Annual report - 2012

Contents Address of Victor F. Rashnikov, Chairman of OJSC MMK's Board of Directors ...... 3 The main results of 2012 ...... 5 Main Events of 2012 ...... 6 The Company's Mission, Strategy and Growth Prospects ...... 8 B. Dubrovsky, General Director of OJSC MMK, on the Results of 2012 and Strategic Tasks Faced by the Company ...... 12 MMK Group ...... 14 Company’s Sales ...... 15 Material and technical supply ...... 24 Company’s Production Activity ...... 28 Overview of the financial position of the company ...... 32 Internal Control System ...... 41 Risk Management ...... 43 Corporate Social Responsibility ...... 45 The Company's HR Policy ...... 47 Labour safety ...... 48 Environmental Protection ...... 50 Corporate Governance ...... 55 Information on Securities Including Issues of Shares ...... 71 REPORT of the OJSC MMK Board of Directors on the Results of OJSC MMK's Priority Activities in 2012 ...... 77 General Information on OJSC MMK ...... 78 General Information on the Annual Report ...... 79 Application. Consolidated Financial Statements for the Year Ended 31 December 2012 ...... 80

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Address of Victor F. Rashnikov, Chairman of OJSC MMK's Board of Directors

Dear shareholders, colleagues and partners!

In 2012 the Magnitogorsk Iron and Steel Works celebrated its 80th anniversary. Over these eight decades the Company has covered a long trajectory, and today it is one of Russia's leading steel-making companies ranking among the world's top steel producers.

MMK is a vertically integrated steel group comprising 97 companies whose geography has long spread beyond the boundaries of the Magnitogorsk industrial site and keeps expanding both domestically and internationally. The Group is present in Russia's Kemerovo Region through its coal subsidiary OJSC Belon, in St.Petersburg area through its steel service centre Intercos-IV, in the Moscow Region through MMK-Profil-Moskva, in 22 Russian regions through ZAO Profit's network of scrap collection and processing centres, and also in 28 regions through the outlets of its distribution subsidiary, LLC Torgovy Dom MMK. In Turkey the Group has built a steel making plant, MMK Metalurji, located on two sites in Iskenderun and Istanbul.

In 2012 the MMK Group produced 13.037 m tons of crude steel and 11.936 m tons of commercial steel products, which is 6.9% and 7% more than in 2011, respectively. The Company has recorded a significant reduction in its debt burden cutting it by USD 500 million, with the total debt/EBITDA ratio dropping from 3.31 to 2.86.

In 2012 we completed a major greenfield project, the 2,000 mm Cold Rolling Mill Complex equipped in line with the most advanced technological standards. Today the Complex produces premium quality cold rolled and galvanized products for exterior and interior car parts, for household appliances manufacturers and the construction sector. The commissioning of the 2nd Stage of the Complex was acclaimed as one of the key events of the Russian steel sector in 2012.

Last year MMK accounted for 17.7% of the total Russian output of rolled steel products. The Company consolidated its leading positions in steel deliveries to domestic customers. We did our best to satisfy the customers' needs both in terms of steel grades and sizes and product quality. In 2012 77% of MMK's total steel output was shipped to the Russian market, an all-time high for the Company.

OJSC MMK continues to consolidate its status of a socially-conscious company basing its efforts on the principles of corporate responsibility. Taking consistent steps to raise the living standards of our employees and their families we are also promoting occupational safety and environment protection. In 2012 the MMK Group spent RUB 2.6 billion on the implementation of its social projects.

In late 2012 OJSC MMK's Board of Directors approved a new 10-year strategy of the Group for a period up to 2022 earmarking about USD 7 billion for its implementation. The Company's Strategic Development Plan clearly states that the Company sees steel production as the Group's main business in the future. Hence, our specific task is to become a leader in steel-making technology and innovations, creating more value for the shareholders and improving the quality of life of our employees and local communities in the locations where our assets are deployed.

I am confident that our desire and ability to develop and grow, and ability to overcome critical situations with minimum losses, as well as our long-standing labour traditions and faith in our own potential will allow us to fulfill our plans.

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I would like to express my deep-felt gratitude to OJSC MMK's and the Group's personnel for their coordinated and professional work in 2012, and to thank everybody who has cooperated and continues cooperating with our Company. At MMK we have always placed a high value on reliable partners and true friends. And so it will be in the future. I wish you all success in meeting your goals and effective fulfillment of the tasks set!

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The main results of 2012

Growth of steel Growth of MMK Group's 1.2% production in the world* steel production 6.9%

Commercial steel production EBITDA 11,936 kt USD 1.356 bn 2011: 11,158 kt (+7%) 2011: USD 1.336 bn (+1%) Value added production Slabs cash-cost 4,880 kt USD 403 per tonne 2011: 4,063 kt (+20%) 2011: USD 474 per tonne (-15%) Sales proceeds EBITDA margin USD 9.328 bn 14.5% 2011: USD 9.306 bn (+0.2%) 2011: 14.4% (+0.1%) Operating income Debt/EBITDA USD 266 m 2.86 2011: USD 365 m (-27%) 2011: 3.31(-0.45)

Profit (loss) for the period CAPEX (-) USD 94 m USD 674 m 2011: (-) USD 125 m 2011: USD 1.154 bn (-42%) *2012 level compared to 2011: Worldsteel Association data

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Main Events of 2012

January 2012:  MMK was recognized as the leader in supplies of flat steel products in Russia (according to Metallosnabzhenie y Sbyt magazine)

February 2012:  On 1 February MMK celebrated its 80th anniversary. Vladimir Putin, the Russian Prime Minister, sent his congratulations to the employees and veterans of the Company.  MMK won the All-Russian Competition "Best Russian Enterprises. Growth, Performance and Responsibility" in the category "Social Programs for Employees and Maternity Support".  MMK floated a RUB 5 bn issue of 3-year exchange-traded bonds included in the MICEX quotation list, with a coupon rate of 8.19%.

March 2012:  The Company's Electric Furnace Shop smelted its 10-millionth ton of steel, while the BOF Division reached the mark of 150 m tons produced since the launch of the 1st BOF converter.

April 2012:  The Company's CEO, Boris Dubrovsky, was awarded the Order of Honour by decree of the Russian President Dmitry Medvedev.

May 2012:  OJSC MMK's annual general shareholders' meeting was held on 25 May 2012.

June 2012:  MMK signed a long-term contract (up to 2022) with LLC NOVATEK-Chelyabinsk for natural gas supply.  MMK won three gold and two silver medals at the 23rd International Invention, Innovation and Technology Exhibition in Malaysia (ITEX '12) for its developments.

July 2012:  The Russian President Vladimir Putin attended the commissioning of the 2nd stage of the 2,000 mm Cold Rolling Complex at MMK.  MMK produced the 650 millionth ton of sinter.  MMK won in the mining and metals sector's "High Social Responsibility Competition" in the category of environment protection and power-saving.

September 2012:  MMK produced the 600-millionth ton of hot rolled steel in the Company's history.  MMK had its ship-building steel production process approved by the renowned certification society Bureau Veritas, France.

August 2012:  Russian Institute of Directors confirmed a NCGC 8 rating for OJSC MMK corresponding to the level of advanced practice of corporate governance according to the National Corporate Governance Scale.

October 2012:  MMK managers were recognized as the best corporate governance professionals in Russia according to the ratings of the 2012 Director of the Year Prize panel.

November 2012:  As part of the International Metals Week in Moscow MMK won a gold and a silver medal at the Metall Expo 2012 specialized international exhibition and a prize for the 2012 Chief Event in the Russian Steel Sector.

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December 2012:  On 29 December 2012 the Company held an extraordinary general shareholders' meeting which decided to dividends for the nine months of the 2012 financial year.  MMK won one gold, one silver and two bronze medals at the 8th International Inventions Exhibition SIIF 2012.  MMK floated a RUB 5 bn issue of 10-year corporate bonds included in the MICEX quotation list, with a coupon rate of 8.70%.

January 2013:  MMK was recognized as the leader in supplies of flat steel products in Russia (according to Metallosnabzhenie y Sbyt magazine).

February 2013:  On 1 February MMK celebrated its 81st anniversary.

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The Company's Mission, Strategy and Growth Prospects

Production and sale of premium quality steel products meeting the requirements of our customers, for the purpose of earning sufficient profit to bring MMK up to the level of a world- class company and meet its social commitments within a reasonable extent.1

The main strategic goal of MMK is to maintain its competitive ability on the world steel markets in the long-term.

That goal will be attained by meeting the following long-term objectives:

1. Quality improvement and diversification into new types of products for satisfying the current and future needs of the customers.

To this end it is important to branch out into producing steel products new for the Russian market, for instance:  In July 2012 MMK completed the project of the Cold Rolling Complex (Shop #11) comprising a 2,000 mm cold rolling mill, a hot dip continuous galvanizing line and a combined annealing and HD galvanizing line which will allow:  to produce premium quality cold rolled and galvanized steel in the range of sizes of 0.28-3.0 х 850-1,880 mm for the automotive sector; and  to broaden the range of cold rolled and coated steel products for white goods manufacturers and the construction industry.  In 2012 MMK carried on the project of modernizing the 2,500 mm hot strip mill. As part of the project, construction and erection work was performed to install new reheating furnaces on the mill. Once completed, the project will boost the mill's productivity, broaden the product mix and bring down finished goods' costs.

 In July the Company's Rolling Shop #9 completed the project of installing a plate abrasive cleaning machine that will allow to produce plates of ship-building grades AB2-1 and AB2-2 with a thickness of 20 mm and more, which require total surface cleaning on both sides. This project will be instrumental in increasing sales of thick steel plate.

 In April 2012 MMK's Coating Division completed the project of installing a new tension leveler on its electrolytic tinning line that will help the Company to retain its tinplate market share. The new tension leveler improves plates' flatness before feeding them into the tinning line. 2. Maintaining and Expanding MMK's Markets 2.1 Strengthening MMK's Positions on the Russian Steel Market

MMK's sales policy is focused on giving priority to the domestic market. The Company strives to become a long-term supplier for major domestic sectoral consumers including other steel companies, machine-building plants, pipe-making and automotive plants and the construction industry. The Company has long-term agreements with many of these major customers that provide for bilateral cooperation and efforts in implementing joint projects and ensure guaranteed sales volumes.

 Development of the Branch Warehouse Network Branch warehouses enable MMK to expand its presence on the domestic market and help to raise the quality of catering to the customers' current and future needs.

1 In accordance with the Company's Strategic Development Plan approved on 13.07.2007 г.

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The growth in services provided by LLC MMK Torgovy Dom ("MMK Trading House") aims at implementing the Company's sales policy on the regional level. In 2012 the volume of steel sales from the warehouses of LLC MMK Torgovy Dom's stand- alone units increased by 16.8% compared to 2011, while the share of sales to end users grew 24% year-on-year.

 Growth of Steel Service Centres Products of CJSC Intercos-IV, an MMK Group company, is intended for the automotive sector, white goods manufacturers, machine-builders and other industries. The company is working on accommodating customers' requirements as regards steel processing, and at the same time seeking to bring in partners for expanding the cooperation with automakers.

In 2012 Intercos-IV sold 95,900 tons of products, which is 2.6 times higher than in 2011.

In the long term, MMK plans to strengthen its positions on the Russian market ensuring a growth in the sales of value added products, and to focus on meeting the customers' current and future needs to the maximum.

2.2 Strengthening MMK's Positions on the International Steel Markets Of most interest to OJSC MMK are the fast-growing markets of the Middle East, South-East Asia and Africa.

In 2012 ММК Metalurji, an MMK Group company located in the Middle East (Turkey), sold 900,400 tons of its steel products, 78% more than in 2011.

ММК Metalurji's own sea port gives the company an edge in export and import transportation and deliveries.

3. Striving for Leadership in the Development and Adoption of New Technology

Of most long-term value to MMK are:

 R&D to create new types of products for key customers involving joint work and trials with specialized research institutions;  adoption of innovative technology allowing to bring down production costs, improve product quality and promote environment safety.

In 2012 MMK departments:

 carried out 61 R&D studies;  submitted 46 applications for inventions and utility models;  adopted 25 inventions and 2,147 production improvement proposals;  produced about 3,000 tons of innovative steel products under 11 projects for LG, Samsung, Bosch. A large number of research, technological, trial and pre-project studies were carried out in conjunction with the country's leading research institutions.

The total cost of MMK's innovation activities in 2012 amounted to RUB 238 million, with the relevant savings exceeding RUB 3.5 billion.

4. Raising Production Efficiency. Costs Reduction

MMK's key long-term priority is costs reduction through the adoption of state-of-the-art technologies of low-cost production and efficacious use of raw materials.

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OJSC MMK seeks to completely cover its requirement for power from its own sources. To this end the Company is modernizing and expanding the capacity of its Central Power Plant. This project will allow to cover the needs of the production facilities in electric power and utilities, such as heat, heating water and steam, and provide them to the newly commissioned projects on MMK's main production site.

In order to reduce costs MMK is taking the following steps:

1 – ensuring stable supplies to the Company: In 2012 the Company continued work under long-term contracts with suppliers of iron ore and coking coal.

2 – developing its own raw materials supply base:  the captive coal producer OJSC Belon covers about 35% of MMK's requirement for coal concentrate. Coal reserves at all of the Belon mines are sufficient to maintain the existing level of production and to step it up in the future in accordance with the company's growth plans. New licenses obtained from the government allowed to secure Belon's operation for more that 30 years ahead. 3 – recycling and reuse of metal containing wastes: MMK has continued the project of recycling the sludge from Sludge Deposit # 2 which makes it possible to obtain iron-containing concentrate from the sludge and use it to produce sinter at the Ore Dressing Plant. It is planned that at least 2 m tons of wastes will be processed every year, yielding about 27% of concentrate with an iron content of at least 60%.

5. Reduction of Harmful Impact on the Environment

OJSC MMK's objectives in environmental protection are as follows:

 reduction of pollutant emissions and discharges into the atmosphere and water bodies;  recycling of industrial wastes and reclamation of disturbed land;  rational use of natural and power resources. The steps to attain these objectives have been mapped out in the Company's document "OJSC MMK's Environmental Program for the Period up to 2015".

In 2012, with an increase in production levels:

 specific discharges into the atmosphere went down 9.1%,  the share of recirculated water supply rose to 97.5%,  wastes recycling and reuse increased by 4.8%.

MMK is implementing a large-scale modernization program aimed at compliance with environmental laws.

In particular, the following projects are under implementation:

 Revamping of Sludge Deposit # 2 that will add another deposit intended for 49 years of operation, and change the way the sludge is placed in the deposit, allowing to avoid the risks associated with a full stoppage of the Electric Arc Furnace Shop and Dolomite Calcination Plant # 5;  Revamping of Desulfurization Unit # 4 that is included in the list of top priority environmental and power saving projects and financed out of the funds generated by Kyoto Protocol mechanisms.

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6. Providing Guarantees of Effectiveness, Reliability and Liquidity to Investors

OJSC MMK's corporate governance is in compliance with international standards.

In August 2012 the Russian Institute of Directors confirmed a NCGC 8 rating for OJSC MMK corresponding to the level of advanced practice of corporate governance according to the National Corporate Governance Scale. This means that the Company has low corporate governance risks, complies with Russian laws as regards corporate governance, follows most of the recommendations contained in the Russian Code of Corporate Conduct, and certain recommendations of the international CG best practice.

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B. Dubrovsky, General Director of OJSC MMK, on the Results of 2012 and Strategic Tasks Faced by the Company

Dear Shareholders, partners and colleagues!

This past year, though a difficult one for our Company, was quite successful. Today MMK has state-of-the art, high-performance equipment in line with the most advanced level of steel making science and technology. Our latest major projects – the 5,000 mm Plate Mill and the 2,000 mm Cold Rolling Mill – are unprecedented for today's Russia and have been acclaimed as the most significant events in the domestic steel sector of the recent times.

We also have a high HR potential. We are proud of our personnel, and value the professional skills of each employee not less than the most advanced ideas and technology. The long-standing labour traditions, an invaluable experience of effective operation even under critical conditions and responsiveness to new ideas –these are distinctive characteristics of our personnel which enable the Company to keep moving ahead.

In 2012 the MMK Group produced over 13 m tons of crude steel and over 11.9 m tons of commercial steel products, 7% more than in 2011. The Group's coal division produced 3.3 m tons of coking coal, 3.4% up on 2011, while the Metalware Division produced about half a million tons, 6% more than in 2011. The Group's proceeds totaled USD 9.328 bn, staying on last year's level. EBITDA was USD 1.356 bn, and EBITDA margin, 14,5 %.

Of special note is a 20% increase (up to 4,880,000 tons) in the output of value added goods whose share in MMK's total output reached 41%. Overall, in 2012 MMK continued the implementation of its sale strategy aimed at increasing its domestic deliveries which grew 16% last year, passing the 7.5 m ton's mark.

In 2012 labour productivity at MMK grew 7.4% compared to the previous year, reaching 55 equivalent tons of product, or RUB 962,400's worth of commercial goods per worker, which is one of the highest in the country's steel sector. The average monthly wages in 2012 grew 10.8% year-on-year, reaching RUB 43,410, which is 2.8 times higher than the consumer basket value in Magnitogorsk.

