24 April 2008

NLMK approves key parameters of 3rd phase of Technical Upgrading Programme

NLMK, the leading Russian steel company, is pleased to announce that its Strategic Planning Committee has approved the key parameters of Phase 3 of the Group’s Technical Upgrading Programme, covering the period until 2015.

NLMK is currently implementing the 2nd Phase of its Technical Upgrading Programme, which is expected to be completed by 2011. The NLMK Group will increase production at its Russian sites to 16.3 million tonnes of crude steel including 12.4 million tonnes at the main production site in Lipetsk and 3.9 million tonnes at Maxi-Group facilities by 2011. The production volumes of rolled products at the Lipetsk site and long products at Maxi-Group facilities will amount to 5.5 million tonnes and 4.0 million tonnes respectively. Total investment capex covered by the 2nd Phase of the Programme is more than USD 4.4 billion for Novolipetsk Steel and its subsidiaries and c. USD 1.8 billion for Maxi-Group.

The 3rd Phase of the Technical Upgrading Programme, as approved by the Strategic Planning Committee, includes investment projects for the period 2009 – 2011 and outlines NLMK’s production strategy until 2015. This new phase of the Programme envisages crude steel production in Russia growing to 22 million tonnes, flat steel products to 6.9 million tonnes, and long steel products and pipes to 5.9 million tonnes. Total investment capex in the 3rd Phase of the Programme will be USD 4.1 billion for the Lipetsk production site and c. USD 2.0 billion for Maxi-Group facilities.

In addition, the Programme envisages production of 3.1 million tonnes of crude steel and 6.4 million tonnes of rolled steel products at NLMK’s overseas production sites.

The 3rd Phase of the Technical Upgrading Programme aims to achieve the following objectives:

1. Increase crude steel production volumes at NLMK’s Russian sites to 22 million tonnes by 2015

- BOF steel production at Lipetsk site will reach 14.5 million tonnes

- EAF steel production at Lipetsk site will reach 1.5 million tonnes. NLMK plans to construct casting and rolling mill on Lipetsk production site which comprises electric arc furnace, thin slab caster and hot-rolling mill

- Maxi-Group’s EAF steel production will reach 6.0 million tonnes

2. Increase flat steel production at NLMK’s Russian sites up to 6.9 million tonnes

- Lipetsk site will produce 6.9 million tonnes of hot-rolled steel by 2012 including 1.3 million tonnes on casting and rolling mill

- Cold-rolled and pre-painted steel production volumes will amount to 4.9 million tonnes by commissioning cold-rolling mills, galvanizing lines and new pre-painting line

By the end of 2008, NLMK will reach a final decision on whether to order a Togliatti EAF steelmaking plant with 2 million tonnes hot-rolled flat steel capacity

3. Increase long steel product and pipe production on Maxi-Group sites up to 5.9 million tonnes

- Nizhnie Sergi site will produce 1.4 million tonnes of wire rod and high-strength rebar in 2008

- Commissioning a new long product mill of 1.0 million tonne wire rod capacity at Berezovsky production site in mid-2008

- Starting construction of the first stage of Kaluga EAF steelmaking plant in 2008 with 1.2 million tonne rebar and shaped profile capacity by 2011 and 2 million tonne capacity by 2015

By the end of 2008, NLMK will reach a final decision on whether to construct a Voronezh EAF steelmaking facility with 2 million tonnes long product capacity,

4. Electrical steel production development programme

By 2015, NLMK plans to produce at least 400,000 tonnes of transformer steel. The share of Hi-B grades in total transformer steel production volume will exceed 70%

5. Basic raw materials self-sufficiency programme

Today, NLMK covers 90% of its requirements in iron ore and 100% in coke. Taking into consideration the significant planned increase in production volumes, NLMK intends to implement a number of projects to enhance its iron ore and coking coal base, as well as to maintain 100% self-sufficiency in coke and scrap by 2015.

To secure the supply of basic raw materials to NLMK, the following projects will be implemented:

- Commissioning the first stage of pelletizing factory with the capacity of 3 million tonnes in 2011 with a further increase to 6 million tonnes in 2014

- Development of the Zhernovskoe-1coking coal deposit with 3 million tonnes capacity in 2011

- Increase coke production to 6.5 million tonnes by constructing coke battery #6 on the Altai-Koks site and simultaneously closing 4 coke batteries on the Lipetsk production site

- Increase scrap collection on NLMK and Maxi-Group sites from 2.1 million tonnes in 2007 up to 7 million tonnes in 2015.

6. Overseas production site development

The key objective for the development of NLMK’s overseas production sites is an increase in finished steel production and share of high value-added products.

The development plans for the DanSteel production site include:

- Increase in total rolled steel production to 600,000 tonnes together with increasing production volumes of special grade hot-rolled thick plates

The NLMK – Duferco Group Joint Venture (Steel Invest and Finance (SIF)) plans to increase long and flat steel production to 6.3 million tonnes. The share of high value-added products will amount to 57%. The following projects will be implemented:

- Increase in hot-rolled thick plate production to 0.9 million tonnes at the Clabecq site (Belgium) by 2010 together with the introduction of plate quenching & tempering technology

- Increase in crude steel production at Carsid site (Belgium) to 2.1 million tonnes, vacuum degasser commissioning and revamp slab continuous caster

- Increase flat steel production to 3.0 million tonnes at La Louviere (Belgium) production site by commissioning new reheating furnace

- Modernization of Verona Steel site (Italy), together with the increase of plate and forging ingots capacity to 0.6 million tonnes.

Chairman of NLMK’s Board of Directors, Vladimir Lisin, commented on the Company’s plans:

“The rapid development of the Russian economy is a powerful driver for demand in the domestic steel market. By 2015, we expect steel consumption to soar by 60-65%. We anticipate that demand for our steel products to go up in construction, mechanical engineering, automotive, infrastructure and other metal-intensive industries. NLMK’s development plans seek to meet the growing demand in the domestic market. We intend to expand steel production and output of high quality finished products at all of our sites. In pursuit of this goal, we have decided to significantly increase investment in the development of NLMK’s facilities and have approved the major steps of the 3rd Phase of our Technical Upgrading Programme until 2015.Our aim is to strengthen the company’s position in production efficiency and leadership among the steel producers in the Russian market and deliver significant value to all our shareholders.”

“The company plans to develop its finished product capacity on the largest foreign markets. The implementation of this strategy results in strengthening NLMK’s leadership in the global steel market and growth in high value-added product volumes. It is a primary goal of the development program of our foreign assets.”