Annual Report of Solikamsk Magnesim Works 2014 the Main Part

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Annual Report of Solikamsk Magnesim Works 2014 The main part

ANDREI B. KUDLAI

ADOPTED BY: Annual General Assembly of Shareholders Of JSC Solikamsk Magnesium Works

Protocol № 1 of « 09 » June 2015

Provisionally Approved by: The Board of Directors Of JSC Solikamsk Magnesium Works

Protocol № 5 of «05» May 2015

JOINT-STOCK COMPANY “SOLIKAMSK MAGNESIUM WORKS” ANNUAL REPORT 2014

General Director ______Sergei B. Shalaev (signature)

Solikamsk 2015

Page TABLE OF CONTENT LETTER TO SHAREHOLDERS 3 MISSION OF THE COMPANY 4 GENERAL COMPANY’S INFORMATION 5 History in Brief 5 Solikamsk Magnesium Works in Brief 6 Registration Data 7 Auditor of the Company 7 Register-keeper of the Company 7 Authorized Capital of the Company 8 Shareholders of the Company 8 Market Capitalization of the Company 8 Subsidiaries (Dependent Entities) of the Company 9 SMW’s Membership in Organizations & Associations 10 PRIORITY ACTIVITIES OF THE COMPANY 10 REPORT OF THE BOARD CONCERNING PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES 10 Financial Overview 10 Performance by Operations 14 Magnesium Operations 14 Rare Metals Operations 16 Niobium Compounds 17 Tantalum Compounds 18 Compounds of Rare Earths 19 Titanium Sponge & Compounds 20 Chemical Operations 21 Usage of Raw Materials & Energy Resources 22 Technical Development & IT-Technologies 22 Compliance of Management System with International Requirements 23 Compliance with International Code of Conduct for the Industry 23 Integrated Management System of the Company & Due Diligence on Trade with “Conflict Minerals” 23 Operational & Industrial Safety 25 List of the Company’s Licenses 26 Social Responsibility 26 POSITION IN THE INDUSTRY 27 Position in the Magnesium Industry 27 Position in the Rare Earths Industry 31 Position in the Titanium Industry 34 Position in the Niobium Industry 35 Position in the Tantalum Industry 38 Position in the Chemical Industry 40 PROSPECTS OF THE COMPANY 40 RISK FACTORS 41 Technical & Operational Risks, Production Control, Insurance 41 Risks associated with lawsuits 43 Risks associated with inability to prolong existing licenses of the Company 43 Risks associated with potential liability of the Company under obligations of third parties 44 Risks associated with the potential loss of large customers 44 CORPORATE GOVERNANCE 44 Dividend statements 44 List of the Company’s Deals Those May Be Referred to as the “Large Deals” under legislation 44 List of the Company’s Deals Those May Be Referred to as the “Deals with Interest” under legislation 44 The Board of Directors of the Company 44 The Person Who Holds the Position of Exclusive Executive Body of the Company 47 The main provisions of the Company's policy in the field of compensation and reimbursement of expenses, as well as the criteria for determining the amount of remuneration and compensations paid to the members of the Board of Directors of the Company for 2014 47 The main provisions of the policy of the Company's remuneration and reimbursement of expenses, as well as the criteria for determining and amount of remuneration and compensations paid to the members of the executive bodies of the Company during 2014 48 Information (report) on compliance with principles and recommendations of the Corporate Code of Conduct recommended for use by the Bank of Russia 48 THE MAIN FINANCIAL RESULTS OF THE COMPANY 49 REPORT OF AUDITOR 50 Annexes (omitted in print version, see Entire Version on the web www.smw.ru => English Version) Annex № 1 List of the Company’s Licenses Annex № 2 List of “Deals with Interest” Annexе № 3 Compliance with Code of Corporate Conduct Recommended by CBRF Entire Version of this Report is located on the Company’s site under link http://смз.рф/index/en_information/0-104

LETTER TO SHAREHOLDERS

Sergei B. Shalaev General Director of OAO Solikamsk Magnesium Works

Last year – 2014 – was complicated. Growth of the world economy in 2014 was below initial expectations, resulting in lower prices in the mining and manufacturing sectors – which in turn were exacerbated by reciprocal sanctions of the NATO countries, Japan and Korea against Russia in connection with joining of Crimea to Russia and events in Ukraine - and products of Solikamsk Magnesium Works were not immune from this negative tendency. In contrast to previous years, oil prices declined in the reporting year, and such a decline may promote the recovery of the global economy because it results in savings in energy expenses of households and manufacturing and makes more funds available to buy value-added products, services, and real estate. Depreciation of the Russian ruble, a result of falling oil prices, revived Russian manufacturing and agricultural sectors, improving their competitive position by offsetting in dollar terms inflated costs caused by annual Governmental price increases on products and services of natural monopolies during last 15 years. However, the Russian Central Bank significantly increased a key bank interest rate by a factor of more than 2 times – which stifled these sprouts of growth; turned industry, wages, budget revenues, and employment into a decline; led to increased amounts of overdue payments, wage arrears, and bad debts; and finally plunged the Russian economy into recession. Russian GDP dipped by 5% in Q1 2015, which was well below even the most pessimistic expectations. Despite these adverse circumstances, the performance of the Company was on a positive trend in the reporting year. Sales revenues increased from 4’455.6 million rubles to 5’164.7 million rubles or by 15.9% year-to-year; sales loss improved from -237.1 million rubles to -203.666 million rubles; and net income changed its sign from minus to plus, from -172.4 million rubles of loss to + 40.023 million rubles of profit. The coming year of 2015 is completely uncertain and unpredictable, but the management of the Company hopes to overcome any challenges that may arise and strengthen the technical and financial performance of the Company in the coming year and beyond.

MISSION Activities of our Company are concentrated on manufacturing of quality magnesium, chemical and rare metals products designed for use in High-Tech industries. Our long-term and reciprocal relationships with customers, suppliers, employees, shareholders and the community are established with use of efficient, environment-friendly and modern engineering approaches.

VISION We confidently remain on leading market positions, meeting improved and modified customers’ requirements by the way of development environment- friendly and efficient processes. High-skilled, self-motivated and devoted employees are considered as the basic source the Company’s success in the market. Efficient and reciprocal relationships with our partners give us a competitive edge.

GENERAL COMPANY INFORMATION History in Brief • 14 March 1936: first ingot of primary magnesium metal was produced by the Company. This historical date is fairly considered as the Date of Birth of Solikamsk Magnesium Works • 1939: SMW started production of alloy magnesium for aircraft industry • 1946: the Experimental Plant was founded, the first experimental plant inside an operating facility in the Non-ferrous Industry of the Soviet Union. All of the main basic technologies recently utilized by CIS magnesium and titanium companies and in Israel were developed here • 1962 - 1966: A proprietary technology to produce Mg-Zr master alloy and MZr1N3 magnesium super alloy was implemented to source the Soviet Space Program and Aircraft Industry • 1971: Rare Metals Operations were brought on stream with use of chlorine generated in Magnesium Operations as the main reagent to process loparite and other raw materials in these operations • 1977: a line to separate niobium pentachloride out of tantalum pentachloride with production of technical grade niobium pentaoxide was put into operation • 1983: a line to produce optoelectronic grades of tantalum and niobium pentaoxides was brought on stream • 1985: SMW awarded with the Order of Great Patriotic War 1941-1945 recognizing importance of SMW’s supply for Soviet Army and Navy to win the War • 1992: state-owned enterprise Solikamsk Magnesium Works was transformed into joint-stock company Solikamsk Magnesium Works (hereinafter referred to as “SMW”, “Solikamsk”, or “the Company”) • 1996: in joint venture partnership with Almamet GmbH, Germany, a plant to produce magnesium granules, powders and mixes for desulfurization of iron and steel – Solikamsk Desulfurizers Works OOO (SZD) - was brought on stream. This event pushed mass introduction of desulfurization process in the Russian Steel Industry • 2000: a line to produce rare earths carbonates was developed • 2000: the first ISO 9001 certification • 2009: the first stage of titanium sponge project was brought on stream with capacity 2’500 tons per year out of total projected of 5’000 tons per year • 6 November 2009: the first 1’000’000th ton of magnesium metal was melted by SMW • 2010: the first ISO 14001 certification • 2013: production of separated and individual rare earths compounds was arranged • 2014: facility to process by-products of Magnesium Operations was brought on stream

Solikamsk is a modern, continuously developing company which gradually increases the range of products with enhanced features and keeps leading positions in Magnesium and Rare Metals Industries of Russia accounting for, virtually, 100% output of tantalum, niobium and rare earths chemicals, and more than 60% of commodity pure & alloy magnesium metal and 4% of titanium sponge production in the country, with Integrated Management System conforming to appropriate international standards and requirements.

Solikamsk Magnesium Works In Brief

SMW’s Group of the Companies SMW’s suppliers of the main raw materials

SMW

Solikamsk

Russian R&D Solikamsk Institute of Desulfurizers Titanium & Works Mart Octane Magnesium 50% 50% 50% 68%

SMW’s Production Flow Chart

Raw material supply Production Finished Products

•Pure & alloy Mg metal •Potash (40% К2O) Carnallite Magnesium Operations •Carnallite •Fluxes, etc •Ca hypochlorite solution

Chlorine (gas) Lime slurry MgCl2 •32% CaCL2 solution Limestone •Lime •Lime slurry Пашийский карьер Chemical Operations •Liquid chlorine

Mg Chlorine, Lime slurry milk

Production of titanium sponge •Titanium sponge

rutile Rare Metals TiCl4 •Nb pentachlorides & oxides •Та pentachlorides & oxides Operations Production of Nb, Ta, Ti compounds •Ti tetrachloride Ti, Nb, Ta chlorides •Rare earths carbonates loparite Chlorination •Се carbonates & oxides •La carbonates & oxides Rare Earths Production of rare earths compounds Chlorides •Nd carbonates & oxides •Pr carbonates & oxides •Nd/Pr carbonates & oxides •SmEuGd carbonates & oxides

Annual capacities to manufacture main products Magnesium Operations - Pure & alloy Mg – up to 18’200 mt, including 16’200 mt output for sales; - Potash, fluxes, etc. – up to 79’320 mt; - Calcium hypochlorite solution – up to 60’000 mt Rare Metals Operations Capacity for loparite processing is up to 13’000 mt that enables to produce: - Niobium compounds – up to 855 mt Nb2O5 contained - Tantalum compounds – up to 60 mt Та2О5 contained - Rare earths compounds, mixed, separated and individual – up 3’600 mt TREO contained - Titanium sponge & titanium compounds – up to 2’600 mt Ti contained Chemical Operations - Chlorine, liquid – up to 3’000 mt - Lime – up to 20’000 mt - Calcium chloride solution (32% CaCL2) – up 72’000 mt

Registration Data Complete Name of the Company In Russian: Открытое акционерное общество «Соликамский магниевый завод» In English: Open joint stock company «Solikamsk Magnesium Works» Short Name of the Company In Russian: ОАО «СМЗ» In English: JSC «SMW» Company Location: 9 Pravda Str., 618541, Solikamsk, Perm Region. RUSSIA Tel: +7(34253) 51171 Fax: +7(34253) 52375 E-mail: [email protected] htpp:// www.smw.ru Date of State Registration and Register Number: Order of Solikamsk City Administration № 919.1 of 10 November 1992 Key State registration number of juridical person (OGRN): 1025901972580 Date of registration: 10.09.2002 г. Taxpayer Identification Number (INN): 5919470019 Name of Registering Agency: Inter-regional Inspection № 11 for Perm Region and Komi-Permiatskiy National District, the Russian Federation Ministry of Taxes Registered Activities (codes OKVED): - Production of minor inorganic chemicals OKVED 24.13 - Production of minor non-ferrous metals OKVED 27.45 - Production of castings OKVED 27.5 - Processing of metallic scrap & residues OKVED 37.10 - Building & construction works for general purposes OKVED 45.21 - Operation of gravel and sand pits OKVED 14.21 - Generation, transfer & distribution of steam and hot water (heating energy) OKVED 40.30 - Cooking in canteens belonging to enterprises OKVED 55.51 - Managing of sports entities OKVED 92.61 - Medical practices OKVED 85.12 - Managing of medical entities OKVED 85.11 - Education of adults and other kinds of education not included in other groups OKVED 80.42 - Retail in shopping trays and market places OKVED 52.62 - wholesale trade of other kind of food OKVED 51.38 The main activity in 2014: Production of minor inorganic chemicals OKVED 24.13 Sources of information about the Company: Company’s newspaper “Magnievik”, city’s newspaper «Solikamskiy rabochiy», Company’s web-site www.smw.ru , IA ZAO «Interfax» for regular disclosure of information http://www.e-disclosure.ru/portal/company.aspx?id=6100 Representative offices and affiliated branches: not available Auditor of the Company Name: Closed type joint-stock company Firm “Legion-Audit” Location: ul. Kostycheva 42a, 614031, Perm. RUSSIA INN: 5903029169 OGRN: 1025900766870 E-mail address: [email protected] Auditor is a member of Self-regulatory Organization of Auditors - Non-commercial Partnership “Chamber of Auditors of Russia” (SRO NP APR, OGRN 1037739752687), date of registration in the State register of SRO of auditors: 01 October 2009. Location: 3rd Syromiatnicheskiy pereulok, 3, korpus 9, stroenie 3, 105120, Moscow. RUSSIA. Register-keeper of the Company Name: Closed Type Joint-Stock Company “Registrator Intraco” Location: ul. Lenina,64, Etazh 2, 614990, Perm. RUSSIA Tel/fax: (342) 233-01-63/233-01-64, http:// www.intraco.ru License number: 10-000-1-00272 of 24 December 2002 Issuing Agency: The Russian Federal Securities Commission Validity: unlimited “Registrator Intraco” is a member of Professional Association of Register holders, Transfer Agents and Depositaries (PARTAD). Register-keeper of the Company: since 23 December 1996 7

Authorized Capital of the Company Authorized Capital of the Company is 99’568 (ninety nine thousand five hundred sixty eight) rubles which is divided into 398’272 (three hundred ninety eight thousand two hundred seventy two) personal ordinary (voting) shares with a nominal value of 0.25 rubles per share State registration number of shares’ issue: 1-01-00283-А. Date of State registration of shares’ issue: 05 June 2007 Shareholders of the Company List of the main registered shareholders of the Company was changed during 2014 year. Number of persons registered in the list of shareholders on the last date of the reporting year is 704, including 2 nominal shareholders List of shareholders owing at least 5% of authorized capital or not less than 5% of ordinary (voting) shares: List of shareholders owing not less than 5% of ordinary shares of the Company included the following persons on the date of 31st December 2014: 1. Slontecco Investments Ltd – 24.0002%; 2. Vojiesko Holdings Ltd – 17.7100 %; 3. Fullcircle Facilities Management (Cyprus) Ltd – 15.7018%; 4. Canemare Enterprises Ltd – 15.4035 %; 5. Closed type Joint Stock Company "К2 Bank" (К2 Bank (ZAO)) – 9.4910 %. Information concerning any agreement of any shareholder(s) and/or person(s) who keep(s) a control on any shareholder(s) act together with participation of the other shareholder(s), which may have significant impact on the Company’s activities, under which parties of such agreement(s) assume its obligations act together in connection with business activities including managing of the Company, is not available. Market Capitalization of the Company Ordinary shares of the Company (trade index – MGNZ) are included in the Level 3 List of Securities permitted for trade in ZAO “Stock Exchange MICEX” (SE MICEX) since 09 June 2014. Location of exchange: 13 Bolshoi Kislovskiy pereulok, 125009, Moscow. RUSSIA Tеl: +7 (495) 363-3232, fax: +7 (495) 705-9622

Market price of shares of Solikamsk Magnesium Works OAO on MICEX, ruble per share

Information concerning market price of SMW’s shares is readily available under link: http://www.micex.ru/marketdata/analysis?secid=MGNZ&boardid=EQNE&linetype=candles&peri od=-1d Market capitalization of the Company on the 31st December of subsequent year was as follows:

2011 2012 2013 2014 3’856’945’702.40 2’374’179’046.40 2’395‘446‘771.20 1 362 090 240.00

Information concerning market value of the Company is readily available under link: http://rts.micex.ru/s26 Subsidiaries (dependent entities) of the Company 1. SZD, OOO Complete subsidiary name: Limited Liability Company "Solikamsk Desulfurizers Works" Short subsidiary name: SZD,OOO Location: 9 Pravda Street, 618541, Solikamsk, Perm Region. RUSSIA INN: 5919492823 OGRN: 1025901973459 The main activity: production of granular and powder magnesium Web address: www.szd.ru SMW’s share in Authorized Capital of the subsidiary,%: 50 Share of the subsidiary in total shares of SMW, %: 0 Share of the subsidiary in voting shares of SMW, %: 0 2. RITM, OAO Complete subsidiary name: Open Joint-Stock Company "The Russian Titanium & Magnesium Research, Development & Designing Institute” Short subsidiary name: RITM, OAO Location: 101 Lenina Avenue, 618421, Berezniki, Perm Region. RUSSIA INN: 5911030023 OGRN: 1025901707237 The main activity: R&D, designing & projecting works and services in technology of magnesium and rare metals, and in other areas Web address: http://www.oao-ritm.ru/ SMW’s share in total shares of subsidiary, %: 68 SMW’s share in total voting shares of subsidiary, %: 68 Share of subsidiary in total SMW’s shares, %: 0 Share of subsidiary in voting shares of SMW, %: 0 3. Mart, ООО Complete subsidiary name: Limited Liability Company "Mart". Short subsidiary name: Mart, OOO Location: 9 Pravda Street, 618541, Solikamsk, Perm Region. RUSSIA. INN: 5919491570 OGRN: 1025901972656 The main activity: Production of consumer goods SMW’s share in subsidiary’s Authorized Capital,%: 51 Share of subsidiary in total SMW’s shares, %: 0 Share of subsidiary in voting shares of SMW, %: 0 4. Octane, ZAO Complete subsidiary name: Closed Joint-Stock Company "Octane". Short company name: Octane, ZAO Location: 27 Ordzhonikidze Street, 618541, Solikamsk, Perm Region. RUSSIA. INN: 5919000616 OGRN: 1025901972689 The main activity: lease of equipment of fuel station SMW’s share in Authorized Capital of subsidiary %: 50