The MMK Group keeps a constant focus on the environmental safety of production processes and improving its environment protection management system. In 2012 the Company spent about half a billion rubles on labour safety activities, whereas spendings on the environment protection program totaled RUB 1,152,800,000 which allowed to reduce the volume of discharges by 298 tons compared to 2011.

The MMK Group is a socially-conscious company. In 2012 the Group spent over RUB 2.6 billion on implementing its 16 permanent social and charity programs and projects. The average cost of the "social package" per employee in the Group companies grew 9.3% to RUB 23,688.

In 2012 we completed another stage of OJSC MMK's Strategic Plan's implementation. As regards expenditures on modernization, the targets have been fully met. Thus, in the period of 2000 through 2012 the Group invested USD 8.8 bn in the construction and commissioning of state-of-the-art steel-making and rolling capacity. These projects go a long way towards securing MMK's competitive edge in the output of high value added products. But we are aware that we need to move on.

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Our Company is customer friendly and tries to provide maximum conveniences and services to our customers. Since June of 2012, our Internet shop has been reopened where customers are able to buy a wide range of steel products. Our company is successfully implementing a project of launching the automated operational planning and scheduling system enabling us to plan and meet shipping deadlines in a more accurate manner. All of the above contributes to the growth of our sales and degree of satisfaction of our customers.

The key to the Company’s success lies in improving production and sales performance. The ways to achieve this goal are well-known: they include focusing on value-added products whose share is expected to exceed 50% by 2022, and on the domestic market which is historically more lucrative and dynamic, and cutting costs across the entire production chain from raw materials and upstream divisions to divisions generating high added value. As before, we will be aiming at higher self-sufficiency in electric power and in raw materials.

I would like to express my gratitude to all the employees of the Company for their good performance in 2012 and their commitment. I wish them optimism and new achievements in their work.

I also want to thank all our customers and partners for constructive cooperation. We highly appreciate your reliability, understanding and will do everything in our power to make our joint work even more productive. We are also glad to welcome our new business contacts and are open to constructive dialogue.

I wish you all success in the realization of your plans! I hope that in 2013 the global economy will be more predictable, and we will be able to continue on the road of sustainable development.

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MMK Group

Other products and services Raw materials mining and processing Sinter, coke and blast furnace division Steel melting Hot rolled products Cold rolled products Downstream steel processing Steel sales

CJSC Mekhano-Remontny Kompleks OJSC Magnitogorsk Iron and Steel Works OJSC Magnitogorsk Iron and Steel Works 5.5 million t of 1 million t of galvanized products, Produced 2.5 million t of ore, Steel structures, replaceable coke, 10.06 million t of HR 332 thousand t of colour coated equipment for 897 thousand t of Steel melting in basic HR products with a CR products with a Galvanized and colour coated equipment, mill rolls, Lime, dolomite, iron ore Production of coke, 11.3 million t of 12.2 million t of products, 2.69 million t of CR products, 7.9 million t of RUB 3.1 billion; dolomite, oxygen, electric arc and thickness of 1.2 - 160 mm thickness of 0.16 to rolled products, tin plate, Sales of steel products maintenance and repair mining sinter, pig iron sinter, crude steel 1.75 million t of long products 147 thousand t of tin plate, products sold services rendered 3,8 million t of open-hearth furnaces and long products 3.5 mm formed section, tubes services 10.1 million t of pig products 245 thousand t of formed section, for RUB 4.2 billion limestone iron 94 thousand t of tubes MMK as priority customer Domestic market, CIS (up to 75% of the company's proceeds) ------CJSC Stroitelny Kompleks OJSC Belon MMK Metalurji MMK Metalurji 3.9 million t of run of mine coal; HR products with a 598 thousand t of galvanized products Construction, erection and Services rendered Mining and processing of Steel melting in electric 790 thousand t of 740 thousand t of HR 552 thousand t of CR Galvanized and colour coated 764 thousand t of 3.3 million t of coal thickness of 1,41 - 4,00 CR products and Sales of steel products repairs for RUB 2.8 billion coking coal arc furnaces crude steel products products rolled products products sold concentrate mm colour coated products produced MMK as priority customer MMK as priority customer - - - - Turkish market (up to 67% of the company's proceeds) (up to 78% of the company's proceeds) LLC Elektroremont CJSC Profit OJSC MMK-Metiz Wire, CR narrow strips, strip, Installation and repair of Services rendered Collection and processing of railway and mechanical 499 thousand t of electrical equipment, 2.3 million t 493 thousand t of metalware Sales of metalware for RUB 2.4 billion scrap fasteners, calibrated steel, products sold maintenance services steel mesh, nails, steel rope MMK as priority customer MMK as priority customer In the strategic term, MМК sees itself as a vertically integrated steel group, - Russia (22% of domestic metalware market) (up to 83% of the company's proceeds) (up to 99% of the company's proceeds) having the global efficiency level. LLC NPO Avtomatika LLC Buskul CJSC Intercos-IV Service maintenance and Services rendered Its strategic objective is to be a leader among global steel companies with a Stamped parts, the steel 96 thousand t of repairs of automatic process Refractory clay 253 thousand t 49 thousand t Sales of stamped parts for RUB 1.3 billion service centre products sold control systems comparable production output in terms of total shareholder returns. Corporate MMK as priority customer strategy: MMK Group’s value delivery through consistent growth and low-cost the MMK Group as priority customer - Leningrad Region (up to 92% of the company's proceeds) technological leadership. LLC Ogneupor OJSC MMK-Profil-Moskva LLC MMK Trading House Corrugated floor board, steel Aluminosilicate and periclase- Sales of products of MMK, 767 thousand t of 220 thousand t Structure principles: tile, siding, sandwich panels, 56 thousand t carbonaceous refractories MMK-Profil-Moskva products 1. Focus on higher efficiency of the metallurgical business as core business for formed sections Proportion of sales to MMK the Group. - Russia, CIS 50% of the Company's revenues 2. Identification of investment priorities pursuant to the Group’s strategy. OJSC Magnitogorsk Cement and Refractories Plant MMK Trading 624 thousand t of 3. Achievement of synergies through implementing new projects in the Group. cement, Cement and ferruginous Sales of products of ММК and 2.4 million t of 465 thousand t of dolomite As of 31.12.2012, MMK Group comprised 97 Companies and employed 58,246 MMK Metalurji products sold ferruginous dolomite people. The cost of the Group’s cumulative assets is USD 16.3 billion. Proportion of sales to MMK Legend Middle East, Europe, Asia 40% of the Company's revenues

Company's name

Products and Gross output in 2011 services

Sales market

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Company’s Sales Sales Markets In 2012, the global steel production and consumption increased. According to the World Steel Association (WSA), the last year saw an increase in the global steel production by 1.2% to 1.548 billion tons. According to the WSA’s preliminary estimates, in 2012 the apparent steel consumption increased by 2.1% to 1.409 billion tons.

Global Steel Production and Apparent Consumption, million tons

1500 1200 900 600 300 0 2007 2008 2009 2010 2011 2012

Steel production Apparent steel production

The main contribution into the increase of the global steel production and consumption was made by China. Its domestic production grew by 3.1% to 716.5 million tons and the apparent consumption, by 2.5% to 639.5 million tons.

Steel Production Evolution in the RF and China 800,0 716,5 700,0 CHINA 600,0 512,3 500,0 RUSSIA

400,0 355,8

300,0 182,2 200,0

100,0 59,8 66,1 68,5 70,6

0,0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*-according to the WSA’s preliminary data In 2012, Russia’s steel production increased by 2.9% to 70.6 million tons. Russia occupies 5th position in the global rating of steel makers. First places are occupied by China (716.5 million tons), Japan (107.2 million tons), USA (88.6 million tons) and India (76,7 million tons). 15

In 2012, the growth rate of steel production at MMK was above a Russian average level standing at 4.5% (12.247 million tons).

MMK’s steel production MMK’s rolled steel production 2012 2012 12.247 million tons 11.029 million tons +4.5% +3.6% 2011 2011 11.724 million tons 10.646 million tons

According to the Metal-Expert News Agency, in Russia in 2012, 62.3 million tons of rolled steel was produced, which is 4% more than in 2011. In 2012, MMK’s share in the Russian gross steel production stood at 17.7%.

Russia's Steel Production Structure in 2012

ММК 17.7% Others 29.0%

Severstal 15.1%

ChMK 5% NTMK 6.5% NLMK ZSMK 18.2% 8.6%

ChMK – Chelyabinsk Iron and Steel Works NTMK – Nizhny Tagil Iron and Steel Works ZSMK – Western Siberian Iron and Steel Works NLMK – Novolipetsk Iron and Steel Works Russian Federation and CIS In 2012, shipments to the RF and CIS markets increased by 17.7% totaling 8.5 million tons. The share of domestic shipments grew by 9 percent points to 77%. As high value added products prevail in domestic sales, the average price per tonne for steel products on the domestic market has historically enjoyed a premium over average export prices. Average domestic steel prices were USD 232/tonne higher than average export prices.

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MMK's Share of Domestic Sales as a Function of Price Premium

241 232 250 222 100% 190 90% 200 154 150 80% 70% 150 77% 60% 66% 69% 67% 100 60% 50% 56% 50 40% 30% 0 20% 2007 2008 2009 2010 2011 2012

Domestic sales premium, USD/ton

Share of domestic sales, %

As of the end of 2012, MMK remained the leading Russian steelmaker in terms of domestic steel shipments.

Structure of Domestic Steel Shipments in 2012

ММК 16,9% Others 32,8% Severstal 12,3%

NLMK 7,5% Imports 16,2% ChMK ZSMK 4,5% NTMK 5,5% 4,3%

MMK’s share of the Russian market is about 17%. In 2012, the apparent steel consumption in Russia grew twice as fast as world consumption, and amounted to 5.2%, with imports growing by 7.4%.

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Evolution of MMK's share and import's share in the RF market* MMK's share Import's share mln tons

17% 17% 18% 16% 15% 80,0 16% 70,0 14% 16% 16% 60,0 12% 14% 50,0 10% 12% 40,0 8% 42,3 44,5 30,0 6% 37,8 4% 27,4 20,0 2% Apparent steel consumption 10,0 0% 0,0 2009 2010 2011 2012

* according to data of Metal Expert news agency

Foreign steelmakers are especially active in the high value-added product segment. In the HVA product segment, Russian companies managed to increase their market shares in cold-rolled and colour-coated steel products.

Impact of Import on the Domestic Market of HVA Products in 2012

30% 19% 11% 13% 6% -42% -13% -1%

Galvanized steel Color-coated steel HR plates CR steel

Changes in import Changes in consumption

In 2012, MMK’s share of HVA product sales in the RF market increased. Sales of cold-rolled steel grew by 31% which allowed to increase the market share up to 26%. Shipments of galvanized steel were 33% higher than in 2011 driving the share’s increase by 3 percent points to 19%. A slight increase in the market share by 0.6 p.p. to 14.4% was caused by the growth of color-coated steel sales by 24%. The plate segment saw the decreasing demand from the pipe industry in view of postponement of gas and oil project deadlines. Due to this, MMK’s plate shipments insignificantly decreased by 1% with the market share standing at 25%.

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Changes in MMK's Domestic HVA Products Market Share

Color-coated Galvanized steel steel HR plates CR steel 33% 31%

25% 26% 25% 24% 22% 22% 22% 21% 19% 16% 14% 14% 13%

-1%

MMK's share in 2010

ММК's share in 2011

ММК's share in 2012

Changes in ММК's domestic sales in 2012/2011 Companies of the pipe, mechanical engineering and construction industries remained major customers in the domestic market accounting for the total of 61% of MMK’s domestic sales.

Sales to Different Industries in the Domestic Market, %

100% 20% 26% 30% 80% 37% 37% 33% 27% 60% 24% 17% 21% 4% 15% 21% 6% 14% 40% 11% 29% 12% 14% 27% 27% 20% 26% 18% 20% 20% 16% 11% 12% 12% 12% 0% 2007 2008 2009 2010 2011 2012

Pipe and tube industry Mechanical engineering Construction industry Regional distribution Others

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Pipe industry

In 2012, the share of MMK’s shipments to Russian pipe makers decreased to 30%. MMK’s steel products made up 38% of consumption by pipe making companies.

ММК managed to retain total sales to pipe makers at the level of the previous year despite a 7% drop in the production of electric-welded pipes in the RF in 2012. This was mainly due to a decrease in the production of large-diameter pipes as oil and gas pipeline projects were carried over to 2013.

Steel pipe production, export, import and apparent consumption in the RF, thousand tons

10000

8000

6000

4000

2000

0 2009 2010 2011 2012

Pipe production Consumption Export Pipe import

The highly profitable market for large-diameter pipes shrank in 2011 with the recession continuing throughout 2012 even at a faster rate. The production dropped by 816.5 thousand tons (-28%), consumption, by 1,748 thousand tons (-49.7%) and import by 93%. The export grew by 100 thousand tons (+ 34.3%).

In 2012, the large-diameter pipe production is expected to increase due to continuation of already launched, and implementation of new, pipeline construction projects including the project Yuzhny Potok (Southern Flow).

Mechanical Engineering

In 2012, the share of shipments to the mechanical engineering sector stood at 17% including 8% to the railway car building sector and 5% to the automotive sector.

In 2013, the 2,000mm cold rolling mill put into operation in 2012, is expected to reach the design capacity. The mill is designed to satisfy the demand of the automotive industry for new steel grades, inter alia, for the purpose of achieving higher localization of car components’ production in the RF.

MMK has adopted and is implementing a certification programme for its steel products by Russian and foreign car makers. Sales to the automotive industry are expected to grow upon the programme’s accomplishment.

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Construction Industry

In 2012, the work under state-backed infrastructure projects was continued including projects for the 2013 World University Games in Kazan and the 2014 Olympic Winter Games in Sochi.

Housing construction totalled 65.2 million sq.m, 4.7% up on 2011.

MMK’s direct supplies to companies of the construction industry accounted for 14% of the total domestic sales i.e. 13.8% up on 2011.

Outlook

In 2012, the steel consumption in the Russian market grew by 5% against 2011 and is likely to grow at a similar pace throughout 2013. The construction and engineering (including automotive) industries will witness the highest growth rate.

In 2013, MMK plans to increase domestic shipments at a rate exceeding that of the steel consumption, but slightly lower than in the previous year due to the fact that the equipment utilization coefficient will reach 100% which will restrain the production.

Domestic sales are planned to be increased mainly for cold-rolled flat products, cold-rolled band and coated steel due to, inter alia, the 2,000mm cold rolling complex reaching the design capacity.

In case of improvement of the global situation and economic feasibility export sales are likely to increase.

Export

In 2012, export sales reduced by 25.5% as MMK pursued the policy of increasing sales to the RF and CIS.

Demand from the Middle East was a major source of export growth whose share of shipments was 45%, with Europe ranking number two with 30% and Asia number three with 13%.

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In 2012, exports to Europe grew by 169 thousand tons despite the difficult economic situation and shutdown of steel-making plants in the region.

Shipments to Asia and the Far East in last years fell due to the growth of domestic steel production in those countries. Exports to China over the last three years have reached the lowest historical volumes.

Hot-rolled products are the main type of exported products (79%) which cannot be sold in full in the domestic market due to its limited capacity. High value added products account for 17% of exports.

Current and Prospective Trade Barriers and Market Legal Environment

As a rule, countries manufacturing steel, consider the steelmaking industry to be of the strategic importance and, accordingly, subject to protection from foreign competition. In addition, governments of some countries with the transition economy res ort to non-market control measures ensuring development and protection of the domestic steel making industry. Goals of such measures usually consist in establishing a balance between production, product mix and consumption but with their implementation imports of steel products are often limited and protectionist measures are used.

Protectionist measures in respect of the RF market are used within the Customs Union of Russia, Belarus and Kazakhstan and governed by the Treaty on the Application of Special Safeguard, Anti-Dumping and Countervailing Measures in Relation to Third Countries dated 25.01.2008. A body conducting investigations in respect of anti-dumping, countervailing or special safeguard measures and deciding on introduction of such measures, is the Eurasian Economic Commission.

Since Russia has become a member of the World Trading Organization, protectionist measures in respect to the RF domestic market are implemented in full according to the WTO treaties: Treaty on Subsidies and Countervailing Measures, Treaty on the Application of Article VI of the GATT 1994 (Anti-Dumping) and the Treaty on Safeguard Measures.

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National laws in most countries protecting the domestic market from unfair imports, are based on the WTO’s provisions in this field and may have certain peculiarities as to respective investigations.

The number of anti-dumping and other safeguard measures in respect of MMK’s products is currently decreasing. As of 1 March 2013, 7 measures were in force against Russian goods included in MMK’s product mix including 5 anti-dumping duties, 1 quota and price limitation and 1 price limitation. These measures are used in the USA, Mexico, Indonesia and Thailand not affecting MMK’s operations as its key export markets are the Middle East, Europe and CIS countries due to the geographic location.

