Annual report 2015

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Annual report 2015

Four success factors

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Development
overview

Metalloinvest’s Development Strategy strives to increase output of products with high added value

Metalloinvest’s Development Strategy strives to increase output of products with high added value

Strategy

The updated strategy presented in 2015 is designed to strengthen the Company’s global leadership in the merchant hot briquetted iron segment, increase output of high value-added products, increase product quality and improve the efficiency of R&D and production operations.

The Company has updated its strategic priorities, long-term goals and objectives to respond to the latest trends in the global iron ore, HBI and steel products markets and utilise its competitive advantages, such as industry-leading cash costs for HBI/DRI and pellets.

Metalloinvest is focusing on further deleveraging and seeks to finance investment projects primarily from internally-generated cash flow. The Company plans to maintain its EBITDA margin above 30% by boosting operational efficiency and sales margins, and reducing costs.

Corporate social responsibility remains an important prerequisite for the Company’s sustainable growth. Strategy 2023 provides for the launch of projects designed to minimise the Company’s environmental impact in the regions where it operates, maintain safe working conditions and ensure fair salaries, sufficient recreation and healthcare opportunities for its employees, and an improved social and cultural environment for local communities.

Strategic priorities

Increase the Company’s value:


  • Enhance the scale and quality of business
  • Ensure sustainable growth and higher long-term value

Grow sales margins:

  • Increase share of the global market for high-quality Metallics stocks, mainly HBI/DRI
  • Strengthen the Company’s position in the highquality rolled steel market

Improve operational and management efficiency:

  • Focus on efficient development of existing iron ore deposits
  • Reduce cash cost of production and processing operations
  • Optimise existing processes and integrate new technologies

Increase investment attractiveness:

  • Improve transparency
  • Promote a balanced approach to ensure talent development and protection of communities and the environment

Strategic activity in 2015

Efficient development of existing iron ore deposits

Metalloinvest develops 14.2 billion tonnes of JORC-compliant iron ore reserves, which guarantees approximately 150 years of operation at current production levels.

Larger share in the global market for metallised raw materials

Long-term sustainable demand for HBI will be driven by:

  • an increase in the share of steel produced in electric furnaces;

  • stricter environmental and product quality requirements;

  • higher demand for scrap, as well as lower quality of scrap materials.

Wider global reach

A large product mix and flexible logistics chain (multimodal - land and sea - routes to Asia and Europe via the Black Sea and Baltic Sea ports) make the Company a strong competitor against both leading global suppliers and local producers.

The Company seeks to significantly enlarge the share of high-quality, high-margin products that it produces. For this purpose, it is upgrading Rolling Mill 350 at OEMK and Rolling Mill 2800 at Ural Steel, it is constructing HBI-3 Plant at Lebedinsky GOK and has launched Pellet Plant #3 at Mikhailovsky GOK .

Improved production processes and new technologies

To boost the efficiency of the Company’s operations to develop its iron ore deposits, Metalloinvest is implementing a beneficiation technology improvement programme and plans to market new products such as high-quality concentrate from Lebedinsky GOK with an iron content of over 70%, high basic iron ore pellets with an iron content of over 65.8% and basicity between 0.9 and 1.1. The modernisation and replacement of equipment at OEMK and Ural Steel will improve the quality of the products.

Lower production costs

HBI/DRI and pellet production costs at Metalloinvest’s enterprises are significantly lower than those of its global peers. According to Company data, in 2015 Metalloinvest maintained its cash cost position in the top quartile of global manufacturers. The key factors supporting the low cost of pellet and HBI/DRI production are:

  • availability of an extensive high-quality resource base;
  • in-house mine development;
  • use of low-cost magnetic separation as the primary method of iron ore beneficiation;
  • “zero operational costs” for shipping iron ore concentrate from Lebedinsky GOK to OEMK through a 26 km slurry pipeline;
  • energy-efficient production technologies;
  • availability of necessary infrastructure (natural gas, electricity, railways and roads, etc.).

Key projects

Introduction of a cyclical and continuous transportation method

Design and pre-project planning works are taking place at Lebedinsky GOK and Mikhailovsky GOK to introduce a cyclical and continuous method of transporting rock mass from mine to beneficiation plant. This method will allow the Company to significantly decrease the cash cost of iron ore products due to the optimisation of mining and transportation processes.

More details on the Company’s investment projects
Building an optimal structure with separation of powers and responsibilities

To improve business unit performance, Metalloinvest is creating a shared centre for repair planning and control. The new centre will streamline repair services, standardise planning and repairing processes and put in place a unified repair schedule co-ordination system. Going forward, the Company plans to unify the equipment and technologies used across its operations.

Increased efficiency and productivity due to automation of business processes

The Company plans to implement an ERP-based planning system to increase the overall efficiency of interrelated management processes, switch to a rolling planning process and enable partners and customers to track their orders and delivery.

Prompt response to internal and external changes

In 2015, Metalloinvest continued to develop its corporate risk management system as planned. The Company has launched a mechanism to categorise possible risk events and issued guidelines and policies to regulate related processes. Metalloinvest is also introducing risk response procedures and implementing quantitative assessments of potential damage.

More details on the risk management system
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