3 FINANCIAL AND OPERATIONAL RESULTS

Despite the drop in global iron ore prices, the Company’s EBItDA margin remains consistently high

of products are high added value 88 %

of the Company’s costs denominated in roubles80 %

of revenue in USD57 %

Drop in Company revenue (2015 vs 2013)–36 %Drop in EBItDA (2015 vs 2013)–36 %

2014 2015

%USD/t

130

100

70

2013

10

20

EBITDA margin

Source: Bloomberg (62% Fe, CFR China), Company data

Adjusting to market conditions

Ore price

31.3 % 30.8 % 32.6 %

30

Maintaining operational efficiency despite the changing market environment with an EBITDA margin of over 30%

Drop in global iron ore prices (2015 vs 2013)–54 %

/ CONtENt

FINANCIAL AND OPERATIONAL REsULTs

A major part of the Company’s revenue is earned from

shipments to Russian consumers, which is why the state

of the Russian economy has a significant impact

on the Company’s performance.

International sanctions and low oil prices resulted in lower

economic growth rates forecast by the International

Monetary Fund for Russia (-3.7% in 2015, -1.0% in 2016,

1.0% in 2017).

However, the obvious need to support economic activity

in Russia will result in the development of infrastructure

projects. In view of this, Metalloinvest closely monitors

the largest federal investment programmes and strives

to take advantage of the opportunities provided by these

projects.

In 2015, the Company continued to implement its initiatives

aimed at decreasing ore extraction and processing costs

and improving competitiveness in the global market through

the optimisation of ore processing and by increasing

operational efficiency.

The modernisation of the Company’s production assets

and better operational efficiency enabled us

to achieve our production targets in 2015. With

the commissioning of key production facilities, we are

able to expand production and improve the quality of our

iron ore, HBI/DRI and steel products.

Andrey UgarovFirst Deputy CEO, Production Director

«

» IN 2015, tHE COMPANY CONtINUED tO WORK tOWARDS DECREASING ORE EXtRACtION AND PROCESSING COStS.

Production at Lebedinsky GOK in 2011–2015, million tonnes

CONCENTRATE

PELLETS

HBI

2011 2012 2013 2014 2015

21.8

8.9

2.3

21.2

8.8

2.4

20.3

8.9

2.6

20.5

9.0

2.4

21.1

9.0

2.6

Production at Mikhailovsky GOK in 2011–2015, million tonnes

CONCENTRATE

PELLETS

SINTERING ORE

2011 2012 2013 2014 2015

16.4

9.9

2.0

17.0

10.1

1.6

16.6

9.9

1.5

16.7

9.9

1.5

16.8

11.0

1.5

Production

In 2015, the Company increased output

of key products y-o-y:

Annual HBI production at Lebedinsky GOK increased

by 8.1% y-o-y (in 2014, the enterprise was undergoing

long-term renovation and partial upgrade of HBI-2 Plant).

Operational results

Mining segment

Both Lebedinsky GOK and Mikhailovsky GOK increased

concentrate production. At Lebedinsky GOK, this was

due to higher magnetic iron content in the ore and its

recovery into concentrate. At Mikhailovsky GOK, the results

came on the back of shorter repair times and higher

production rates driven by a change in the physical,

mechanical and technological properties of the ore

mixture. In 2015, concentrate production at Mikhailovsky

GOK grew by 0.6% to 16.8 million tonnes.

The launch of Pellet Plant #3 and the scheduled

reduction in repair time significantly increased pellet

production at Mikhailovsky GOK (up 10.3% y-o-y). Pellet

production at Lebedinsky GOK increased by 0.3% due

to optimisation works at the pellet plants.

Core products, million tonnes

IRON ORE (INC. SINTERING ORE)

PELLETS

HBI/DRI

hot metal

crude steel

38.7

22.7

5.3

2.34.5

39.5

23.8

5.4

2.54.5

2014 2015

«

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Steel segment

Pellet production at OEMK reached 3.8 million tonnes

(up 2.4% y-o-y) on the back of shorter repair times

and the improved performance of the pellet plant.

OEMK saw a record growth in steel production: up 2.6%

y-o-y to 3.5 million tonnes due to improved productivity

at its electric arc furnaces. steel production at Ural

steel dropped by 8.1% y-o-y, down to 1.0 million tonnes

following changes in the demand structure.

scheduled renovation of metallisation units led to a minor

drop in OEMK’s DRI production by 1.1% y-o-y.

Improved blast furnace processes resulted in higher output

at the blast furnace shop at Ural steel, thus boosting pig

iron production by 7.6%.