Recognition of the market status of the Russian economy by the USA in 2002 and then by the European Community and a number of other countries contributed in reducing the number of safeguard measures applied. The recognition of the market status allowed steel makers to protect their interests more efficiently in investigations of safeguard measures’ imposition in foreign countries. After Russia became a member of the WTO, Russian exporters gained another tool of contesting current limitations in respect of goods and services exported from Russia, in foreign countries using a mechanism of settlement of trade disputes in the Dispute Settlement Body of the WTO.

OJSC MMK takes steps to lift current safeguard measures on an ongoing basis. A gradual reduction of exports by MMK mitigates the risk of imposition of new market safeguard measures by foreign countries.

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Material and technical supply Material and technical supply and procurement of power resources in 2012

The major task of OJSC MMK in the area of procurement is secure uninterrupted provision of the Company with all necessary raw materials, stock, technical and power resources of required quality and in quantity sufficient to meet the Company’s needs.

1.1. Supply of OJSC MMK with material and technical resources

In 2012 OJSC MMK received raw materials, stock, power resources, spare parts and equipment for the amount of RUB 167,773 mln (excluding VAT). Supplies of the basic raw materials amounted to RUB 125,409 mln or 75% of the total volume of supplies. The amount of materials supplied for the technological process was RUB 17,300 mln or 10%; power resources – RUB 18,032 mln or 11%; spare parts and equipment – RUB 7,033 mln or 4%.

Volume and structure of material and technical resources supplies in OJSC MMK in 2012 (RUB mln, excluding VAT)

Power resources; Spare parts and 18 032 ; machinery; 11% 7 033 ; Materials for the 4% technological process; 17 300 ; 10%

Basic raw materials 125 409 75%

1.2. Procurement of OJSC MMK with basic raw materials

The dominant outside supplier of iron ore pellets and iron ore concentrate for the Sokolovsko-Sarbaiskoye Mining and Processing Production Plant («SSGPO», branch of ENRC, in Republic of Kazakhstan) located 330 kilometers from Magnitogorsk. In 2012 SSGPO supplied 54.8% of the total amount of iron ore utilized by MMK.

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Structure of sinter raw materials supplies in OJSC MMK in 2012 by suppliers (%) Stoilenskiy Mining Others; 0.7% and Processing Bogoslovskoye Mine Lebedinskiy Mining Plant; 5.7% Administration; 8.9% and Processing Plant; 2.9% Bakal Mine Administration; 6.2%

Mikhailovskiy Mining SSGPO; 59.1% and Processing Plant; 16.4%

Structure of pellets suplies in OJSC MMK in 2012 by suppliers (%) Kostamukshskiy Mining and Processing Plant; SSGPO; 48.7% 17.9%

Mikhailovskiy Mining and Processing Plant; 32.2% Lebedinskiy Mining and Processing Plant; 1.2%

The dominant outside suppliers of coal for the Group are Prokopievskugol Coal Beneficiation Plant LLC – 22.3%, Vorkutaugol OJSC – 6.6% and ArcelorMittal Temirtau JSC – 4.4%.

25

Structure of coal supplies of OJSC MMK in 2012 by suppliers

Vorkutaugol OJSC; Southern Kuzbass 6.6% JSC; 6.8% Others; 9.1% Belon OJSC; 36.2% ArcelorMittal Temirtau JSC; 4.3%

"Raspadskiy Ugol" LLC; 14.8% Prokopievsk Ugol JSC; 22.3%

The supplier of scrap metal for the Group needs is Profit CJSC, MMK’s subsidiary. Profit Group CJSC has 20 own subsidiaries with 166 scrap collecting and preparation plants located in various regions of the Russian Federation. In 2012 there were 2,258,500 tons of scrap metal supplied.

Raw materials market, development trends and changes in its conditions

The key feature of the basic raw materials markets of OJSC MMK during 2012 was dynamic price cutting after achievement of the maximum annual average values in 2011. At 2012 year-end MMK’s average purchase prices for iron-ore raw materials decreased approximately by 25% (including due to the amended contractual conditions); the prices for coal concentrate decreased by 20% in comparison with the average prices in 2011. The global raw material markets tend to transition to short-period pricing models for the primary steelmaking raw materials; development trends reflect increased price volatility in China – key market for determination of the global price dynamics. In turn, iron ore and coal concentrate prices in the RF vary in tight correlation with the pricing dynamics and demand cyclic changes in global markets.

Self-sufficiency in raw materials

In 2012 the Group’s self-sufficiency in iron ore was 22% and in coking coal – 36%. To mitigate the risk of any adverse changes in primary raw materials supplies the Group has entered into a number of long-term contracts (with the term of validity of three up to ten years) with the principal suppliers of iron ore and coking coal. The coke is manufactured at MMK’s coke and by-products plant which processes the coal concentrate purchased by MMK Group from its subsidiary, OJSC Belon, and outside suppliers. In 2012 OJSC Belon’s supplies constituted 36.2% of the total volume of coal supplies.

Long-term contracts Fixed volumes to be supplied under the long-term contracts are expected from the following principal suppliers of OJSC MMK: 26

1. ENRC Holding (SSGPO, Kazakhstan) – long-term contract shall be valid through 2017 with the current and expected volume of iron ore supplies to be about 8 mln tons/year;

2. Metalloinvest Holding (Mikhailovskiy Mining and Processing Plant and Lebedinskiy Mining and Processing Plant, Russia) – long-term contracts shall be valid through the end of 2015, volume of iron ore supplies in 2013-2015 is expected to be 4.1 mln tons/year;

3. Bakal Mine Administration LLC (Russia) – long-term contract shall be valid through the end of 2015, volume of iron ore supplies in 2013-2015 is expected to be 0.48 mln tons/year;

4. Novatek-Chelyabinsk LLC - long-term contract shall be valid through the end of 2022, volume of supplies in 2012 году was 2,250,200 m3.

Therefore at present OJSC MMK has secured at least 85% of its needs in purchased iron ore materials by means of the long-term contracts. Natural gas supplies under the long-term contract with Novatek-Chelyabinsk LLC will cover 100% of MMK’s requirements till 2022.

Interaction with the suppliers In the course of its activity MMK endeavors to comply with the effective legislation, fulfill its contractual obligations and meet the principles of good business practice.

The official website of MMK (http://www.mmk.ru) is an electronic resource providing comprehensive information on MMK’s needs in material resources and services, on bids and electronic auctions, requirements to the suppliers and resources to be delivered and services to be rendered.

One of the basic principles of interaction with the contractors and suppliers is a long-term mutually profitable cooperation.

Constructive bilateral dialogue with the principle suppliers of raw materials and stock as well as development and timely entering into mutually profitable agreements contributed to significant decrease of adverse effect of market conditions on MMK’s production activity.

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Company’s Production Activity

Key Production Indicators of the MMK Group 2010 2011 2012 Products thousand tons MMK Group’s steel products 11,419 12,195 13,037 MMK’s steel products 11,419 11,724 12,247 MMK-Metalurji steel products - 471 790 MMK Group’s commercial products 10,409 11,158 11,936 Slabs and billets 209 157 48 Long products 1,065 1,499 1,739 Hot-rolled sheets and coils 5,610 5,896 5,756 Value-added products including 3,968 4,063 4,880 Plates (from the 5,000mm plate mill) 943 899 799 Cold-rolled sheets and coils 1,116 1,027 1,365 Metalware* 450 465 493 Downstream products including 1,458 1,672 2,222 Galvanized products 629 719 946 Color-coated products 241 413 653 Other products (cold-formed profiles, tin plates, 587 540 622 etc.) Share of value-added products in the MMK Group’s 38% 36% 41% products Coal concentrate (made of own coal) 2,960 3,216 3,325 * products of MMK-Metiz made of MMK’s steel is not included in the Group’s commercial products 2012 saw a significant increase in the volumes of melted steel and products manufactured by MMK-Metalurji which was caused by the development of the Turkish project and approaching to the design capacities.

The share of value-added products increased both due to the development of the Turkish project whose main products are cold-rolled sheets and coils and color-coated steel, and to the 2nd stage of the 2,000mm cold-rolling mill having been put into operation at MMK. The growth rate of production of coal concentrate slightly decreased in 2012 against 2011 due to a large- scale resetting of longwalls in the 1st, 2nd and 4th quarters of 2012.

Key production capacities of the MMK Group are located at OJSC MMK, OJSC MMK-METIZ, MMK-Metalurji, OJSC Magnitogorsk Cement and Refractory Plant and the Belon Group.

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OJSC MMK’s key performance indicators Production, million tons 2012

Key Facilities Production capacities Key Production Divisions Capacity utilization, 2010 2011 2012 based on actual % product mix, million t Coke and Chemical By-Products 9 oven batteries 5,21 5,39 5,52 5,90 94% Division

Sinter production 3 sinter plants 11,31 11,32 11,28 11,28 100%

Hot-metal production 8 furnaces 9,23 9,50 10,12 10,12 100%

Steel production in the BOF shop 3 converters 9,53 9,56 9,53 10,05 95%

Steel production in the EAF shop 2 furnaces 1,21 1,32 1,68 3,33 51%

Steel production in the OHF 1 unit 0,68 0,85 1,03 1,12 92%

Long products division 3 long products mills 1,07 1,50 1,75 1,92 91%

Production of hot-rolled sheets and 5 mills 9,72 9,67 10,06 11,34 89% coils Production of cold-rolled sheets and 4 mills 2,20 2,09 2,69 4,20 64% coils

Production of tin plates 2 lines 0,21 0,14 0,15 0,17 88%

Production of galvanized products 4 lines 0,80 0,82 1,01 1,10 92%

Production of color-coated products 2 lines 0,20 0,29 0,33 0,40 82%

Production of electric-welded pipes 3 lines 0,08 0,05 0,09 0,11 88%

MMK-Metalurji’s key performance indicators

Production, tons 2012

Key Facilities Production capacities Key Production Divisions Capacity utilization, 2010 2011 2012 based on actual % product mix, tons

Electric arc furnace 470 885 790 063 190 000 35%

Continuous casting 431 537 761 695 188 100 34% machine

Hot-rolling mill 415 748 740 363 184 056 34%

Continuous pickling line 8 744 412 307 576 802 97 083 50%

Production site in Iskenderun Cold-rolling mill 6 493 382 500 552 241 63 250 73%

HDGL 51 877 271 508 313 750 36 125 72%

CAL 39 415 112 905 172 376 16 792 86%

Cut-to-length line 90 653 44 969 32 493 19 167 14%

Combined cutting line 15 210 42 650 40 328 9 167 37%

HDGL 89 010 287 348 36 125 66%

CAL 24 902 161 181 16 792 80% Production site and service steel center in Istanbul Cut-to-length line 12 408 22 113 2 151 19 167 1%

Combined cutting line 384 13 896 42 696 9 167 39%

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OJSC MMK-METIZ’s key performance indicators Production, tons 2012 Production Key Production Divisions Key Facilities capacities based Capacity 2010 2011 2012 on actual product utilization, % mix, tons Automatic heading Sizing press shop 24 677 29 605 22 604 59 300 38,1% machines Drawing machines, Sizing shop automatic heading 64 024 62 138 65 048 499 400 13,0% machines Automatic nail-making machines, mesh making Nail shop 30 418 29 082 31 225 141 700 22,0% equipment, automatic heading machines

Drawing mills, Steel wire shop 159 366 162 542 231 598 383 300 60,4% galvanizing line Cut-to-length line, disk Cold-rolled band shop cutting shears, 105 766 105 472 62 121 365 700 17,0% galvanizing line Drawing mills, extrusion Electrode shop 12 802 13 332 14 886 33 300 44,7% press

Drawing mills, rope- Steel wire and rope shop making machines, 52 978 62 560 65 882 134 200 49,1% galvanizing line

Total 450 031 464 731 493 364 1 616 900 30,5%

Belon Group’s actual production volumes*

Key figures Key Facilities 2010 2011 2012

Total: 16 012 22 795 24 569

Chertinskaya-Koksovaya Mine 5 258 7 862 9 268 Drifting volume, running meters Chertinskaya-Yuzhnaya Mine 4 975 4 894 4 423

Kostromovskaya Mine 5 779 10 039 10 878

Stripping operations, thousand m3 Novobachatsky Open Pit Mine 12 983 8 826 9 006

Total: 4 207 4 075 3 951

Chertinskaya-Koksovaya Mine 1 271 1 127 1 339 Production, thousand tons Chertinskaya-Yuzhnaya Mine 329 508 505 Kostromovskaya Mine 2 014 1 980 1 761

Novobachatsky Open Pit Mine 519 421 346

Production of coal concentrate, thousand tons Belovskaya Concentrating Plant 3 745 3 964 3 325 including made of own run-of-mine coal 2 960 3 216 3 325 Concentrate yield, % 67,9% 64,7% 61,1% *extraction and production of steam coal concentrate was withdrawn from the Belon Group in 2010

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OJSC Magnitogorsk Cement and Refractory Plant's key performance indicators

Production, thousand t 2012 год

Key Production Divisions Production capacities Capacity utilization, 2010 2011 2012 based on actual product % mix, thousand t

Production of cement 574 577 624 700 89%

Production of ferruginized 411 462 465 510 91% dolomite

Innovative Development Scenario In the innovation and modernization complex an innovative development scenario is being materialized providing for a breakthrough in the development of high- and medium-technology industries. Materialization of this scenario is caused by the advanced growth of the domestic demand for value-added products which, in its turn, contributes in developing new techniques and producing new high-tech products. Research work

Item Description 2010 2011 2012 1 Research and development 54 56 61 Development of technologies and launch of 2 171 289 433 production of new steel grades 3 Development of new analysis methods 59 60 12 4 Articles in scientific and engineering 86 110 265 magazines and collected works

The Company interacts with Russian and foreign partners to engage experts required for solving its tasks. Below are the key counterparties involved in R&D under MMK’s orders: - higher education establishments: Magnitogorsk State Technical University (Magnitogorsk), South Ural State University (Chelyabinsk) and Ural Federal University (Yekaterinburg); and - R&D organizations: I.P. Bardin Central Research Institute of Iron and Steel Industry (Moscow), Central Research Institute of Structural Material “Prometey” (Saint-Petersburg), Ural Institute of Metals (Yekaterinburg) and Research Institute of Steel (Moscow). Research and development activities

The actual number of Accomplished with a Total R&D costs in a Year Terminated active positive result reporting year, million RUB

2010 70 33 0 152.9

2011 70 31 0 106.7

2012 64 34 5 167.23

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Overview of the financial position of the company

MMK Group's revenue, USD million 12 000 10 550 10 000 9 306 9 328

7 719 8 000

6 000 5 081

4 000

2 000

0 2008 2009 2010 2011 2012

In 2012 recovery of world economy after the crisis was seriously adjusted. The crisis in Eurozone and decrease in rates of development of Asian economies, according to WSA preliminary data, hampered the growth of global steel consumption in 2012, which was below the consumption growth in 2011. Accordingly, this situation led to strengthening of competition in the domestic market of the Russian Federation and influenced the company’s rates of revenue.

The expected gradual stabilization of the world economy in 2013 will produce a positive effect on demand for steel products. Therefore we believe that the revenues will continue to grow.

Analysis of MMK Group Revenue in 2012, USD million 12 000 290 10 000 401

8 000 669

6 000

USD million USD 9 306 9 328 4 000

2 000

0 2011 MMK's Prices for Other factors 2012 production MMK's products volume

In 2012 revenue from sales stood at USD 9,328 million (+ 0.2% to the level of 2011). The main limiting factor was the decrease of prices for the products manufactured by the Group’s parent company. 32

2012 Revenue structure by Product Type

10% Flat products 5% Long products

18% Coated steel 57% Metalware 10% Other products

MMK Group Revenue Structure by Segment, USD million Change in Change in 2012 to 2012 to Segments of the Group 2008 2009 2010 2011 2012 2011 2011, % Steel segment (Russia) 10 550 5 029 7 425 8 736 8 556 -180 -2% Steel segment (Turkey) - - 137 417 684 267 64% Coal segment - 52 157 153 88 -65 -42% Total 10 550 5 081 7 719 9 306 9 328 22 0.2% The Russian steel segment accounts for the principal part of the revenue of MMK Group (91.7%). The progress on ramping up production in Turkey helped revenue from the Turkish steel segment increase by 1.64 times, with the segment’s share of Group revenue reaching 7.3%. No too high revenue of the coal segment (1%) is explained by the fact that the majority of this segment’s output is consumed within the Group.

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The cost structure of the MMK Group

100% Other expenses 90%

80% Drifting costs 70%

60% Payroll and social 50% taxes

40% Depreciation of 30% property, plant and equipment 20% Raw materials used 10%

0% 2008 г. 2009 г. 2010 г. 2011 г. 2012 г.

In 2012 production costs stood at USD 7.9 billion (up 2% in comparison to 2011). The main factor that provided for insignificant growth of the production costs was the change of prices for raw materials for the parent company: for example, in 2011 the average price rise for 4 basic types of raw materials (sinter materials, pellets, coal concentrate, scrap) by 33% exceeded that of the previous year, but in 2012 the prices for sinter materials, pellets and coal concentrate reflected the YoY average decrease by 19% with prices for scrap remaining at the level of the previous year.