SMW’s share in voting shares of subsidiary, %: 50 Subsidiary’s share in total shares of SMW, %: 0 Subsidiary’s share in voting shares of SMW, %: 0 5. ZAO «Ecomag» - inactive SMW’s membership in organizations and associations: 1. Tantalum – Niobium International Study Center (TIC) from 1992 2. Perm Chamber of Commerce from 1992 3. Verkhne-Kamskaya Chamber Of Commerce from 1995 4. Association of Analytical Centers “Analitika” from 1995 5. Non-commercial alliance “Association of Chlorine Industry” (Association “RusChlor”) from 2006 6. ZAO Inter-state Association “Titan” from 2008 7. Association of Energy Facilities of Western Urals from 1997 8. Self-regulatory Organization Non-commercial Partnership «Union of Architectural & Designing Organizations of Perm Region” - SRO NP “SAPO” - from 2009 9. Self-regulatory Organization Non-commercial Partnership “Alliance of Builders” - from 2011 10. Basin Council of Kama River Basin Administration of Federal Water Resources Agency from 2009 11. Non-commercial Partnership “Council of Managing Directors of Enterprises in Solikamsk City and Solikamsk District” from 2002 PRIORITY ACTIVITIES OF THE COMPANY The Charter and the Mission of the Company constitute that priority activities of SMW are to supply markets with magnesium, chemical and rare metals products, satisfy demand for commodities and services, and earn a profit. The Company’s strategy is gradual development of products with enhanced features in order to assure sustainable sales of the Company’s products in changing market conditions. REPORT OF THE BOARD CONCERNING PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES FINANCIAL OVERVIEW Growth of the global economy was well below expectations. Economy of Europe has not been able to overcome the recession, economies of China and certain other leading countries have been slowed down. Reciprocal sanctions of NATO countries, Japan and Korea against Russia - after joining Crimea to Russia and events in Ukraine - were additional factors those affected growth of the world economy. Demand and prices in mining and manufacturing remained under downward pressure and prices on SMW’s products were not apart this negative trend. In contrast to previous years, oil and gas prices also declined in the reporting year. Drop in oil prices caused depreciation of Russian ruble. This depreciation revived Russian manufacturing and agricultural sectors improving their competitiveness through particular offsetting in dollar terms inflated costs resulted from Governmental annual price increases on products and services of natural monopolies during last 15 years. However, Russian Central Bank rocketed key interest rate by a factor of more than 2 times, and this action discontinued abovementioned revival and finally plunged Russian economy into recession. CBRF, ROSCOMSTAT, IEA. Oil Brent price, exchange rate ₽/US$, PPI and CPI 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 2015 Q4 Q1 Oil Brent price, US$/bbl 54.4 65.4 72.7 97.7 61.9 79.6 111.0 121.4 108.8 98.9 76.4 53.9 Exchange rate, ₽/US$ 28.31 27.14 25.55 24.87 31.77 30.38 29.39 31.07 31.91 38.45 47.42 63.19 PPI* (2000 =100) 233.2 257.4 321.9 299.4 340.8 397.6 445.4 468.3 485.5 513.9 513.9 531.6 CPI ** (2000 = 100) 206.2 224.8 251.5 284.9 310.0 337.2 357.8 381.2 405.9 452.0 452.0 479.8 * PPI – Producer Price Index – integral index that measures the average change in costs and prices in industrial sector ** CPI – “inflation” – Consumer Price Index- integral index that measures change in selling prices in retail and public services

SMW. Changes in exchange rate ₽/US$, PPI and CPI in Russia during last 10 years (2005=1)

SMW’s sales revenues totaled ₽ 5’164.738M in 2014. This is a rise of +15.9% compared to ₽ 4'455.570M in 2013. Respective results denominated in US$ were US$ 133.795M in 2014 and US$ 139.645M in 2013 representing a decrease of -4.2% YOY. Sales loss and net income of the Company accounted for -₽ 203.666M (-US$ 5.297M) and +₽ 40.023M (+US$ 1.041M) respectively, compared to sales loss of -₽ 237.108M (-US$7.431M) and net loss of - ₽172.378M (-US$ 5.403M) in 2013. SMW. Sales revenues and income, mln RUB (₽ mln), mln US$ (US$M), exchange rate ₽/US$

Russian sales revenues declined by -9.53% YOY, from ₽ 2’867.001M in 2013 to ₽ 2'593.914M in 2014. The same values denominated in US$ were US$ 89.857M and US$ 68.514M accordingly, representing a drop of -23.75% YOY. Share of Russian market in total sales revenues of the Company decreased from 64.3% to 51.2%. Export sales revenues experienced a growth by a factor of 1.62, from ₽ 1’588.569M to ₽ 2’570.824M. Exports in US$ terms accounted for US$ 65.282M in 2014, this is a rise by a factor of 1.31 compared to US$ 49.789M in 2013. Share of exports in total sales revenues increased from 35.7% to 48.8%. SMW. Sales revenues, mln RUB (₽ mln) and mln US$ (US$M), exchange rate RUB/US$

Solikamsk is the largest producer of pure & alloy magnesium, compounds of niobium, tantalum and rare earths not only in Russia, but inside EurAsEC too. Overvalued ruble caused increased imports, and market share of EurAsEC shipments in the Company’s total sales revenues shrunk by -12.5%, from 71.9% in 2013 to 59.4% in 2014.

SMW. Sales by market areas, % (on the graphs), mln RUB (₽ mln) and mln US$ (US$M)

mln RUB (₽ mln) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, ₽ mln 582.927 917.773 1'406.640 1'589.463 1'226.148 1'747.359 2'674.856 3'172.561 2'867.001 2'593.914 BY + KZ,₽ mln 27.400 65.264 146.325 178.775 251.208 330.613 1'388.396 238.671 335.514 425.794 Sub- total EurAsEC, ₽ mln 610.327 983.037 1'552.965 1'768.238 1'477.356 2'077.972 4'063.252 3'411.232 3'202.515 3'019.708 Americas, ₽ mln 401.318 334.083 185.138 279.309 118.523 395.136 78.812 198.792 336.134 749.857 Asia, ₽ mln 44.400 32.368 45.818 95.542 107.885 170.166 290.559 238.849 346.091 717.292 Europe and others, ₽ mln 620.415 624.017 757.092 974.316 823.056 704.560 2'077.465 1'672.027 570.830 677.881 Sub-total ROW, ₽ mln 1'066.133 990.468 988.048 1'349.167 1'049.464 1'269.862 2'446.836 2'109.668 1'253.055 2'145.030 TOTAL, ₽ mln 1'676.460 1'973.505 2'541.013 3'117.405 2'526.820 3'347.834 6'510.088 5'520.900 4'455.570 5'164.738 mln US$ (US$M) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, US$M 20.588 33.822 55.051 63.901 38.598 57.523 90.998 102.096 89.857 68.514 BY+KZ, US$M 0.968 2.405 5.727 7.187 7.908 10.884 47.233 7.681 10.516 10.896 Sub-total EurAsEC, US$M 21.556 36.227 60.778 71.088 46.506 68.407 138.230 109.777 100.372 79.410 Americas, US$M 14.174 12.312 7.246 11.229 3.731 13.008 2.681 6.397 10.535 19.075 Asia, US$M 1.568 1.193 1.793 3.841 3.396 5.602 9.885 7.686 10.847 17.922 Europe and others, US$M 21.912 22.996 29.630 39.170 25.909 23.194 70.675 53.808 17.891 17.388 Sub-total ROW, US$M 37.654 36.501 38.669 54.240 33.036 41.804 83.240 67.891 39.273 54.385 TOTAL, US$M 59.210 72.728 99.446 125.328 79.543 110.211 221.471 177.668 139.645 133.795

Sales revenues of Magnesium Operations increased from ₽ 2’081.928M in 2013 to ₽ 2’117.357M in 2014, or by +1.7% YOY, while the same results in US$ terms decreased from US$ 65.251M in 2013 to US$55.826M in 2014, or by -14.4% YOY, and share of these Operations in total sales revenues decreased from 46.7% to 41.0%. Sales revenues of Chemical & Other Operations declined from ₽ 543.494M in 2013 to ₽ 509.092M in 2014, or by -6.3% YOY. The same value denominated in US$ terms dropped from US$17.034M in 2013 to US$ 13.379M, or by -21.5% YOY. Share of these Operations in total sales revenues decreased from 12.2% to 9.9%. Sales of separated rare earths helped to improve share of Rare Metals Operations in total sales revenues, from 41.1% to 49.1%. Sales revenues itself ramped up by +38.7%, from ₽ 1’830.148M in 2013 to ₽2'538.288M in 2014, or, denominated in US$, from US$ 57.360M in 2013 to US$64.590М in 2014 representing a rise of +12.6% YOY. SMW. Sales revenues by Operations in mln RUB (₽ mln) and mln US$ (US$M), %% on the graphs

mln RUB (₽ mln) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Magnesium, ₽ mln 1'112.110 1'287.519 1'376.143 1'938.084 1'519.937 1'850.875 1'925.943 2'050.233 2'081.928 2’117.357 Rare Metals, ₽ mln 463.471 551.162 895.832 956.945 793.769 1'226.470 4'159.545 2'963.816 1'830.148 2'538.288 Chemical and others, ₽ mln 100.879 134.824 269.038 222.376 213.114 270.489 424.600 506.851 543.494 509.092 TOTAL, ₽ mln 1'676.460 1'973.505 2'541.013 3'117.405 2'526.820 3'347.834 6'510.088 5'520.900 4'455.570 5’164.737 mln US$(US$M) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Magnesium, US$M 39.278 47.448 53.857 77.916 47.847 60.931 65.520 65.979 65.251 55.826 Rare Metals,US$M 16.369 20.311 35.060 38.472 24.987 40.376 141.506 95.379 57.360 64.590 Chemical and others, US$M 3.563 4.969 10.529 8.940 6.709 8.905 14.445 16.311 17.034 13.379 TOTAL, US$M 59.210 72.728 99.446 125.328 79.543 110.211 221.471 177.668 139.645 133.795

PERFORMANCE BY OPERATIONS MAGNESIUM OPERATIONS The production of magnesium metal is the starting point of the processes utilized by Solikamsk. Chlorine generated in the production of magnesium metal is the main reagent used to process loparite and other raw materials utilized by the Rare Metals Operations. Part of magnesium capacity is employed in the titanium-magnesium cycle of the titanium sponge production where magnesium metal is used as the reducing agent to extract titanium from titanium tetrachloride with generation of titanium sponge and magnesium dichloride. Magnesium dichloride is then recycled back to magnesium metal and chlorine in the Magnesium Operations, and magnesium is then reverted back to process of titanium sponge production, while chlorine is used to process raw materials on chlorination stage of the Rare Metals Operations. The main products of Magnesium Operations include pure & alloy magnesium metal, minor products include processed carnallite mainly used to produce magnesium and salts for balneotherapy, potash (min. 40% K2O) mainly used as the fertilizer, potash and carnallite fluxes, other salts mainly used in non-ferrous metallurgy, and calcium hypochlorite solution used for disinfection of premises and paper bleach. SMW is the main commodity magnesium producer in the EurAsEC and the main supplier to this market. EurAsEC market experienced growth of consumption and became the main market for all the products of Magnesium Operations, and not only magnesium. Out of minor products of Magnesium Operations, potash is the main product of export, while other products are mostly sold in Russia and shipments abroad are very few. SMW. Sales revenues of Magnesium Operations by market areas, in %% (graphs), ₽ mln and US$M (table)

mln RUB (₽ mln) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, ₽ mln 346.003 686.312 787.891 950.869 725.289 1'069.342 1'513.027 1'593.712 1'770.394 1’564.447 BY+KZ, ₽ mln 25.426 12.412 17.706 64.278 141.752 59.629 74.358 59.099 55.883 86.782 Sub-total EurAsEC, ₽ mln 371.429 698.724 805.597 1'015.147 867.041 1'128.971 1'587.385 1'652.811 1'826.277 1’651.229 Americas, ₽ mln 353.513 301.409 145.509 213.598 90.097 347.386 41.177 16.947 15.720 234.785 Asia, ₽ mln 0.000 0.000 1.573 90.752 88.535 113.769 197.789 199.387 113.724 120.073 Europe and others, ₽ mln 387.168 287.386 423.464 618.587 474.264 260.749 99.592 181.088 126.207 111.27 Sub-total ROW, ₽ mln 740.681 588.795 570.546 922.937 652.896 721.904 338.558 397.422 255.651 466.128 TOTAL, ₽ mln 1'112.110 1'287.519 1'376.143 1'938.084 1'519.937 1'850.875 1'925.943 2'050.233 2'081.928 2'117.357 mln US$ (US$M) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, US$M 12.220 25.292 30.835 38.227 22.832 35.203 51.473 51.287 55.487 41.648 BY+KZ, US$M 0.898 0.457 0.693 2.584 4.462 1.963 2.530 1.902 1.751 2.326 Sub-total EurAsEC, US$M 13.118 25.749 31.528 40.812 27.294 37.166 54.002 53.189 57.239 43.974 Americas, US$M 12.486 11.108 5.695 8.587 2.836 11.436 1.401 0.545 0.493 5.948 Asia, US$M 0.000 0.000 0.062 3.648 2.787 3.745 6.729 6.416 3.564 3.051 Europe and others, US$M 13.674 10.591 16.573 24.869 14.930 8.584 3.388 5.828 3.956 2.921 Sub-total ROW, US$M 26.160 21.698 22.329 37.104 20.553 23.765 11.518 12.789 8.013 11.92 TOTAL, US$M 39.278 47.448 53.857 77.916 47.847 60.931 65.520 65.979 65.251 55.894

SMW. Shipments of Magnesium Operations by products, mt

SMW. Shipments of pure & alloy magnesium by market areas, mt

Solikamsk shipped 13’744 mt pure and alloy magnesium in 2014. This is a decrease of -226 mt or -1.6% compared to 13’970 mt in 2013. Out of the total pure magnesium shipments, pure magnesium (min. 99.90%) accounted for 12'188 mt, while ultra-pure magnesium (min. 99.95%) accounted for 727 mt. Out of the total alloy magnesium shipments, magnesium super and master alloys accounted for 143 mt, while common casting and die-casting alloys accounted for 686 mt. As the result of growing imports, mainly from China, shipments to EurAsEC market declined from 13’645 mt in 2013 to 11’816 mt in 2014, a drop by – 1’829 mt or – 13.4%. Shipments to Russian customers accounted for 11’207 mt in 2014, a decrease of – 2’108 mt or – 15.8% compared to 13’315 mt in 2013. Outside EurAsEC were shipped 1’928 mt of magnesium. This is a rise by a factor of 5.93 or + 1’603 mt compared to 325 mt in 2013. Share of shipments of magnesium outside EurAsEC increased from 3.8% in 2013 to 14.0% in 2014. 15

RARE METALS OPERATIONS Loparite is the main raw material processed in Rare Metals Operations (RMO) of the Company. This material is a complex titanate-niobate-tantalate of rare earths, alkali and alkali-earths elements, and typically contains 35-38% TiO2, 28-30% TREO, 7.5-8% Nb2O5 and 0.5-0.8% Ta2O5. Solikamsk processed 7’699 mt of loparite in 2014. This is a growth of + 650 mt or +9.7% compared to 7’363 mt in 2013. Despite increased loparite supply, capacity utilization of chlorination equipment was only 59.2%, and Solikamsk additionally processed 215 mt of rutile, titanium mineral, to improve this rate. Capacity utilization of equipment to produce titanium sponge was also improved by that. As the result of processing of raw materials expressed above, the following products are produced by Solikamsk: carbonates and oxides of rare earths; chemical concentrate, chlorides and oxides of niobium and tantalum; titanium sponge and tetrachloride. SMW. Processing of raw materials in Rare Metals Operations, mt

SMW. Sales revenues of Rare Metals Operations by market areas, in %% (graphs), mln RUB (₽ mln)& mln US$ (US$M)

mln RUB (₱ mln) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, ₽ mln 145.062 247.492 192.328 406.884 266.324 374.353 704.189 1'071.931 553.113 520.375 BY + KZ, ₽ mln 6.181 52.853 128.619 114.497 109.457 270.984 1'314.038 179.571 279.631 339.012 Sub-total EurAsEC, ₽ mln 151.243 300.344 320.947 521.381 375.780 645.336 2'018.227 1'251.502 832.744 859.387 Americas, ₽ mln 47.805 32.674 330.647 65.711 28.425 47.750 37.635 179.179 320.414 515.072 Asia, ₽ mln 44.400 32.368 1.573 10.988 35.983 56.397 92.769 36.897 237.269 597.219 Europe & others, ₽ mln 220.022 185.776 242.665 358.865 353.581 476.986 2'010.914 1'496.238 439.721 566.611 Sub-total ROW, ₽ mln 312.228 250.818 574.885 435.564 417.989 581.134 2'141.318 1'712.314 997.404 1'678.902 TOTAL, ₽ mln 463.471 551.162 895.832 956.945 793.769 1'226.470 4'159.545 2'963.816 1'830.148 2'538.289 mln US$ (US$M) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, US$M 5.123 9.121 7.527 16.358 8.384 12.324 23.956 34.496 17.336 13.554 BY + KZ, US$M 0.218 1.948 5.034 4.603 3.446 8.921 44.703 5.779 8.764 8.570 Sub-total EurAsEC, US$M 5.342 11.068 12.561 20.961 11.829 21.245 68.659 40.275 26.100 22.124 Americas, US$M 1.688 1.204 12.940 2.642 0.895 1.572 1.280 5.766 10.042 13.128 Asia, US$M 1.568 1.193 0.062 0.442 1.133 1.857 3.156 1.187 7.436 14.871 Europe & others, US$M 7.771 6.846 9.497 14.427 11.130 15.702 68.410 48.151 13.782 14.467 Sub-total ROW, US$M 11.027 9.243 22.499 17.511 13.158 19.131 72.847 55.104 31.260 42.466 TOTAL, US$M 16.369 20.311 35.060 38.472 24.987 40.376 141.506 95.379 57.360 64.590 Increased shipments were observed in each aggregate product category of Rare Metals Operations due to higher tonnage of loparite processed and inventories draw down.

SMW. Shipment of Rare Metals Operations by aggregate product category, mt of the main substance contained 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Compounds of Rare Earths, mt TREO 2'026.8 2'935.0 2'711.0 2'470.0 1'898.0 1'495.5 1'443.6 2'131.3 1'443.1 2'133.8 Titanium products, mt Ti 1'413.7 1'716.1 2'231.3 1'788.3 647.7 1'605.8 1'694.9 1'874.7 1'452.2 1'981.8 Niobium compounds, mt Nb2O5 638.7 656.2 688.4 584.9 511.0 397.1 430.8 450.2 510.7 580.7 Tantalum compounds, mt Ta2O5 35.4 37.8 47.7 39.3 34.8 31.0 27.0 31.4 32.2 39.9

Niobium Compounds Niobium market improved in the reporting year, and shipments of niobium compounds ramped up from 510.7 mt Nb2O5 in 2013 to 580.7 mt Nb2O5 in 2014, or by +13.7% YOY. Shipments to EurAsEC market decreased from 175.4 mt Nb2O5 in 2013 to 158.7 mt Nb2O5 in 2014 representing a decline of – 16.7 mt or -9.5% YOY. Shipments to Kazakhstan and Belorussia were few. Shipments outside EurAsEC ramped up from 335.3 mt Nb2O5 in 2013 to 427.0 mt Nb2O5 in 2014 representing a rise of +91.7 mt Nb2O5 or +27.3% YOY, mainly to Americas. Shipments of metallurgical grade pentoxide accounted for 557.2 mt Nb2O5 while numbers of high purity grade compounds for optics and electronics accounted for 23.5 mt Nb2O5 contained.

