28 October 2010 NLMK Group

NLMK Group Announces USD28 Million Acquisition of VMI Scrap Processing Company

Novolipetsk Steel (LSE: NLMK), one of Russia’s leading steel companies, today announced the acquisition of LLC VMI Recycling Group (hereinafter referred to as VMI) from a group of shareholders for a total of USD28.4 million. VMI owns scrap collection and processing assets located in the Moscow region. Russian regulatory authorities approved the transaction.

VMI operations include four sites equipped with modern scrap collection and processing facilities located in the Moscow region, Russia’s largest scrap collection region. Cutting edge equipment (including a shredder machine commissioned in March 2010) allows VMI to process up to 500,000 t of ferrous scrap per year.

This acquisition is in line with NLMK’s vertical integration strategy aimed at enhancing the Group’s self-sufficiency in main raw materials. It will also allow the Company to optimize scrap deliveries to the main production site in Lipetsk and later to its 1.5 million tpa EAF mini-mill in the Kaluga region, 80 km from Moscow, that is currently under construction.

Alexey Lapshin, NLMK President, said:

“This acquisition is another step towards enhancing the Group’s self-sufficiency in main raw materials. Moreover, NLMK’s presence in the Moscow region, surplus in terms of scrap collection, is strategically important. This region has substantial growth potential. As a result, we will be able to ensure efficient integration both with the Group’s existing production facilities and with the Kaluga mini-mill, scheduled for launch in 2012. In the long-term, we are planning to grow VMI’s scrap processing capacities.”
NLMK’s current cash funds and existing credit lines will be used to finance the transaction. VMI will be consolidated on the balance sheets of NLMK Group’s 100% subsidiaries, Vtorchermet NLMK and NLMK-Long Products at 99% and 1% respectively.

For reference:

VMI Group unites 4 sites equipped with scrap collecting and processing facilities with a total capacity of around 500,000 t located in the Moscow regions, in the cities of Liubertsi, Kotelniki, Mytishchi and Reutov.
The sites are equipped with LINDEMANN, Oberlander and Sierra press shears as well as Liebherr and Fuchs loading machines. The Mytishchi site is also equipped with a shredder machine with a capacity of around 120 000 tpa (launched in March 2010).
Moscow and the Moscow region are surplus zones and essentially export scrap to the other regions. According to data provided by Russian Railways (9M 2010), Moscow and the Moscow region are the leading scrap collectors in Russia, accounting for around 12% of the country’s total.