Administrative and selling expenses, USD million Change in 2008 2009 2010 2011 2012г 2012 Change in to 2012 to 2011 2011, % General and administrative 650 349 495 560 575 15 3% expenses Percentage of revenue 6,2% 6,9% 6,4% 6,0% 6,2% Selling and distribution 513 429 565 499 549 50 10% expenses Percentage of revenue 4.9% 8.4% 7.3% 5.3% 5.9% In 2012 general and administrative expenses increased by 3%, and as a proportion of revenue they increased by 0.2%. Selling and distribution expenses increased by 10% resulting in 0.6% increase of the share of commercial costs in the revenue.

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MMK Group EBITDA Calculation, USD million

2008 2009 2010 2011 2012

Operating profit 1 174 312 610 365 266

Adjustments for EBITDA calculation Depreciation and amortization 945 735 826 887 952 Loss on disposal of fixed assets 109 118 159 70 118 Share of results of associates 32 -31 11 14 20 Impairment of investment in associate /Gain on revaluation of investment in associate -56 175 upon acquisition of majority ownership EBITDA 2 204 1 309 1 606 1 336 1 356 EBITDA margin, % 21% 26% 21% 14.4% 14.5% In 2012, EBITDA totalled USD 1,356 million (up 1.5% on 2011), with an EBITDA margin of 14.5%. MMK Group EBITDA by Segment, USD million 2012 2008 2009 2010 2011 2012 change to 2011 EBITDA 2 204 1 309 1 606 1 336 1 356 20 Steel segment (Russia) 2 204 1 301 1 347 1 187 1 343 156 Steel segment (Turkey) - - -11 -66 -75 -9 Coal segment - 8 270 222 86 -136 The Russian steel segment historically accounts for most of the Group’s EBITDA (99% in 2012). The coal segment accounted for 6% of EBITDA. The negative EBITDA of the Turkish steel segment was due to the fact that in 2012 the ramp up of this project to a full production capacity was hindered by significant downslide of prices for steel products accompanied by simultaneous rise of prices for scrap in the Mediterranian region. Turkish steel segment is now expected to reached the planned performance indices in 2013-2014.

Analysis of EBITDA of ММК Group in 2012, USD million 1 600 101 136 1 400 48 9 1 200 1 000 669 685 800 1 336 1 356 600 400 200 0 2011 OJSC Prices for Price for Other OJSC MMK 2012 EBITDA MMK's OJSC materials factors for Belon's Metalurji EBITDA volume of MMK's for OJSC OJSC MMK EBITDA EBITDA production products MMK's change change

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The main factors that exert influence on MMK Group EBITDA are the prices for steel making raw materials and steel products of the parent company. The influence of these factors in 2012 was multidirectional, but approximately equal in magnitude. MMK Group Net Income, USD million

2008 2009 2010 2011 2012 change

Operating profit 1 174 312 610 365 266 (99) Financial expenses (110) (96) (140) (190) (223) (33) Financial income 92 20 8 15 12 (3) Exchange rate differences 16 9 (24) (118) 35 153 Other income and expenses (66) 12 (164) (213) (153) 60 Profit (loss) before tax 1 106 257 290 (141) (63) 78 Income tax (25) (38) (58) 16 (31) (47) Profit (loss) for the reporting period 1 081 219 232 (125) (94) 31 Attributable to minority interests 6 (13) (22) (5) (3) 2 Attributable to shareholders of the parent company 1 075 232 254 (120) (91) 29

The increase in financial expenses was due to borrowed funds raised for business development. Other costs rose mainly due to an increase in social tax payments.

The loss for the period amounted to USD 94 million, of which USD 91 million was attributable to shareholders of the parent company. Russian steel segment

unit of change 2011 2012 change measure (%) Thousand Rolled steel production tonnes 10 653 11 036 383 4% Revenue from sales including USD million 8 914 8 653 -261 -3% sales to MMK Group companies USD million 178 97 -81 -46% sales to Third parties USD million 8 736 8 556 -180 -2% EBITDA USD million 1 187 1 343 153 13% EBITDA margin % 13.3% 15.5% 2.2 p.p. EBITDA per ton of steel products USD/tons 111 122 10 9% Capital expenditure USD million 859 598 -261 859

The Group’s financial performance is substantially driven by the Russian steel segment, which includes OJSC MMK and its steel producing subsidiaries in Magnitogorsk; MMK-METIZ Metalware and Sizing Plant; the downstream steel processing plants MMK-Profil-Moskva and Interkos-IV; and trading companies.

Due to deterioration of market conditions, in 2012 revenue from sales to third parties amounted to USD 8,556 million (-2% year-on-year).

Capital expenditures for the steel segment in 2012 amounted to 598 million USD, accounting for 88.7% of total investments.

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Turkish steel segment

unit of change 2011 2012 change meas. (%) thousand Rolled steel production 505 900 395 78% tons Revenue from sales including USD million 458 778 320 70% sales to MMK Group companies USD million 41 94 53 129% sales to third parties USD million 417 684 267 64% EBITDA USD million -66 -75 -9 14% EBITDA margin % -14.4% -9.6% 4.8 p.p. EBITDA per ton of steel products USD/tons -131 -87,0 44 -33% Capital expenditure USD million 176 8 -168

The Turkish steel segment includes ММК Metalurji, a steel producer located at two sites in Turkey: Iskenderun and Istanbul.

Further development of the project provided for increase of production and revenue from sales by 1.8 and 1.7 times accordingly. However the financial indicators remained in negative territory: the ramp-up to full project capacity that was planned for 2012 had been posponed to 2013-2014 due to deterioration of conditions both on the sales market and raw materials market of the Turkish steel segment of the Group.

Coal segment change unit of meas. 2011 2012 change (%) thousand Sales of coal concentrate 3 216 3 325 109 3% tons Revenue from sales including USD million 649 469 -180 -28% sales to MMK Group companies USD million 496 381 -115 -23% sales to third parties USD million 153 88 -65 -42% EBITDA USD million 222 86 -136 -61% EBITDA margin % 34.2% 18.3% -16 p.p.

EBITDA per ton of coal conc. USD/tons 69 26 -43 -63% Capital expenditure USD million 119 68 -51

The coal segment includes OJSC Belon and its coal producing and dressing subsidiaries (Belon Group). All of Belon Group’s material assets, production facilities and management and administrative resources are located in Belovo, Russian Federation.

Most of the coal segment’s output is supplied to the parent company (OJSC MMK).

EBITDA of the segment amounted USD 86 million, EBITDA margin totaled 18.3% due to significant decrease of prices for coal concentrate.

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MMK Group Net Working Capital, USD million as of as of 01.01.2012 01.01.2013 Change Inventories 1 776 1 674 -102 Value added tax recoverable 304 200 -104 Trade and other receivables 617 695 78 Income tax receivable 83 90 7 Trade and other payables 1 194 1 260 -67 Net working capital 1 586 1 399 -187 Net working capital percentage in revenue 17% 15% -2%

Decrease of the ratio of net working capital to revenue from 17% to 15% is considered as favorable. Decrease of net working capital became possible due to lower inventories, decrease of the amounts of VAT recoverable and increase of the trade and other payables.

Analysis of MMK Group Cash Flow in 2012, USD million

1800

1600

1400 657 1200

1000 1193

800 601 600

400 3 200 424 362 0 Cash balance Operating Financial Investment Exchange rate Cash balance of 01.01.2012 activities activities activities difference of 01.01.2013

In 2012 cash flow from operating activities amounted to USD 1,193 million, exceeding the figure of 2011 by 51.6% (USD 615 million) mainly due to a reduction of inventories, which grew significantly in 2011.

Completion by the company of significant investment and integration projects in the reporting period allowed diverting of surplus in the amount of USD 657 million to financial activities. This amount was used for repayment of external indebtedness. In 2012 cash outflow due to investment activities was USD 601 million (47% down on 2011). Most of the cash outflow (USD 674 million) was attributable to capital expenditure.

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Debt structure as of 31.12.2012 Debt structure as of 31.12.2011

Long term 30% Short term 42%

58%

Long term 70% Short term

Debt structure in relation to currency of Debt structure in relation to currency of borrowing as of 31.12.2012 borrowing as of 31.12.2011 22% 22% 34% 40% RUB RUB USD USD EUR EUR 38% 44%

In 2012 the Company’s total financial debt (excluding leasing debt) decreased by USD 529 million. The long term debt decreased by USD 831 million. Short-term debt in comparison with 2011 increased by 22,7% (USD 302 million). This is due to the fact that the year 2013 will see repayment of a number of long term credits and these credits have been transferred in to the category of short-term credits.

As of 31.12.2012, rouble-denominated borrowings accounted for the largest part of the debt structure by currency – the share of rouble-denominated debt increased from 34% to 40%.

Financial Debt of MMK Group as of 31.12.2012 - Repayment Schedule, USD million 1 600 1 409 1 400 1 200 983 1 000 800 543 600 424 400 286 200 0 Year 1 Year 2 Year 3 Year 4 Year 5 and on

39

Credit ratings

2011 2012 2013

Outlook Rating Agency Jan Jan Jan Apr Oct Apr Oct Feb Feb Feb July Aug Dec July Aug Dec Nov Nov Mar Mar Mar May May June Sent June Sent

P B a S

Moody`s 3 N

P B B S + N

Fitch P B S B N

In May 2012, Fitch changed MMK’s credit rating outlook from stable to negative.

In December 2011, Moody`s changed the Company’s rating outlook to stable from positive, returning it to the same level as the beginning of 2010. Prudent financial management helps the Company to secure credit ratings from leading ratings agencies, and thus to finance the Company’s development using appropriate funding on acceptable terms.

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Internal Control System

In accordance with the Federal Law “On Joint Stock Companies” OJSC MMK has developed a Regulation on internal control procedures approved by the Board of Directors.

The Regulation defines the concept, goal, directions and procedures of the Company’s internal control, the tasks of the divisions subordinate to the Company’s director for security with regard to the internal audit and control of the internal control procedures observation.

The internal control system is an integral element of the Company’s governance system.

Internal control system is an aggregate of the organization structure, politics, internal control procedures approved by the Company’s Board of Directors and executive bodies as the means of risk mitigation and assurance of the Company’s objectives achievement.

Internal control procedures are a combination of measures, regulations and actions aimed at effective functioning of the internal control system assuring the Company’s risk mitigation down to an acceptable level.

The main objective of the Company’s internal control is the protection of capital investments of the shareholders and the Company’s assets.

The internal control should provide for the following:  Just-in-time determination of the risks, their analysis and management in the Company’s activity and elimination of their negative consequences;  Comprehensiveness and correctness of the financial, accounting, statistical, management and other reporting of the Company;  Implementation of the financial and economic plans of the Company;  Security of the Company’s assets;  Economical and effective utilization of the Company’s resources;  Contribution to arrangement of the optimal organization structure of the Company;  Compliance with the requirements of the RF effective legislation, local regulations, internal politics, orders and procedures established by the Company.

The Company’s Board of Directors monitors the functioning of the internal control system and analyses the effectiveness of the internal control of the financial and economic activity of the Company.

The executive body of the Company is responsible for development and functioning of the internal control system.

The audit committee evaluates the effectiveness of the internal control system of the Company (on the basis of the internal audit division’s report).

The internal audit division makes an independent evaluation of effectiveness of the internal control system related to the following:  Effectiveness and performance index of business processes;  Correctness and comprehensiveness of information on the financial and economic activity;  Safety and preservation of the Company’s assets;  Compliance with the requirements of the effective RF legislation, regulatory legal acts and local regulations of the Company.

41

The internal control division acts in accordance with the requirements of the internal audit international standards developed by the Institute of Internal Auditors (International Standards for the Professional Practice of Internal Auditing. 2004).

The procedure of the annual plan formation follows the risk-based approach. The risk map of the Company is taken into consideration while preparing the annual plan.

In order to evaluate the internal control system the internal audit division:  organizes and carries out the audits of the core financial and economic activities of the Company;  maintains records of discrepancies revealed in the course of the internal audit;  prepares proposals and recommendations on how to eliminate the discrepancies revealed in the course of the internal audit;  monitors the development and implementation of the actions plan aimed at elimination of discrepancies revealed in the course of the internal audit.

The head of the internal audit division quarterly submits the progress report to the Audit Committee of the Board of Directors of OJSC MMK.

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Risk Management

MMK was among the first Russian ferrous metals companies to develop and launch a comprehensive risk management system that meets international standards. MMK has a risk management division, an approved risk management policy and a corporate standard for risk management. By managing risk appropriately, MMK aims to ensure strategic and operational sustainability and to develop its business.

The goals of MMK’s risk management policy are:  Identifying and assessing risk;  Provision of information about risks to MMK’s shareholders, governing bodies and employees;  Development and implementation of actions to mitigate risks;  Risk monitoring;  Establishment of risk management procedures;  Control of compliance with approved risk management procedures;  Making risk management processes an integral part of MMK’s strategic and operating management.

Within the framework of Comprehensive Risk Management System there is a distribution of functional responsibilities and duties among main participants in risk management process.

MMK keeps its risk management system updated and makes improvements on a rolling basis. In 2012, the Company implemented the following measures:

• Regarding OJSC MMK:

 Identification and evaluation of the risks faced by OJSC MMK, drafting of a Risk Map of OJSC MMK. For each category of risks there are designated executive managers of MMK responsible for the risk management.  Assessment of the risk impact on budget values and financial statements;  Development and approval of identified risks mitigation program;  Quarterly risk monitoring and implementation of risk mitigation program;

• Regarding MMK Group:

 Identification and evaluation of the principal risks faced by MMK Group companies (work on consolidating the risks facing MMK Group companies and drafting of a Risk Map is planned for 2014);  Development and implementation of principal risks mitigation measures faced by MMK Group companies.

The main risks faced by MMK are the following: 1. Low actual demand and prices for steel products 2. Higher prices for iron ore raw materials, coal, metallic scrap and non-ferrous metals 3. Failure by contractors to meet obligations 4. Non-compliance with financial and economic parameters specified in investment projects 5. Claims for loan prepayments 6. Corporate fraud 7. Currency risk 8. Accidents 9. Industrial emergencies and incidents 10. Environmental risk

Based on the results of the year MMK’s Board of Directors recognized the performance of the risk management system in 2012 as efficient.

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Distribution of duties among main participants in risk management process

The Board Approval of Risks Report, Risk Management Policy, evaluation of of Directors efficiency of risk management

The Audit Committee of Review of Risks Report the Board of Directors

The Appointment of persons Approval of risk mitigation Approval of Risk Map General Director responsible for risk management activities of MMK

Top managers Development of risk responsible for mitigation activities risk management

Risk management Development of Risk Map Development of risk Preparation of Risks Report group of the mitigation activities Internal Audit and Risk Management Department

Sub- divisions of Drawing up of Panels and Risk OJSC MMK Maps for sub-divisions

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Corporate Social Responsibility

As a socially oriented company, MMK Group follows the concept which concerns the interests of society. This means that on a voluntary basis the Group takes additional measures to provide a higher standard of living to its employees and their families. In 2012, MMK Group spent RUB 2 605 million for the implementation of the social policy which includes more than 16 ongoing regular social, charitable programs and projects.

“Social Package” of benefits and guarantees In 2012 OJSC MMK allocated RUB 678.4 million for financing of “social package” of benefits and guarantees for the employees whereas average yearly costs per 1 employee amounted to RUB 32,380 and increased by 6.3% compared to the previous year.

Expenditures per one employee, RUB. 2288 3713 9584 947

3849

3633 828 7538 Medical services Sanatorium and spa treatment Children’s health care and recreation

Expenditures on supporting sports activities and healthy lifestyle Catering Supplementary pension

Cultural-mass work Other expenditures (festivities, presents, ceremonial services, youth-oriented programs, birth incentive program, etc.

Generally, as for the MMK Group, “social package” totaled to RUB 23,688 and increased by 9.3% compared to 2011.