Production volumes at OEMK in 2011–2015, million tonnes

DRI

STEEL

PELLETS

2.7

3.3

3.7

2.8

3.3

3.7

2.8

3.2

3.8

2.9

3.4

3.7

2.8

3.5

3.8

2011 2012 2013 2014 2015

Production volumes at OEMK in 2011–2015, million tonnes

2011 2012 2013 2014 2015

STEEL

PIG IRON

2.6

2.5

2.3

2.1

1.5

2.2

1.1

2.3

1.0

2.5

» RECORD GROWtH IN StEEL PRODUCtION At OEMK: 3.5 MIL-LION tONNES

Shipments

Iron ore product shipments

In 2015, pellets accounted for the majority of iron ore

products shipped by Metalloinvest (52.2% of the total

volume), with iron ore (concentrate and sintering ore),

HBI/DRI and other products making up 39.1%, 8.6%

and 0.1%6, respectively.

Iron ore product shipments, billion tonnes

2011 2012 2013 2014 2015

IRON ORE

PELLETS

HBI/DRI

OTHER

12.7

13.6

2,3

0.4

12.5

14.1

2.3

0.3

11.1

13.7

2.4

0.04

11.0

13.9

2.3

0.2

10.8

14.4

2.4

0.2

2011 2012 2013 2014 2015

Iron ore product shipments in 2011–2015,

27.627.5 29.2

27.3

29.1

billion tonnes

In 2015, the share of domestic iron ore shipments grew

to 66% (59% in 2014). These changes are attributable

to an increase in shipments to Russian consumers

(MMK, NLMK, Evraz and severstal). shipments

to European and Asian customers decreased on a pro-

rata basis by 4 p.p. and 1 p.p., respectively, amounting

to 19% and 10%. shipments to the Middle East and North

Africa (MENA) remained flat y-o-y.

Shipments from Lebedinsky GOK in 2011–20157,

2011 2012 2013 2014 2015

IRON ORE

PELLETS

HBI/DRI

OTHER

11.2

5.3

2.4

0.5

10.7

5.2

2.4

0.5

9.5

5.0

2.6

0.5

9.6

5.4

2.4

0.5

10.4

5.2

2.6

0.3

billion tonnesShipments from Mikhailovsky GOK in 2011–20158, billion tonnes

2011 2012 2013 2014 2015

CONCENTRATE

PELLETS

SINTERING ORE

5.4

10.1

1.7

5.8

10.2

1.4

5.7

9.9

1.9

5.8

9.9

1.3

4.7

10.9

1.3

6 HBI and pellet fines.7 Including intra-group shipments.8 Including intra-group shipments.

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Iron ore product shipments by region in 2011–2015, billion tonnes

2011 2012 2013 2014 2015

РОССИЯ ЕВРОПА АЗИЯ БЛИЖНИЙ ВОСТОК И СЕВЕРНАЯ АФРИКАПРОЧИЕ

9,1

7,0

10,9

1,1 0,9

14,8

6,6 6,9

0,6 0,3

16,2

5,44,7

0,7 0,3

16,2

6,3

3,1

1,1 0,7

18,3

5,2

2,7

1,00,4

Shipments of pig iron and steel products

steel products still account for 70% of steel

segment shipments. In 2015, this figure fell slightly

with a proportional increase in pig iron shipments.

Pig iron and steel product shipments in 2011–2015, %

2011 2012 2013 2014 2015

1.1

5.2

0.8

5.1

1.4

4.3

1.8

4.2

1.8

4.2

PIG IRON

STEEL PRODUCTS 2011 2012 2013 2014 2015

Pig iron and steel product shipments in 2011–2015, million tonnes

6.05.95.95.7

6.4

Shipments from OEMK and Ural Steel in 2011-2015, million tonnes

2011 2012 2013 2014 2015

DRI (OEMK)

PIG IRON (URAL STEEL)

STEEL PRODUCTS (URAL STEEL)STEEL PRODUCTS (OEMK)

0.1

1.1

2.1

3.1

0.1

0.8

2.0

3.1

0.1

1.4

1.2

3.1

0.2

1.8

1.0

3.2

0.1

1.8

0.9

3.3

Domestic shipments accounted for 28% of the total

volume of steel product shipments (down 4 p.p. y-o-y).

At the same time, shipments to European customers grew

to 20% (up 8 p.p.), mainly driven by increased shipments

to Italy. In 2015, an increase in shipments to Algeria,

Tunisia and Turkey triggered a 3 p.p. y-o-y growth to 29%

in the share of shipments to the MENA region.