SMW. Shipments of niobium compound by market areas, mt Nb2O5 contained and in %% (graphs)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, mt Nb2O5 131.0 130.9 174.6 153.7 269.4 260.4 318.8 325.9 175.3 153.6

BY + KZ, mt Nb2O5 15.1 35.2 83.9 0.2 0.1 0.2 0.1 0.2 0.1 0.1

Sub-total EurAsEC, mt Nb2O5 146.2 166.1 258.5 153.9 269.5 260.6 318.9 326.1 175.4 153.7

Americas, mt Nb2O5 91.5 117.4 89.6 206.1 41.8 56.3 21.1 90.0 247.6 403.6

Asia, mt Nb2O5 129.6 75.3 43.7 10.1 28.8 0.0 0.0 0.0 0.0 0.0

Europe & others, mt Nb2O5 271.4 297.5 296.7 214.9 170.9 80.2 90.8 34.1 87.7 23.4

Sub-total ROW, mt Nb2O5 492.5 490.2 429.9 431.0 241.5 136.5 111.9 124.2 335.3 427.0

TOTAL, mt Nb2O5 638.7 656.2 688.4 584.9 511.0 397.1 430.8 450.2 510.7 580.7

Shipments of niobium compounds by grades, mt Nb2O5

Tantalum Compounds Tantalum market was uncertain in the a reporting year, but it did not have that much impact on the Company’s revenues and sales, because the vast majority of Solikamsk shipments were performed under annual contracts concluded at the end of 2013. Solikamsk shipped to its customers 39.9 mt Ta2O5 contained in tantalum compounds in 2014. This is a growth of +7.7 mt Ta2O5 or +23.9% compared to 32.2 mt Ta2O5 in 2013. Russian demand for tantalum compounds is relatively small and covered by shipments of SMW, while demand of Russia for tantalum metal is covered by imports, mainly from Kazakhstan, due to lack of commercial scale tantalum metal facilities inside Russia. SMW. Shipments of tantalum compounds by market areas, mt Ta2O5 contained and in %% (graphs)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, mt Ta2O5 3.2 1.7 2.7 1.3 2.0 2.1 2.0 3.0 1.6 2.4

BY+KZ, mt Ta2O5 0.0 13.5 25.0 22.4 26.2 19.6 0.0 3.1 25.0 34.2

Sub-total EurAsEC, mt Ta2O5 3.2 15.2 27.7 23.7 28.2 21.7 2.0 6.1 26.6 36.6

Americas, mt Ta2O5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.9

Asia, mt Ta2O5 2.5 0.2 4.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Europe & others, mt Ta2O5 29.7 22.4 15.7 15.6 6.6 0.0 25.0 25.3 5.6 2.4 18

Sub-total ROW, mt Ta2O5 32.2 22.6 20.0 15.6 6.6 9.3 25.0 25.3 5.6 3.3

TOTAL, mt Ta2O5 35.4 37.8 47.7 39.3 34.8 31.0 27.0 31.4 32.2 39.9

SMW. Shipments by product grades, mt Ta2O5 contained

Compounds of Rare Earths Primary rare earths carbonate manufactured by Solikamsk has a limited range of applications, and the main use of this product is a semi-product to produce separated and individual rare earths by further extraction. In order to avoid this disadvantage of carbonate, SMW organized partial extraction of primary carbonate into separated products which reduced dependence of Solikamsk on external processors, raised final price of products and market flexibility of the Company. In 2014, SMW shipped to its customers 2'133.8 mt TREO contained in rare earths compounds. This is a rise of +690.7 mt TREO or by a factor of 1.48 compared to 1’443.1 mt TREO in 2013. Shipments of original carbonates accounted for 1’449.0 т TREO. This is an increase of +152.3 mt TREO or +11.7% compared to 1’296.7 mt TREO in 2013. Shipments of separated products rocketed by a factor of 4.68 or by +538.4 mt TREO year-to-year, from 146.4 mt TREO in 2013 to 684.8 mt TREO in 2014. SMW. Shipments of rare earths compounds by product category, mt TREO contained.

SMW. Shipments of rare earths compounds by market areas, mt TREO and in %% (graphs) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, mt TREO 48.5 41.0 37.0 12.8 8.2 30.0 22.0 83.7 48.7 109.8 BY+KZ, mt TREO 54.2 146.7 435.5 502.0 150.8 448.4 656.4 213.0 0.0 0.0 Sub-total EurAsEC, mt TREO 102.7 187.7 472.5 514.8 159.0 478.4 678.4 296.7 48.7 109.8 Americas, mt TREO 257.7 0.0 250.3 0.0 0.0 12.0 0.0 0.0 0.0 0.0 Asia, mt TREO 0.0 300.5 113.0 0.0 0.0 102.2 55.1 0.0 784.2 852.9 Europe & others, mt TREO 1'666.4 2'446.7 1'875.2 1'955.2 1'739.0 872.9 710.3 1'834.6 610.1 1171.1 19 Sub-total ROW, mt TREO 1'924.1 2'747.3 2'238.5 1'955.2 1'739.0 987.1 765.4 1'834.6 1'394.4 2'024.0 TOTAL, mt TREO 2'026.8 2'935.0 2'711.0 2'470.0 1'898.0 1'465.5 1'443.8 2'131.3 1'443.1 2'133.8

Shipments to EurAsEC market accounted for 109.8 mt TREO. This is a rise of +61.1 mt TREO or by a factor of 2.25 compared to 48.7 mt TREO in 2013 including 9.2 mt TREO in the form of original rare earths carbonate and 100.6 mt TREO in the form of separated products, all of them were sold in Russia. Outside EurAsEC were shipped 2’024.0 mt TREO. This is a growth of + 629.8 mt TREO or by a factor of 1.45 compared to 1’394.4 mt TREO in 2013 including 1’439.8 mt TREO in the form of original rare earths carbonate and 584.2 mt TREO in the form of separated products. Shipments to Asian market accounted for 852.9 mt TREO including 603.7 mt TREO in the form of original rare earths carbonate and 249.2 mt TREO in the form of separated products. Shipments to Europe ramped up by a factor 1.92, up by + 561.0 mt TREO, from 610.1 mt TREO in 2013 to 1’171.1 mt TREO in 2014 including 836.1 mt TREO in the form of original rare earths carbonate and 335.0 mt TREO in the form of separated products. Titanium Sponge and Compounds In 2014, SMW shipped to its customers 1’981.8 mt Ti contained in all the forms of products. This is a rise by a factor of 1.36 or by +529.6 mt Ti compare to 1’452.2 mt Ti in 2013. Out of this total, 1’940.0 mt Ti were shipped in the form of titanium sponge and 41.8 mt Ti (165.7 mt physical tonnage) in the form of titanium tetrachloride (TiCL4). SMW. Shipments of titanium by product category, mt Ti contained

Increased shipments were observed to all of the market areas, but the main area of growth was Asia.

20 Growth of shipments to EurAsEC was very few, by +4.1 mt Ti or +0.4% YOY, from 970.2 mt Ti in 2013 to 974.3 mt Ti in 2014. Shipments to Russia increased from 967.2 mt Ti in 2013 to 974.3 mt Ti in 2014. This a rise of +7.1 т Ti or + 0.7% YOY. There were no shipments to Kazakhstan and Belorussia in the reporting year. Shipments outside EurAsEC accounted for 1’007.5 mt Ti, all in the form of titanium sponge. This is a rise by a factor of 2.09 or by + 525.5 mt Ti compared to 482.0 mt Ti in 2013. SMW. Shipments of titanium products by market areas, mt Ti and %% (graphs) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 RU, mt Ti 1'413.7 1'716.1 2'231.3 1'778.3 242.3 643.0 885.5 1'055.9 967.2 974.3 BY+KZ, mt Ti 0.0 0.0 0.0 0.0 0.4 0.0 0.0 0.2 3.0 0.0 Sub-total EurAsEC, mt Ti 1'413.7 1'716.1 2'231.3 1'778.3 242.7 643.0 885.5 1'056.1 970.2 974.3 Americas, mt Ti 0.0 0.0 0.0 0.0 14.4 0.0 0.0 112.0 0.0 0.0 Asia, mt Ti 0.0 0.0 0.0 0.0 96.0 130.6 48.0 104.0 60.0 522.0 Europe & others, mt Ti 0.0 0.0 0.0 0.0 294.6 832.2 761.4 602.6 422.0 485.5 Sub-total ROW, mt Ti 0.0 0.0 0.0 0.0 405.0 962.8 809.4 818.6 482.0 1'007.5 TOTAL, mt Ti 1'413.7 1'716.1 2'231.3 1'778.3 647.7 1'605.8 1'694.9 1'874.7 1'452.2 1'981.8

CHEMICAL OPERATIONS The range of commodities manufactured in the Chemical Operations include calcium chloride solution (32% CaCl2), liquid chlorine (Cl2), lime (CaO) and lime slurry milk (Ca(OH)2 ● xH2O). Historical shipments of these products are provided in the diagram below. SMW. Shipments of products of Chemical Operations, mt

21 USAGE OF RAW MATERIALS AND ENERGY RESOURCES Raw materials and energy resources are the main expenses of the Company. Raw Materials The main raw materials utilized by the Company are: - in the Magnesium Operations - carnallite; - in the Rare Metals Operations– loparite, and rutile was used as supplemental raw material - in the Chemical Operations – lime stone Raw materials’ suppliers in 2014 were: carnallite - SKRU-1 of ОАО «Uralkaliy», Solikamsk City, Perm Region, Russia; loparite – ООО «Lovozerskiy Mining & Concentration Works» (LGOK), township Revda, Murmansk Region, Russia, rutile – Volnogorsky and Deimurinsky GOKs (the both are in Ukraine); lime stone – AVISMA branch of ОАО “VSMPO-AVISMA Corporation”, ООО “Halopolymer – Pashiya” and AO “Berezniki Soda Works”, all of them are located in Perm Region, Russia. SMW. Raw material receipts, mt Name 2009 2010 2011 2012 2013 2014 Country of Origin

Carnallite 258'212 302'733 243'319 225'584 219'700 225’340 Russia Lime stone 89 343 115 352 139 789 126 961 117 022 117’235 Russia Loparite 6'628 5'120 6'226 6'712 7'485 7’770 Russia Rutile - 344 1'200 1'023 1'268 105 Ukraine, Australia Compliance with international regulations on trade with “conflict minerals” UN imposed an embargo on trade with materials containing tantalum, tungsten, tin and gold originated in “conflict area” of the Democratic Republic of Congo (DRC). Solikamsk did not make any purchases or processing of raw materials containing tungsten, tin and gold as well as did not make any purchases of raw materials containing tantalum, other than loparite, in 2009-2014. Energy Resources Electricity is the main energy resource utilized by Solikamsk, and it is the main cost factor in Magnesium Operations. Natural gas is directly used in the generation of heat, production of lime and cell feed preparation. Heavy oil (mazut) is used as the reserve fuel in heat generation and cell feed preparation. Gasoline (benzin) and diesel fuel are the energy sources for internal-combustion engines in automotive transport employed by SMW. In 2014, SMW’s expenses on energy resources accounted for ₽ 1’519.051M. This is a rise of + 4.8% compared to ₽ 1’449.975M in 2013, while electricity consumption was less by - 20’317.91MWh, heat production was less by -1’285.62 Gcal and consumption of natural gas decreased by -1’463’710m3. SMW. Usage of energy resources in 2014 by type of resource Name UOM Consumption Value, ‘000 ₽ Electricity MWh 434’273.35 1’038’195.26 Natural gas ‘000 м3 61’067.09 238’867.37 Heavy oil mt 687.97 7’262.64 Gasoil mt 129.157 4'372.62 Diesel mt 452.170 13'858.07 Cokes mt 1’893.07 20’084.67 Usage of heating energy: Self-generated Gcal 276’841.66 196’401.07 Outside Gcal - - Consumption of fresh water (artesian and river water) was 4.278 million m3 and recycled water - 7.207 was million m3 in 2014.

TECHNICAL DEVELOPMENT AND IT-TECHNOLOGIES In 2014, Solikamsk invested ₽ 180.305M (US$ 4.690M) in renewing equipment, developing technology, and improving operational and works’ safety. This is a drop by a factor of 1.59 (factor of 1.91 in US$) compared to ₽ 286.558M (US$ 8.981M) in 2013. R&D expenses accounted for ₽ 19.550M. This is a decrease of -0.4% compared to ₽ 19.634M incurred for the same purposes in 2013. The following works and R&D were performed: 22 - in Magnesium Operations: - electrolytic cell designed with use of the most recent developments in technology was put under test; - testing works with 1 out of 3 electrolytic cells with high ampere density on cathode were finished. This cell demonstrated +3.2% higher yield of magnesium per ampere and -0.26 MWh/mt lower electricity consumption per 1 mt of metal compared to other electrolytic cells in the line; - modernization of continuous refining furnace avoided separate refining of magnesium for titanium sponge production; - transfer rate of Zr from Mg-Zr master alloy into Mg alloys was improved from 86% to 96%; - in Rare Metals Operations: - loading equipment of loparite chlorinator was modernized. This enables automatic loading of loparite and pitch coke; - new technology of waste recycling was developed and entered into operation. This technology improves yield of tantalum and niobium from wastes into processed products; - in titanium sponge production: retorts of old design were replaced with retorts of new design, designing works to transform crucible of mixer into retort for reduction were done; - process to produce metallurgical grade niobium pentoxide was improved. This improvement enhances quality of product; - in Chemical and auxiliary operations: - new types of filter cloth were tested, Chlorine Storage Unit was modernized to improve its safety IT & communications: Software “Compass” was upgraded to v15 that enables 3D design and modeling; DBMS “Alfa” was amended with module “Management of Purchases” enabling real time control of inventories; sanatorium was connected to internet line. COMPLIANCE OF MANAGEMENT SYSTEM WITH INTERNATIONAL REQUIREMENTS Compliance with International Code of Conduct for the industry Solikamsk performed unaudited self-assessment on compliance with Supplier Code of International Die – Casting Association (IDCA) and EICC Code of Conduct. Result of this self-assessment is provided on the web-site of SMW under links as follows: in Russian: www.смз.рф/index/integrirovannaja_sistema_menedzhmenta/0-90 , in English: www.смз.рф/en/manag_system/new2014/Compliance_with_Code_of_Conduct_for_the_Industry. pdf Integrated Management System and its compliance with international requirements

SMW developed and implemented Integrated Management System (IMS) conforming to ISO 9001:2008 “Quality Management System” and ISO 14001:2004 “Environmental Management System” that, in 2011, was amended with requirements of Due Diligence on trade with tantalum materials enforced by UN Security Council Resolution № S/2010/596. Successful maintenance and improvement of this System is an incontestable priority for the Company. Administering of IMS is performed in accordance with Quality Policy, Environmental Policy and Conflict Free Raw Materials Purchasing Policy of Solikamsk Magnesium Works OAO. All these documents are readily available on the Company’s official web-site under links: In Russian: http://www.смз.рф/index/integrirovannaja_sistema_menedzhmenta/0-90 In English: http://www.смз.рф/index/en_information/0-104 In 2014, the following audits were performed: - IMS was inspected on compliance with ISO 9001 and 14001 by Intercertifica -TUV together with TUV-Turingen, and on compliance with Due Diligence on trade with tantalum materials by EICC under Conflict-Free Smelter Program;

23 - Analytical Laboratory of SMW was audited on compliance with GOST ISO/MEC 17025-2009 by Association of Analytical Centers “Analytica” and range of accreditation of Laboratory was widened with 3 additional elements for product “Potash (potassium chloride)”. In 2014, in addition to earlier customers’ certificates of approval, Solikamsk was awarded with certificates of OAO “Voronezhskiy Joint-Stock Aircraft Company”(Russia) in supply of alloy magnesium, RTI (USA) and Foroni s.p.a (Italy) in supply of titanium sponge. OAO “Kamensk – Uralskiy Metallurgical Works” certified production processes of Mg-Zr master alloy and carnallite flux. Since 2007, SMW surveys customers’ satisfaction and loyalty with respect to main products manufactured by the Company to improve IMS. Customers’ satisfaction is studied using a 9-point ranking scale while customers’ loyalty is assessed with use a 5-point scale where 9 and 5 are the best values, respectively. The average ranking of customers’ satisfaction was 8.6 out of 9, and customers’ loyalty was 3.7 out of 5 in 2014. These results mean that the Solikamsk products meet customers’ expectations. Customers’ loyalty in 2013-2014

Customers’ satisfaction in 2013-2014

24 OPERATIONAL AND INDUSTRIAL SAFETY Operational & Works Safety Life, health and safety of SMW’s employees, residents and guests of Solikamsk city are unavoidable priorities of the Company. An integrated systematic approach in the field of operational and industrial safety is performed in accordance with the Company’s Regulations “Managing System of Operational & Industrial Safety”. SMW’s System of Operational & Works Safety is maintained in accordance with the Company’s Regulations “Operational & Works’ Safety”, requirements of Section VIII in Collective Labor Agreement between the Company’s Administration & Trade Union “Operational & Works Safety. Term & Conditions” as well as in accordance with statutory requirements in the Russian Federation. SMW’s expenses to maintain abovementioned System accounted for ₽ 58.3 mln (US$ 1.5M) including ₽41.6M for personal protection and ₽ 16.7M for safety techniques. These expenses do not include compensation paid to personnel in accordance with legislation. Industrial & Environmental Safety SMW’s System of Industrial & Environmental Safety is maintained in accordance with the Company’s Policy in Industrial Safety, Environmental Policy, Regulations “Production Control on Compliance with Industrial Safety Requirements” as well as in accordance with statutory requirements in the Russian Federation and international environmental standards. SMW’s expenses to maintain this System accounted for ₽ 50.650M (US$ 1.3M). These expenses do not include environmental costs specified for production processes. Measures prescribed by Schedule for 2014 to maintain industrial & environmental safety have been completely performed by SMW. In 2014, Supervisory State Agencies (RosTechNadzor, RosPotrebNadzor, RosTrud) performed 5 surveys of the Company and found SMW compliant with these surveys’ requirements. SMW’s Sanitary – Production Laboratory monitors sanitary conditions of air in industrial areas and buildings, air conditions in defined points of control, residential zone and sanitary-protective zone of Sanatorium. This monitoring is performed in accordance with the Program of Production Control on Compliance with Sanitary Regulations and Sanitary – Antiepidemic Prophylactic Practices. SMW continuously monitors contamination of air, water, and soil. This measuring helps to act effectively if pollution exceeds environmental norms. The system of radioactivity control of the surrounding environment is developed and implemented. This system guarantees radiation safety for the local residents. OAO “RITM”, Perm CGMS, KamVNIIVH, FBUZ “Centre of Hygiene & Epidemiology” were also employed for the purposes of environmental monitoring. SMW paid ₽ 1.930M to these contractors. Avoidance of pollution is the main issue of concern at the time of design and production decisions. The Company has all permissions for use of natural resources. SMW systematically schedules and implements measures to improve off-gas scrubbing equipment and reduce negative effect of pollution on air conditions. The Company modernized off-gas scrubbers in Magnesium Operations, aspiration equipment in Rare Metals Operations and chlorine storage equipment. Expenses to protect atmosphere accounted for more than ₽ 9.0M in 2014. Total release of polluting substances in atmosphere was 773.5 mt in 2014 compared to 753.5 mt in 2013 No case of chlorine MPC excess was fixed during the reporting year. 21 cases - 0.6% of total number of probes - of hydrogen chloride MPC excess were fixed, excess of MPC varied from 1.1 to 2.9 times, while average annual concentration was just only 0.15 MPC. 8 times a year emergency mode of operations was announced due to critical weather conditions, total number of critical weather conditions were fixed 13 times a year. In the case of emergency mode, SMW has a schedule of specific safety conditions of operations. The Company has all permissions for air pollution covering all of the Company’s areas (industrial area, sanatorium, polygon of solid wastes). In 2014, SMW has been continued works for adjustment of equipment and technology to neutralize acidic waste waters, reconstruction of waste water transportation channel, modernization of local treatment facilities and rainy water channels, reclamation of Chyornaya river including designing works for reclamation of river floodplain. 8’732’790 cubic meters of waste waters, including waste waters of Vodokanal OOO, were entered settling pond for purification in 2014. These waste waters contained 26’650 mt of solid wastes in 2014 25 which is approximately -10’000 mt less 2013 year numbers. The Company did not exceed limit of contamination with solid substances in purified waste water, efficiency of purification in the settling pond was next to 100%. Total expenses for water treatment and purification exceeded ₽ 19.0M in the reporting year. SMW has a license to operate hazardous substances and limits for disposal of wastes. The main objectives to operate the residues was its further processing. More than 90% of residues are processed inside SMW. Facility to treat residues of Magnesium Operations was brought on stream in 2014. Capacity of facility is 131’400 tpa. The Company has its own polygon to store solid residues registered under № 59-00034-Х-00479-010814 in State Register. The number of residues generated inside SMW was 82.1 kilotons in 2014. This number is -6.4 kilotons less than that in 2013. Residues of Magnesium Operations were completely processed into saleable products. 4 kilotons of residues were disposed in the Company’s polygon, 3.25 kilotons were transported for processing to outside facilities for recycling, 1.7 kilotons were disposed in the city polygon, 12 mt of residual oil were shipped to “Eco-System” OOO and “Perm Oil Plant” OOO, 6’607 Hg-containing lamps (1.29 mt Hg contained) were transported to “UralTradeGroup-Oil” for recycling, 7.82 mt of used tires were shipped to “Mayak-Garant” OOO, 20 mt of plastic wastes were transported to “Verkhnekamskaya Polymer Company” OOO, 486.28 mt of residues were disposed in the polygon of Kizel city and 1’233.35 mt of steel and non-ferrous scrap were sold. SMW maintains production environmental control which enables to assess compliance with industrial safety requirements and avoid impact on environment. Results of monitoring are recorded on paper and/or electronic media. SMW is a transparent company. Environmental activities of the Company are regularly disclosed to the public in the Company’s newsletter “Magnievik” and radio reports. SMW participates in the Days of Environment Protection arranged by Solikamsk City Administration each year. LIST OF THE COMPANY’S LICENSES Certain activities of SMW are subject to licensing. List of the Company’s licenses is provided in Annex №1 to this Annual Report. SOCIAL RESPONSIBILITY Social responsibility is an undisputable priority of SMW. The policy of the Company in this area is concentrated on the following incontestable concerns: improvement of the welfare and intellectual development of personnel; support of the Company’s veterans and pensioners; and support of culture, sports and education. These aspects of social responsibility of SMW are included in the Mission, Quality Policy and Environmental Policy of the Company, into Collective Labor Agreement between the Company’s Administration and the Trade Union, as well as in agreements between the Company’s Administration and the Administration of Solikamsk city. Improvement of welfare and intellectual development of personnel Employment and salaries OAO Solikamsk Magnesium Works, along with PAO Uralkaliy and OAO Solikamsk Pulp & Paper Works, ranks among the essential companies in Solikamsk city and maintains the second position in the city by the number of employees. Historical number of employees and monthly salaries are provided in the diagram below. In accordance with ROSSTAT, in 2014, growth of nominal salaries in Perm Region, in Russia and Russian metallurgical industry accounted for +9.9%, +9.2%and +6.9%respectively. Consumer price indices (CPI) in Perm Region and in Russia accounted for +10.4% and +11.4% respectively, and producer price index of industrial goods (PPI) was +5.8%. Growth of nominal salaries of SMW’s employees accounted for +5.2% in 2014 compared to +18.3% of productivity improvement. The following social support to employees was done by the Company in the reporting year: labor tariffs were increased since 01 September 2014 by +6%, while bonuses dropped from 29.6% to 25.6%.

