Trading update for the full year 2012

Metinvest B.V., the parent company of an international vertically integrated steel and mining group of companies (jointly referred to as “Metinvest”), today publishes a trading update for the 12 months ended 31 December 2012.

The information in this press release has been prepared based on preliminary financial results. Inter-company transactions have been eliminated in consolidation. This announcement does not contain sufficient information to constitute a full set of financial statements. The following preliminary results may differ from annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The numbers in this press release have not been audited or reviewed.

Metinvest B.V. annually publishes consolidated financial statements prepared in accordance with IFRS for the six months ended 30 June and for the year ended 31 December.

2012 FINANCIAL HIGHLIGHTS

• Consolidated revenues of US$12,565 million (-11% y-o-y)
• Adjusted EBITDA¹ of US$1,985 million (-44% y-o-y), with an EBITDA margin of 16%
• Total loans and borrowings of US$4,038 million², comprising US$2,654 million of long-term borrowings and US$1,384 million of short-term borrowings
• Seller’s notes of US$240 million
• Cash and cash equivalents of US$530 million
• Capital expenditures of US$751 million (-36% y-o-y)

2012 OPERATIONAL HIGHLIGHTS

• Steel production of 12,459 thousand tonnes (-13% y-o-y)
• Mining of coking coal of 11,623 thousand tonnes (+3% y-o-y)
• Iron ore concentrate production of 36,224 thousand tonnes (+1% y-o-y)

GROUP REVENUES

In 2012, Metinvest’s consolidated revenues totalled US$12,565 million, down 11% compared with US$14,189 million in 2011. The drop was due to declines in revenues of 12% for the Metallurgical Division and 10% for the Mining Division. The Metallurgical Division accounted for 74% of external sales (similar to its share in 2011) and the Mining Division for 26%.

METALLURGICAL DIVISION

In 2012, revenues from sales of semi-finished products decreased by 33% y-o-y to US$1,418 million, primarily as a result of slab sales volumes declining by 1,154 thousand tonnes.

Last year, slab sales fell by 55% to US$689 million, of which 49% came from lower sales volumes and 6% from lower average prices. The decline in volumes was the result of unprofitable sales driven by the unfavourable market conditions and low buying activity in key slab consumption regions (Asia and Europe). As such, oversupply of slabs driven mainly by greater supplies from Russian producers (and higher competition as a result), along with a continuing decline in flat product prices, caused slab prices to fall by an average of US$100 per tonne from January to December.

SALES BY PRODUCT³

At the same time, sales of square billets significantly increased to US$480 million, mainly due to a rise in sales volumes of 344 thousand tonnes. The square billet market was influenced by trends in the raw materials and long products markets. Overall, the situation in the square billet market was more favourable compared to that in the slab market. Despite the reduction in buying activity in the billet market from April 2012 due to weaker demand and falling scrap prices, short-term demand growth was seen in August and November thanks to the relatively favourable situation in the Middle East (the main billet consumption region) and a positive trend in the scrap market. As a result of these contrasting trends, billet prices were an average of US$80 per tonne higher than slab prices last year.

Sales of finished products fell by 16% y-o-y to US$6,560 million in 2012, mainly due to decrease in sales volumes and average prices for flat and tubular products.

Last year, revenues from sales of flat products dropped by 19% (US$935 million), of which 8% was attributable to lower sales volumes and 11% to a fall in average prices of flat products. Sales of flat products were affected by adverse market conditions and persistent low buying activity. The market was influenced by strong competition between Russian and Ukrainian suppliers due to a drop in demand from the European Union (EU imports of flat products fell by 31% in 2012, whereas exports from the region increased by 15%), tougher sanctions against Iran, a more difficult political situation in the Middle East and Northern Africa, and aggressive exports from Asian suppliers (China, Japan and Korea). These factors caused market prices to fall to a level at which sales in this segment were unprofitable throughout all 2012.

Revenues from sales of tubular products decreased by 37% in 2012, of which 29% came from lower sales volumes and 8% from a fall in average prices for tubular products. The volume of tubular products sold dropped by 188 thousand tonnes due to the completion of the Beineu-Shymkent project (Kazakhstan), the rescheduling of the next phase of the East-West project (Turkmenistan), and low demand for large-diameter pipes (LDP) on the Russian market. Stronger competition from Russian and other international LDP producers drove down sales prices in all markets, causing the Group's revenues from LDP sales to fall by US$311 million y-o-y.

Revenues from long product sales declined by 7% (US$132 million) in 2012, primarily due to a 6% fall in the average price for long products, a result of deteriorating global market conditions amid stagnation in the construction sector. Simultaneously, long product sales decreased at a slower pace compared to those of flat products, as consumption in the key strategic regions for long products, Russia and Ukraine, was relatively stable.

At the same time, revenues from rail sales grew by 50% (US$115 million) in 2012 on the back of an increase in selling price and sales volume by 64 thousand tonnes. The main contributor to this growth was a rise in rail orders from the CIS consumers.

MINING DIVISION

In 2012, sales volumes of iron ore products increased by 5% (1,345 thousand tonnes) to 25,895 thousand tonnes. The growth was driven mainly by the reallocation of 1,591 thousand tonnes of iron ore products to third parties (including 881 thousand tonnes of pellets and 710 thousand tonnes of concentrate) due to a reduction in intragroup sales. Despite the rise in sales volumes, the price for iron ore concentrate remained unstable and relatively low, especially late in the third quarter and throughout the fourth. The sharp decline in concentrate prices in early September, from US$117 to US$87 per tonne (China import 62% Fe TSI), followed by a drop in the average price in the second half compared with the first, primarily caused the Group’s prices for iron ore products to fall by an average of US$40 y-o-y. As a result, revenues from iron ore product sales declined by US$326 million (-12%).

In 2012, sales of coking coal concentrate decreased by 8% (US$36 million) to US$436 million. Revenues in this segment were affected by a fall in concentrate sales volumes of 302 thousand tonnes (-12%) due to weak demand in the US.

Sales of steam coal concentrate declined by 974 thousand tonnes (-70%) in 2012. This was due to weak demand for steam coal in the US, which prompted a reduction in production at United Coal Company's mines.

CAPITAL EXPENDITURES

Metinvest invested US$751 million in 2012. Key projects of the Metallurgical and Mining divisions included:

• construction of pulverised coal injection unites at Yenakiieve Iron and Steel Works and Ilyich Iron and Steel Works
• construction of a new air turbo blower for the blast furnaces at Ilyich Iron and Steel Works  
• construction of an accelerated cooling unit at the plate mill of Azovstal Iron and Steel Works
• construction of a crushing and transfer complex and reconstruction of the Lurgi 278-B roasting machine at Northern Iron Ore Enrichment Works
• construction of the Affinity coal mining complex at United Coal Company

_{¹ - Adjusted EBITDA is calculated as profits before income tax, financial income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, share of results of associates and other non-core expenses.}

_{³ - Excludes intragroup sales and intragroup utilisation
Flat products include hot-rolled quarto plates, hot-rolled heavy plates, and hot-rolled, cold-rolled and hot-dip galvanised sheets and coils
Long products include hot-rolled sections (light, medium, heavy), debars, merchant bars and wire rods
Rail products include light and heavy rails and rail fasteners
Tubular products include LSAW (longitudinal submerged arc welded) large-diameter pipes and ERW (electric resistance welded) pipes and seamless pipes}