NLMK.L Regulatory News (NLMK)

13 Sep 2006 16:19

OJSC Novolipetsk Steel13 September 2006 13.09.2006 NLMK's Board of Directors approves key parameters of the second phase of theTechnical Upgrading Program. The Board of Directors has approved the key parameters of the second phase ofthe Technical Upgrading Program, covering the period from 2007 to 2011. TheProgram was developed in accordance with the sustainable growth strategy ofNovolipetsk Steel (LSE: NLMK), which is aimed at maintaining the Group'sposition among the world's most efficient steel companies. Key strategic goals of the second phase of the Technical Upgrading Program: 1. To increase crude steel production from 9 million tonnes per year up to 12.4 million tonnes per year. The Technical Upgrading Program foresees growth of crude steel production to12.4 million tonnes per year (+40%) by 2011. The increase in crude steelproduction volumes will primarily be achieved by the construction of new blastfurnace #7, with capacity of 3.4 million tonnes per year. NLMK is also planningto renovate three out of five blast furnaces and BOF (Basic Oxygen Furnace)Shops #1 and #2. The major investments in the segment are the following: • Blast furnace division - USD0.9 bln • Steelmaking division - USD1.0 bln • Infrastructure and auxiliary facilities investments - over USD0.1 bln 2. To develop iron ore and coking coal assets to achieve 100% self-sufficiency of the steelmaking segment in major raw materials, taking into account the projected increase in steel production volumes. Implementation of the second phase of the Technical Upgrading Program foreseesthe construction of an iron-ore pellet plant at Stoilensky GOK with productioncapacity of 3 million tonnes per year by 2009. It is planned to increaseproduction of iron-ore concentrate in Stoilensky GOK from 12.5 million tonnes upto 15 million tonnes per year. According to the Technical Upgrading Program, 100% self-sufficiency in cokingcoal will be reached by 2009, while the annual production increases to 11million tonnes by 2011. The major investments in the segment are the following: • Stoilensky GOK - USD0.5 bln • Altai-koks - USD35 mln • Zhernovskoe-1 - USD0.5 bln 3. To increase production of finished flat steel products from 5 million tonnes up to 9.5 million tonnes per year through the modernization of rolling facilities in Lipetsk and acquisition of new rolling assets. NLMK will increase production of finished flat steel products and balance itsvalue chain through pursuing strategic acquisition opportunities with respect tohigh quality rolling facilities in the company's core export markets. NLMK plansto acquire rolling facilities with capacity of at least 3 million tonnes peryear. In addition, NLMK will enhance its own production facilities. At NLMK'sfacilities in Lipetsk, the Technical Upgrading Program provides for substantialinvestments into the renovation of rolling plants, with both upgrading ofexisting and building new technological production units. As for the recently acquired rolling facilities, NLMK plans to modernizeproduction of electrical steel at VIZ Stal facilities in Yekaterinburg as wellas the production facilities of DanSteel. The total investments intomodernization of existing rolling assets under second phase of the TechnicalUpgrading Program are USD0.9 bln. The major projects are the following: • Modernization of hot-rolling mill and construction of reversing mill in Lipetsk • Modernization of electrical steel production • DanSteel development program 4. To enhance fuel and energy facilities in Lipetsk The second phase of the Technical Upgrading Program foresees an increase incapacity of the electricity generating facilities in Lipetsk. NLMK will generate60% of its electricity requirements on site by 2011 compared to 37% in 2005. The60% of generated electric power will be based on blast furnace and coke gasprocessing. The company also plans additional projects with respect to fuel andenergy facilities. The total investments into modernization and enhancement offuel and energy facilities are USD0.3 bln Total investments in the second phase of the Technical Upgrading Program willamount to USD4.4 billion by 2011. The second phase of the Technical UpgradingProgram is planned to be financed from cash flow from operating activities andexisting cash funds. The estimated IRR for projects under the second phase of the Technical UpgradingProgram is 18%. Vladimir Lisin, Chairman of the Board of Directors of NLMK, comments: "NLMK's sustainable growth strategy is oriented towards maximizing our keycompetitive advantage; low cost steel production platform in Lipetsk. Thesubstantial increase in crude steel production in Lipetsk will be balanced bythe development of raw materials assets and strategic acquisitions of highquality rolling facilities. The projected increase in the production of finishedflat steel products will be based on rolling our own slabs with 100%self-sufficiency of raw materials. Along with our Technical Upgrading Program, enhancing the profitability of theCompany remains our key objective. All our actions in the M&A area anddevelopment of production facilities will be directed to the improvement ofNLMK's financial results." NLMK has completed the first phase of the Technical Upgrading Program coveringthe period from 2000 to 2005, committing total investments of USD1.3 billion.The following principal objectives were accomplished: • Increase the efficiency of the production process and maintain low cost production structure. The cost of production per tonne of slabs on a consolidated basis was USD163 in H1 2006; • 10% growth of steel production volumes resulted in increasing NLMK's sales revenue and profitability; • 30% growth of production in high value-added segment from 2001 to 2005; • Improvements in quality. The whole NLMK's product portfolio has complied with requirements set forth in ISO 9000 (2000 edition) since 2003 as well as International Standard ISO/TU 16949:2002 since 2004. • Lessen environmental impact of company's operations. The reduction of atmospheric emissions from 2001 to 2005 accompanied by growing production volumes was 13.5%. NLMKAnton Bazulev +7 495 915 1575Financial DynamicsJon Simmons +44 207 831 3113 This information is provided by RNS The company news service from the London Stock Exchange