26 SMW. Number of employees and salaries

Training and education of personnel In 2014, 665 employees were trained and educated by SMW that accounted for 23.6% of the total number of employees. 479 employees were educated under programs of improvement of qualification, 216 employees were awarded with higher skill rank, 163 specialists and managers were trained and certified on compliance with the rules of RosTechNadzor. 7 students study at universities at the Company’s expense, and 40 students have a scholarship grants under contracts with the Company. 58 employees study in universities and 90 study in colleges out of working hours, 116 students of universities and colleges were trained by the Company at its facilities. The Company has granted ₽ 0.718M of loans to its employees to study in universities themselves or to fund their children’s studies. Social programs Social expenses of the Company decreased from ₽ 59.298M in 2013 to ₽ 53.608M. SMW has spent ₽21.165M to support social infrastructure (sports, sanatorium, culture and others) and ₽ 8.797M to support retirees, veterans and other social programs. Payment of social bonuses to the Company’s employees and certain other expenses accounted for ₽ 23.646M. POSITION IN THE INDUSTRY Disclaimer: This part of Annual Report includes certain estimates performed by SMW itself, and/or outside third parties. These studies are based on the facts collected from statistical reports, estimates, outlooks and other similar sources of information which, by SMW opinion, are based on reasonable assumptions. Nevertheless, SMW, in neither event, is and will be liable, if actual results differ of those expressed in this Section below, as well as SMW, in neither event, is and will be liable for potential losses and/or injury those may happen of use of this information. Position in the Magnesium Industry End-uses of magnesium Magnesium is a silvery white metal, 1.5 times lighter than aluminium. Magnesium exhibits the best strength-to-weight ratio and it is the lightest among structural metals, and contributes other important physical and chemical properties. That is that magnesium is widely used in the automotive, aerospace, and electronic industries as well as serves as an alloying additive in the production of aluminium alloys. It is also used in the production of vitamins, food additives and various chemical compounds; in iron and steel desulphurization and modification; as the reducing agent in the production of certain

27 non-ferrous metals; for cathodic protection of steel structures from corrosion; as the metal for alternative energy sources; and other applications. Substitutes for magnesium may be in: - aluminium alloying –no substitutes, but aluminium alloys with magnesium may be substituted by polymers, glass, paper and steel in packaging; by magnesium alloys, titanium, polymers, composites, zinc, iron and steel in design of land-based transport and in structural uses; by magnesium alloys, titanium, steel, polymers and composites in aerospace and electronics; by steel, composites, wood and polymers in building and construction; - structural uses – aluminium and zinc alloys, polymers, composites, iron, steel and titanium; - iron and steel desulfurization – calcium carbide, lime and aluminium; - titanium sponge production - sodium and calcium. Titanium may also be produced by an electrolytic process and by a process of thermal decomposition of titanium iodide. Situation in the magnesium market Definitions: Primary magnesium is a magnesium metal produced by the way of decomposition of natural raw materials and does not include secondary magnesium that is produced by the way of remelting of magnesium scrap and residues. Primary magnesium also does not include magnesium produced by titanium sponge manufacturers from recycled magnesium dichloride generated inside titanium-magnesium cycle of titanium sponge production that is then reverted back to this process after in- site electrolysis of this magnesium dichloride. 206th Anniversary of the discovery the metal called “magnium” by the British scientist Sir Humphrey Davy was celebrated with historical record of production and consumption of this metal. According to statistics from China (CNIA), USGS and Solikamsk estimates, world primary magnesium output increased from revised 855 kilotons in 2013 to 987 kilotons in 2014. This is a growth of +132 kilotons or +15.4% year-to-year. Based on this estimate, in 2014, the Solikamsk’s share was 1.4% in the world total primary magnesium output and approximately 70% of that in Russia and EurAsEC countries. CNIA, USGS, СМЗ. Estimated world primary magnesium output in 2005-2014, kilotons

*2014 data is a provisional estimate. Kazakhstan, Russia, USA are SMW estimates, numbers do not include Mg supplied by US Mag to ATI’s Ti-sponge plant. Israel and Brazil are USGS estimates

28 http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/mcs-2014-mgmet.pdf, China output is CNIA data under link http://cnm.minmetals.com.cn/default.jsp?column_no=0294 According to information in different sources, primary magnesium plant with capacity 6 kilotons per annum was put into operation in Iran. In February 2014, US Magnesium (USA) announced primary magnesium capacity expansion from 63.5 kilotons to 76.5 kilotons per annum by 2015 out of total projected expansion up to 90 kilotons per year. Presumably, increase of US Magnesium capacity is connected with capacity expansion by ATI on its Ti-sponge plant located next door to US Mag, to recycle magnesium dichloride by-product, generated in ATI’s Ti-sponge process, into magnesium and chlorine at US Mag electrolytic facility and, then, revert the both, magnesium and chlorine, back to ATI’s Ti-sponge production. ICL (Israel) announced its plans to close Dead Sea Magnesium in 2017 due to changed tax conditions. In its 13th Five Year Plan, Chinese Government schedules increase of primary magnesium output in the country up to 1.3 million tons by 2020. Share of China in total primary magnesium output is estimated 89%. China is not only the largest magnesium producing country, but this country is also responsible for more than 40% of world magnesium consumption, and this share in consumption increases each year. 2014 official data of magnesium consumption in China was not released to date of compilation of this report. Following the balance between 874 kilotons output in the country and 435 kilotons of export number recorded by Chinese Bureau of Customs Statistics, 439 kilotons of primary magnesium remained in China in 2014, but, according to different estimates, actual consumption in China was well below this number causing inventory building. Magnesium production and consumption balance in 2005 – 2014, kilotons 1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014е Output in China 470 525 627 631 501 654 661 694 770 874 Output outside China 169 153 127 123 105 117 126 131 114 113 World total output 639 678 754 754 606 771 787 825 884 987

Exports from China 353 135 408 396 234 384 400 371 412 435 Output outside China 169 153 127 123 105 117 126 131 114 113 Shipments outside China 522 503 535 519 339 501 526 502 526 548 Apparent consumption by areas: EU-27 173 169 179 174 101 165 158 150 160 164 USA3 122 112 109 119 52 88 87 92 99 87 Canada4 44 50 33 47 24 47 48 51 50 64 Japan5 47 50 49 43 33 40 40 38 37 40 Brazil 13 14 25 26 22 24 24 23 30 30 EurAsEC 10 14 15 15 7 13 18 19 22 22 Others 2 113 94 125 95 100 124 151 129 128 141

Consumption in China 5 107 157 263 158 172 232 277 310 352 390

TOTAL CONSUMPTION 625 660 796 677 511 733 803 812 878 938

Баланс производство - потребление +14 +18 -44 +77 +95 +38 -16 +13 +7 +49 1based on customs statistics and output estimates, may include inventories and do not include possible purchase of magnesium for State Stockpiles. 2 Balance between shipments outside China and apparent consumption in areas listed above 3 based on USGS data and estimated US Magnesium output http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/mis-2014q4-mgmet.pdf, do not include secondary magnesium and magnesium transferred by US Mag to ATI 4 Customs of Canada http://cansim2.statcan.gc.ca/cgi- win/cnsmcgi.pgm?Lang=E&ResultTemplate=CII_CIMT5&CIMTSrch=1&RootDir=&Sort=0&Year=2011&Month=12&Freq=6&C2DB=PRD&Commo d=81 5 Japan Magnesium Association 6 CNIA, 2014 – SMW estimate SMW. Estimated consumption of magnesium by end-use in in 2010-2014, kilotons End-use 2010 Доля 2011 Доля 2012 Доля 2013r Доля 2014е Доля Total consumption 733 100.0 803 100.0 812 100.0 878 100.0 938 100.00 Metal reduction (pure magnesium)1 75 10.2 87 10.8 90 11.1 120 13.7 110 11.7 Structural applications (alloy magnesium)2 250 34.1 280 34.9 270 33.3 325 37.0 300 31.9 Desulphuration (granule & powder magnesium)3 143 19.5 124 15.4 129 15.9 140 15.9 128 13.6 Nodular iron (pure magnesium)4 33 4.5 35 4.4 32 3.9 33 3.8 35 3.7 Al alloying, other uses (pure magnesium)5 232 31.6 277 34.5 291 35.8 260 29.6 365 38.9 1 Production of Ti-sponge, Zr, Be, U. Calculation based on Ti-sponge output in China (see Position in the titanium industry below), JMA and USGS data 2 Includes wrought products and articles including sacrificial anodes for cathodic protection and other electrochemical applications like hydrogen storage, batteries and other uses of alloy magnesium. 3 Includes desulphuration, pyrotechnics, perfume and pharmacy. 4 CNIA data for China + 5 Kt for estimated use outside China. 5 Balance between total and end-uses listed above 29

Prices Metal-Pages. Pure magnesium prices, US$/mt

Overproduction in China had the most significant impact on prices in 2014. Magnesium market outlook Low magnesium prices, increased capacities and output open doors to potential growth of use of magnesium, firstly, aimed weight reduction of auto and aerospace vehicles, and support good prospects of future magnesium consumption connected with increased use of aluminium sheet in the car body replacing steel (magnesium is the main alloying ingredient in these grades of aluminium alloys), magnesium alloy parts in designs of aerospace, auto and electronic devices, like laptops, tablets and others, replacing aluminium and plastics, new developments in rechargeable battery composition where magnesium may replace lithium, and certain other prospects. The main areas of potential growth of magnesium consumption are as follows: - increase of aluminium sheet consumption in car body by 10 mln tons to 2025 vs 2014 resulting +20 kilotons CAGR of Mg consumption; - increase of titanium consumption in China where use of Ti-sponge is scheduled to double in 2020 compared to 2014 level resulting +22 kilotons CAGR of Mg consumption; - return of magnesium alloys in civil aircraft designs that may result 15-20 kilotons of magnesium consumption to 2020 (+3-4 kilotons CAGR of Mg consumption); - growth of alloy magnesium parts in auto designs with CAGR +6.5% (+25 kilotons CAGR of Mg); - potential substitution of lithium with magnesium in rechargeable batteries for cars and bikes, other uses (+5 kilotons CAGR of Mg consumption) Total potential CAGR of Mg consumption: +70-75 kilotons per year. Supply – demand balance outlook Supply – demand balance is not observed in this report. Installed capacities to produce magnesium in the world exceeded 1’750 kilotons per year including estimated 1’600 kilotons per year in China and 150 kilotons per year outside China.

Position in the Rare Earths Industry Note: All data in this sub-section is provided in total rare earths oxide (TREO) content independently on actual form of use, e.g. mixed rare earths or individual element, chemical compound or metal, unless otherwise stated End-uses It has been 220 years since discovery of the element called “yttrium” by its discoverer, Finnish chemist Johan Gadolin. This was the first element in the group of the 15 elements collectively called “rare earths”. Despite all 15 rare earths have single valence and similar properties, and typically occur in the earth’s crust collectively, however, in individual form, each rare earths element enhances its own properties and in mixed form the properties of one element depress properties of the other element. This is the reason that these elements are normally separated for further use. The main uses of rare earths by element: Cerium (Се) - catalyst in emission combustion systems, polishing powders, modifier for nodular iron production, decolorizer and ultraviolet absorption addition for glass, flints, heat-resistant aluminium and magnesium alloys. Lanthanum (La) - oil cracking catalysts, camera and laser optics, fiber optics, modifier for nodular iron production, additive for HSLA grade steels, NiMH batteries and hydrogen storage systems, sensors, architectural and electronic ceramics, capacitors, resistors and thermistors, heat-resistant magnesium alloys. Neodymium (Nd) – high strength permanent magnets, ceramic capacitors and other components of electronics, glazes and colored glass, lasers, petroleum cracking and polymerization catalysts, magnesium super alloys, energy saving lamps, lasers. Praseodymium (Pr) – electronic and traditional ceramics, glass and enamels, high strength permanent magnets, yellow ceramic pigments, tiles, ceramic capacitors, with neodymium in combination for goggles to shield glass makers against sodium glare, cryogenic refrigerant, creep resistant magnesium alloys for elevated temperature applications (magnesium super alloys). Samarium (Sm) – permanent magnets, microwave filters, lasers, nuclear applications, constituent of computer memory chips. Europium (Eu) - phosphors, LCD/LED, energy-saving lights, neutron absorption. Gadolinium (Gd) - phosphors, permanent magnets, refrigerators, medical devices, magnesium super alloys, microwave ovens, superconductors. Yttrium (Y) - phosphors, ceramics, color glass, magnesium and aluminium super alloys. Terbium (Tb) – permanent magnets, phosphors, optical computer memories, hard disc components, magnetostrictive alloys. Dysprosium (Dy) – permanent magnets, phosphors, ceramics, nuclear applications. Holmium (Но) – permanent magnets, ceramics, lasers, nuclear applications. Erbium (Er) – ceramics, glass color, infra- red absorption glass, fiber optics, lasers, medicine and nuclear applications. Ytterbium (Yb) – metallurgical and chemical research. Lutetium (Lu) – single crystal scintillators, deoxidizer in stainless steel production, rechargeable batteries, medical uses, phosphors, superconductors. Thulium (Tm) – magnetic resonance imaging, phosphors. Situation in the rare earths market World production of rare earths in 2005-2014 and outlook until 2025, kilotons TREO

After several rounds of appeals, on 07 August 2014 WTO Arbitration Panel issued final determination that export limitations like export tax, export quotas and certain other export restrictions imposed by Chinese Government violate Chinese WTO accession Agreement, and should be terminated. Chinese Government expected such a WTO decision and started consolidation of Rare Earths Industry in the country aiming to consolidate of more than 200 companies operating in this industry into 6 vertically integrated groups controlled by the Government in order to place state control for this strategic resource of the country and manage the industry in the efficient and environment friendly manner, attracting foreign investments in High-Tech industries, at the first of all, in electronic industry. The Government also imposed production quotas on mining and processing, and certain other limitations for the industry those do not fall under WTO rules, but intended to restrict flow of low processed rare earths products outside China and build value-added industries in China. Beside these production restrictions, Chinese Government issued the order to scrap 103 kilotons TREO per annum of outdated capacities in 4 provinces. To the date of compiling of this report, 3 out of 6 vertically integrated groups were completed and formation of 3 other groups should be finished by the end of 2015. The next step scheduled by Chinese Government, is replacement of export duties with resource tax levied on value of processed product, and not per ton of ore mined. This new tax should increase costs of processing companies and prices of processed products. However, despite large scale Government investigations with participation of criminal police and other agencies of enforcement, criminal investigations against managers and owners of illegal mining and processing facilities, closures of illegal companies with destruction of infrastructure, illegal production and exports of rare earths in China was still at high level. According to estimates of Chinese Rare Earths Industry Association (CREIA), illegal production in the country accounted for 40% of official output, and numbers of illegal exports are not announced yet. Estimated output of rare earths was 150 kilotons of TREO contained in 2014, while production quotas were issued for 108 kilotons TREO. Official exports of rare earths accounted for 54 kilotons including 28 kilotons falling under export quota permissions. Outside China, SMW, Molycorp (USA), Lynas (Malaysia) and IREL (India) produced together 12 kilotons TREO of primary processed products, while installed capacity of these companies is 68 kilotons TREO. Besides these companies, small-scale rare earths facilities operated in different countries, mainly, pilot plants of certain rare earths projects. Estimated output of these small-scale units is estimated between 0.5 and 2 kilotons TREO contained. SMW share in the global market of primary rare earths is estimated 1.2% and 100% of that in Russia. According to Roskill and IMCOA, world consumption of rare earths was as follows: Consumption of rare earths by areas in 2005, 2010 – 2014, kilotons TREO contained 20051 20101 20111 20122 20132 2014е Consumption: China 52 87 75 774 80 100 ROW 46 38 35 341 41 50 TOTAL 98 125 1102 111 121 150 1 Roskill, IMCOA – papers on Rare Earths conferences. 2 SMW estimates. 2011 – based on the data of production over quotas and illegal exports estimates in China. 32012 год – 21 kilotons of excessive output, 20 kilotons of processed rare earths were bought for Government stockpiles in China in 2012 and at the beginning of 2013. 4 Roskill “The impact of rare earths price volatility on substitution” November 20135 Molycorp reports www.molycorp.com , from 2012 – division Resources of Molycorp Roskill, IMCOA. Estimated consumption of rare earths by end-use in 2010 – 2014, kilotons TREO contained End-use/year 2010 2011 2012 2013e 2014е Magnets 33 22 23 25 40 Alloys 24 21 22 22 23 Catalysts (FCC,auto) 20 20 21 21 25 Polishing (Glass & Chips) 16 18 19 19 21 Glass and optics 11 8 8 8 9 Phosphors 8 8 6 6 6 Ceramics 5 6 7 7 7 Others 8 7 13 13 19 TOTAL: 125 110 119 121 150

Prices Metal-Pages. Composite price of rare earths oxides in SMW carbonate, FOB China, $/kg TREO in SMW carbonate

*Composite price = Price of rare earths oxide х rare earths oxide content in SMW carbonate

Rare earths market outlook Multifold fall of rare earths price in 2011-2014 years, and their further decline in Q1 2015 in combination with increased capacities outside China, revived remarkable growth of rare earths shipments that was not observed in the last 3 years due to high level of prices and inventories at the hand of consumers. This positive trend caused re-assessment of rare earths market outlook. There are two scenarios of further development of rare earths market prepared by different analytical centers, and practicability of each scenario closely depend on success of rare earths operations outside China and prices on rare earths, but the most recent market development is close to the first scenario provided below. Beijin Antaike, IMCOA. Rare Earths market outlook by areas until 2020, kilotons TREO Area/year 20131 20162 20203 China 90 107 195 ROW 40 56 105 TOTAL 130 163 300 1 Metal-Pages “China’s rare earth consumption in 2013 estimated at 90,000 tonnes” https://www.metal-pages.com/news/story/70058/chinas-rare-earth- consumption-in-2013-estimated-at-90000-tonnes/ - 11 April 2013, analyst Chen Jiazuo, Beijin Antaike. 2 IMCOA-Curtis University - “The Rare Earths Industry: Comatose or In Limbo?”, November 2012 3 Metal-Pages «INSIGHT - China needs to introduce rare earths futures to tackle oversupply» https://www.metal-pages.com/news/story/69417/insight-china-needs-to-introduce-rare-earths-futures-to-tackle-oversupply/ - 15 March 2013.

