Acquisition

13 Mar 2008 07:00

OJSC Magnitogorsk Iron &Steel Works13 March 2008 MMK INCREASES STAKE IN BELON COAL COMPANY Major strategic step towards raw material security MAGNITOGORSK, March 13--Magnitogorsk Iron and Steel Company ("MMK"), a leadingintegrated Russian steel producer, announces creation of a strategic alliancewith the Belon OJSC. Creation of the alliance is the result of MMK acquiring 50% stake in companyOnarbay Enterprises Ltd, owning 82.6% of the Russian coal-producing company"Belon". Key highlights of the transaction include the following: • Indirect ownership of MMK in a large Russian producer of coal and coal concentrates "Belon" increased to 41.3% • Strategic investment advances MMK's long-term raw materials security for its steel production • The move secures supplies of coal concentrates to MMK • The planned investment will result in Belon's coal production capacity increasing almost 2,3 fold to 10.8 tonnes pa by 2012 • The transaction wll secure 55% of MMK's requirement of coking coal, and 60% of steam coal, by 2012 Victor Rashnikov, Chairman of the MMK Board of Directors, said: "Thistransaction represents a major strategic step for MMK towards our declared goalof securing supplies of essential raw materials. This acquisition gives MMK anopportunity to share in Belon's profitability and the development of its coalinterests, which will meet a sizeable part of our raw material requirement.Strengthening our strategic partnership with Belon will provide us withadditional advantages in terms of our competitive ability." Structure of the Transaction MMK acquired a 50% interest in Onarbay Enterprises Ltd., the 82.6% owner ofBelon Coal Company ("Belon"), Russia. The share package was purchased fromSapwood Investments for USD 230.4 m. This investment provides MMK with animportant source of coal supplies for steel production, raising fuelself-sufficiency in line with its long-term strategy. As part of a REPO transaction in October of 2007, Sapwood Investments exercisedits right of a 10.75% share repurchase of Belon shares from MMK contributingthis package to the equity of Onarbay Enterprises Ltd, and thus making it anowner of 82.6% of Belon's shares. About MMK The Magnitogorsk Iron and Steel Works OJSC (MMK) ranks 20th among the world'slargest steel producers (according to IISI) and is one of the leaders of Russia's steel industry (according to Chermet data). The Company is a large steelproducing complex encompassing the entire production chain, from preparation ofiron ore to downstream processing of rolled steel. MMK turns out a broad rangeof steel products with a predominant share of value added goods. In 2007 theCompany produced 13.2 m tonnes of crude steel, and 12.2 m tonnes of commercialproducts. About Belon The Belon Group is a rapidly developing coal and coal concentrate producer andone of major Russian steel traders. In 2007 the company produced 4.6 m tonnes ofcoal, including 2.0 m tonnes of coking coal. Belon's 2006 IAS proceeds stood atUSD 396 m, with the net profit at USD 46 m. The company is currently undergoinga massive investment programme, valued at about USD 500 m, through to 2012 todrive production efficiency and increase market share. The programme forecastsan increase in annual production capacity of up to 10.8 m tonnes of coal, 10million tonnes of coal concentrate, including up to 5.1 million tonnes of cokingcoal concentrate. Press OfficeElena Azovtsevam: +7 3519 24 90 82E-mail: azovtseva@mmk.ru Investor RelationsEvgeny Kovtunovm: +7 3519 24 93 55E-mail: kovtunov@mmk.ru FinsburyBrian CattellPeter RussellSophia MatveevaTel. +44 20 7251 3801 This information is provided by RNS The company news service from the London Stock Exchange