstal Resources increased by US$29.2 million, or 2.1%. This was due to a 19.2% increase in depreciation and amortisation charges, relating mainly to the depreciation and amortisation of newly acquired mineral rights and PPE as a result of the acquisition of High River Gold Mines Ltd and PBS Coals Ltd, late in 2008.
Severstal’s management has taken decisive action to mitigate the impact of the global economic downturn on the Company, and to preserve cash. We have taken certain measures to adjust our operations to the new environment:
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Дата 23.09.2011