Beijin Antaike, IMCOA. Rare Earths market outlook by end-use until 2020, kilotons TREO End-use 20121 20162 20203 Magnets 23 36 90 Metal alloys 22 26 50 Catalysts (FCC,auto) 21 25 35 Polishing (Glass & chips) 19 25 48 Glass & optics 8 9 17 Phosphors 9 13 18 Ceramics 7 9 17 Others 10 20 25 TOTAL: 119 163 300 1 IMCOA-Curtis University - “The Rare Earths Industry: Comatose or In Limbo?” (ноябрь 2012).. 2 IMCOA-Curtis University - “The Rare Earths Industry: Comatose or In Limbo?” (Novermber 2012). 3 Metal-Pages «INSIGHT - China needs to introduce rare earths futures to tackle oversupply» - 15 March 2013.

Roskill. Rare Earths market outlook until 2020, mt TREO

Position in the Titanium Industry After the start of titanium sponge operations in 2009, the production of titanium dioxide in Solikamsk was suspended. The share of titanium tetrachloride in total titanium output is very few, and the market of this product is not estimated. End-uses Titanium is the lightest among refractory metals, and it exhibits certain enhanced properties such as high plasticity, strength, and corrosion resistance including resistance to corrosion in high temperature environments. End-uses of titanium metal are the production of parts and mill products for the aerospace (40-50%) and chemical and energy (30-40%) industries, production of military equipment, shipbuilding, medical appliances (implants and others), sports applications (golf clubs and other uses), and certain other applications which, depending on demand, may account for between 5 and 20% of the total market for the metal. Situation in the titanium market Statistical release of International Titanium Association is not available on the date of compiling of this report. According SMW estimates, CNIA, JTA, USGS, press-releases of producers in Metal-Pages, estimated titanium sponge output was 216 kilotons. This is a drop of -21 kilotons or -8.9% compared to 237 kilotons produced in 2013. ITA, SMW. Titanium sponge output, kilotons

*Based on Ti export stat of Kazakhstan www.ecustoms.kz, USGS Mineral Commodity Summaries, Titanium Metal & Dioxide, 2015. ** 2013 - 2014 - based on USGS Mineral Commodity Summaries, Magnesium Metal, 2014 & 2015 - use of primary magnesium in metal reduction. 2005 - 2012 – data from ITA Conferences Based on estimated output above, Solikamsk share in global titanium sponge output accounted for 0.8%, and 4.5% of that in Russia.

2014 year was complicated for the world titanium industry due to high stocks at the hands of final customers, worse global economic conditions, significantly increased titanium scrap recycling due to low output of FeTi where Ti scrap is usually consumed, delay of C-919 jet aircraft production in China, and certain other reasons. Remarkable drop of consumption was observed in industrial sector, while aerospace demand was propelled upwards. Chinese titanium sponge output halved in December 2014 and Q1 2015, Japanese producers operated at 60% of capacity, AVISMA decreased its output by 10% in 2014, and UKTMK was under restructuring. All of these suggests that market will be balanced to the end of the year. Prices The vast majority of titanium sponge producers experienced loss in 2013 – 2014, and, taking into account substantial decrease in output, it is possible to expect that market will be balanced with possible price increase at the end of 2015 year. Metal-Pages. Average Ti-sponge prices, US$/kg

Titanium sponge market outlook In March 2015, China announced its plans to increase titanium consumption up to equivalent of 200 kilotons of titanium sponge by 2020, but, nowadays, it is observed decline in output and excessive inventories in the country, therefore previous outlook remains unchanged.

Roskill. Titanium sponge market outlook, kilotons

Supply-demand issue Supply-demand balance is not an issue of concern. Total installed capacities accounted for 343 thousand tons per year at the end of 2014, including 159 thousand tons per year in China and 184 thousand tons in the Rest Of the World (ROW). Position in the Niobium Industry Note: All data in this sub-section is recalculated to niobium pentaoxide (Nb2O5) content independently on actual form at which pure niobium is produced or consumed unless otherwise stated. End-uses Entire niobium (Nb) market is generally divided into two main markets: 35

HSLA Grade FeNb: Approximately 85-90% of total world niobium consumption is in the form of so- called HSLA Grade FeNb or Standard Grade FeNb that is used to produce high strength low alloy (HSLA) steels. Solikamsk does not supply this market that is that this market is not observed in this Report. Pure niobium market: accounts for 10-15% of entire niobium market and consists of pure & alloy niobium including niobium in alloy compositions with other metals, and niobium chemicals. The main uses of pure niobium are as follows: (1) in the form of chemicals: - production of lithium niobate which is the base of surface acoustic wave filters used to produce high resolution audio and video devices, fiber optics, lasers; - lenses for digital and still cameras, eye-glasses, coating of computer screens; - niobium oxide capacitors; - niobium carbide for hard alloy cutting tools; - niobic acid for bio-fuel catalysts (2) in the form of metal: - vacuum grade NiNb and FeNb used to produce super alloy for jet engines and gas fueled turbines; - superconductors for magnetic resonance imaging devices, magnetoencephalography, magnetic levitation transport systems, sub-atomic and other physical science like Large Hadron Collider; - mill and wrought pure & alloy niobium products for chemical processing equipment, sputtering targets, corrosion protection systems for large structures, sodium vapor lamps The following materials can be substituted for pure niobium: ceramics, molybdenum, tantalum, tungsten and titanium in high temperature applications; tantalum, lanthanum, hafnium, polymers, aluminium, poly-silicon and electronic ceramics in optics and electronics; tantalum, tungsten, titanium and silicon in cemented carbides; and molybdenum in catalysts. Situation in the pure niobium market It has been 213 years since discovery of the element originally called “columbium” by its discoverer, British chemist Charles Hatchett. In accordance with TIC statistical releases, shipments of pure niobium increased from 6’059 mt Nb (8’668 mt Nb2O5) in 2013 to 6’469 mt Nb (9’254 mt Nb2O5). This is a rise of + 410 mt Nb (+589 mt Nb2O5) or + 6.8% year-to-year. Companies producing pure niobium and niobium concentrates prefer to keep their production data and capacities confidential. Shipments by supplying companies whose data is known or may be reasonably estimated by SMW is provided on diagram below. TIC, SMW, CBMM, DNPM. Pure niobium shipments and suppliers, mt Nb2O5

SMW*. Estimated consumption of pure niobium by aggregate end-use categories, mt Nb2O5 contained

*based on TIC statistical releases of Niobium processors shipments Assessment of regional markets is hampered by the lack of separate custom codes for niobium compounds and niobium metal. The main suppliers to the metallic pure niobium market are CBMM (Brazil), Solikamsk, AMG (Brazil) and Chinese processors. The other suppliers to this market are Hermann C. Starck (Germany), Molycorp Silmet (Estonia), АО Ulba Metallurgical Plant (Kazakhstan), Mitsui Mining & Smelting (Japan). The main suppliers to the market of high purity grade products are Hermann C. Starck (Germany), Chinese processors, СВММ (Brazil), Mitsui Mining & Smelting (Japan). The other suppliers are GAM (Australia) and Solikamsk. Solikamsk operates to different extents in both sectors of the pure niobium market, i.e., in supply of technical grade pentaoxide for the market of metallic niobium and in supply of high purity grade niobium compounds for optoelectronic market, although supply to the metal market represents the vast majority of SMW’s shipments. Based on the data provided above, Solikamsk share in total world pure niobium market supply is estimated at 6.3% and 100% of that in Russia Prices Asianmetal. Average prices on niobium pentoxides and columbite, US$/kg

Despite increased demand, world market of pure niobium was under downward pressure in 2014 due to high competition, worsened electronic and industrial markets and increased supply from Brazil,

where CBMM, the largest supplier in the world, increased its pure niobium capacities from 7.5 kilotons per annum to 10 kilotons per year in 2013. Pure niobium market outlook СВММ, SMW. Pure niobium market outlook to 2020, mt Nb2O5 contained

Supply-demand issue Capacity to process raw material is enough to meet demand in foreseeable future, and it is not an issue of concerns and not discussed herein, while raw material supply could be the issue of concerns. Deficit of raw material and semi-product supply was covered by CBMM which increased its niobium pentoxide capacity from 7.5 kilotons Nb2O5 to 10 kilotons Nb2O5 in 2013, and this capacity is enough to meet recent demand for pure niobium, but could be not enough for the future. Mining capacity of niobium raw materials outside Brazil do not exceed 4 kilotons per annum, and the vast majority of prospective mines are located in politically instable African countries. Position in the Tantalum Industry

Note: All data in this sub-section is recalculated to tantalum pentaoxide (Ta2O5) content independently on actual form at which tantalum is produced or consumed unless otherwise stated. End-uses Tantalum market could be sub-divided by the two main sections: (1) Market of tantalum compounds used to produce: - lithium tantalate that is the base of surface acoustic wave filters used in high precision audio and video devices, fiber optics, lasers; - optics for digital and still cameras, spectacles, X-ray films, ink jet printers; - tantalum carbide for hard alloy cutting tools; (2) Market of tantalum metal used to produce: - capacitor grade powder for electronic and electric industries; - jet turbines and rocket nozzles; - alloys for hard drives with shape memory; - sputtering targets; - high temperature parts of furnaces; - corrosion resistant parts of chemical processing equipment, corrosion protection systems for large structures; - implants and prosthesis; - DVD/BD-ROM, signal masts, battery charges, power rectifiers, engine management modules and auto components like ABS and airbag activation, other electronic components operating at wide range of temperature. Solikamsk supplies the both markets described above, but the vast majority of SMW’s shipments are concentrated on metal market supply.

The following materials can be substituted for tantalum: niobium, aluminum and ceramics in capacitors; glass, polymers, niobium, platinum, alloys of refractory metals and full alloy steels, titanium and zirconium in corrosion-resistant equipment; hafnium, iridium, molybdenum, niobium, rhenium, tungsten, vanadium and molybdenum in high-temperature applications and superalloys; niobium, hafnium, lanthanum and polymers in optics; and niobium, titanium, silicon and tungsten in hard alloys. Tantalum market overview According to TIC, tantalum processors shipments increased from 1’832 Ta (2’237 mt Та2О5 ) in 2013 to 2’001 mt Ta (2’444 mt Та2О5) in 2014. This is a rise of + 169 mt Та (+206 mt Та2О5) or +9.3% year-to- year. According to data expressed above, share of Solikamsk in global tantalum processors shipments accounted for 1.4% and next to 100% of commodity tantalum compounds output in Russia. Suppliers to metal market are Hermann C. Starck (Germany), GAM (Australia-USA), Chinese processors, Mitsui Mining & Smelting (Japan), AMG (Brazil), Molycorp Silmet (Estonia), Solikamsk. Suppliers of high purity chemicals used to supply optoelectronic market are Hermann C. Starck (Germany), GAM (Australia-USA), Chinese processors, Mitsui Mining & Smelting (Japan) and Solikamsk. TIC. Tantalum processors’ shipments, Та2О5 contained

SMW*. Estimated shipments by aggregate end-use categories, mt Та2О5

* based on TIC Tantalum processors’ shipments

Prices Asianmetal. Average prices on tantalum pentoxides and tantalite, US$/kg

*Ta2O5 – Asianmetal, tantalite – Metal-Pages Tantalum market outlook Growth of tantalum raw materials shipments from Latin America and renewal of regular “conflict- free” shipments of tantalum raw materials from African countries caused decrease in tantalum prices and added more certainty to supply. All of that may return tantalum market to average 6% CAGR as it was previously predicted. Position in the Chemical Industry Calcium chloride solution is a result of gas-scrubbing in the processes utilizing chlorine as a reagent, and this material is supplied to the oil industry and for production of de-icers. Russian output of oil increased by +0.8% in 2014, while outlook for 2015 is not available. The market for this product is very competitive with a large number of suppliers offering the material. Solikamsk estimates the Russian market for this product at 900 – 1’000 thousand tons as recalculated to 32% CaCL2 in 2014 with Solikamsk’s share 5-6% in the market. Chlorine is used as a disinfectant for drinking water and for waste disposal, as well as a reagent in the production of chlorine-containing organic and inorganic chemical compounds. The market for this product is also very competitive. According to Chem-Courier, shipments of commodity chlorine in Russia accounted for 120 thousand tons, data for 2014 is not available, Solikamsk share is estimated 1- 1.5% of that. Lime and milk-of-lime slurry are substitutes for each other, and both are used in the disposal of industrial wastes as well as components of mixtures for building and construction. According to ROSSTAT, lime production in Russia was more than 11 million tons in 2013, publication of lime production data has been discontinued by ROSSTAT since 2014. SMW’s share is estimated at 0.5% in total lime output in Russia. PROSPECTS OF THE COMPANY Further development of Solikamsk is scheduled as follows: Development and implementation of new technologies: - analysis of technical parameters of modernized electrolytic cell BEN 90 during operational campaign; - startup works with equipment designed for complete neutralization of acidic waste waters with use of solutions from off –gas scrubbers - organization of experimental works to define efficiency of use of solidified magnesium dichloride as the feedstock for electrolytic cells; - testing works with use of neodymium oxide from IRESCO as the source of neodymium in production of MZr1Nd3 alloy; Improvement of production equipment: - modernization of Chlorine Storage Unit. Installation of system “water barrier” to prevent chlorine distribution outside facility; 40

- installing of devices to measure dust contamination of chlorine gas in real-time behavior - designing works to improve equipment in titanium sponge operations; Decrease of anthropogenic impact on the environment - designing works for system of waste waters filtration from the plant - analysis of efficiency of off-gas scrubbing system № 2 in Magnesium Operations Protection of priority R&Ds – patenting Certification – supervisory audits of Integrated Management System on compliance with ISO 9001 and 14001, and Due Diligence in tantalum materials purchasing RISK FACTORS Technical & Operational Risks, Production Control, Insurance Technical & Operational Risks The continuous management of internal risks at the Company is based on a set of protective measures aiming to avoid the main types of risks. Technical and operational risks are result of propriety in organization of production. The Company’s Policy to manage such risks lies in organization of proper production control, prophylactic measures, predictions, use of different kinds of insurance of property interests and civil liability in the case of emergencies. Production Control One of the most important ways to manage risks of industrial enterprise is to control the safe conducting of technological process with the aim to defend the vital interests of individuals and community from accidents at production facilities operating with dangerous substances and from consequences of such accidents. In order to prevent accidents in production and injury to personnel due to availability in the structure of the Company facilities operating with hazardous and explosive substances, as well as facilities where minerals (loparite concentrate) containing increased level of natural radionuclides are processed, in order to reduce professional risks connected with probability of harm to the health of employees from exposure of hazardous and/or dangerous production factors at the time of performance of their jobs, the Company implemented set of preventive (prophylactic) measures in the following areas: - systematic training and instruction of employees and representatives of contractors to form and conduct safe behavior, examination of their knowledge before giving an admission to perform their jobs; - supervision in the form of telic, regular, spontaneous and detailed inspections with involvement of Department of Deputy Chief Engineer for Works, Technological, Industrial, and Environmental Safety, leading managers and public inspectors to control proper technical conditions of hazardous operations, safe operations of equipment and lifting machines, implementation and performance of measures prescribed by “Schedule of measures to guarantee industrial safety”and ”Agreement concerning improvement of working and operational conditions” at the plants and shops of the Company, compliance with works safety requirements, use of certified workwear and protective devices, compliance with requirements to take individual respirator for each person entering industrial area of the Company; - radiation control is maintained by the personnel of Radiation Safety Services (RSS), which is based on accredited SMW’s Laboratory of Radiation Control (LRC), under “Program of Radiation Control in Loparite Concentrate Processing” approved by RosPotrebNadzor; LRC performs radiation control of surfaces (operational surfaces, skin, workwear, devices for individual protection, transport), sanitary- protective zone, soil, air in industrial areas, air in production buildings, air in off-gases stream; - permanent monitoring of air conditions in operational areas of workspaces and physical factors affecting employees under requirements of “Program of Production Control for Compliance with Sanitary Rules and Performance of Sanitary – Antiepidemic Measures” using capacities of SMW’s Sanitary-Production Laboratory (SPL); - maintenance works and capital repair of tools; timely revision, repair and replacement of equipment and means of transport;