Priority areas of the social policy of the MMK Group: • “Medical treatment and medical care programs (Health of the Magnitogorsk steelworkers)” The special attention is given to health maintenance. In 2012 the Company spent RUB 262.4 million to implement preventive health care and treatment programs, totally per MMK Group – RUB 418 million. • Improving the health of employees and their families In 2012, more than 9,000 employees of OJSC MMK and their families spent their vacations in health resorts and vacation facilities, with about half of them receiving spa treatment. The Company contributed RUB 160 million towards covering the cost of these vacations. Recreation rate amounted to 44.6 persons, that spent their vacations using subsidized sanatoria vouchers, per 100 employees (compared to 2011 recreation rate – 41.3 persons/100 employees). 45

Generally for 2012 the MMK Group spent more than RUB 329 million for employees’ health improving, more than 20,000 employees and their families recreated in health resorts and vacation facilities. • Birth incentive program, support of maternity and large families

Since 2004 OJSC MMK has been implementing a maternity support and birth incentive program. In 2012, the MMK Group spent RUB 47.3 million on this program. Since 2008 the Company has been implementing a new program to support employees with large families (with three or more children under 18 years old) and in 2012 more than 500 families of the MMK Group employees were included into the program. Through this program the support was given in 11 specific directions with a cost of RUB 13.6 million. • Healthy Lifestyle, Sports Activities

In 2012, OJSC MMK spent RUB 97.8 million for maintenance of the sports club “Metallurg- Magnitogorsk” and for the arranging mass entertainment sporting events. In general the MMK Group spent RUB 104.6 million. • Culture In 2012, OJSC MMK spent RUB 54.7 million arranging mass cultural events for the employees and maintaining of culture centers. Generally in 2012 the MMK Group spent RUB 79.4 million in this field. • Charity

MMK conducts its charitable activities through the Metallurg Charity Foundation. In 2012, the Metallurg Foundation received contributions for a total of RUB 778.4 million, over 70% of which came from MMK Group. In 2012, within the comprehensive program “Care”, MMK Group spend RUB 240.4 million on the social support for the veterans and disabled people. The Company spent more than RUB 65 million for the “targeted” social assistance (medical care and sophisticated surgery, vouchers for sanatorium and spa treatment, assistance in emergency cases, assistance in festivities, funeral assistance, etc.). • Affordable Housing for the employees and young steel-makers

In 2012, the Company completed the construction and commissioned 2 multi-storey brick buildings comprising 202 apartments with a total area of 13,200 m2. The same year the Company started construction of a multi-storey building for 96 apartments and a low-rise residential area comprising 12 houses for 48 apartments with a total area of 12,656 m2 to be commissioned in the third quarter of 2013. In such houses the employees may purchase one-, two- or three-room apartments of the improved layout with high-quality interior finishing at the price which is 15-20% less than market prices for the apartments of comparable quality. In the frameworks of the Russian national program “Affordable and Comfortable Housing”, since 2006 MMK has introduced a program to assist young steel-makers' families in purchasing apartments. Participants to take part in such program are selected according to the results of the contests of professional skills and scientific & technical conferences. In 2012, 16 young families of the MMK Group employees received subsidies of RUB 120,000 for the initial installment and were entitled to purchase apartments at a subsidized price. Implementation of this program introduces extra incentive for upgrading of professional skills and creative initiative of the MMK’s young employees.

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The Company's HR Policy

HR Management Strategy

The MMK Group employees are the key resource capable of ensuring the Group's long-term competitive position in the sector. Under the volatile market conditions preserving and developing human resources becomes a top priority for the MMK Group.

Goal:

Ensuring the Group's competitive position through the development and rational use of human resources.

Strategies:

 Covering the requirements of the MMK Group for qualified personnel; and  Efficacious motivation of personnel and development of the management system. Principles:

1. Uniform and systemic approach to personnel management; 2. Continuous development of HR potential; 3. Ensuring a balance between the social and financial effects of HR management actions; 4. Flexibility of the management and work rating systems; 5. Promoting the prestige of employment with the Group, continuity of traditions of the corporate ideology and culture; and 6. Providing a social safety net for employees.

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Labour safety

The corporate labour and industrial safety management system (the “SUBPOT System”) was certified for compliance with the international ОНSAS 18001:2007 standards. Certification areas include: “Mining. Coke and chemical by-products division. Production of steel products, including all production stages”. In the period from 28.02.2012 to 01.03.2012, Bureau Veritas Certification carried out the first Supervisory Audit of OJSC MMK’s SUBPOT System for the compliance with ОНSAS 18001:2007. It was recommended that the certification of the SUBPOT System be extended as per ОНSAS 18001:2007. The audit revealed no violations. It was recommended that the relevant ОНSAS 18001:2007 compliance certificate be extended.

In 2012, 77 actions were taken pursuant to the Labour Safety Agreement to improve working conditions and prevent occupational deceases. Working conditions were improved for 4,409 workers.

Accidents in production

№ Indicator 2011 2012 Total accidents recorded 21 20 1 Total injured persons 21 21 Including: Fatal 0 5 2 Severe 9 6 Group 0 1 3 Frequency rate 0.987 0.943 4 Severity rate 56.85 56.66 5 Labor capacity days lost 1 137 680 6 Sick lists completed 20 12

Pursuant to the Federal Law dd.21.07.1997 #116-FZ “On industrial safety of hazardous industrial facilities” 66 facilities are registered in the State register of hazardous industrial facilities.

No accidents were recorded in 2012.

Total losses resulting from the above accidents

+ Growth № Indicator 2011 2012 - Reduction

1 Number of accidents 81 36 - 55.6 %

2 Downtime, days 51.6 11.2 -78.24 %

3 Not produced, thousand tons 141.8 58.6 -58.7 %

4 Material damage, RUB million 323.6 212.1 -34.45%

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Labor safety costs, RUB million

Description 2011 2012 Provision of personal protective gear 173.6 185.0 Purchase of polyvitamins and dietary products for employees 18.4 17.9 working in hazardous conditions Laboratory tests for workplace certification 19.3 22.2 Purchasing of bottled mineral water for employees working in hot 54.2 14.6 environments Special dietary products for employees working in especially 2.4 2.2 hazardous conditions Other labor safety costs 219.1 256.9 Total 487.0 498.8

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Environmental Protection

MMK carries out its production activities in accordance both with the Russian environment protection laws as well as the ISO 14001:2004 international standard.

OJSC MMK’s management and personnel view the minimization of its impact on the environment as a strategic goal and a key element of the Company’s long-term, sustainable growth and carry out production activities with due respect for its environmental responsibility.

OJSC MMK’s Environmental Policy was developed and is operated as part of the environmental management system to pursue its strategic objective, i.e. continuous mitigation of OJSC MMK’s environmental impact.

The Environmental Policy sets forth the following long-term objectives:

 Reduction of pollutant emissions into atmosphere and water bodies;  Utilization of industrial wastes and reclamation;  Efficient utilization of natural and power resources.

The implementation of OJSC MMK’s Environmental Policy in 2012 resulted in mitigating the environmental impact, while the production output increased:

 Gross pollutant emissions into atmosphere of Magnitogorsk (as compared to 2011) reduced by 298 tons to reach 220.2 thousand tons;  Specific pollutant emissions into atmosphere (as compared to 2011) reduced by 9.1% to reach 18.57 kg/ton;  Gross pollutant emissions (7 discharge points) into water bodies (as compared to 2011) reduced by 42 thousand tons (by 27%) to reach 113.8 thousand tons;  Specific consumption of technical water (as compared to 2011) reduced by 5% to reach 7.5 м3/ton of steel products;  11.5 million tons of operating and dump metallurgical slags processed by specialized plants, 2.442 million tons of industrial wastes used as secondary material resources (4.8% larger than in 2011);  10.1 million tons of industrial wastes used for a technical stage of the depleted iron-ore mine reclamation;  As part of biological recultivation activities for the first part of Zapadny Karyer (Western Pit) the following activities carried out on the area of 1.5 hectars: perennial grass seeding, shrub plantlet (525 pc) and ash and birch plantlet (549 pc.) bedding;  As part of biological recultivation program for sludge depositary #1 the following activities carried out: shrub plantlet (2,776 pc) and pine plantlet (1,666 pc.) bedding.  Specific power consumption by OJSC MMK reached 6.34 GCal per ton of steel as in 2011 while the product mix was expanded.

Atmospheric air protection is a prioritized sphere of OJSC MMK’s environmental activities. Presently, the plant is operating 445 gas treatment facilities. There is a strong trend towards reducing pollutant emissions into atmosphere. This is achieved due to air protection measures and confirmed by reduced specific emissions per ton of product produced.

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Changes in Pollutant Emissions into Atmosphere

330 35,79 40 30,72 35 310 29,12 318,5 27,08 26,37 25,58 25,92 30 290 22,12 20,20 20,93 21,35 20,44 25 288,0 265,7 18,57 270 283,5 20 278,1 254,6 kg/t 248,3 271,6 15

thousandtons 250 230,9 229,1 10 230 220,9 220,5 220,2 5 210 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

emissions into atmosphere, thousand tons specific gross emissions, kg/t

Discharge of Main Pollutants into the Atmosphere, t/y

Discharges in 2011, Discharges in 2012, Pollutant tons tons Particulate matter (dust) 26 365.3 26 286.8 Nitrogen dioxide (NO2) 15 651.0 15 590.2 Sulphur dioxide (SO2) 16 198.3 16 132.5 Carbon oxide 153 632.5 153 528.2 Phenol 96.2 96.1 Ammonia 444.1 444.1 Hydrogen sulphide 60.9 60.9 Other 8 072.6 8 083.9 Total discharge 220 520.9 220 222.8

It is OJSC MMK’s water body protection strategy to use recirculation water for technical water supply to the maximum possible extent. In 2012, the share of recirculation water supply at OJSC MMK was 97.5% of the total technical water supply.

In 2012, OJSC MMK discharged waste water from 7 discharge points into 3 surface water bodies:

 within the city limits from the cooling water recirculation system into the Magnitogorsk Reservoir (recreational body): 254,523.0 thousand m3;  within the city limits from Co-Generation Power Plant's ash disposal area into the Magnitogorsk Reservoir: 2,307.6 thousand m3;  from sludge deposit #2 into the Sukhaya (commercial fishing body): 8,993 thousand m3; 51

 mine waters from the lime pit into the Ural (commercial fishing body): 24,100.9 thousand m3;  mine waters from the dolomite pit into the Ural: 3,894.9 thousand m3;  from the crushing and calcining shop into the Ural: 501.6 thousand m3;  within the city limits from the Co-Generation Power Plant's cooling system into the Magnitogorsk Reservoir: 93,068.2 thousand m3.

Changes in Water Supply and Water Consumption 4 3.5 3.4 3.4 3.3 3.2 3.3 3,5 3.1 3.0 3.0 2.9 3.0 2.9 3 2.8 2.7 2,5 2 1,5 1 0,5 0.11 0.11 0.11 0.11 0.09 0.09 0.08 0 2006 2007 2008 2009 2010 2011 2012 general water supply (including circulation water supply and consumption from the Magnitogorsk Reservoir), billions of m3/year circulation water supply, billions of m3/year

water consumption from the Magnitogorsk Reservoir, billions of m3/year

Discharge of Main Pollutants into Bodies of Water

Discharge in Discharge in Pollutant 2011, tons 2012, tons Ferrum, total 29.4 43.7 Manganese 15.5 11.1 Petroleum products 62.7 64.3 Sulphates 51 388.3 39 338.4 Fluorides 271.7 255.0 Zinc 53.6 31.7 Other 104 045.4 74 073.2 Total discharge 155 866.6 113 817.4

The use of industrial waste in the production and reclamation of exhausted ore mining pits is a key priority for MMK. Presently, the total capacity of slag processing facilities is 11.5 mtpy. The total volume of MMK's metallurgical slag dumps exceeds 60 million tons. Given the current production levels, these slag dumps will be fully processed within 6-9 years.

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14,00

12,00 11.60 11.30 10.54 10.1 10,00 9.39 9.139.30 8.42 8.54 8,00 6.66 6.89 5.55 6,00 5.09

milliontons 4.80

4,00 2.05 2.18 2,29 2.4 1.49 2,00 1.14 1.09

0,00 2006 2007 2008 2009 2010 2011 2012

total metallurgical slags (operating and dump) processed, million tons

slags and wastes used for reclamation of abandoned open-pit mines of the Magnitnaya Mountain, million tons industrial wastes used in the sinter mix of the Ore-Dressing Plant, million tons

As part of its 2012 Environmental Program, OJSC MMK implemented 30 specific measures (6 measures underway) with various difficulty levels aimed at reducing and preventing the environmental impact.

Actual expenses on the implementation of OJSC MMK’s 2012 Environmental Program amounted RUB 1,152.8 million (including capital construction – RUB 1,020 million), where:

 RUB 252.1 million spent on the reduction of pollutant emissions into the atmosphere (including capital construction – RUB 142 million);  RUB 895.3 million spent on the reduction of pollutant emissions into water bodies (including capital construction – RUB 869 million);  RUB 15.4 million spent on the industrial waste disposal and reclamation (including capital construction – RUB 9 million).

Key environmental protection measures implemented in 2012: Expenses, in millions of rubles № Ecological Shop Action efficiency Total, from 2012 construction beginning

1 Rolling Construction of a sludge 687.2 1 879.5 Reduced emissions: Shop 4 pump station and horizontal decanters for the dirty Suspended solids - recirculation cycle (will be by 1,660 t/y, completed in 2013) petroleum products – by 220 t/y

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2 Rolling Construction of a 181.5 693.9 Prevented discharge Shop 11 neutralization station of pollutants into the (complete) circulation water system: polluted waste discharge 250 m3/hour

3 Sintering Renovation of 97.1 137.6 Reduced SO2 Shop sulphurocatching unit 4. emissions - by 2,000 Construction of tower №4 t/y with stacks and purified gas ducts for scrubbers #7, 8, dropcatchers in scrubbers #7, 8 (will be completed in 2015)

4 Rolling Construction of aspiration 35.6 46.5 Reduced dust Shop 11 systems (complete) emissions – by 40 t/y

5 Rolling Renovation of waste 9.1 9.1 Prevented discharge Shop 5 emulsion separation unit of pollutants into the (complete) general circulation water system

OJSC MMK’s Costs on Environmental Activities

Amount, RUB millions Costs 2011 2012 Capital construction 2 023.6 1 020.0 Overhauls 65.9 115.5 Maintenance (current repair and operational costs) 1 795.6 1 702.4 R&D in environmental protection 1.6 2.0 Total 3 886.7 2 839.9

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Corporate Governance

Corporate Governance Objectives: MMK is committed to high international and national standards of corporate governance. The company’s strong governance, combined with its solid financial performance, makes it a reliable partner for investors. The overall objective of MMK’s corporate governance is to increase the Company’s value while balancing the interests of all stakeholders. The Company seeks to achieve this objective by: 1. Protecting the rights and interests of all shareholders; 2. Ensuring transparency of information on the Company’s activities; 3. Establishing a governance structure to support the Company's strategic management, as well as to oversee and ensure accountability of the management; 4. Building trusted relations with all key stakeholders including shareholders, suppliers, customers and employees. MMK’s corporate governance guidelines and procedures are set out in the Company’s Corporate Governance Code, which was approved by the resolution of the MMK's Board of Directors of September 21, 2001 (posted on MMK’s official website: http://www.mmk.ru/corporate_governance/internal_documents/code_of_corporate_governance) To enhance operations further, the Company also adopted a Code of Business Ethics, approved by the Board of Directors on 17 July 2009. The Code of Business Ethics and other corporate bylaws can be found on the Company’s website at: http://www.mmk.ru/corporate_governance/internal_documents/

The corporate governance practices at MMK OJSC have undergone the following main changes in 2012:

 The collective executive body - the Management Board of MMK OJSC - was constituted. The respective amendments and additions to the Charter as well as the Regulation on the Management Board were approved by the resolution of annual general meeting of shareholders of May 25, 2012.  Issues on financial and economic plan (budget) of the Group, companies of the Group and non-profit organizations (private organizations, autonomous non-profit organizations), forecasting of financial and economic indicators of the Company's group were assigned to the Management board.  The number of Audit Commission members was changed from 12 to 10.  At the suggestion of independent members of the Board of Directors the Charter was amended so that the threshold of transactions requiring approval of the Board of Directors would be more than 10% of the balance cost of assets.  According to recommendations of the Committee for nominations and remuneration the functions of approving and recommending to the Board of Directors the long-range plans, programs and policies for the improvement of industrial and labor safety, environment protection and corporate governance were excluded from the competence of the Committee for strategic planning and corporate governance.  The committee for strategic planning and corporate governance was renamed to the Committee for strategic planning:  The functions of the Committee for nominations and remuneration were supplemented by those related to providing recommendations to the Board of Directors with regard to the constitution and early termination of the powers of the Management Board, approval of number and names of its' members as well as the distribution of their duties, approval of long- range plans, programs, polices and key directions of the Company's and Group's activity in the field of corporate governance. 55

 The functions of the Audit Committee were supplemented by those related to providing recommendations to the Board of Directors on the approval of long-range plans, programs, policies and key directions of the Company's and Group's activity in the filed of industrial and labor safety, environment protection.  The CEO's order put into effect the MMK's policy of corporate social responsibility.  A number of internal documents were revised so as to be in line with the Charter and the current legislation of the Russian Federation:  Regulation on the Corporate Secretary of MMK OJSC;  Regulation on the execution of documents when approving the interested-party transactions, large transactions and the transactions the cost of which had exceeded 10% of the book value of the Company's assets as of the latest date of its' financial statements, transactions for disposal of immovable property irrespective of their costs and when making decisions on non-standard operations.  The CEO developed and approved the Group's standard "Disclosure of information by the companies of the MMK Group".

The award ceremony within the 7th national award "Director of the year", organized by the Association of Independent Directors and the Russian Union of Industrialists and Entrepreneurs, was held October 25, 2012 in Moscow. David Herman, the member of the MMK's Board of Directors, became the winner in the nomination "Independent director of the year". Besides, for the first time in the award's history, the organizers have made ratings of the best professionals in the field of corporate governance according to which:  Victor F. Rashnikov, chairman of the company's Board of Directors, made it into the "25 best chairmen of the board of directors";  David Herman, member of the Board of Directors, got into the "50 best independent directors";  Valentina N. Khavantseva, corporate secretary, was selected into the "25 best corporate secretaries".

