1

Coking coal market perspectives Adam Smith Summit

Moscow, May 15, 2013

Kirill Kozenyashev

Head of Strategy and Business Development, Mining Business

2

Disclaimer

These materials are confidential and have been prepared by OAO Severstal (Severstal) solely for your

information and may not be reproduced, retransmitted or further distributed to any other person or

published, in whole or in part, for any other purpose.

These materials may contain projections and other forward-looking statements regarding future events

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such as “expect,” “believe,” “estimate,” “intend,” “will,” “could,” “may” or “might”, or other similar

expressions. Severstal cautions you that these statements are only predictions and that actual events

or results may differ materially. Severstal will not update these statements to reflect events and

circumstances occurring after the date hereof. Factors that could cause the actual results to differ

materially from those contained in projections or forward-looking statements of Severstal may include,

among others, general economic and competitive environment conditions in the markets in which

Severstal operates, market change in the steel and mining industries, as well as many other risks

affecting Severstal and its operations.

These materials do not constitute or form part of any advertisement of securities, any offer or invitation

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representation or warranty, express or implied, is given by Severstal, its affiliates or any of their

respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or

for any loss howsoever arising, directly or indirectly, from any use of these materials or their contents.

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Contents

• Coking coal industry – global perspective

• Russian coking coal industry

• Severstal new coking coal projects update

4

Main trends in global coking coal industry

Limited new

supply

Costs escalation

Weak demand in

the mid-term

• High quality coking coal is hard to find

• Prices are likely to increase in the mid- to long-term due to gradual depletion

of quality coals

• New growth projects are predominantly located in remote regions with no

infrastructure

• Australian and US coal producers are facing significant escalation of cash costs

• High-cost producers are “squeezed out” from the cost curve or need to reduce

production volumes

• Coal companies margins are eroding

• Coal players are cutting production

• Delay of new projects implementation

• China steel production demonstrates lower growth rates

Trends

1

2

3

Shale gas

development

4

Implications and comments

• Steam coal is substituted by shale gas

• Coal players need to focus more on met coal and not steam coal which at

times re mined together– not always sustainable

5

Coking coal capacity additions outlook

• Main exports’ growth will come from Australia (53 mmt)

• New regions Mongolia and Mozambique unlikely to provide significant amount of coal to the market

(15 and 5 mt respectively)

Source: Severstal analysis

Notes: 1) Ex-China

3631

24

2017 2012 2006

Canada

6462

25

2017 2012 2006

ROW 196

142124

2017 2012 2006

Russia 1817

10

2017 2012 2006

Australia

36

21

2

2017 2012 2006

Mongolia

7

2

0

2017 2012 2006

Mozambique

8

6

2

2017 2012 2006

Indonesia

11

5

22

2017 2012 2006

World Total

381

286

2017 2012

+33%

+37%

2006

209

USA

0-5

5-10

10-20

20-30

>30

Coking Coal Capacity

Additions, 2012-17, mmt

6

Global coking coal supply demand balance and capacity

additions forecast

7

Mozambique & Mongolia – not so fast as expected!

Mozambique Mongolia

Current coal

production (2012, mt)

Players in the region

Existing bottlenecks

Key themes

• Rio Tinto has recently

written off 3 bn. USD for

investment in Riversdale

• Anglo decided not to invest

into Revuboe project

• Most progress conducted by

Vale

• Tavan Tolgoi project has not

progressed as originally

expected

• Infrastructure negotiations not

materialized into concrete

actions

2,1 21,0

• Rio Tinto

• Vale

• ENRC

• Beacon Hill

• Nicondezi

• Mongolian Mining Company

• Gobi Coal

• Erdenes TT

• South Gobi Coal

• Infrastructure

• Quality of coal

• Africa risk

• Rail infrastructure and power

sources

• High geopolitical risks

Sources: Severstal analysis

8

Global met coal demand is expected to weaken

• Metallurgical coal consumption is expected to grow in line with the steel production

• CAGR for metallurgical coal consumption is expected to be around 2% in the next decade

Sources: Worldsteel, Severstal Strategic Marketing Department,

9

Why the price is not growing?

$100

$200

$300

$400

Au

g

Se

p

Oct

No

v

De

c

Ja

n

Fe

b

Ma

r

Ap

r

Ma

y

Ju

n

Ju

l

Au

g

Se

p

Oct

No

v

De

c

Ja

n

Fe

b

Ma

r

Ap

r

2011 2012 2013

Premium HCC price

spot, FOB Australia

contract, FOB Australia

spot, FOB USA

Premium HCC, USD/t, FOB

Sources: CRU, Platts, Severstal Strategic Marketing Department, MySteel

• The significant price decrease for HCC can be mainly explained by weak demand from Asia

(mostly China)

• In the current market environment significant number of US players had to idle their capacities