- implementation of environmental measures and special Programs aimed gradual reduction of negative effect on water and air, when solid wastes are disposed, following Environmental Policy, requirements stipulated in federal, local and international environmental regulations and standards; - implementation and maintenance of production environmental control aiming compliance with limits of pollution and use of natural resources, requirements to quality conditions of environment in areas affected by the Company’s activities; - conducting of annual exercises and training sessions, in accordance with approved schedule, aiming coherent interaction of plant’s personnel and specialized emergency services under schedule of complex interactions prescribed in emergency response plan. Large scale complex exercises “Organization and execution of measures to liquidate accident and to protect personnel of the Company and residents of the city in the case chlorine exposure” with participation of specialized emergency services, medical emergency services and police of Solikamsk city have been conducted in August of 2013; similar internal the Company’s own exercises have been conducted on 19 June 2014; exercises dedicated to protect population from accidents have been conducted during a month from 4 September 2014 to 4 October 2014; training exercises with participation of plant’s certified outside rescuer were conducted under schedule of complex interactions in the case of accident “Destruction of chlorine pipeline at electrolytic cells line No 3 of Magnesium Plant”; - avoidance of pollution is the preventive approach in any decision connected with projection, rebuilding or production (rebuilding of polygon for storage of solid production residues, processing of by-products generated in production of magnesium metal and titanium sponge, processing of residues in Rare Metals Operations, etc). Such decisions not only reduce amounts of environmental fees and penalties, but generate additional revenues for the Company; - timely obtaining and prolongation of licenses and permissions to certain types of construction works connected with safety of structures; - providing free nutrition, fermented milk products or dietary food recommended by regulations and medical norms to employees working under harmful and dangerous conditions; - conducting the annual preventive medical examinations of employees engaged in heavy work or work under harmful and dangerous working conditions (medical examinations are performed by physicians of Medical Center “Philosophy of Beauty & Health”, Perm, from 2012); - conducting of the annual preventive medical examinations of women by physicians of Perinatal Center, Solikamsk city; - providing affordable health care procedures in the Company’s medical center and/or sanatorium. SMW developed and implemented its own Regulations “Production Control on Compliance with Industrial Safety Requirements” prepared under requirements of Federal Law “Industrial Safety of Dangerous Production Facilities” No 116-FZ of 21 July 1997 (as amended to date of 2 July 2013). Solikamsk Magnesium Works OAO “Policy in Industrial Safety” is readily available on the Company web-site and it has been published in the Company’s newspaper “Magnievik” on 14 February 2014. The Policy contains objectives and obligations of the Company’s management to minimize risks of production accidents and describes principles of management in industrial safety. Control of the Company’s activities is performed by Supervisory Federal Agencies in the form of scheduled and spontaneous inspections. Insurance 1. To protect its property interests, SMW insures goods (tantalum oxide, niobium oxide, rare earths carbonates, non-ferrous metals, titanium sponge) those are transported in containers, by auto, marine, railway, air transport, or combined means of transport ,with the JSC "Russian Insurance Transport Company" (JSC "RSTK") under the General Contract For Insurance Of Goods. Insurance of goods shipped by trucks is performed with OAO Insurance Company "Express Garant", Ekaterinburg. 2. In accordance with Article 15 of the Federal Law "Industrial Safety of Dangerous Production Facilities" of 21.07.1997 № 116 - FZ and the Rules Of Mandatory Insurance Of Civil Liability By Owners Of Dangerous Facilities, SMW insures civil liability before person affected as a result of accident at the dangerous production facilities in insurance company OOO "PROMINSTRAKH" (under the Agreement for period from 30.03.2014 to 29.03.2015, 14 such kind of facilities, those are the main technological divisions and dangerous areas of servicing workshops, are covered by that). 3. In accordance with licensing requirements of RosTechNadzor for entities operating with objects using atomic energy (Article 56 of the Federal Law "Use of Atomic Energy” № 170 - FZ of 21.11.1995), 42

the Company signed the Civil Liability Insurance Contract for Entities That Use Atomic Energy No 432-743-067779/14 of 25 September 2014 with Open Joint-Stock Insurance Company “Ingosstrakh” to compensate injury and damage for life, health and property of persons affected in the event of radiation exposure at the objects of the Company where sources of ionizing radiation are available: 1) Complex containing radioactive substances. Raw material (loparite concentrate) processing (industrial area of Chemical – Metallurgical Plant No 7); 2) Storage facility for radioactive wastes (production (cakes) and dismantling residues, 8 km south from industrial area of the Company); 3) Radon generator GRT-1 (Radon laboratory) in SMW’s sanatorium; 4. In accordance with the Federal Law "The emergency services and the status of rescuers" of 22.08.1995 № 151-FZ (Article 31), SMW has its own Gas Rescue Team (GSS). Insurance Contract № СНС-14-000241-77 covering harm to heath and diseases was concluded with OOO “PROMINSTRAKH” on 12 August 2014. Under terms & conditions of this contract, injury for life, health, workability and property of GSS employees (15 persons) are insured during the time of performance of their jobs. 5. In accordance with civil liability insurance contract (police) for the cases of injury caused by defects of building & construction works with OIJSC Ingosstrakh № 433-743-088412/14 of 24.10.2014, the Company insured its own and third parties property interests connected with risks of civil liability those may arise as the result of defects affecting safety of structures caused by improper performance of building and construction works under SMW’s permission № 0943-2011-5919470019-С-018 of 06.12.2011 issued by NP SRO “Alliance of Builders”. This Police grants insurance compensation for harm to life and health of physical persons, premiums to that under provisions of the Article 60 of Urban Development Code of the Russian Federation, compensations for actual injury to property, environment, reimbursement of fees connected with lawsuit, and other fees prescribed by Insurance Rules of OIJSC “Ingosstrakh” (period of insurance is from 06.12.2014 to 05.12.2015) 6. In accordance with the rights of SRO NP “Union of Architectural & Designing Organizations of Perm Region” (NP SAPO SRO) to conclude collective insurance contracts on behalf of its members, this organization concluded the civil liability insurance contract ГОС № 38-57/0021/14 of 07.10.2014 with insurance company OOO “Building Insurance Group” for complex insurance of civil liability and financial risks of SRO members covering cases of injury and additional expenses those may arise as the result of defects affecting safety of structures caused by improper performance of works. SMW received Insurance Police ГОС № 38-57/0021/14-28 of 18.10.2014 under abovementioned insurance contract. This Police guarantees payment of insurance compensations for injury, reimbursement of compensation fees and fees connected with lawsuits those may arise during performance of works, designing & engineering services as defined in the SMW’s Certificate of Permission № 0691.04-2010- 5919470019-П-063 of 01.10.2012 issued by NP SAPO SRO (period of insurance is from 18.10.2014 to 17.10.2015) 7. The Company insures its civil liability for injury to life, health and property of persons affected by road accidents under contract of mandatory insurance of civil liability (OSAGO) with OOO “PROMINSTRAKH” under Rules of OSAGO. 8. In addition to mandatory medical insurance, SMW insured its employees under voluntary medical insurance contract Д0345-14 of 10.06.2014 with OIJSC “Ingosstrakh”, where employees may select its own class of insurance police. Basic police is free for employees and completely paid by the Company, while insurance under enhanced polices is provided to employees and members of their families with significant discount. Period of insurance is from 20.06.2014 to 19.06.2015. Risks associated with lawsuits At present, there is no significant risks associated with the Company's involvement in legal processes which may result sanctions against the Company and adversely affect financial and production activities of the Company. The Company is not involved in lawsuits related to licensing of its main activities, including licenses issued by Russian Ministry of Mineral Resources. Risks associated with inability to prolong existing licenses of the Company Risks of revocation, suspension or refusal to prolong the licenses for the main activities of the Company is virtually nonexistent.

SMW builds its forecasts on the base of compliance of its actual results with requirements to prolong appropriate licenses. SMW conscientiously meets its environmental obligations and adjusts its activities towards requirements prescribed by Russian legislation as well as requirements prescribed by international standards, agreements, conventions and protocols. Efforts to improve efficiency of the Company’s production activities include, inter alia, efforts to reduce pollution and discharge of hazardous substances, building of waste disposal facilities. Changes in environmental legislation, enforcement of more strict requirements for licensing could rise expenses connected with improvement of production process as well as different fees and duties. The Company strives to comply with requirements governing the licensing of its activities, provides resources and arrange appropriate measures for that. Risks associated with potential liability of the Company under obligations of third parties The Company has neither obligations against debts of third parties. Risks associated with the potential loss of large customers Risks associated with the potential loss of customers accounting for at least 10% in total sales revenues of the Company are moderate, and competition in the market is the only factor which may result this failure. In the event of such a case, SMW has opportunity to sell its products to other customers without any significant loss of profitability. CORPORATE GOVERNANCE Dividend statements Neither decision to pay any dividends for results of the first quarter, the half a year, the nine months of the year, as well as for whole 2014 year were adopted by the Company. List of the Company’s deals that may be referred to as “large deals” under legislation Neither deal or (trans)action, that fall under criteria ‘large’ in accordance with the Federal Law “Joint Stock Companies”, nor the Charter of the Company, were signed by the Company in 2014. List of the Company’s deals that may be referred to as “deals with interest” under legislation In 2014, the Company concluded deals that may be referred to as “deals with interest”. List of these deals is provided in Annex №2 to this Report. The Board of Directors of the Company The Board of Directors of the Company consists of 9 members. In accordance with decision of General Assembly of Shareholders of 12 May 2014, the following persons were elected to the Board: Dr. Alexander S. Gutin Chairman of the Board Director of Kris OOO. Year of birth: 1968 Education: Perm State Medical Institute, specialty Stomatology, in 1990. Perm State University, specialty Jurisprudence, in 1997. Doctor Degree in Jurisprudence First elected to the Board in 2003. Share in SMW capital: 0% % in SMW’s voting shares: 0 Dr. Dmitriy L. Melnikov Deputy Chairman of the Board Chief Engineer of Solikamsk Magnesium Works ОАО Year of birth: 1961 Education: Moscow Institute of Fine Chemical Technology with name of Mikhail V. Lomonosov, specialty: Chemical Technology of Rare & Trace Elements, in 1984. Doctor Degree in Technical Science. First elected to the Board in 2009 Share in SMW capital: 0,0005% % in SMW’s voting shares: 0,0005%

Dr. Pavel G. Detkov Member of the Board Director of Polyfer Handels GmbH Year of birth: 1960 Education: Moscow Institute of Fine Chemical Technology with name of Mikhail V. Lomonosov, specialty Chemical Technology of Rare & Trace Elements, in 1984. Russian Academy of External Trade, specialty International Economic Relations, in 1995. Doctor Degree in Technical Science. Share in SMW capital: 0.1599%. % in SMW’s voting shares: 0.1599%. Alexei Yu. Pykhteev Member of the Board Director of OOO Business-contact Year of birth: 1975 Education: Perm State University, specialty Economist, in 1997. First elected to the Board in 2012 Share in SMW capital: 0% % in SMW’s voting shares: 0 Evgeniy Yu. Syrtzev Member of the Board General Director of KPI Gmbh. Year of birth: 1983 Education: Webster University, Bachelor of Business Administration, in 2006, and Master of Business Administration, in 2008. First elected to the Board in 2014. Share in SMW capital: 0% % in SMW’s voting shares: 0 Alexei V. Chervonnykh Member of the Board General Director of ОАО «PermOblNeft’”». Year of birth: 1968 Education: Perm State University, specialty: English and French, in 1992. Academy of National Economy of Russian Government, Master of Business Administration, in 2007. First elected to the Board in 2014 Share in SMW capital: 0% % in SMW’s voting shares: 0 Alexei V. Chibisov Member of the Board Deputy Prime-Minister of Perm Region Year of birth: 1971 Education: Urals Polytechnic Institute with name of Kirov, specialty Economics & Management in Metallurgy, in 1993 First elected to the Board in 2014 Share in SMW capital: 0% % in SMW’s voting shares: 0 Sergei B. Shalaev Member of the Board General Director of OAO Solikamsk Magnesium Works. Year of birth: 1956 Education: Perm Polytechnic Institute, specialty Technology & Complex Mechanization of Underground Mining of Mineral Deposits, in 1978. First elected to the Board in 2005 Share in SMW capital: 0.001%. % in SMW’s voting shares: 0.001. 45

Ivan I. Shatrov Member of the Board General Director of ООО ART-Technology Year of birth: 1983 Education: Perm State University, specialty Jurisprudence, in 2005. Perm State Technical University, specialty Economist – Manager, in 2010. First elected to the Board in 2014 Share in SMW capital: 0% % in SMW’s voting shares: 0

Before the Board elections by General Assembly of Shareholders of 12 May 2014, the Board consisted of the following members: Anton B. Averin Member of the Board Managing Director of Representative Office of Limited Liability Company NAFTA MOSCOW (CYPRUS) LIMITED (Cyprus), Moscow Year of birth: 1966 Education: Moscow State University with M.V. Lomonosov name, specialty Mathematics, in 1988, and International University (Moscow), specialty Management, in 1995. First elected to the Board in 2013 Share in SMW capital: 0% % in SMW’s voting shares: 0

Dr. Alexander S. Gutin

Anastasia B. Zalazaeva Member of the Board Head of Department of Corporate Relations of Solikamsk Magnesium Works OAO Year of birth: 1982 Education: Perm State University, specialty Jurisprudence, in 2005 First elected to the Board in 2012 Share in SMW capital: 0% % in SMW’s voting shares: 0

Anton A. Kukushkin Member of the Board Lawyer of OOO NAFTA MOSCOW, Representative Office of Limited Liability Company NAFTA MOSCOW (CYPRUS) LIMITED (Cyprus), Moscow Year of birth: 1981 Education: Moscow State Juridical Academy, specialty Jurisprudence, in 2003 and Moscow State Juridical Academy, postgraduate study, in 2007, Doctor Degree in Jurisprudence. First elected to the Board in 2012 Share in SMW capital: 0% % in SMW’s voting shares: 0 Andrei V. Litvinov Member of the Board Former Director for Economic & Finance of Solikamsk Magnesium Works OAO from October 2012 to February 2014 Recent place of job: Information is not available Year of birth: 1980 Education: Moscow State University with M.V. Lomonosov name, specialty Economics, in 2004. First elected to the Board in 2013 Share in SMW capital: 0% 46

% in SMW’s voting shares: 0 Vladislav Yu. Mamul’kin The Chairman of the Board Managing Director of Representative Office of Limited Liability Company NAFTA MOSCOW (CYPRUS) LIMITED (Cyprus), Moscow Year of birth: 1973 Education: Moscow State Institute Of External Relations of Russian Ministry of Foreign Affairs, specialty External Economic Relations. First elected to the Board in 2013. Share in SMW capital: 0% % in SMW’s voting shares: 0 Dr. Dmitriy L. Melnikov Alexei V. Prokopenko Member of the Board Former General Director of Solikamsk Magnesium Works OAO, from August 2011 to February 2014 Recent place of job: Information is not available Year of birth: 1974 Education: Karl-Franzens Universität, Graz, Austria, specialty Managing of enterprises, in 1997 and Perm State Technical University, specialty Economics and managing of enterprises, in 1998 First elected to the Board in 2011 Share in SMW capital: 0% % in SMW’s voting shares:0% Alexei Yu. Pykhteev Neither deals with the Company’s shares were concluded by the Board members in 2014. Information about the person who holds the position of Exclusive Executive Body of the Company Pursuant to article 69 of Federal Law № 208-FZ of 26 December 1995 “Joint Stock Companies” and Charter of Solikamsk Magnesium Works OAO, the Company is managed by General Director (Exclusive Executive Body of the Company). General Director of the Company since 13 February 2014 года is Sergei B. Shalaev, 1956 year of birth. Neither deals with the Company’s shares were concluded by General Director in 2014 The collegial executive body is not available under the Company’s Charter The main provisions of the Company's policy in the field of compensation and reimbursement of expenses, as well as the criteria for determining the amount of remuneration and compensations paid to the members of the Board of Directors of the Company for 2014 The main provisions of the Company's policy in the field of compensation and reimbursement of expenses to the Board members were as follows: - the Board members have a right to a monthly remuneration for performance of their duties in the amount equal to monthly average salaries of industrial employees of the Company. Reimbursement of expenses to the Board members for the exercise of the respective functions was not paid by the Company. The total remuneration of the Board, including salaries of the Board members who are the Company’s employees, including bonuses, remunerations, fees paid individually for their participation in the governing body, other types of remunerations those were paid by the Company during the reporting year amounted to 26’531.26 thousand rubles. Compensations of expenses related to the performance of the functions of the member of the Board, paid by the Company during the reporting year, were not available.

The main provisions of the Company’s policy in the field of remuneration and reimbursement of expenses, as well as the criteria for determining the amount of remuneration and compensations paid to the members of the executive bodies of the Company during 2014 The criteria for determining and amount of remuneration to General Director are defined in the article 12.2 of the Charter of the Company, in the article 1.3. Statute of the General Director and in the labor contract between the General Director and the Company. The remuneration of the Exclusive Executive Body (General Director) is determined as a fixed amount (monthly salary) in accordance with the labor contract. Depending on results of the Company’s performance during the reporting year, each year, under decision of the Board, additional remuneration (premium/annual bonus) may be paid to General Director. The remuneration of General Director is subject to the Company’s regulations on confidentiality and it is not disclosed separately. Information (report) on compliance with principles and recommendations of the Corporate Code of Governance recommended for use by the Bank of Russia The Company does not have its own Code of Corporate Governance or other similar document, however, SMW provides to shareholders and investors all appropriate ability to participate in managing of the Company and provides them information concerning the Company’s activities complied in accordance with Federal Law “Joint-Stock Companies”, Federal Law “Securities Market” and normative enactments of the Bank of Russia. The main principles of SMW in building its relationships with shareholder and investors is a reasonable balance between the Company’s interests as the operating subject and the Company’s interests as the joint-stock company that protects rights and legal interests of its shareholders. The Company’s governing bodies tend to follow principles and recommendations stipulated in the Code of Corporate Governance of 21 March 2014 recommended by the Bank of Russia. Functions of the Company’s Secretary of the Board are performed by specially authorized person, whose duties include provisions of internal documents of the Company aiming implementation of basic principles of corporate governance and provisions recommended in the Code of Corporate Governance. The Company's Department of Corporate Relations enforces managing bodies of the Company and the Company’s executives to comply with the procedural requirements guaranteeing the legitimate rights and interests of the shareholders, timely disclose an information to public in compliance with the Russian legislation. For the convenience of shareholders, who are physical persons, and for implementation of rights of owners of the Company’s securities, the Company provides services to get documents from shareholders required for recording of operations in register, and arranges transfer of these papers to the Company’s register holder. All interested persons have a right to obtain timely information about activities of the Company through official web-site of SMW www.smw.ru (www.смз.рф) and information agency ZAO “Interfax” http://www.e-disclosure.ru/portal/company.aspx?id=6100 where is published general information about the Company, its banking accounts, price for copying of documents that company should provide in accordance with the Russian legislation under request of owners of the Company’s securities and other interested persons, Charter and internal documents of the Company, quarterly reports, annual financial statements and reports, list of affiliated persons, information about essential facts (also published by RIA Interfax). The Charter and internal documents of the Company contain certain norms and regulations of the main sections contained in the Code of Corporate Governance recommended by the Bank of Russia. List of compliance with norms of corporate governance consist of a smaller number of parameters in comparison with the Code recommended by the Bank of Russia, due to the fact that corporate structure of the Company does not include Collegial Executive Body, Managing Company, committees by type of activities in the structure of the Board, Internal Audit Services. Compliance of the Company’s actions and documents with Corporate Code of Governance recommended by the Bank of Russia is provided in Annex № 3 to this .