ММК's corporate governance rating

The Russian institute of directors has confirmed the MMK's "NRKU-8" rating of the best corporate governance practice in August, 2012. It means that the Company has low risks of corporate governance, meets the corporate governance requirements of the Russian legislation, follows the most part of recommendations of the Russian Code of corporate behavior and several recommendations of the international best practice of corporate governance.

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Company’s Governance Structure

Audit Commission

The General Shareholders’ Meeting is the supreme governance body. The Board of Directors is in charge of managing the Company’s activities (except for matters for which the General Shareholders’ Meeting has responsibility), and it is also responsible for overseeing the implementation of resolutions adopted by the Board of Directors or General Shareholders’ Meeting. The Collective Executive Body, - the Management Board, - and the Individual Executive Body, - the Company’s Chief Executive Officer, - manage the Company’s day-to-day operations. In accordance with Russian legislation and international standards, an independent Auditor and the Audit Commission supervise the Company’s financial and economic activities.

General Shareholders’ Meeting Shareholders who own not less than 2% of the Company’s ordinary voting shares are entitled to propose issues for the agenda of Annual General Shareholders’ Meetings and to nominate candidates to the Company’s Board of Directors and Audit Commission whose number shall not exceed the number of members of that body, and candidates for the position of the individual executive body. Such proposals must be submitted to the Company not later than 40 days following the end of the financial year. A notice of the General Shareholders’ Meeting must be sent to each person specified in the list of persons entitled to participate in the General Shareholders’ Meeting by registered mail not 57 later than 30 days before the date of the meeting with an announcement being published in the Magnitogorsky Rabochiy and Magnitogorsky Metall newspapers. The Company may additionally inform shareholders of the General Shareholders’ Meeting using other mass media (television and radio), and by posting the notice on the Internet at: http://www.mmk.ru/corporate_governance/disclosure_of_information/materials_to_the_shareholders _meeting/. A registrar performs the functions of a counting commission (CJSC STATUS). Persons entitled to participation in the General Shareholders’ Meeting to be conducted in the form of a meeting must be registered at the venue of the meeting starting at a time specified by the Board of Directors, and until the close of the meeting. Voting on agenda items is conducted by means of voting ballots. Voting ballots must be sent to shareholders by registered mail not later than 30 days before the date of the meeting. Resolutions adopted by the General Shareholders’ Meeting and voting results must be announced at the meeting where voting takes place, and persons entitled to participate in the General Shareholders’ Meeting should be notified within 10 days of the preparation of minutes on the voting results in the form of a report to be published in the Magnitogorsky Rabochiy and Magnitogorsky Metall newspapers. In line with best practice, MMK provides its shareholders (including owners of GDRs) with sufficient time to cast votes at General Shareholders’ Meetings. According to the Company’s bylaws a notice of the meeting and voting ballots shall be sent not later than 30 days before the meeting (Federal Law “On Joint Stock Companies” calls for a 20-day notice period). International investors participate actively in voting at MMK’s General Shareholders’ Meetings through a system of proxies established by depositary bank, The Bank of New York Mellon.

90,0 81,7 81,4 82,3 82,4 83,4 83,5 83,2 77,9 79,7 80,0 70,0 64,7 60,0 55,1 49,7 50,9 46,3 47,0 50,0 44,6 41,5

mln 40,0 30,0 31,6 30,0 22,6 20,3 22,6 GDRs, 20,0 10,0 0,0 EGSM AGSM EGSM EGSM AGSM EGSM AGSM EGSM AGSM AGSM EGSM 21.01.2008 25.04.2008 29.08.2008 12.02.2009 22.05.2009 25.12.2009 21.05.2010 20.01.2011 20.05.2011 25.05.2012 29.12.2012

GDRs voted at the meeting Total GDRs

Review of MMK’s Annual General Shareholders’ Meeting Conducted on 25 May 2012 The last Annual General Shareholders’ Meeting approved amendments and supplements to the Company’s Charter (including: the Management Board was included in the governing bodies, the number of members of the Audit commission was changed to 10 persons). A newly elected Board of Directors included Victor Rashnikov, Vitaly Bakhmetiev, Boris Dubrovsky, Nikolay Lyadov, Olga Rashnikova. Additionally, five Directors meeting independence criteria set forth in the UK Corporate Governance Code, became members of the Board of Directors, namely David Logan, Zumrud Rustamova, Bernard Sucher, Peter Charow and David Herman.

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The meeting approved the Regulation on the collective executive body – the Management Board of MMK OJCS. The members of the Audit commission (its number decreased from twelve to ten persons) were selected. KPMG was approved as the Company’s Auditor.

The Meeting approved the size of remuneration and compensation to be paid to members of the Board of Directors and Audit commission for performance of their duties in 2012-2013. The total remuneration of the Board of Directors stood at RUB 65 million, while remuneration of Audit commission amounted to RUB 39 million. The Meeting also approved related-party transactions.

A report on the results of voting at the AGSM on May 25, 2011 can be found at: http://www.mmk.ru/corporate_governance/the_structure_of_government/shareholders_meeting/135 9/.

Board of Directors Board of Directors The Board of Directors has overall responsibility for the Company’s activities and oversees the implementation of resolutions adopted by the General Shareholders’ Meeting and Board of Directors. The Company’s Board of Directors consists of 10 members, five of whom are independent. The Chairman of the Board of Directors is Victor Rashnikov. Election of members of the Board of Directors: Members of the Company’s Board of Directors are elected by the General Shareholders’ Meeting by cumulative voting for one term until the following Annual General Shareholders' Meeting. In line with best Russian and international corporate governance practices, independent directors have been elected to the Board of Directors to enhance oversight, transparency and the efficiency of the Company's governing bodies. Independent directors include Peter Charow, Sir David Logan, Zumrud Rustamova, Bernard Sucher and David Herman. The criteria used by MMK are in line with the UK Corporate Governance Code. Specifically, members of the Board of Directors shall be deemed to be independent directors if they meet the following requirements: - members who at the moment of election or for a term of five years prior to it are not or have not been officers or employees of the Company or the Group’s companies; - members who at the moment of election or for a term of three years prior to it do not have or have not had any material commercial relations with the Company directly or as a partner, shareholder or a member of governance bodies of an organization involved in such commercial relations with the Company; - members who are not and have not been entitled to any additional remuneration from the Company, except for remuneration paid to members of the Board of Directors; members who do not participate in option plan(s) of the Company or in remuneration scheme based on the Company’s performance; members who are not members of the Company’s pension fund (pension programs); - members who are not closely related (spouses, parents, children, full and half siblings, adoptive parents and adoptees) to any member of the Company’s Board of Directors or Individual Executive Body; - members who do not sit with other members of the Company’s Board of Directors on the Boards of Directors of other Companies and who do not have similar significant relations with other members of the Board of Directors of the Company through participation in governance bodies of other companies; - members who have not formed part of the Board of Directors of the Company for more than nine years from the date of their initial election to this position. To be nominated for election to the Board of Directors, a candidate must have knowledge sufficient for making strategic decisions, including on issues related to environmental and social risks and responsibilities.

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Decision making Board responsibilities are set out in the Company’s Charter, which is available at: http://www.mmk.ru/corporate_governance/internal_documents/index.php. A member of the Board of Directors, Audit Commission, the Company’s Auditor or the General Director may propose an item for inclusion in the agenda of a meeting of the Board of Directors in writing to the Chairperson of the Board of Directors. The quorum for holding a Board meeting is at least half of the elected Board members. In taking decisions at Company Board meetings, each Board member shall have one vote. Voting on agenda items at Board meetings shall be open and by name. It is prohibited to transfer votes from Board members to other persons, including other Board members. Board decisions shall be taken by a majority of Board members taking part in the meeting unless otherwise provided for by the Law, the Company’s Charter and the Regulation on the Board of Directors. In determining the quorum and the voting results, the Board shall take into account the opinion of any Board member absent from the meeting, submitted in writing. Such a Board member shall submit his/her written opinion to the Chairman of the Board prior to the Board meeting. The Board Chairman shall announce the written opinion of such a Board member prior to voting on each issue on the agenda. In the event that a Board member who submitted his/her opinion prior to the meeting is then present at the meeting, his/her written opinion shall be disregarded.

Remuneration of members of the Board of Directors Criteria for determining the remuneration of Board members are set out in the Regulations on the Procedure of Remuneration and Compensation of Expenses of Members of the Board of Directors: http://www.mmk.ru/corporate_governance/internal_documents/group_documents/. The size of remuneration and reimbursement of expenses of members of MMK’s Board of Directors are approved by the General Shareholders’ Meeting on an annual basis according to recommendations made by the Board of Directors. The size of remuneration of MMK’s Board of Directors is specified in civil law contracts, and comprises fixed remuneration for performance of their duties and additional remuneration for participation: • in meetings of the Board of Directors; • in adoption of a resolution by the Board of Directors by absentee voting or for provision of a written opinion of an absent member of the Board of Directors. ММК compensates documented expenses of members of the Board of Directors related to performance of duties of a member of the Board of Directors (travel expenses including first and business class travel, accommodation; taxi fares, communication and mail expenses). Members of the Board of Directors (as of 1 January 2013): Victor Rashnikov (born in 1948) – Chairman of the OJSC MMK Board of Directors, President of LLC MMK Managing Company; Russian citizen; member of the Board of Directors since 2 February 1993; has represented the interests of an OJSC MMK shareholder, Mintha Holding Limited; since 1999, President of the Metallurg Ice Hockey Club; since 2001, member of the Management Board of the Autonomous Non-Profit Organization Medical Care Unit of the City Administration of Magnitogorsk and OJSC MMK; since 2005, member of the Board of Directors of the World Steel Association (formerly International Iron and Steel Institute); since 2008, member of the Management Board of Directors of the LLC Continental Hockey League; since 2010, President of the Non-profit Partnership “Consortium Russian Steel”; since 2011, President of the Administration Board of MMK Trading AG 60 and Chairman of the Board of Directors of MMK Metalurji Sanayi, Ticaret ve Liman İşletmeciliği Anonim Şirketi; and member of the Chelyabinsk Region’s Legislative Assembly. Graduate of the Magnitogorsk Institute of Mining and Metallurgy (1974), metallurgical engineer; graduate of the Magnitogorsk Academy of Mining and Metallurgy (1993), manager; D.Sc (Technology); Professor.

Zumrud Rustamova (born in 1970), Deputy CEO of OJSC Polymetal UK; Russian citizen; member of the OJSC MMK Board of Directors since 21 April 2006, since 2008, member of the Board of Directors of JSC Sheremetyevo International Airport; since 2009, Deputy CEO (part-time) of OJSC Polymetal; since 2011, member of the Board of Directors of OJSC PIK Group; since 2012, Deputy CEO (part-time) of ICT Group; since 2011, member of the Board of the Polytechnical Museum Development Fund; since 2012, member of the Board of Non-State Pension Fund of the Electric Power Industry; since 2013, member of the Board of Directors of the United Wagon Company. Graduate of the Moscow Institute of Economics and Statistics in 1992.

Peter Charow (born in 1954) – Vice-President of British Petroleum for Russia; since 2008 - member of the Board of Directors of OJSC TNK-BP Holding; member of the OJSC MMK Board of Directors since 30 March 2007. Education: 1977 – Bachelor of Arts in Political Science from Swarthmore College, Pennsylvania, USA; 1981, 1986 – Master of Arts in Political Science, Columbia University, New York, USA; 2006 – Executive MBA in 2006 from Tuck School of Business, Dartmouth College, New Hampshire, USA.

Sir David Logan (born in 1943), since 2005 - Chairman of the Management Board of the British Institute at Ankara (BIA); citizen of the United Kingdom; member of the Board of Directors since 30 March 2007. Education: Master of Arts (Hons) from Oxford University, UK in 1965.

Bernard Sucher (born in 1960) – since 2002, President of I.M.GALT, Inc.; since 2006, member of the Board of Directors of ATON LLC; since 2011, member of the MMK’s Board of Directors. Education: University of Michigan, 1983, Bachelor, Business Administration with an additional concentration in Russian and Soviet Studies. Columbia University Graduate School of Business, 2001, Senior Executive Program.

David Joseph Herman (born in 1946) – since 2006, Chairman of the Board of Directors of OJSC SOLLERS; since 2009, Chairman of the Board of Directors of DELTA AUTO; since 2011, member of the MMK’s Board of Directors. Education: JD Harvard Law School; MA Harvard Graduate School (Ford Foundation, Fellow in Soviet and East European Studies); BA New York University (magna cum laude).

Boris Dubrovsky (born in 1958) – since 2011, General Director of OJSC MMK; since 2011, member of the Board of Directors of MMK Metalurji Sanayi, Ticaret ve Liman İşletmeciliği Anonim Şirketi; since 2011, member of the MMK’s Board of Directors; since 2012, Chairman of OJSC MMK's Management Board; since 2012, member of the Management Board of Autonomous Non-Profit Organization Medical Care Unit of the City Administration of Magnitogorsk and OJSC MMK. Graduate, Magnitogorsk Mining and Steel Academy (1990), Russian Presidential Academy of National Economy and Public Administration (2001).

Nikolai Lyadov (born in 1956) – since 2011, MMK’s Deputy General Director for Sales; since 2011, member of MMK’s Board of Directors. 61

Graduate, Magnitogorsk Institute of Mining and Metallurgy, specializing in transport organization and administration.

Vitaly Bakhmetyev (born in 1961) – since 2011, MMK’s Deputy General Director for Commerce; since 2011, member of MMK’s Board of Directors. Graguate, Magnitogorsk Institute of Mining and Metallurgy, specializing in ferrous and non- ferrous alloys casting.

Olga Rashnikova (born in 1977) – Director for Finance of OJSC MMK; since 2011, member of the Board of Directors of OJSC CreditUralBank; since 2012, member of MMK’s Board of Directors. Education: in 2000 graduated from Franklin College in Lugano, Switzerland, specialization in economics, finance and enterprise management; in 2009 graduated from the State Management University, Moscow, with a MBA degree (executive class).

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Meetings of the Meetings of the Board of Meetings of the Audit Meetings of the Strategic Nominations and Directors Committee Planning Committee Remuneration Committee

Participation in Total Participation in Total Participation in Total Participation in Total Full Name meetings meetings meetings meetings meetings meetings meetings meetings

17 8 V.F. Rashnikov

17 8 V.V. Bakhmetiev

17 8 B.A. Dubrovsky

17 8 N.V. Lyadov

11 5 O.V. Rashnikova* 17 9 11 8 17 11 Sir David Logan

16 7 10 Z.Kh. Rustamova

17 8 Bernard Sucher

17 11 8 David J. Herman

17 9 8 Peter Charow

* Since 25.05.2012, O.V. Rashnikova is a member of the Board of Directors and Committee of the BoD for Strategic Planning.

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Committees of the Board of Directors

To improve the efficiency of the Board of Directors’ work and their resolutions, MMK has set up the following committees: • Audit Committee; • Nominations and Remuneration Committee; • Strategic Planning Committee. These committees submit performance reports to the Board of Directors not later than thirty business days before the date of the Annual General Shareholders’ Meeting.

Audit Committee Nominations and Remuneration Strategic Planning Committee Committee

Committee - Selection of the independent -Approval of long-term plans, - Determination of prioritized areas Functions Auditor. programs, policies and guidelines of activity and development for the Company and the Group strategy of the Group. - Supervision of the Company’s companies, in the area of: HR financial and business activities. policies, as well as the - Approval of long-term plans, management structure, personnel programs, policies and guidelines - Interaction with the for the Company and the Group Company’s Auditor. motivation and wages and salaries policy, corporate governance; companies, in the areas of: sales - Evaluation of the performance policy, raising and investment of of internal control. - Preliminary review of candidates funds, social policy, raw materials for positions of members of the and equipment procurement policy, - Evaluation of performance of Company’s governing bodies and production program. the Company’s financial the Audit Commission and reporting internal control presentation of relevant - Approval of the Company’s system. recommendations to the Board of financial and business operations Directors. plan (budget) for the financial year - Supervision of the Company’s and supervision of its comprehensive risk - Review of nominees to the implementation. management system and Company’s Board of Directors, analysis of risk management Audit Commission and for the - Calling of annual and efficiency. position of the Individual Executive extraordinary general shareholders’ Body (Company’s meetings. - Approval of long-term plans, programs, policies and General Director) proposed by - Recommendations for the General guidelines for the Company and shareholders. Shareholders’ Meeting on profit the Group companies, in the distribution. area of industrial and - Preparation of recommendations for the Board of Directors regarding - Supervision of execution of labour safety and environment the size of remuneration and resolutions of the Board of protection. compensations paid to members of Directors by the Company’s the Board of directors (including executive body. - Other functions. executive directors of the Board) - Other functions. and members of the Company's Audit Commission. - Approval of the Company's corporate key performance indicators. - Other functions.