Steel product shipments by region in 2011–2015, million tonnes

2011 2012 2013 2014 2015

РОССИЯ ЕВРОПА АЗИЯ БЛИЖНИЙ ВОСТОК И СЕВЕРНАЯ АФРИКАПРОЧИЕ

2,4

0,6 0,5

1,6

1,2

2,3

0,4

0,6

1,4

1,2

2,0

0,6

0,2

1,6

1,4

1,9

0,7

0,2

1,5 1,6 1,7

1,2

0,2

1,7

1,3

повторяющийс абзац

IN 2015, DOMESTIC STEEL PRODUCT SHIPMENTS

INCREASED BY 12.9%, WHILE SHIPMENTS

TO EUROPEAN CUSTOMERS DROPPED BY 17.4%

Over the last four years, pig iron shipments have consistently

grown, while steel product shipments have decreased.

High-margin product shipments remain largely unchanged

since 2012.

Domestic shipments of steel products have substantially

declined over the last five years. In 2015, they declined

by 10%. At the same time, 2015 shipments to the MENA

region grew by 13%.

STARTING FROM 2014, THE SHARE OF PIG IRON

SHIPMENTS FROM URAL STEEL AS A PROPORTION

OF THE TOTAL GREW SUBSTANTIALLY.

IN 2014, IT AMOUNTED TO 28%

AND 1.8 MILLION TONNES, REMAINING

UNCHANGED IN 2015.

2011 2012 2013 2014 2015 2015 vs 2014

Russia 9.1 14.8 16.2 16.2 18.3 +13.0%

Europe 7.0 6.6 5.4 6.3 5.2 –17.5%

Asia 10.9 6.9 4.7 3.1 2.7 –12.9%

MENA 1.1 0.6 0.7 1.1 1.0 –9.1%

Other 0.9 0.3 0.3 0.7 0.4 –42.9%

2011 2012 2013 2014 2015 2015 vs 2014

Russia 2.4 2.3 2.0 1.9 1.7 –10.5%

Europe 0.6 0.4 0.6 0.7 1.2 +71.6%

Asia 0.5 0.6 0.2 0.2 0.2 0.0%

MENA 1.6 1.4 1.6 1.5 1.7 +13.0%

Other 1.2 1.2 1.4 1.6 1.3 –18.7%

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/ CONtENt

IN 2015, METALLOINVEST WORKED TO SUSTAIN

ITS LIQUIDITY POSITION AND OPTIMISE

THE COMPANY’S DEBT STRUCTURE. FUNDS RAISED

ON THE DOMESTIC AND INTERNATIONAL CAPITAL

MARKETS ALLOWED THE COMPANY TO IMPROVE

ITS DEBT REPAYMENT SCHEDULE.

Revenue

In 2015, the Company’s revenue dropped by 31.0%

to UsD 4,393 million (2014: UsD 6,367 million) due to a sharp

slump in global iron ore and steel prices (by 42% and 32%,

respectively).

The mining segment generated revenue of UsD 2,089 million

or 47.6% of the Company’s consolidated revenue

(2014: 48.7%). The 32.7% y-o-y decrease in the segment’s

revenue was due to declining prices for iron ore products an

d the depreciation of the rouble.

20 %

12 %

11 %

41 %

4 % 12 %

2015 revenue by product

IRON ORE

PELLETS

HBI

PIG IRON

STEEL PRODUCTS

OTHER

42.7 %

22.0 % 21.0 %

14.7 %

13.1 % 41.1 %

2014–2015 revenue by market

RUSSIA

EUROPE

ASIA (INCL. CHINA)

MENA

OTHER

16.1 %

16.4 %

5.8 %

7.1 % 2014

2015

The steel segment accounted for 48.3% of the Company’s

consolidated revenue (2014: 48.1%). The decrease

in the segment’s revenue by 30.6% to UsD 2,123 million was

triggered by declining prices for pig iron and steel products

and the depreciation of the rouble.

In 2015, the domestic market share of the Company’s

consolidated revenue increased to 42.7% from 41.1%

in 2014. Europe and the Middle East accounted for 22.0%

and 16.4% of the Company’s revenue, respectively.

Asia generated 5.8% of revenue.

Cost of sales, distribution, general and administrative expenses

In 2015, the Company’s cost of sales amounted

to UsD 2,275 million or 51.8% of revenue (2014:

53.1%). The 32.7% decrease (2014: UsD 3,381 million)

is attributable to the rouble depreciation and implementa

tion of an operational improvement programme to reduce

the cost of natural gas, energy and other items.

Distribution expenses totalled UsD 690 million,

representing a 28.5% decrease y-o-y, primarily due

to the rouble depreciation and partial shift

of iron ore shipments to the domestic market under

existing long-term contracts. In 2015, distribution expenses

made up 15.7% of the Company’s revenue compared

to 15.2% in 2014.