THE MAIN FINANCIAL RESULTS OF THE COMPANY

Aggregated balance sheet on 31 December 2014 (in thousand rubles) ASSETS LIABILITIES

1 Fixed assets 2'311'474 3 Equity 2'460'382 2.1 Inventories and expenses 1'022'199 4 Long-term loans and other long-term 1’510'425 borrowings 2.2 Cash, accounts receivable and other 1'626'949 5 Accounts payable and other liabilities 989'815 assets, including Cash and equivalent 219'548 Accounts receivable and other assets 1'407'401 TOTAL ASSETS 4'960'622 TOTAL LIABILITIES 4'960'622

Statement of Financial Performance for 2014 (in thousand rubles)

Наименование показателя Код строки 2014 2013 Sales revenues 2110 5'164'738 4'455'570 Cost of goods sold 2120 ( 4'699'448) (4’075'751) Gross margin (loss) 2100 465'290 379'819 Selling expenses 2210 ( 329'549) (296'350) General & administrative expenses 2220 ( 339'407) (320'577) Sales income (loss) 2200 ( 203'666) (237'108) Earnings from participation in other entities (dividends) 2310 45'160 31'629 Interests receivable 2320 2'791 4'692 Interests payable 2330 ( 66'581) (118'494) Other revenues 2340 581'401 398'659 Other expenses 2350 ( 318'972) (264'306) Income (loss) before taxation 2300 40'133 (184'928) urrent income tax 2410 ( 7'911) - Including fixed tax liabilities (assets) 2421 19'935 16 114 Deferred tax liabilities 2430 7'687 13 178 Deferred tax assets 2450 ( 25'932) 25 728 Others 2460 26'046 Net income (loss) in the reporting period 2400 40'023 (172 378) FOR REFERENCE.

Result of re-assessments of net assets which is not included into - net income (loss) of the reporting period 2510 115'455 Results from other operations which are not included into net income (loss) of the reporting period 2520 - - Total financial result for the reporting period 2500 155'478 (172 378) Earnings (losses) per share 2900 0.10 ( 0.43) Diluted earnings (losses) per share 2910

REPORT OF AUDITOR

ОАО Solikamsk Magnesium Works

ANNUAL REPORT 2014

Annex № 1 List of the Company’s Licenses

List of the Company’s licenses

№ Name License № Date of Validity Орган, выдавший лицензию п/п issue 1. Use and maintenance of sources of ionizing radiation. Sources of radiation: X- 59.55.11.002.Л000089.07.06 31.07.2006 01.08.2016 Perm’ Territorial Agency Of Federal ray apparatus for spectral and structural analyses, X-ray defectscopy Agency For Supervision In Area Of Customers Protection & Human Welfare (RosPotrebNadzor) 2. Operations with source of radiation ВО-03-207-2447 06.03.2012 06.03.2017 Federal Environmental, Industrial and Nuclear Supervision Service of Russia (RosTechNadzor) 3. Operations with source of radiation ВО-03-210-22372 29.09.2011 29.09.2016 RosTechNadzor

4. Polluting the air by stationary polluting sources of the Company Permission for pollution of air 27.12.2011 10.11.2016 Federal Service for Supervision of by contaminants № 03-04-0320 Natural Resources, Perm Region Branch (RosPrirodNadzor, Perm Branch) 5. Local telephonia excluding coin-phones and means of collective access № 95054 01.01.2012 01.01.2017 Federal Services For Supervision Of Communications 6. Operation of storage facility - stationary unit for disposal and storage of ВО -03-308-2534 29.10.2012 29.10.2017 RosTechNadzor radioactive wastes & residues 7. Waste disposal Permission № 03-02-0118 for 27.12.2012 18.10.2017 RosPrirodNadzor waste disposal 8. Medical activity ЛО-59-01-000039 06.02.2008 unlimited Ministry Of Health-care Of Perm’ Region 9. Operation of explosive and hazardous objects classified under I,II,III classes of ВХ-00-01-015059 22.10.2014 unlimited RosTechNadzor danger 10. Mining of fresh subterranean water in water intake “Kalietz” for drinking, ПЕМ 00660 ВЭ 04.05.2005 07.07.2015 PermNedra (Perm Ministry of Natural domestic and industrial purposes of SMW Resources) 11. Mining of fresh subterranean water for household premises of SMW ПЕМ 00659 ВЭ 04.05.2005 07.07.2015 PermNedra Sanatorium 12. Mining of fresh subterranean water in water intake “Kalietz” for drinking, ПЕМ 01956 ВЭ 04.05.2005 07.07.2015 PermNedra domestic and industrial purposes of Pig- breeding Farm 13. Collection, use, processing, transportation & disposal of Class 1-4 wastes & ОП-48-001746(59) 20.08.2010 20.08.2015 RosTechNadzor residues 14. Loading/reloading operations with hazardous materials in railway transport Серия ПРД № 5905734 21.01.2011 21.01.2016 Federal Agency For Transport Supervision (ROSTRANSNADZOR) 15. Air pollution (except radioactive substances) by stationary polluting source – Permission №03-04-1111 01.01.2015 31.12.2019 RosPrirodNadzor, Perm Branch polygon of solid industrial wastes and residues 16. Permission to certain kinds of building and construction works those may Certificate of permission № 01.10.2012 unlimited NP SAPO SRO affect safety of structures: designing works (projects), architectonic and 0691.04-2010-5919470019-П-063

technological decisions concerning systems those guarantee functionality of operations, industrial buildings and constructions (structures), other objects and complexes of objects 17. Permission to certain kinds of works connected with supervision for building Certificate of permission № 06.12.2011 unlimited NP SRO “Alliance of Builders” & construction works, organization of works for building, construction, 0943-2011-5919470019-С-018 rebuilding & capital repair those may affect safety of structures including strictly dangerous (inter alia, facilities operating with molten ferrous and non- ferrous metals and alloys of these metals) and technically complicated objects of building and construction, objects using atomic energy 18. Works for installation and maintenance of equipment for fire safety of License № 59-Б/00011 06.03.2014 unlimited Russian Ministry for Residential buildings and constructions Protection, Emergencies and Elimination of Consequences of Natural Disasters (EMERCOM)

ОАО Solikamsk Magnesium Works

ANNUAL REPORT 2014

Annex № 2 List of Deals with Interest

Contracts for sale and supply of goods and services.

Date of Approving Person Basis of interest № of deal/ Company name Subject of the contract/agreement/amendment Validity contract Authority representing amendment interested parties Contracts for Services 10.02.2014 General D.L.Melnikov Member of SZD Board Contract of SZD - renter Rent of land From 01.01.2014 to Assembly Member of SMW Board 10.02.2014 with 30.12.2014 Of Share Amendment № 1 holders (GAS) 26.12.2013 The Board D.L.Melnikov Members of RITM Board Agreement № 1 RITM - Borrower Prolongation of loan refund From the date of of Directors A.V. Litvinov Members of SMW Board of 26.12.2013 to signing to 27.06.2014 (BD) contract № 1 of 13.08.2013 26.11.2013 GAS D.L.Melnikov Members of RITM Board Contract № 6 -14 RITM - contractor Theme 10-14-06: Analyses of products of From date of signing to A.V. Litvinov Members of SMW Board of 26.11.2013 with experimental technologies, certification and 29.12.2014 Amendments № arbitrary analyses 1-4 25.09.2013 GAS D.L.Melnikov Members of RITM Board Contract № 02-14 RITM - contractor Theme 10-14-02: Review of operations of From the date of A.V. Litvinov Members of SMW Board of 25.09.2013 with electrolytic shop at the Plant № 1 during 2014. signing to the date of Amendments № Issueing of recommendations to improve the completion 1-6 technical and economic performance of the shop 25.09.2013 GAS D.L.Melnikov Members of RITM Board Agreement № 1 RITM - contractor Postponement of stages 3-5 in the Schedule, From the date of A.V. Litvinov Members of SMW Board of 25.09.2013 to increase of contractual value signing to the date of contract № 07-13 completion от 09.01.2013 10.10.2013 GAoS D.L.Melnikov Members of RITM Board Договор № 03-14 RITM - contractor Designing works From the date of A.V. Litvinov Members of SMW Board от 10.10.2013 с signing to the date of приложениями completion № 1-4 13.08.2009 GAS A.B. Averin Member of ОАО Uralkaliy Agreement № 07 ОАО Uralkaliy - Prolongation of contract, agreement on list of From the date of Board for 2014 to contractor works and prices for tolling contract signing to 31.12.2014 Members of SMW Board contract ПФХ/09/01 of 13.08.2009 26.12.2013 GAS D.L.Melnikov Member of SZD Board Amendments № SZD - customer Agreement on price for use of railway and From the date of Members of SMW Board 1, 2 to contract of unloading operations signing to the date of 2013 completion

28.02.2014 GAS D.L.Melnikov Members of RITM Board Contract № 16-14 RITM - contractor Designing works From the date of A.V. Litvinov Members of SMW Board of 28.02.2014 signing to 31.12.2014 09.01.2014 GAS D.L.Melnikov Members of RITM Board Contract № 9-14 RITM - contractor R&D under theme: Improvement of From the date of A.V. Litvinov Members of SMW Board of 09.01.2014 technological parameters of reduction processes signing to the date of and determination of maximal life-time of conic completion retort in titanium sponge production 20.04.2012 GAS A.B. Averin Member of ОАО Uralkaliy Agreement № 02 to ОАО Uralkaliy – Water supply From the date of Board contract № water supply signing to the date of Members of SMW Board 3195/2012 of company completion 20.04.2012 01.04.2014 GAS A.B. Averin Member of ОАО Uralkaliy Contract of ОАО Uralkaliy - Rent of land From the date of Board 01.04.2014 with renter signing to the date of Members of SMW Board Amendments 1-2 completion 14.08.2014 GAS D.L.Melnikov Member of RITM Board Agreement № 1 of RITM - contractor Postponement of stages 1-5 in the Schedule From the date of Member of SMW Board 14.08.2014 to signing to the date of contract № 15-13 of completion 21.12.2012 03.09.2014 BD D.L.Melnikov Member of SZD Board Contract № 528 of SZD - customer Servicing of providing of railway for From the date of Members of SMW Board 2014 loading/unloading operations signing to the date of completion 01.07.2014 GAS D.L.Melnikov Member of SZD Board Contract for rent of SZD - rentor Rent of building of production plant/warehouse in From the date of Members of SMW Board building of dormitory Kalietz, 648 sq m signing to the date of 01.07.2014 completion 01.08.2014 GAS D.L.Melnikov Member of SZD Board Agreement of SZD - contractor Amendment to contract: list of representatives of From the date of Members of SMW Board 01.08.2014 to electricity supply companies, list of persons who signing to the date of contract № 698 of sign protocols of energy sources accept, list of completion 30.09.2009 authorized person for negotiations 28.11.2014 BD A.Yu. Pykhteev Persons authorized to manage Agency ООО Mineral Sales of potash flux From the date of I.I. Shatrov more than 20% of voting shares Agreement of Trading - agent signing to the date of (share in authorized capital) of 28.11.2014 completion the company Members of SMW Board Contracts for goods 23.12.2013 GAS A.B. Averin Member of ОАО Uralkaliy Agreement № 08 ОАО Uralkaliy - Upgraded carnallite supply in 2014 From the date of Board of 23.12.2013 to supplier signing to 31.12.2014 Members of SMW Board contract № 916/ОМ-094 of 06.12.2010 23.12.2013 GAS D.L.Melnikov Member of SZD Board Amendment № SZD - buyer Supply of MG-90 grade of magnesium С момента From the Member of SMW Board 14 of 23.12.2013 to date of signing to the contract № 1037 date of completion of 23.12.2011 22.05.2014 GAS P.G. Detkov Director of Polyfer GmbH Agreement № 6 Polyfer GmbH - Increase of payment period From the date of of 22.05.2014 to signing to the date of

Member of SMW Board contract № buyer completion PF/REC/13/02 of 17.06.2013 15.06.2014 GAS Person has a SMW owns more than 20% of Agreement № 4 OOO Mart - seller Price increase on products (polyethylene bags) From the date of right to manage shares (share in authorized of 02.06.2014 and signing to the date of more than 20% capital) of Juridical person, who specification № 5 completion of voting shares is a party, beneficiary, agent or of 15.06.2014 of the juridical representative in the transaction person 29.07.2013 GAS P.G. Detkov Director of Polyfer GmbH Agreement № 7 to Polyfer GmbH - Sale of rare earths carbonate From the date of Member of SMW Board contract № buyer signing to 31.12.2014 PF/REC/13/02 of 29.07.2013 07.08.2014 GAS P.G. Detkov Director of Polyfer GmbH Agreement № 8 Polyfer GmbH - Change of contract terms: terms of payment, From the date of Member of SMW Board of 07.08.2014 to buyer validity of the contract signing to the date of contract № completion PF/REC/13/02 of 29.07.2013 30.06.2014 GAS Person has a SMW owns more than 20% of Specification № 5 Mart - buyer Supply of lime slurry milk From the date of right to manage shares (share in authorized of 30.06.2014 to signing to the date of more than 20% capital) of Juridical person, who contract № 909 of completion of voting shares is a party, beneficiary, agent or 14.11.2011 of the juridical representative in the transaction person 15.12.2014 GAS D.L.Melnikov Member of SZD Board Amendment № 1 SZD - buyer Supply of MG-90 grade of magnesium ingots From the date of Member of SMW Board to contract № signing to the date of 6977 of 15.12.2014 completion 15.12.2014 GAS D.L.Melnikov Member of SZD Board Amendment № 2 SZD - buyer Supply of MG-90 grade of magnesium ingots January-March 2014 Member of SMW Board to contract № 6977 от 15.12.2014 15.12.2014 GAS D.L.Melnikov Member of SZD Board Contract № 6978 SZD - buyer Supply of MG-90 grade of magnesium ingots 2014 Member of SMW Board of 15.12.2014

ОАО Solikamsk Magnesium Works

ANNUAL REPORT 2014

Annex № 3

Compliance of the Company to Principles and Recommendations of the Code of Corporate Governance Recommended by Bank of Russia

Abbreviations The (the) Company, SMW –Solikamsk Magnesium Works OAO Company – any company GAS – General Assembly of Shareholders of Solikamsk Magnesium Works OAO GMS – any general meeting of shareholders BD – the Board of Directors of Solikamsk Magnesium Works OAO The (the) Board – any Board of Directors Section 1. Shareholders’ rights. 1.1. The procedure of convening, preparing and conducting GAS is defined in the SMW’s Statute of General Assembly of Shareholders adopted by the GAS on 12 May 2014. 1.2. The Company notifies concerning GAS and grants access to documents compiled for GAS no later than 20 days before the date of GAS, unless more number of days is prescribed by Law. 1.3. SMW discloses the date of completion of the list of persons entitled to participate in the GAS no later than 7 days prior this date. 1.4. Full set of documents for GAS is placed on the SMW’s web-site in compliance with terms to grant access to these documents in due time. 1.5. Under request of shareholder, whose rights are recorded in the register, the Company provides an opportunity to be notified concerning GAS and to get access to GAS’s documents in electronic format. 1.6. SMW does not provide information connected with GAS in English. 1.7. Name(s) of person(s), who proposed item(s) in GAS Agenda and who nominated candidate(s) for election in the bodies of the Company, are not included in GAS Agenda. 1.8. During preparation of GAS, SMW does not provide to shareholders proper organizational and technical conditions ask members of executive bodies and BD as well as publicly declare their opinion on items of GAS Agenda. However, during GAS, shareholders have opportunity to discuss Agenda items related to the Company’s activities. 1.9. In the documents compiled for GAS, the Company provides information with respect to candidates nominated on the role of external auditors, that enables shareholder to form an opinion concerning skills and independence of auditors including names of self-regulatory organizations of auditors where these candidates are registered members. The Company does not provide description of the procedures utilized for the selection of external auditor(s) those ensure their independence and objectivity, as well as information on the proposed remuneration of auditor(s) for their auditing and non-auditing services including compensations and other fees associated with performance of their jobs, and other main terms & conditions of the contracts with them. In the Company, nomination of candidates to auditors and proposal of other items in Agenda of GAS, are based on submissions of shareholders, who hold at least 2% voting shares of the Company, or BD. The resolution of BD on each item in Agenda of GAS, as well as personal opinion(s) of dissenting member(s) of BD, if available, are included in the Protocol of such meeting of BD where this resolution was discussed. If agenda item of GMS is emission of additional shares, documents for GMS should involve information concerning market value of the part of property contributed as the payment for additionally emitted shares as well as market value of the total company’s property and/or shares, assessed by independent appraiser, if available, or other market information, which enables shareholder to understand real and historical market value of said property and/or shares. If agenda item of GMS is approval of increase/decrease of the authorized capital, “large deal” or “deal with interest”, arguments to adopt such a (trans)action and detailed information with respect to consequences of such an approval for the company and its shareholders, could be provided before shareholders of the Company. In addition, when “deal with interest” is discussed, the Company submits list of persons considered as the “interested” persons in this deal and arguments for said consideration. If item of GAS Agenda is amendments of the Charter or other internal documents of the Company, the Company submits to shareholders table of comparison between the existing and the amended editions of the document(s), arguments to edit such document(s) and detailed information concerning consequences of approval of these amendments for the Company and its shareholders. During preparation of GAS, the Company provides to shareholders information concerning candidates to BD and other bodies of the company, that enables shareholders to form their opinion concerning personal and professional experience of these nominees, like biography and skills, as well as information whether candidate is compliant with statutory requirements imposed for such body by Law. If agenda item of GMS is the transfer of rights of exclusive executive body to managing organization or manager, information concerning said organization/manager is provided to shareholders, including information with respect to interrelations of this managing organization/manager with person(s) who keep(s) a control on the company. BD issues recommendations concerning distribution of net income of the Company without any justification of such distribution between dividends and own needs of the Company, explanation and economic reasonableness of the amount assigned for own needs of Company as well as whether such distribution meets dividend policy of the Company. The Company has no privileged (preferred) shares. Company does not provide information concerning corporate actions those worsened dividend rights of shareholders and/or caused dilution of their shares as well as information concerning court decisions justifying the facts of utilizing by shareholder(s) methods to earn money for account of the company other than dividends and liquidation value. 1.10. List of persons, who are entitled to participate in the GAS, is served by the Company for familiarization under request of person(s) included in this list, provided with this/these person(s) hold(s) at least 1% of voting shares. However, personal information and address(es) of physical person(s) included in this list could be provided to requesting person(s) only under provisional agreement of these physical persons. Under request of any interested person, during 3 days, the Company must provide extracts from the list of persons entitled to participate in the GAS including information contained in this list with respect to this person, or, otherwise, issue the notice confirming the lack of this person in the abovementioned list. 1.11. Shareholder(s), who hold(s), personally or together, at least 2% voting shares of the Company, have a right to propose item(s) in the GAS Agenda as well as nominate candidate(s) in BD, Audit Committee and Counting Board of the Company, provided with that number of candidate(s) nominated by such shareholder(s) to either of this body does not exceed number of members in corresponding body of the Company. The abovementioned proposals should be submitted to the Company no later than 30 days after the end of financial year. 1.12. SMW mails to and receives from shareholders voting bulletins during period stipulated by the Federal Law “Joint-Stock Companies” and BD decision. These bulletins are served to shareholder by registered mail or are handed personally, against signatures. 1.13. The Register-keeper of the Company is a professional participant in the market of securities, whose profile is register-keeping of personalized shares. 1.14. The Register-keeper performs function of the Counting Board during GAS. 1.15. The Company provides to shareholders the opportunity of remote proxy vote on resolutions of GAS Agenda using electronic media. 1.16. In the case if GAS is held in the form of joint presence of shareholders, the Company has a duty to count and announce results of votes before the end of GAS. 1.17. SMW discloses all decisions of GAS on its web-site no later than 3 days after the date of closure of the GAS. 1.18. During the GAS, shareholders of the Company have an opportunity to ask Exclusive Executive Body, Chief Accountant, members of Internal Audit Committee, Chairman and/or other member(s) of BD responsible for audit, as well as Auditors of the Company, concerning their conclusions, and to get a response to their respective questions. 1.19. The Company aims to arrange presence of nominees to BD and Audit Committee during the GAS. 1.20. Formalized dividend policy is not adopted by the Company.