Committee 2012 2012 2012 members:

Chairperson: Peter Charow Zumrud Rustamova Victor Rashnikov (independent Director); (independent director)

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Members: Zumrud Rustamova Sir David Logan Vitaly Bakhmetiev; (independent director); (independent director); Boris Dubrovsky; Bernard Sucher David Herman Nikolai Lyadov; (independent director) (independent director) Olga Rashnikova; David Herman (independent director); Peter Charow (independent director);

Total meetings in 9 11 8 2012:

Key Issues: - Efficiency of the internal - Recommendations to the Annual - Results of financial and business control system. General Shareholders’ Meeting activities of MMK and MMK Group. regarding the size of remuneration - Risk management efficiency. and compensation payable to the - Approval of the Financial and Business Operations Plan (Budget) - Internal audit of MMK and members of the Board of Directors and the Audit Commission. of MMK and MMK Group for 2013 MMK Group. financial year. - Consideration of proposals - Outcome report on the review - Recommendations to the Annual of OJSC MMK’s consolidated submitted by shareholders regarding candidates to the Board General Shareholders’ Meeting financial accounts carried out by regarding the size of dividend on KPMG (IFRS-based). of Directors and Audit Committee, and inclusion of such candidates in shares and procedure of dividend - Determination of the size of the voting ballot for elections to the payments. remuneration to OJSC MMK’s Board of Directors and Audit - Report of General Director on the Auditor; recommendations to Commission. current activities the Annual General Shareholders’ Meeting - Key Performance Indicators. - Approval of strategic development regarding a candidate for the - Forming of MMK’s candidates plan for MMK Group through 2022. position of the Auditor. pool. - Implementation and approval of - Improvement of the - Implementation of guidelines of the guidelines for sales policy, Company’s industrial and the MMK Group’s HR policy raising and investment of funds, Improvement of the MMK Group’s social policy, raw materials and labour safety, environmental equipment procurement policy, management system. management structure, motivation and wage policy. production program, etc. - Evaluation of the effectiveness - Implementation of the guidelines of the internal - Approval of criteria for evaluating activities of the Company’s Board for the management of the Group audit control with regard to the of Directors by members of the companies. Review of the programs Company’s financial statements. Board of Directors and its for improvement of production and committees. financial indicators of MMK Group companies. - Evaluating activities of the Company’s Board of Directors and - Calling and conduct of the Annual its committees. General Shareholders’ Meeting.

Regulations: http://www.mmk.ru/corporate_governance/internal_documents/group_documents/

Assessment of the Board of Directors’ and committees’ activity In line with the best practice of corporate governance, OJSC MMK annually evaluates the performance of the Board of Directors and its committees. Below is the summary of questioning results: Members of the Board of Directors have noticed an advance in corporate governance of OJSC MMK. They have particularly highlighted well-coordinated work of the committees and the Board of Directors, mutual respect, confidence and accord between the BD members and executive bodies, careful selection of candidates for the Board of Directors. Besides the BD members have marked loyalty towards the minority shareholders alongside with the majority shareholder. On the other hand the members of the Board of Directors have made a note on the potential for further improvement of all divisions’ activity. It has been proposed to focus on the distribution of competencies between the governing bodies, pay more attention to corporate social responsibility as well as health, safety and environment issues.

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Information on the Person Performing the Functions of the Company's Individual Executive Body The Company's individual executive body is OJSC MMK's General Director. The General Director is elected/appointed by the general shareholders' meeting for a term of 5 years and can be re-elected/re-appointed an indefinite number of times. The General Director of the Company may be a citizen of the Russian Federation (including persons who are not shareholders of the Company) that has not been deprived, in accordance with applicable Russian Federation laws, of the right to occupy certain positions or engage in certain activities and who has at least a 5 years' experience of work in an executive position. A candidate for the position of the General Director can be nominated by shareholders (a shareholder) who own(s) a total of least 2 per cent of the Company's voting shares, not later than 40 days after the end of the financial year preceding the financial year in which the authority of the active General Director is about to expire. The responsibilities of the General Director include all matters pertaining to the direction of the Company's day-to-day activities, with the exception of matters reserved for the general shareholders' meeting, the Board of Directors or the Management Board.

Currently OJSC MMK's General Director is Boris A. Dubrovsky.  Year of birth 1958  Education Higher: Magnitogorsk Mining and Metallurgy Academy National Economy Academy under the Russian Federation Government  Positions occupied since 2011: General Director of OJSC MMK since 2012: member of the Management Board, Autonomous Non-Profit Organization Medical Unit of the City of Magnitogorsk Administration and OJSC MMK since 2011: member of the Board of Directors, MMK Metalurji Sanayi, Ticaret ve Liman İşletmeciliği Anonim Şirketi (Turkey) since 2011: member of the Board of Directors, OJSC MMK since 2012: Chairman of the Management Board, OJSC MMK

The Company's Management Board In accordance with the decision of OJSC MMK's Annual General Shareholders' Meeting on 25.05.2012 the amendments introduced in the Company's Charter provided for including a collective executive body in the structure of the Company's governing bodies (the Management Board). The responsibilities of the Management Board are set down in Company's Charter that can be found at: http://www.mmk.ru/corporate_governance/internal_documents/index.php. These responsibilities include matters of OJSC MMK's interaction with the MMK Group companies and non-commercial entities (private institutions, autonomous non-commercial organizations, etc.) The Management Board is set up by decision of the Board of Directors. The membership of the Management Board and the distribution of functions between its members is approved by the Board of Directors as proposed by the General Director of the Company. The Management Board members are appointed by the Board of Directors for an indefinite period and can be re-appointed an indefinite number of times. The Board of Directors can at any time decide on terminating the authority of all members of the Management Board and constituting a new Management Board.

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The Management Board meetings are organized by the person performing the functions of the Company's individual executive body, the General Director, who signs all documents on behalf of the Company and minutes of the Management Board meetings, acts without a power of attorney on behalf of the Company in accordance with the decisions of the Management Board taken within its authority. The Management Board meetings are held at least twice every month in accordance with a work plan drafted on an annual basis. The quorum for holding a meeting of the Management Board is at least half of the appointed Board members. Decisions at Board meetings are taken by the majority of votes of the Board members taking part in the meeting (who have submitted their voting ballots). The Management Board directs the day-to-day activities of the Company in line with its responsibilities an authority set out in the Company's Charter and the Regulations on the Management Board approved by the general shareholders' meeting.

In 2012 the Management Board held 20 meetings which reviewed the following issues:

 Analysis of the financial and business results of the MMK Group;  Key financial and business indicators (budget) of the MMK Group;  Reports on production, financial, economic and business aspects of the MMK Group companies' activities;  MMK Group's business processes in various areas of activity;  Approval of the Company's representatives and instructions to the Company's representatives in the MMK Group companies.

MMK's Management Board (as of 31.12.2012)

Membership 15

Chairman Boris A.Dubrovsky (b.1958), General Director, member of the MB since 25.05.2012.

Alexandr N. Andrianov (b.1966), Deputy General Director for Finance and Economics; MB member since 25.05.2012. Members of Vitaly V.Bakhmetiev (b. 1961), Deputy General Director for Commerce; MB the Board member since 25.05.2012. Andrey A.Yeriomin (b.1972), Director for Economics, MB member since 25.05.2012. Marina A.Zhemchueva (b.1960), Chief Accountant; MB member since 25.05.2012. Sergei V.Krivoschekov (b.1961), Director of the Property Management Department, LLC MMK Managing Company; MB member since 25.05.2012. Oleg V.Kiykov (b.1961), Director for HR; MB member since 25.05.2012. Sergei A.Laskov (b.1963), Director for Occupational and Industrial Safety and Environment Protection; MB member since 25.05.2012. Yevgeny V.Redin (b.1969), Director for Business Development and Performance Management; MB member since 25.05.2012 Vladimir E.Ruga (b.1970), Vice-President for External Communications, LLC MMK Managing Company; MB member since 25.05.2012 Ivan V.Senichev (b.1970), Director for Corporate Matters and Social Programs; MB member since 25.05.2012 Dmitry A.Usanov (b.1978), Director of the Strategic Development Department, LLC MMK Managing Company; MB member since 25.05.2012 Alexandr A.Ushakov (b.1960), Director for International Business Relations; MB member since 25.05.2012 Oleg V.Tsepkin (b.1965), Director for Security; MB member since 25.05.2012 Sergei V.Shepilov (b.1971), Director for Legal Matters; MB member since 67

25.05.2012 Pavel V.Shiliayev (b.1970), Deputy General Director for Production; MB member since 25.05.2012

* Members of the Management Board had no MMK shares in their ownership in 2012.

Members of the Management Board are paid no remuneration for their service on the Board. They are paid salaries for their main functions in OJSC MMK and LLC MMK Managing Company totaling RUB 221,271,900 in 2012.

Information on the Audit Commission

Audit Commission Functions Internal supervision of the Company's financial and business activities; Compliance with laws in effect and observance of shareholder rights Membership: 10 Chairman: Yevgeny V.Kebenko (b.1969)

Members: Dmitry L.Lyadov (b.1973) Igor V.Vier (b.1961) Alexandr V.Maslennikov (b.1969) Oksana V.Diuldina (b.1971) Ilya M.Postolov (b.1976) Galina A.Akimova (b.1969) Boris A.Chistov (b.1974) Olga M.Nazarova (b.1983) Yelena V.Artamonova (b.1954) Remuneration to OJSC MMK's annual general shareholders' meeting on 25 May 2012 set the Audit the size of remuneration and compensations to members of the Audit Committee Commission at RUB 39 million. Regulations: http://mmk.ru/corporate_governance/internal_documents/

Information on the Company's Registrar

Closed Joint-Stock Company Registrar Company STATUS (license # 10-000-1-00304, issued on 12 March 2004 by the Federal Agency for Financial Markets for an indefinite period) is responsible for maintaining and keeping OJSC MMK's share register. The Registrar’s registered office is located at the address: Ul. Novorogozhskaya 32, Building 1, Moscow, 109544, Russian Federation tel: +7(495) 974-83-50 fax: +7(495) 678-71-10 e-mail: [email protected] 68

Information on Changes in Equity in 2012 OJSC MMK's authorized share capital is RUB 11,174,330,000 and is comprised of the value of 11,174,330,000 ordinary registered shares with a par value of RUB 1.00 each. All shares are outstanding. The Company is entitled to float 26,299,840,577 shares with a par value of RUB 1.00 (declared shares) in addition to the outstanding ordinary stock. Declared ordinary shares have the same rights attached to them as the outstanding ordinary shares.

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Structure of the Company's share capital as of 23.11.2012

Description % of equity Mintha Holding Limited * 37.1% Fulnek Enterprises Limited * 41.0% Mordoraco Holdings Limited * 7.7% The Bank of New York International Nominees 5.6% Other shareholders 8.6% Total 100%

* The Chairman of OJSC MMK's Board of Directors V.F.Rashnikov is the beneficiary of Mintha Holding Limited, Fulnek Enterprises Limited and Mordoraco Holdings Limited. MMK's management is not aware of the existence of any shareholdings in excess of 5% other than those disclosed. Members of OJSC MMK's Board of Directors had no MMK shares in their ownership in 2012.

Historical Report on the Payment of Declared/Accrued Dividends OJSC MMK's dividend policy is based on the balance of interests of the shareholders and the requirements of further modernization and revamping of the Company. In giving recommendations on the size of dividends the Board of Directors is guided by the notion that the amount allocated to this end, must be at least 20% of the net profit as determined on the basis of the Company's IFRS consolidated financial statements. The Regulations on the Dividend Policy can be found on the Internet page at: http://www.mmk.ru/corporate_governance/internal_documents/group_documents/ Size of Dividend Payments on MMK Shares Divi-dend % Dividend per Financial Year Dividend accrued of net profit, share, RUB IFRS 4,268,594.06 RUB '000 2008 0.382 16% 173,891.90 USD '000 4,134,502.10 RUB '000 2009 0.370 61% 134,445.30 USD '000 3,687,528.90 RUB '000 2010 0.330 57% 131,882.10 USD '000 0 RUB '000 2011 0 0% 0 USD '000 3,128,812.40 RUB '000 2012* 0.280 219% 103,013.97 USD '000 * For the 9 months of 2012. OJSC MMK's annual general shareholders' meeting on 25.05.2012 decided not to pay dividends on MMK's oustanding ordinary registered shares for the 2011 financial year.

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Information on Securities Including Issues of Shares

Information on the Company’s Securities

Ordinary Shares

OJSC MMK's shares are traded on MICEX-RTS*, the leading Russian stock market, and are listed on the London Stock Exchange (LSE). Trading Platform Issuer code MICEX-RTS*, Moscow MAGN LSE, London MMK *MICEX and RTS merged on 16 December 2011

On the LSE, MMK's shares are traded as Global Depositary Receipts (GDRs), with 1 GDR corresponding to 13 shares. MMK’s free float represents 12.7% of the Company’s outstanding shares.

The Company's shares are included in the following indices:

Index Date of inclusion

RTS Index 15.10.2007

MICEX Index 15.10.2007

RTS Metals and Mining Index 15.06.2007

MICEX Metals and Mining Index 14.08.2007

MICEX MC Index 06.08.2007

DAX Global Russia 24.09.2007

OJSC MMK Share Quotes and Trading Volumes on LSE (USD)

As of the period’s Average daily Minimum Maximum end trading volume

2010 8.79 15.19 14.55 5,892,020

2011 4.25 16.23 4.87 6,022,151

2012 3.44 6.59 4.37 2,739,188

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MMK’s GDR Share Price on LSE and Bloomberg Europe Metals & Mining Index in 2012 Share price

Trading volume

MMK’s Share Price and Trading Volumes on MICEX (RUB)

As of the period’s Average daily Minimum Maximum end trading volume 2010 20.80 34.61 32.90 72,142,274 2011 10.91 37.06 12.36 121,457,684 2012 8.99 14.93 10.41 132,936,912

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MMK’s Share Price and Trading Volumes on MICEX in 2012 Share price

Trading volume

In whole, the last year was quite difficult for the steelmaking industry. Concerns regarding a slowdown of the Chinese economic growth, and problems in the Eurozone affected the expected demand for steel and key raw materials. These concerns resulted in a decrease in prices for steel, iron ore and coking coal starting from April of 2012.

Given very uncertain prospects of the industry, major Western investors started to decrease the share of steelmaking companies in their portfolios which led to a decline of the price for the companies’ shares supported by trading volumes below the average level. However, from the fundamental perspective and in terms of further development prospects, MMK’s shares remain attractive. As of 31 December of 2012, analysts from major foreign and Russian investment banks including Credit Suisse, Merrill Lynch, Raiffeisen Bank, Sberbank, VTB Capital, had “buy” recommendations on MMK shares. Among the Company’s strengths they listed the growing share of high-value added products, focus on the domestic market, decreasing debt burden and the positive cash flow generated by the Company.

As of the year’s end, the target price for MMK shares was USD 5.07 per GDR.

At close of exchange on 31 December 2012, the price for MMK’s GDRs was 4.37 USD corresponding to the growth potential of about 16%.

The selling of steelmakers’ shares by Western investors resulted in the decrease of the average daily trading volume of MMK shares against 2011, to about USD 7 million.

However, 2012 saw an increase in the share turnover on Russian trading venues. The MICEX-RTS was the lost liquid trading venue for MMK accounting for about 60% of the share turnover. 73

MMK’s Market Capitalization in 2012, USD million (LSE)

* The market capitalization is calculated using the closing price of the previous month’s trading. In general, the price for MMK shares was highly volatile throughout the year with MMK’s market cap varying from a year high of USD 5,669 million on 28 February 2012 to a trough of 2 957 USD on 01 June 2012.

As of 31 December 2012, MMK’s market capitalization stood at USD 3,779 million.

Investor and Shareholder Relations

One of the Company’s priorities is to maintain strong relations with investors and shareholders through direct dialogue and in line with existing legislation and best practice. MMK’s management has focused on responding to the interests of investors and shareholders, and establishing a relationship based on trust by improving transparency of the Company’s operations. In keeping with the principles of transparency and accessibility of information, the Company publishes statements of significant events on the website of the London Stock Exchange. The Company's official site has sections devoted to Investor Relations and Corporate Governance that contain a wide array of information in Russian and English, including the Company's internal documents and bylaws, annual reports, information for shareholders' meetings, data on the Company's registrar and auditors, information on dividend payments, as well as quarterly financial statements under IFRS and RAS. The website also features a financial calendar with planned events and reporting dates. More detailed information can be found on MMK's official site at: http://www.mmk.ru in the Investor Relations and Corporate Governance sections. Effective dialogue with the capital markets requires constant attention from the Company's management. MMK management regularly participates in international conferences and holds meetings with investors. Publication of quarterly financial results always includes telephone conferences for investors with MMK management. Financial statements are supplemented with presentations which give additional insight into the Company’s performance and strategy.

