NLMK to sell Prokopievskugol

30 Mar 2007 09:09

OJSC Novolipetsk Steel30 March 2007 OJSC Novolipetsk Steel 30 March 2007 Novolipetsk Steel (NLMK) agrees to sell Prokopievskugol Kuzbass Asset Holdings Limited, a subsidiary of OJSC Novolipetsk Steel (LSE:NLMK), has agreed to sell the Prokopievskugol Group of Companies to a MunicipalState Company representing the City Administration of Prokopievsk. According tothe agreement, the transaction price is USD1. The parties expect to completethe transaction during April 2007. The Prokopievskugol Group of Companies wasacquired by NLMK in April 2006 as an integral, conditional part of its USD626million acquisition of the Altai-koks coking facility. The ultimate price paidfor the Prokopievskugol Group of Companies was USD62 million. During its period of ownership, NLMK succeeded in alleviating the most acuteproblems of Prokopievskugol, including settlement of its USD16.9 million taxliabilities, amelioration of industrial safety and reduction of environmentalimpact. Today, all debt is repaid. There has been a 16% increase in wages, whilethe number of employees has being maintained at 15.9 thousand people. In 2006,financing of USD7.4 mln was allocated to improve mining safety in the frameworkof the "Industrial safety and emergency tolerance at Kuzbass coal miningfacilities 2005 - 2010 program". These efforts resulted in a 10% decrease in theaccident rate during 2006 compared to 2005. The high level of Prokopievskugol's production costs and great difficulty ofachieving cost reductions without substantial cuts in headcount determinedNLMK's decision to divest the asset. The costs of production at Prokopievskugolmines are twice as high as industry averages due to the low level ofmechanization, resulting in high material, payroll and energy costs. The netlosses of Prokopievskugol Group of Companies since consolidation by NLMK inApril 2006 through December 2006 are around USD50 mln1. The improvement of Prokopievskugol Group of Companies financial performancewould require shutting down unprofitable mines and production facilities andreducing the number of employees. However, social aspects are vitally importantfor sustainable restructuring of Prokopievskugol. NLMK believes that therestructuring program at Prokopievskugol may be best carried out only withdirect involvement of the local administration. Thus, NLMK accepted a proposalfrom the Kemerovo Region administration to divest Prokopievskugol for USD1 aftersettling all its debt obligations. 1 based on preliminary estimates For further information: NLMKAnton Bazulev +7 495 915 1575 Financial DynamicsJon Simmons +44 207 831 3113 About Prokopievskugol In April 2006, OJSC Novolipetsk Steel (NLMK) has agreed to acquire from a groupof investors an 82,2% interest in "Altai-koks" and a 100% interest in holdingcompany Kuzbass Asset Holdings Limited, Gibraltar, which owns a 100% interest inProkopievskugol Group of Companies. The purchase price for the transaction wasUSD626m including USD62m paid for assets of Prokopievskugol Group of Companies. The Prokopievskugol Group of Companies develops coking coal deposits of theKuznetsk Basin. The Group includes seven mines ("Tyrganskaya", "Krasnogorskaya","Koksovaya", "Ziminka", "Zenskobskaya", "Dzerzhinsky" and "Voroshilov"), threeprocessing plants and several service companies. In 2006, Prokopievskugol Groupof Companies produced 4.721 million tonnes of coal. The production of cokingcoal concentrate amounted to 2.488 million tonnes. Altai-koks is the leader among coke-chemical plants in Russia. It produceshigh-quality coke and chemical products. In 2006, Altai-koks coke productionamounted to 2.967 million tonnes. The new coking battery was put into operationin Q4 2006. As a result, total capacity of Altai-koks amounted to 5 milliontonnes per year. The acquisition of Altai-koks goes in line with NLMK's strategyof developing 100% self-sufficiency in coke that takes into account projectedincrease in steel production and need to revamp coke facilities at theproduction site in Lipetsk. After purchase of several additional minoritystakes in Altai-koks, NLMK's total interest in the company is 93.6%. This information is provided by RNS The company news service from the London Stock Exchange