1.21. Participation of juridical persons controlled by the company, in the vote of resolutions on items of general meetings agenda, is not applicable for the Company (refers to vote with quasi- securities, i.e. using shares of the company belonging to juridical persons controlled by the company). Section 2. The Board of Directors. 2.1. Activity of BD is regulated by the Statute of BD adopted by GAS on 12 May 2014. 2.2. The following issues are assigned to the competence of BD: - appointment of General Director of the Company and early termination of his/her powers. Approval of terms & conditions of the contract with General Director is assigned to the competence of BD; - development of strategy and priority activities of the Company; - approval and correction of business-plans of the Company; - regular control on performance of strategy, business-plans and financial-production plans (budgets) of the Company in accordance with defined criteria and parameters; - identification of the main risks connected with the Company’s activities and approval of risk management system of the Company; - control on development and performance of effective systems for risk management and internal control; - discussion of deals or actions those are significant (major) corporate (trans)actions. 2.3. The Charter of SMW authorizes BD nominate candidates for establishing of executive bodies and candidates to the Board of controlled entities. 2.4. The following information concerning candidates, nominated to BD is disclosed by the Company to discuss during GAS: - age and education of candidate; - position held by candidate at the time of nomination to BD; - information concerning character of relations of candidate with the Company - in the case if candidate was a member of previously elected BDs of the Company; - written agreement of candidate to be a member of BD. 2.5. The share of the company’s executives in the total number of BD members (including Chairman) should be less than ¼. This share includes members of executive bodies of the company or managing organization that manages the company, as well as other persons whose are employed by the company, or employed by managing organization that manages the company. 2.6. The share of independent directors in the total number of BD members (including Chairman), those fall under criteria “independent” as defined in the Code of Corporate Governance, should be more than ½. 2.7. Formalized procedures and actions of BD, if BD member loses a status of “independent” director, are not described in internal documents of the Company. 2.8. The Chairman of BD is not an “independent” director of the Company. 2.9. The Company does not have “lead independent” director. 2.10. Internal documents of the Company do not describe the policy for member of the Board concerning owing shares of the company and shares (share in authorized capital) of juridical person controlled by the company. 2.11. Liability of members of BD is not insured for the account of the Company. 2.12. The Company does not have an information concerning members of BD who are members of the Board in more than 5 public companies at this moment. 2.13. BD Meetings are held at the Company’s location, or other locations defined by BD. Periodicity of BD Meetings is at least once in a quarter, but less than once in two months, depending on necessity. 2.14. Periodicity of “in-person” BD Meetings is less than once in a quarter. 2.15. BD does not draft working plan of BD that includes schedule of meetings, form (‘in- person’ or ‘remote’) and agenda of Meetings. BD Meetings are held at least once in a quarter, depending on necessity.

2.16. Neither case of failure of BD meeting by the reason of lack of quorum is fixed in the records of the Company. 2.17. Proxy vote of BD member, who did not take a part of BD Meeting, is taken into account when quorum and results of vote on items in agenda of BD Meeting are counted. 2.18. The member of BD, who has not arrived at the place of BD Meeting, do not have an opportunity remotely participate in discussion and vote on items of agenda through conference call or video conferencing. In such cases, proxy vote of this member of BD is taken into account to count results of vote on items of agenda. 2.19. The rights of shareholder(s), who hold(s), personally or together, at least 2% voting shares of the Company, to demand convening of BD Meeting is not enshrined in the Charter of the Company. In accordance with article 11.8 of the Charter, the BD Meeting could be convened by the Chairman of BD - on his own initiative, or by request either of: any member of the Board, Internal Audit Committee, Auditor, or General Director of the Company. The procedure of convening and conducting of BD Meeting is described in the SMW’s Statute of BD. 2.20. In accordance with article 9.7 of SMW’s Statute of BD, notice of a meeting shall be served by the Secretary of BD, to each member of BD, no later than 5 calendar days before the date of respective Meeting, in writing, or in any other form convenient to member (including mail, telegraph, teletype, telephone, e-mail, or other mean of communication). 2.21. Each Protocol of BD Meeting should contain the records of vote for each member of BD on each item of Agenda. Personal opinion of the dissenting member of BD should be attached to that Protocol of that Meeting where this opinion was declared and should constitute an integral part thereof. 2.22. Items of agenda those should be discussed only on BD Meeting held ‘in-person’ is not defined in internal documents of the Company. In accordance with article 11.11 of BD Statute, decision of BD could be adopted remotely (by proxy vote) following the procedure described in the Statute. Form of ‘in-person’ BD Meeting is preferable when agenda of BD Meeting includes items of high importance those require mutual discussion, such as: - approval of priority activities and financial-production plan (budget) of the Company - convening GAS and approval of decisions required for convening and conducting GAS, approval or refusal of proposal for convening special [extra-ordinary] GAS; - provisional approval of Annual Report of the Company; - election or re-election of Chairman of BD; - establishing (appointment of) the company’s executive bodies or early termination of their powers if such decisions are in competence of the Board under charter; - suspension of power of exclusive executive body and appointment of acting exclusive executive body of the company if the Board is not empowered to establish (appoint) such an executive body under charter; - proposals concerning restructuring (including ratio for conversion of shares of the company) and liquidation of the company for decision of general meeting of shareholders; - approval of significant (major) deals of the company; - approval of register-keeper, terms & conditions of the contract with register-keeper, as well as termination of such a contract; - proposal concerning the transfer of power of exclusive executive body to managing organization or manager for decision of general meeting of shareholders; - discussion of important aspects of activities of juridical persons controlled by the company - discussion of issues connected with obligatory, or voluntary proposal in address of the company; - discussion of issues connected with increase of authorized capital of the company (including determination of value of property contributed as the payment for additionally emitted shares); - discussion of financial performance of the company for the reporting period (quarter, year);

- discussion of issues connected with listing or de-listing of the company’s shares (not applicable in recent time. Under proposal of MICEX, shares of the Company are included in the list of securities permitted for trade in MICEX without listing procedure); - discussion of results of evaluation of the Board, executive bodies’ and key managing personnel’s efficiency; - discussion of remuneration of members of the company’s executive bodies and other key executives (applicable to exclusive executive body only. In accordance with internal documents of the Company, remuneration of other key executives is out off competence of BD); - discussion of risk management policy. 2.23. In accordance with article 10.3 of BD Statute, BD Meeting is in power, if it is attended by at least five members of BD. Proxy vote of member of BD, who has not attended the Meeting, is taken into account to count quorum and results of vote. Article 11.12 of the Charter constitutes that decision of BD is valid if it is approved by simple majority of votes, except cases stipulated in the Federal Law “Joint Stock Companies”, in the Charter, and in internal documents of the Company. Approval of large deals, where subject of the deal is property with value representing from 25% to 50% of book value of the Company’s assets, is valid if approved by 100% of votes excluding members who left BD before the date of vote. The following issues are valid if approved by simple majority of votes: - approval of priority activities and financial-production plan (budget) of the company; – approval of dividend policy of the company (not applicable to the Company recently, due to lack of necessity in approval of dividend policy); - approval of decision concerning listing of the company’s shares and/or other securities convertible into the company’s shares; - discussion of price (value) of significant (major) deals of the company and approval of such deals; - proposal before general meeting of shareholders concerning restructuring or liquidation of the company; - proposal before general meeting of shareholders concerning: increase/decrease of authorized capital of the company, determination of price (value) of property contributed as the payment for additionally emitted shares; - proposals before general meeting of shareholders concerning: amendments of the company’s charter, approval of significant (major) deals, listing or de-listing of the company’s shares and/or securities convertible into shares of the company; - discussion of significant (important) issues connected with activities of the entities controlled by the company (discussion of this issue is out off competence of SMW’s BD); - approval of recommendations concerning obligatory, or voluntary proposal in address of the company; - approval of recommendations concerning dividends per shares of the company. 2.24. Committee for Audit of the Board is not available in internal documents of the Company. 2.25. Committee for Remuneration of the Board is not available in internal documents of the Company. 2.26. Committee for Nomination of the Board is not available in internal documents of the Company. 2.27. Committee for Strategy of the Board is not is not available in internal documents of the Company. 2.28. Evaluation of the Board activities is not performed. 2.29. Principles of remuneration/compensations/reimbursements for member of BD are formalized in BD Statute adopted by GAS on 12 May 2014. Expenses, other than travelling expenses to the place of BD Meeting and other places connected with performance of duties as the BD member, are not reimbursed to member of BD. Non-executive independent directors have neither of benefits in the form of pension contributions, nor insurance programs (except insurance of director liability and travelling insurance connected with trips connected with performance of director functions), nor investment programs, nor other benefits and privileges. Remuneration of BD member on ‘per each meeting’ basis is not applicable. Neither form of short-term motivation, nor additional material stimulus are provided to member of BD. 2.30. The position of corporate secretary is not available in the Company. 2.31. The Company has not developed and approved statute of corporate secretary due to lack of this position. 2.32. Internal documents of the Company does not specify requirements for education of the Secretary of BD, but, in practice, during the process of selection and approval of the Secretary of BD, education and experience of candidates are taken into account. 2.33. Internal documents of the Company do not set forth restrictions for corporate secretary that he/she should not be the person who is affiliated with the company, inter-related with the person(s) who keep(s) a control on the company, or inter-related with executive management of the company. 2.34. Internal documents of the Company do not set forth restrictions for corporate secretary that he/she should not perform other functions in the company along with function of corporate secretary. 2.35. Approval of corporate secretary and termination of his/her powers are at the Board discretion. Section 3. Executive management. 3.1. Internal normative documents of the company set forth requirements for skills and experience of candidates to executive bodies. 3.2. BD has not established KPI system for the Company. 3.3. BD does not perform regular evaluation of executive bodies’ efficiency including KPI analysis. 3.4. Principles of remuneration of executive bodies and other key managing persons of the Company are formalized in internal documents of the Company. 3.5. Guarantees and compensations, in the event of early termination of powers of executive bodies or key managing persons of the Company, except cases of fraud or improper performance of their jobs, are paid in accordance with labor legislation. Section 4. Information disclosure and transparency. 4.1. The Company has not adopted information policy, however, information concerning activities of the Company is readily available for shareholders, investors and other interested parties, and it is performed in accordance with Russian statutory requirements for participants of securities market, regulations of Russian Central Bank and MICEX. 4.2. Relations with investors is performed by Juridical Services of the Company, in particular, by Department of Corporate Relations, while relations with public are performed by press- center of the Company. 4.3. The Company has its own corporate web-site. 4.4. Information concerning the Company’s activities is regularly disclosed by the Company on its web-site. This source of information is considered by the Company as the least expensive and readily available for all interested parties. Information is provided in the form of: annual and quarterly reports, the Charter of the Company and amendments thereto, internal regulatory documents of the Company, reports on compliance with this Code, information concerning essential facts, list of affiliated persons, as well as in the other forms. 4.5. The Company does not arrange regular meetings of analytics with executive bodies and other key managing persons of the company. 4.6. The Company does not arrange regular presentations (like conference-call, web translation or web-cast) and meetings of executive bodies and other key managing persons of the company in connection with key results of financial performance, investment projects and strategic development plans of the company.

4.7. Selection of external auditor of the Company is not performed in the form of tender. 4.8. The procedure for approval by BD of non-auditing services performed by external auditor is not available at the Company (as for example, when value of non-auditing services exceed certain threshold stipulated in internal documents of the company). 4.9. The Company does not have a policy of external auditors’ rotation. 4.10. The Company voluntary discloses annual financial statements prepared under International Standards of Financial Reporting (ISFR), including Report of Auditor, in its quarterly reporting. 4.11. The Company discloses intermediate 6 months’ financial statements prepared under ISFR, including Report of Auditor, in its quarterly reporting. 4.12. In its quarterly and annual reports, the Company discloses information concerning all important risks those may adversely affect activities of the Company. 4.13. In its Notes to annual financial statements, the Company discloses information concerning deals with related parties prepared under ISFR criteria. 4.14. The company discloses information concerning significant (major) deals and deals of the company with juridical persons controlled by the company (including interrelated transactions of the company with one or more juridical persons controlled by the company). 4.15. The company discloses changes in degree of control on juridical person that is controlled by the company and important for the company. 4.16. The Company discloses information concerning other essential (important) facts those are connected with the Company’s activities and activities of entities those are controlled by the Company and important for the Company. 4.17. The Company places Annual Report on the corporate web-site after ending of annual GAS. 4.18. Annual Report and/or information on the Company’s web-site, along with information prescribed by Law, contain the following information disclosed to the public: - general information (including brief history, organizational structure of the Company) - mission, strategy, corporate values, objectives and policies adopted by the Company - letter to shareholders of Chairman of BD and Exclusive Executive Body of the Company including evaluation of the Company’s performance for the year; - information concerning the company’s securities including information concerning changes in the list of shareholders who are in position directly or indirectly manage at least 5% votes assigned to voting shares of the company; - information concerning total number of shareholders; - information concerning number of voting shares of the Company including distribution by category (type) of share as well as number of shares available at the disposal of the Company and at the disposal of juridical persons controlled by the Company; - information concerning persons who own directly or indirectly, and/or have a power on, and/or are beneficiary shareholders at least 5% authorized capital or ordinary shares of the company (if such information is available to the Company); - information concerning an opportunity to obtain a power, or holding a power to control by shareholders at the degree that is not in conformity with their share in the authorized capital of the company including agreements of shareholders, availability of ordinary and privileged shares with different nominal value (if such information is available to the Company); - key performance parameters of the company; - actual performance of the company in comparison with plans; - investment projects and strategical objectives of the company; - prospects of the company (sales revenues, productivity, market share, income growth, profitability, debt to equity ratio); - brief overview of important deals concluded by the company and by juridical persons controlled by the company (including interrelated transactions, concluded by the company with one or more juridical persons controlled by the company) in the reporting year;

- description of corporate management system of the company including general information and principles of corporate governance utilized by the company; - information concerning BD with identification of Chairman of BD, Deputy Chairman of BD, lead independent director, which enables to form an opinion concerning personal and professional experience of BD members, their biographies (including age, education, recent employment, skills, practices), information concerning first election of each member in BD and his/her membership in the Board of other entities, information concerning independence of the director, information concerning their experience in managing bodies of other juridical persons during last 5 years; - description of the company’s systems for risk management and internal control; - description of employing and social policy of the Company, social development, health protection of employees, professional training, works safety; - information concerning the Company’s Environmental Policy and Policy in Industrial Safety; - report of the Board concerning its activities (including committees of the Board) for the reporting year containing, inter alia, information concerning number of meetings held ‘in- person’ and remotely, attendance each member in the meetings, description of the most important issues and problems discussed by the Board and committees of the Board, the main recommendations proposed by committees to the Board; - description of procedures utilized to select external auditors that ensure their independence as well as information concerning remuneration of external auditors for their auditing and non- auditing services; - information concerning direct and indirect holding of the company’s shares by members of the Board and executive bodies of the company; - information concerning conflict of interests among members of BD and executive bodies (inter- alia, related with participation of said persons in managing bodies of entities competing with the Company); - information concerning total annual remuneration paid to all members of managing bodies and other key managing persons of the company whose fall under provisions of the company’s policy of remuneration and reimbursement of expenses, detailed by type of remuneration (in the Company’s reports are disclosed total amounts of short-terms annual remuneration of key managing persons including BD, without detailing of each remuneration by type); - information concerning compliance of the Company with principles and recommendations in this Code of Corporate Governance. 4.19. The Company does not regularly compile integrated or separate Report of Sustainable Development/Report of Corporate Social Accountability. 4.20. Independent certification of Report of Sustainable Development/Report of Corporate Social Accountability is not applicable to the Company due to luck of such reports. Section 5. Risk management, internal control and internal audit. 5.1. Policy of risk management and internal control is not approved by BD. 5.2. The Company has not applied generally accepted concepts and practices in the field of risk management and internal control such as COSO’s “ Internal Control – Integrated Framework” and “Enterprise Risk Management – Integrated Framework”, ISO 31000 “Risk management – Principles and guidelines” and ISO 31010 “Risk management – Risk assessment techniques”. 5.3. Separate sub-division for risk management, or person performing functions of such sub- division, is not available at the Company. 5.4. The Company has not established a secure, confidential and readily accessible channel (“hot line”) to inform the Board (committee for audit) and internal audit sub-divisions concerning violations of law, internal procedures, code of ethics of the company by either employee, or/and member of managing/executive body or body performing control on production- financial activity of the company.

5.5. Process of permanent internal risk management of the Company is based on performance of measures of control and protection against main types of risks, at each level of management in each division of the Company. 5.6. The Company has adopted Rules of Internal Labor Conduct; variety of Regulations; technical, technological, sanitary and works instructions; Program of Radiation Control; Policy in Industrial Safety; Environmental Policy and Quality Policy as the part of Integrated Management System; other documents. Compliance with these regulations prevents arising of risks for the Company if objectives are achieved. 5.7. The Board (Committee for Audit) does not review reports concerning key risks and how these risks are managed on a regular basis (at least once in 6 months). 5.8. BD annually arranges evaluation of efficiency of systems for risk management and internal control, however, results of these evaluations are not included in Annual Report. 5.9. The Company does not apply generally accepted standards of internal audit, in particular, International Professional Practices Framework: The Framework for Internal Audit Effectiveness developed by The Institute of Internal Auditors. For the purposes to meet customers’ requirements with respect to the quality of products, international standards ISO 9001, ISO 14001 and ISO 19011 are applied. 5.10. The Company established separate sub-division for internal audit: functions of internal control on financial-production activity of the Company is performed by Control-Verification Department. Functions of internal audit are performed by Chief Economist for Analysis & Internal Audit under guidance of Director for Economics & Finance. Internal audits are conducted by structural divisions of the Company along with performance of their main functions. Internal audit of Integrated Management System, on its compliance with ISO 9001 and ISO 14001 requirements as well as evaluation of its efficiency, is performed by Department of Quality Management System under drafted working plan of internal audits. 5.11. Functional accountability of internal audit sub-division of the Board and administrative accountability of exclusive executive body are not described in internal documents of the Company. 5.12. Internal audit sub-division of the Company is not accountable before BD. 5.13. Efficiency of systems for internal control and risk management is evaluated within internal audit procedures. 5.14. The Company has adopted the following internal regulations related to internal audit: Statute of Control-Verification Department of the Company, methodological instructions ОУСК 08-01-2003 "Internal Audit" and related methodological instructions developed for structural units under requirements of Quality Management and Environmental Management systems. 5.15. The Board does not review reports of internal audit and reports concerning monitoring of failure avoidance. 5.16. The Board does not evaluate performance of internal audit sub-division of the Company. Section 6. Corporate social responsibility, business ethics, compliance. 6.1. Policy of Corporate Social Responsibility (social activity), unique for all divisions and dependent entities/subsidiaries, is not adopted by the Company. 6.2. Social policy issues, and/or sponsorship or charity, are managed by Senior Specialist for Social Issues in the structure of Assistant General Director for General Issues. 6.3. The Company is in regular relations with interested parties (stakeholders), but schedule of such relations is not drafted. 6.4. Code of Business Ethics/Corporate Conduct, that sets forth principles of business conduct for employees, is not adopted by the Company. 6.5. Procedures to prevent and solve conflict of interests is not formalized in internal documents of the Company.