10

Dramatic escalation of cash costs

•Average Australian

costs escalated 34%

from 2009-2012 due

to:

-Labor increases

-Australian dollar

appreciation

-Opex and Capex

inflation

-Depletion of

existing mines

• US costs pushed

by producers’ shift

from steam coal to

HCC production

• Wages increase

• Existing quality coal

seams depletion

40

20

110 109 108 104 100

82

81 64

60

58

56

USD/t

130

0 50 100 150

140

120

200 250 300

112

Mt 0

100

80

60

Ø 104 41

0 Mt

125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

USD/t

99 92 90 88 86 82

61

120 120

100

80

60

40

20

Ø 84 47

Czech Republic

USA

Australia

New Zealand

Poland

Canada

Russia

Indonesia

Mozambique

Venezuela

South Africa

Mongolia

Colombia

Ukraine

2009 FOB

2012 FOB

Sources: Severstal analysis

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Metallurgical coal – costs versus price correlation

Source: Example BHP, company analysis

228232222

98

162

114109108

8166

170

142

8276

62

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

95

112

56

Costs Underground Prices Costs Surface

Price and OPEX (USD/t) Example - Australia

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Industry discussions and themes

“…that means we would have to demonstrate to

the government and to Erdenes Tavan Tolgoi that

we would be a partner choice for them”

Graeme Hancock, Chief Representative and

President in Mongolia

“…a lack of fiscal discipline and overproduction

when prices rise from senior miners…”

Ivan Glasenberg, Glencore CEO

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Contents

• Coking coal industry – global perspective

• Russian coking coal industry

• Severstal new coking coal projects update

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Russian coal market overview (1/2)

*Reserves include coking and steam coal

Sources: Severstal estimates and analysis, Rosinformugol

Pechorsky basin

Grade – Zh, GZhO, K

Production – 10 mt

Reserves: 7.2 bnt

Yakutsky basin

Grade – K, KZh, Zh

Production – 8mt

Reserves: 4.2 bnt

Kuznetsky basin

Grade – K, KS, KO, Zh, GZh,

GZhO, G, TS, O

Production – 47 mt

Reserves: 51.5 bnt

Major coking coal producing basins in Russia, 2012*

• Russia has one of the largest world resources of coal concentrated in several basins

• Main coal basin is Kuznetsky (accounting for 72% of coking coal production)

• Mezhegei basin can become the next large coal production center in the following decade

Mezhegei Basin

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Russian coal market overview (2/2)

11%

4%

7%

8%

11%

11%

Others 14%

Kuzbassugol 3%

Prokopievskugol 3%

Stroyservis

Belon

Yuzhniy Kuzbass Uzhkuzbassugol

8% KRU

9%

Raspadskaya 9%

Vorkutaugol

Sibuglemet Yakutugol

Russian coking coal producers

*Reserves include coking and steam coal

Sources: Severstal estimates and analysis, Rosinformugol

• The Russian coking coal market is consolidated – 6 of the largest producers have a 59% share in the total

production

• More than 65% of coking coal produced in Russia is attributed to vertically integrated steel producing

companies

• Low and mid volatile coals are expected to be in deficit in the upcoming years

Production of coking coal by grade, 2012

ОS GZHO GZH Zh КSN KO KS K

2011

62.1

2010

65.7

2009

56.9

2008 2007

70.8

2006

65.9

2005

68.3

2004

73.9 70.4

70.8

2012

12%

16%

7%

2%

21%

29%

2%

11%

16%

20%

10%

4%

24%

16%

5%

5%

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Steel demand and coking coal production

58,6

56,157,3

49,4

55,757,4

52,9

46,0

43,742,4

38,038,941,241,7

2010 2011 2009 2012 2007 2006 2008

Coking Coal Production Convertor Steel Production

Coking coal and convertor steel production in Russia*, mt

Sources: World steel, CRU, Rosinformugol, Severstal analysis

42,6 44,142,1

36,239,2

10,3

13,313,6

13,2

18,2

43,842,0

14,814,2

58,6

2012

56,1

2011

57,3

2010

49,4

2009 2006

52,9

2008 2007

57,4 55,7

Domestic Export

Russian coking coal production by destination*, mt

Russian coking coal production was historically in line with the steel

production

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Key new Russian coking coal projects

South-Yakutsk basin

Ulug-Khem basin

Kuznetsky basin

Pechora basin

Centralny

Mezhegey

Elegest

Usinskoe – 3

Zhernovskaya - 1

Elga

Sarbalinskaya

Sibirginskaya

Erunakovsky-8

S.D.Tihova Mine, Butovskaya

Inaglinskaya mine, Inaglinsky

open cut mine

Basin Project

Severstal

Evraz

EPK

NLMK

NLMK

Mechel

OMK

Yuzhny

Kuzbass

YuzhKuzbass

Koks

Colmar

Operator Reserves

(mt)