General and administrative expenses in 2015 decreased

by 35.9 % to UsD 289 million, amounting to 6.6%

of the Company’s revenue, which is slightly lower

than the 7.1% figure in 2014.

Cost item, % 2014 2015

Raw materials and supplies 45.4 48.2

Energy costs 20.8 18.5

Labour costs 18.8 18.9

Depreciation,

amortisation and impairment costs9.2 8.9

Land, property and other taxes 2.5 2.5

Amortisation of mineral rights 1.6 1.5

Repair and maintenance 0.4 0.2

Other 1.4 1.2

» GENERAL AND ADMINIStRAtIVE EXPENSES DROPPED BY 35.9%

Despite the challenging conditions in the global

iron ore market and rouble fluctuations, the Company

continued to deliver solid financial results.

Pavel MitrofanovDeputy CEO, Chief Financial Officer

«

«

Cost of sales in 2014–2015

Financial performance

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Financial position

As at 31 December 2015, the Company’s total assets

amounted to UsD 6,619 million (as at 31 December 2014:

UsD 7,266 million). The 8.9% decline in the Company’s

Us dollar-denominated total assets is mainly attributable

to the rouble depreciation.

At the end of the reporting period, cash and cash

equivalents stood at UsD 424 million (31 December 2014:

UsD 550 million). The Company’s total liquidity amounted

to UsD 824 million, including short-term bank deposits

of UsD 400 million.

At the end of the reporting period, the Company’s net debt

decreased to UsD 3,563 million (2014: UsD 4,185 million).

The net debt/EBITDA ratio amounted to 2.49x compared

to 2.13x as at 31 December 20149. The share of long-term

debt fell slightly to 83.9% of the total (2014: 86.4%).

In 2015, net cash generated from operations amounted

to UsD 952 million, a 29.4% decrease compared

to UsD 1,348 mn in 2014.

Funds used for investment activities amounted

to UsD 987 mn (2014: UsD 427 million).

Funds used for financing activities totalled UsD

24 million (2014: UsD 550 million). This decrease was

mainly driven by dividend payments in 2014.

9 To calculate the net debt/EBITDA ratio, short-term bank deposits

of USD 400 million were accounted for as cash and cash equivalents.

Margin and net income

In 2015, the Company’s EBITDA declined by 27.0%

to UsD 1,432 million (2014: UsD 1,961 million). The EBITDA

margin grew by 1.8 p.p. y-o-y amounting to 32.6%.

The decrease in consolidated EBITDA was primarily due

to lower EBITDA in the mining segment, hit by a sharp

drop in global iron ore prices. The mining segment’s

EBITDA totalled UsD 872 million, representing a 36.2%

or UsD 494 mn decrease y-o-y. The share of the mining

segment in consolidated EBITDA reduced from 69.7%

in 2014 to 60.9% in 2015.

In 2015, the steel segment share of consolidated EBITDA

was 27.4%. The steel segment’s EBITDA also decreased

y-o-y, amounting to UsD 392 million. However, this decline

was much lower than that of the mining segment due

to lower prices for supplies used in steel production.

In addition, the Company grew sales of merchant pig

iron and changed the structure of its steel product

shipments.

In 2015, the Company earned net income

of UsD 218 million compared to UsD 66 million in 2014.

Despite a considerable decline in operating income,

the Company’s net income increased by 3.3 times,

mainly due to decreases in foreign exchange rate

differences accrued on the Us dollar-denominated part

of the Company’s debt and lower net interest payments.

Capex programme

In 2015, the Company’s capex decreased by 29.9%

to UsD 417 million (2014: UsD 595 million).

A major part of the Company’s capex

(UsD 33 million or 7.9% of total expenditures) was used

for the construction of Pellet Plant #3 at Mikhailovsky GOK,

which was completed in 2015.

At the end of the year, the construction of HBI-3

Plant at Lebedinsky GOK accounted for a large part

of the Company’s capex. In 2015, UsD 161 million or 38.6%

of the total capex was invested in this project.

In 2015, apart from major investment projects,

Metalloinvest continued to purchase high-capacity

equipment for mining and transport operations,

as well as upgrade and modernise existing

production facilities.

» For more details on the Company’s investment projects, see Strategic

Investment Programmes on p. 42.

» EBItDA MARGIN GREW BY 1.8 P.P. tO 32.6%

In July, we signed a USD 750 million long-term pre-export

credit facility agreement with a syndicate of international

banks, which will be drawn on to fully repay all amounts

maturing in 2016.

Pavel MitrofanovDeputy CEO, Chief Financial Officer

«

«

ANNUAL REPORT 2015

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