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Investors are invited to contact us with any questions related to MMK’s business activity: Valentina Khavantseva Corporate Secretary Tel: +7 (3519) 24-72-29 E-mail: [email protected]

Andrey Serov Investor Relations Department Tel: +7 (3519) 24-52-97 E-mail: [email protected]

2013 Financial Calendar* General Shareholders’ Meetings 18 April of 2013 Extraordinary General Shareholders’ Meeting 24 May of 2013 Annual General Shareholders’ Meeting Board of Directors Meetings 14 February 2013 19 April 2013 MMK’s Board of Directors May of 2013 Publication of RAS Financial Statements 22 March 2013 IV Quarter (12 months) 2012 April 2013 I Quarter (3 months) 2013 July 2013 II Quarter (6 months) 2013 October 2013 III Quarter (9 months) 2013 Publication of IFRS Financial Statements April 2013 IV Quarter (12 months) 2012 June 2013 I Quarter (3 months) 2013 August 2013 II Quarter (6 months) 2013 November 2013 III Quarter (9 months) 2013 Publication of Production Results 31 January 2013 IV Quarter (12 months) 2012 April 2013 I Quarter (3 months) 2013 July 2013 II Quarter (6 months) 2013 October 2013 III Quarter (9 months) 2013 * dates are subject to change (http://www.mmk.ru/for_investor/financial_calendar/)

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MMK Exchange-Traded Bonds:

 BО-01–BО-05 Issuance Program:

In October of 2009, OJSC MMK’s Board of Directors decided to place MMK’s exchange- traded bonds of the BO-1, BO-2, BO-3, BO-4 and BO-5 series. Financial institutions rendering to MMK services of the bonds’ placement were LLC IK RFTs (Clearing and Stock Exchange Center Investment Company), OJSC Rosbank, OJSC Uralsib and LLC Renaissance Capital - FK. The total amount of the registered issuance program is RUB 33 billion.

As of 31 December 2012, the following issues were outstanding:

- BО-4 for RUB 5 billion included in the MICEX quotation list “A” of the first level; and - BО-5 for RUB 8 billion included in the MICEX quotation list “A” of the first level.

The following issues were redeemed:

- BО-1 for RUB 5 billion; - BО-1 for RUB 10 billion; and - BО-1 for RUB 5 billion.

 BО-06–BО-15 Issuance Program:

In February of 2011, OJSC MMK’s Board of Directors decided to place MMK’s exchange- traded bonds of the BО-6, BО-7, BО-8, BО-9, BО-10, BО-11, BО-12, BО-13, BО-14 and BО-15 series. Financial institutions rendering to MMK services of the bonds’ placement, include LLC IK RFTs (Clearing and Stock Exchange Center Investment Company), OJSC Uralsib and OJSC Svyaz Bank. The total amount of the registered issuance program is RUB 50 billion.

As of 31 December 2012, the following issues were outstanding:

- BО-6 for RUB 5 billion included in the MICEX quotation list “A” of the first level; - BО-7 for RUB 5 billion included in the MICEX quotation list “A” of the first level; and - BО-8 for RUB 5 billion included in the MICEX quotation list “A” of the first level.

 MMK Corporate Ruble-Denominated Bonds:

In August of 2012, OJSC MMK’s Board of Directors decided to place MMK’s corporate ruble- denominated bonds of 18, 19 and 20 series. In October of 2012, the RF Federal Committee for Securities Markets carried out the state registration of the bond issues. Financial institutions rendering to MMK services of the bonds’ placement, include LLC IK RFTs (Clearing and Stock Exchange Center Investment Company), OJSC Uralsib and JSC UniCreditBank. The total amount of the registered issuance program is RUB 20 billion.

As of 31 December 2012, the following issues were outstanding:

- issue of the 18 series for RUB 5 billion included the MICEX quotation list “B”.

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REPORT of the OJSC MMK Board of Directors on the Results of OJSC MMK's Priority Activities in 2012

In 2012 the OJSC MMK Board of Directors developed and adopted the MMK Group's Strategic Plan for the Period up to 2022.

During the accounting period OJSC MMK took actions in the following priority areas:

1. Strengthening of MMK's positions on the markets important for OJSC MMK; 2. Improvement of the quality management system; 3. Technological development; 4. Reduction of hazardous impact on the environment; 5. Improvement of the occupational and industrial safety management system; 6. Ensuring stable supply of raw materials; 7. Improvement of the HR management system; 8. Improvement of MMK employees' social protection; 9. Improvement of the corporate governance system.

In 2012 the OJSC MMK Board of Directors held 17 meetings which discussed 177 issues. The most important of them dealt with:

1. Approval of plans, programs, policies and activity guidelines for OJSC MMK and the Group companies; 2. Shaping the Company's financial and business policies (control of execution and approval of OJSC MMK's financial and business plan, approval of the guidelines for raising and investing funds); 3. Improvement of corporate governance.

In accordance with the Federal Law "On Joint Stock Companies" the Board of Directors is responsible for carrying out the general direction of the Company's activities, ensuring shareholders' rights, determining the Company's strategy, deciding on matters of the Company's financial and business activities and other matters as provided for by the above law and the Company's Charter.

The activities of the Board of Directors and the Company in the accounting year remained transparent to the shareholders and other interested parties, with all required information disclosed promptly and in full.

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General Information on OJSC MMK Full Name of the Company:  in Russian: Открытое акционерное общество «Магнитогорский металлургический комбинат»  In English: Magnitogorsk Iron and Steel Works Open Joint Stock Company Abbreviated Name of the Company:  in Russian: OAO «MMK»  in English: OJSC MMK State Registration Certificate: Certificate #0002 series GA (registration #186). Date of state registration: 17.10.1992. Certificate of Entry in the Uniform State Register of Legal Entities: series 74 # 000603904, OGRN 1027402166835, date of entry: August 12, 2002. The Company’s location and postal address: Ul. Kirova 93, Magnitogorsk, Chelyabinsk Region, Russia Tel: (3519) 24-40-09, fax: (3519) 24-73-09. Company web-site: Web-site: http://www.mmk.ru Administration for Information, Public Relations and Product Promotion: tel: (3519) 24-03-02, fax: (3519) 24-85-54, e-mail: [email protected] Head of the Administration: Vladimir V. DRYEMOV Tel: (3519) 24-04-50 Deputy Head of the Administration: Elena V. AZOVTSEVA Tel: (3519) 24-56-30 Legal Status of OJSC MMK Magnitogorsk Iron and Steel Works is an open joint stock company. According to the legislation of the Russian Federation, a joint stock company is a commercial organization whose authorized capital is divided into a certain number of shares which certify rights of obligation of the company’s members (shareholders) in relation to the company. The shareholders are not responsible for the Company’s obligations and bear the risk of losses in connection with the Company’s activity to the extent of their shares’ value. The Company is a legal entity which owns separate property entered in the Company’s independent balance sheet. The number of shareholders of the Company is not limited. Countries in Which the Organization Conducts its Business OJSC MMK runs its operations in the Russian Federation (Magnitogorsk, Belovo, St. Petersburg and Moscow) and the Republic of Turkey (Istanbul, Iskenderun). The Company’s key suppliers are located in Russia and Kazakhstan. MMK sells its products to 70 countries worldwide. The key shipment destinations include CIS, the Middle East, Europe and Asia.

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General Information on the Annual Report Date of Publication of the Latest Previous Report The previous Annual Report of OJSC MMK was prepared based on 2011 results and approved by the Annual General Shareholders' Meeting on 25 May 2012. OJSC MMK’s 2011 Annual Report is available for review at MMK's web site www.mmk.ru/for_investor/annual_reports/ Procedure of Determining the Report’s Content Annual Reports of OJSC MMK are prepared each year in accordance with the RF Federal Law “On Joint Stock Companies” No. 208-FZ dated 26 December 1995, as amended and supplemented, and with Order No.11-46/pz-n “Regulations on Information Disclosure by Issuers of Securities” of the Federal Agency for Financial Markets dated 4 October 2011. In preparing this Annual Report, OJSC MMK aimed at the fullest possible disclosure of information related to all aspects of its operations in 2012. The Report covers the Company’s various activities (production, business, financial, social and environmental) of interest to all parties concerned. The parties concerned were identified following a comprehensive analysis of the Company's operations and the influence exerted by them on the social sphere and the environment. As a result, top priority was assigned to the following subjects: production, sales, as well as the Company’s social and environmental activities. All facts and events influencing the Company’s ability to achieve its strategic goals were considered material.

Scope of the Report This Report has been prepared on the basis of the results of OJSC MMK’s operations, as presented in financial statements prepared according to the Russian Accounting Standards and the International Financial Reporting Standards (IFRS) for the 2012 financial year. Limitations of the Report Scope This Report provides a complete picture of MMK’s operations, and any further expansion of the Report is possible only in terms of increasing the number of performance indicators, should such interest be expressed by any of our stakeholders. Influence on the Comparability of the Report

This Report includes information on MMK Group’s operational results and is therefore comparable to the reports of OJSC MMK and the MMK Group for previous periods.

Material Changes in the Report

This Report does not contain any material changes in the information in respect of obligatory disclosure in the Annual Report.

Boris A. Dubrovsky OJSC MMK’s General Director

Marina A. Zhemchueva OJSC MMK’s Chief Accountant

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Application. Consolidated Financial Statements for the Year Ended 31 December 2012 OPEN JOINT STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 (In millions of U.S. Dollars, unless otherwise stated)

Years ended 31 December 2012 2011

REVENUE 9,328 9,306

COST OF SALES (7,881) (7,756)

GROSS PROFIT 1,447 1,550

General and administrative expenses (575) (560) Selling and distribution expenses (549) (499) Other operating expenses, net (57) (126)

OPERATING PROFIT 266 365

Share of results and impairment of associates 20 14 Finance income 12 15 Finance costs (223) (190) Foreign exchange gain/(loss), net 35 (118) Impairment losses on assets held for sale and other non-current assets (17) (41) Change in net assets attributable to minority participants (1) 1 Other income 23 11 Other expenses (178) (198) LOSS BEFORE INCOME TAX (63) (141) INCOME TAX (31) 16 LOSS FOR THE YEAR (94) (125)

OTHER COMPREHENSIVE INCOME/(LOSSES) Increase/(decrease) in fair value of available-for-sale investments 57 (320) Income tax related to decrease in fair value of available-for-sale investments - 179 Translation of foreign operations (72) 111 Effect of translation to presentation currency 584 (498) OTHER COMPREHENSIVE INCOME/(LOSSES) FOR THE YEAR, NET OF TAX 569 (528) TOTAL COMPREHENSIVE INCOME/(LOSSES) FOR THE YEAR 475 (653)

Loss attributable to: Shareholders of the Parent Company (91) (120) Non-controlling interests (3) (5) (94) (125)

Total comprehensive income/(losses) attributable to: Shareholders of the Parent Company 478 (692) Non-controlling interests (3) 39 475 (653)

BASIC AND DILUTED LOSSES PER SHARE (U.S. Dollars) (0.008) (0.011)

Weighted average number of ordinary shares outstanding (in thousands) 11,007,917 11,007,133

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OPEN JOINT STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 (IN MILLIONS OF U.S. DOLLARS)

31 December 2012 2011 ASSETS NON-CURRENT ASSETS: Property, plant and equipment 11,831 11,792 Goodwill 290 274 Other intangible assets 43 29 Investments in securities and other financial assets 870 785 Investments in associates - 31 Deferred tax assets 152 110 Other non-current assets 7 8 Total non-current assets 13,193 13,029

CURRENT ASSETS: Inventories 1,674 1,776 Trade and other receivables 695 617 Investments in securities and other financial assets 62 47 Income tax receivable 90 83 Value added tax recoverable 200 304 Cash and cash equivalents 362 424 Assets classified as held for sale 16 15 Total current assets 3,099 3,266 TOTAL ASSETS 16,292 16,295

EQUITY AND LIABILITIES EQUITY: Share capital 386 386 Treasury shares (175) (176) Share premium 1,108 1,110 Investments revaluation reserve 596 539 Translation reserve (2,213) (2,725) Retained earnings 9,963 10,155 Equity attributable to shareholders of the Parent Company 9,665 9,289 Non-controlling interests 155 159 Total equity 9,820 9,448

NON-CURRENT LIABILITIES: Long-term borrowings 2,236 3,067 Obligations under finance leases - 1 Retirement benefit obligations 32 27 Site restoration provision 51 44 Deferred tax liabilities 1,254 1,157 Total non-current liabilities 3,573 4,296

CURRENT LIABILITIES: Short-term borrowings and current portion of long-term borrowings 1,630 1,328 Current portion of obligations under finance leases 1 6 Current portion of retirement benefit obligations 4 3 Trade and other payables 1,260 1,194 Net assets attributable to minority participants 4 20 Total current liabilities 2,899 2,551 TOTAL EQUITY AND LIABILITIES 16,292 16,295

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OPEN JOINT STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 (In millions of U.S. Dollars)

Attributable to shareholders of the Parent Company Investments Non- Share Treasury Share revaluation Translation Retained controlling capital shares premium reserve reserve earnings Total interests Total

BALANCE AT 1 JANUARY 2011 386 (176) 1,109 680 (2,294) 10,552 10,257 429 10,686

Loss for the year - - - - - (120) (120) (5) (125) Other comprehensive income for the year, net of tax - - - (141) (431) - (572) 44 (528)

Total comprehensive income for the year - - - (141) (431) (120) (692) 39 (653) Purchase of treasury shares - (33) - - - - (33) - (33) Issuance of ordinary shares from treasury shares - 33 1 - - - 34 - 34 Increase in non-controlling interests due to additional share - issue by subsidiary ------28 28 Increase in non-controlling interests due to changes of Group’s share in subsidiaries - - - - - (10) (10) 2 (8) Acquisition of non-controlling interest - - - - (137) (137) (338) (475) Dividends - - - - (130) (130) (1) (131) BALANCE AT 31 DECEMBER 2011 386 (176) 1,110 539 (2,725) 10,155 9,289 159 9,448

Loss for the year - - - - - (91) (91) (3) (94) Other comprehensive losses for the year, net of tax - - - 57 512 - 569 - 569

Total comprehensive losses for the year - - - 57 512 (91) 478 (3) 475 Purchase of treasury shares - (2) - - - - (2) - (2) Issuance of ordinary shares from treasury shares - 3 (2) - - - 1 - 1 Dividends - - - - - (101) (101) (1) (102) BALANCE AT 31 DECEMBER 2012 386 (175) 1,108 596 (2,213) 9,963 9,665 155 9,820

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OPEN JOINT STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 (In millions of U.S. Dollars)

Years ended 31 December 2012 2011 OPERATING ACTIVITIES: Loss for the year (94) (125) Adjustments to loss for the year: Income tax 31 (16) Depreciation and amortisation 952 887 Finance costs 223 190 Loss on disposal of property, plant and equipment 118 70 Impairment losses on assets held for sale and other non-current assets 17 41 Change in allowance for doubtful accounts receivable (4) 24 (Gain)/loss on revaluation and sale of trading securities (15) 16 Change in allowance for obsolete and slow-moving items (16) 23 Finance income (12) (15) Foreign exchange loss, net (35) 118 Gain on sale of disposal subsidiaries (18) - Share of results and impairment of associates (20) (14) Change in net assets attributable to minority participants 1 (1) 1,128 1,198 Movements in working capital Decrease in trade and other receivables (12) 66 Decrease/(increase) in value added tax recoverable 113 (111) Decrease/(increase) in inventories 205 (688) Decrease in investments classified as trading securities 16 94 (Decrease)/increase in trade and other payables (8) 292 Cash generated from operations 1,442 851 Interest paid (205) (168) Income tax paid (44) (105) Net cash generated by operating activities 1,193 578

INVESTING ACTIVITIES: Purchase of property, plant and equipment (674) (1,154) Purchase of intangible assets (7) (8) Proceeds from sale of property, plant and equipment 8 10 Interest received 10 13 Loans provided to related party (25) (67) Proceeds from sale of disposal group - 55 Proceeds from sale of subsidiary 37 7 Proceeds from sale of securities and other financial assets 3 7 Changes in letters of credit, net 2 - Dividends received from associates 45 9 Net cash used in investing activities (601) (1,128)

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OPEN JOINT STOCK COMPANY MAGNITOGORSK IRON & STEEL WORKS AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) (In millions of U.S. Dollars)

Years ended 31 December 2012 2011 FINANCING ACTIVITIES: Proceeds from borrowings 1,899 3,358 Repayments of borrowings (2,548) (2,350) Proceeds from capital transactions of subsidiaries - 28 Purchase of treasury shares (2) (33) Proceeds from issuance of ordinary shares from treasury shares 1 34 Principal repayments of obligations under finance leases (6) (13) Net decrease in bank overdrafts - (1) Acquisition of non-controlling interest - (475) Dividends paid to: - equity holders of the Parent Company - (121) - non-controlling interests (1) (1) Net cash (used in)/generated by financing activities (657) 426

NET DECREASE IN CASH AND CASH EQUIVALENTS (65) (124) CASH AND CASH EQUIVALENTS, beginning of year 424 515 Effect of translation to presentation currency and exchange rate changes on the balance of cash held in foreign currencies 3 33 CASH AND CASH EQUIVALENTS, end of year 362 424

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