1760

120

895

765

639

163

154

90

85

45

227

Main coal

grade

Zh

Zh, KZh

Zh

Zh, GZh

Zh

Zh

Zh, KZh

OS

Zh, GZh

KS, OS

Zh

Estimated

production

(mt)*

13,0

3,0

2,4

2,0-3,0

2,5

4,5

7,5

3,0

3,0

15,0

1,3

Start of

production*

2018

2014

2018

2016

2014

2015

2013

2018

2018

2014

2013

Source: Company information, Rosinformugol

Note: (*) Based on company information and estimations, press reports

Usinskoe Severstal 621 2Zh 2,5 2018

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Contents

• Coking coal industry – global perspective

• Russian coking coal industry

• Severstal new coking coal projects update

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Strong, Global, Integrated

Moscow

Note: Numbers are presented for 2012 sales volumes, for steel – total capacity (1) consolidated volumes of pellets and concentrate (2) EBITDA represents profit / (loss) from operations plus depreciation and amortization of productive assets adjusted for gain / (loss) on disposals of property, plant and equipment and intangible assets

Coking/Thermal Coal

Steel Mill/DRI Plant

Iron Ore

VORKUTAUGOL (RUSSIA) 8.0mt (reserves – 246.8mt)

Coking and Steam Coal

OLKON (RUSSIA) 4.7mt (reserves – 276.2mt)

Iron Ore Concentrate

KARELSKY OKATYSH (RUSSIA) 10.4mt (reserves – 415.3mt)

Iron Ore Pellets

PBS COALS (US) 3.3mt (reserves – 77mt)

Coking and Steam Coal DEARBORN (US) 2.1mt Crude Steel Capacity

COLUMBUS (US) 3.1mt

High-quality Crude Steel Capacity

CHEREPOVETS STELL MILL (RUSSIA) 11.6mt – steel output Crude Steel Capacity

2010 2011 2012

Crude steel production, mln tonnes 14.7 15.3 15.1

Coal sales volumes, mln tonnes 11.7 10.6 10.5

Iron ore sales volumes, mln tonnes1 13.8 14.8 15.2

Revenues, $ bln 12.8 15.8 14.1

EBITDA(2), $ bln 2.9 3.6 2.1

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Usinskoye – Key Highlights

RUSSIA

Komi

Republic

Syktyvkar Vorkutaugol and Usinskoye

deposit

THE PROJECT’S KEY PARAMETERS

LOCATION • North Russia, Komi Republic

COAL PROPERTIES

• Hard mid-vol, grade 2Zh in the Russian

classification, regarded as a premium coal

grade, similar to the Vorkuta coals. The coking coal is relatively high-ash, average sulphur

CAPACITY

• Resources in the Russian classification – 621

mt

• Planned annual capacity 2.0-2.5 mtpa of hard coking coal concentrate

COST POSITION • Production costs estimated at $40-50/t exw

PROJECT’S DEVELOPMENT

• Overall CAPEX estimated at c. $0.9bn • Production anticipated to start in 2018

INFRASTRUCTURE

• As the deposit is located close to Severstal’s

legacy Vorkuta mines, no significant

infrastructure needs to be constructed

• The existing railway passes c. 5 km from the deposit

OWNERSHIP • Severstal (100%)

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Alt

ai

Mongolia

Republic of Tyva

Irkutsk region Krasnoyarsk region

Ulug-Khem coal basin

and Tsentralniy

coalfield

Kuragino

Tyva – Key Highlights

THE PROJECT’S KEY PARAMETERS

LOCATION • Russia, Southern Siberia, Republic of Tyva, 35

km to the south-west of the capital Kyzyl

COAL PROPERTIES

• Semi-hard high-vol, grade Zh in the Russian

classification. The coking coal is low-ash, low-

sulphur, average coal rank (Ro), has unique

fluidity features

CAPACITY

• Resources in the Russian classification – 639

mt (C1+C2), JORC resources estimated at 565

mt

• Planned annual capacity 7.5 mtpa of coking

coal concentrate

COST POSITION • Production costs estimated at $20-30/t

PROJECT’S

DEVELOPMENT

• Overall CAPEX estimated at $1.2-1.5bn

• Production anticipated to start in 2019

INFRASTRUCTURE

• 401km railroad to the mainline Transsib needs

to be built. The Russian Government has

committed to construct 147 km and launched

the construction in Jan’12, but later it was

stopped

• Power could be supplied from the existing

transmission line or a new power plant may be

built

OWNERSHIP • Severstal (100%)

CHINA

RUSSIA

JAPAN

INDIA

Kyzyl

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Thank you for

your attention

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Russian steelmakers self sufficiency in coking coal

Capacity, mt Self-sufficiency, %

3,3

11,6

0

44

139

0

5.3 97 Severstal

MMK

EVRAZ

NLMK

MECHEL 9,8 285