Metinvest B.V. (Incorporated in the Netherlands with Limited Liability) U.S.$500,000,000 10.25 Per Cent

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OFFERING MEMORANDUM – LISTING PARTICULARS

Metinvest B.V. (incorporated in The Netherlands with limited liability) U.S.$500,000,000 10.25 per cent. Guaranteed Notes due 2015 Guaranteed on a joint and several basis by the Guarantors named herein (each incorporated in Ukraine with limited liability) Issue Price: 99.046 per cent.

Metinvest B.V. (the “Issuer” or the “Company”) is offering (the “Offering”) U.S.$500,000,000 10.25 per cent. Guaranteed Notes due 2015 (the “Notes”). The initial guarantors named herein (the “Initial Guarantors”) will unconditionally and irrevocably guarantee on a joint and several basis (the “Initial Guarantees”) the due and punctual payment of all amounts becoming due and payable in respect of the Notes pursuant to, and in accordance with, a surety agreement (the “Surety Agreement”) dated on or about 20 May 2010 (the “Closing Date”) between the Issuer, the Initial Guarantors and BNY Corporate Trustee Services Limited in its capacity as trustee (the “Trustee”). The Notes will be constituted by a trust deed to be dated on or about the Closing Date between the Issuer, the Initial Guarantors and the Trustee (the “Trust Deed”).

The Issuer will, in accordance with Conditions 2(b) (Addition of Guarantors) and 3.15 (Additional Guarantees) of the Conditions (as defined below) and on the relevant dates set forth therein, cause certain other persons (the “Additional Guarantors”) to execute and deliver to the Trustee a deed of accession to the Surety Agreement pursuant to which such persons will, jointly and severally amongst themselves and the Initial Guarantors, unconditionally and irrevocably guarantee (the “Additional Guarantees”) the due and punctual payment of all amounts becoming due and payable in respect of the Notes. The Initial Guarantors and the Additional Guarantors are together referred to as “Guarantors” and the Initial Guarantees and the Additional Guarantees are together referred to as the “Guarantees”. The Guarantees will constitute suretyships for the purposes of Ukrainian law.

Interest on the Notes is payable semi-annually in arrear on 20 November and 20 May in each year, commencing on 20 November 2010. Payments on the Notes and under the Guarantees will be made without withholding or deduction for or on account of taxes of The Netherlands and Ukraine to the extent described under Condition 7 (Taxation).

The Notes mature on 20 May 2015 at their principal amount together with accrued interest. The Notes are subject to redemption in whole, at their principal amount, together with accrued interest, at the option of the Issuer at any time in the event of certain changes affecting taxes of The Netherlands or Ukraine. The Issuer will, at the option of any Noteholder, redeem any Notes held by such Noteholder at any time following a Change of Control (as defined in the Terms and Conditions of the Notes (the “Conditions”)), at 101 per cent. of their principal amount, together with accrued interest. See Condition 5.3 (Redemption at the Option of the Holders Upon a Change of Control).

Currently there is no public market for the Notes. This document comprises listing particulars for the purpose of the application to the Irish Stock Exchange for the listing of the Notes. Application has been made to the Irish Stock Exchange (the “Irish Stock Exchange”) to approve these listing particulars and to admit the Notes to listing on the official list of the Irish Stock Exchange (the “Official List”) and to trading on the Global Exchange Market of the Irish Stock Exchange (the “Market”). There is no assurance that the Notes will be listed and admitted to trading on the Global Exchange Market of the Irish Stock Exchange.

The Notes are rated B3 by Moody’s and B- by Fitch. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.

PROSPECTIVE INVESTORS SHOULD HAVE REGARD TO THE FACTORS DESCRIBED UNDER THE SECTION TITLED “RISK FACTORS” IN THIS OFFERING MEMORANDUM.

NEITHER THE NOTES NOR THE GUARANTEES THEREOF HAVE BEEN, OR WILL BE, REGISTERED UNDER THE U.S. FEDERAL SECURITIES LAWS OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE NOTES ARE BEING OFFERED AND SOLD IN THE UNITED STATES ONLY TO QUALIFIED INSTITUTIONAL BUYERS IN RELIANCE ON RULE 144A UNDER THE U.S. SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND IN TRANSACTIONS OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF THE NOTES AND DISTRIBUTION OF THIS OFFERING MEMORANDUM, SEE “SUBSCRIPTION AND SALE” AND “SELLING AND TRANSFER RESTRICTIONS”.

The Notes will be issued in registered form in the denomination of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof. Delivery of the Notes will be made on or about the Closing Date. The Regulation S Notes will upon issue be represented by a single global note certificate (the “Regulation S Global Note Certificate”) in registered form, which will be deposited with a common depositary (the “Common Depositary”) for, and registered in the name of a nominee of, Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) on or about the Closing Date for the accounts of their respective accountholders. The Rule 144A Notes will be evidenced by a global note certificate (the “Rule 144A Global Note Certificate” and, together with the Regulation S Global Note Certificate, the “Global Note Certificates”), which will be registered in the name of a nominee of, and deposited with a custodian for, The Depository Trust Company (“DTC”). Ownership interests in the Global Note Certificates will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream, Luxembourg and their respective participants.

Joint Bookrunners and Lead Managers BNP PARIBAS Credit Suisse ING The Royal Bank of Scotland VTB Capital

Co-Managers Sberbank Troika Dialog

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The Issuer and the Guarantors (the “Responsible Person(s)”) accept responsibility for the information contained in this Offering Memorandum. To the best of the knowledge and belief of each of the Issuer and the Guarantors (each of which has taken all reasonable care to ensure that such is the case), the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.

The Issuer and the Guarantors, having made all reasonable enquiries, confirm that: this Offering Memorandum contains all information with respect to the Issuer, the Guarantors, the Issuer and its consolidated subsidiaries taken as a whole (“Metinvest”), the Notes and the Guarantees which is material in the context of the issue and Offering of the Notes; the statements contained in this Offering Memorandum relating to the Issuer, the Guarantors and Metinvest are true and accurate in all material respects and not misleading; the opinions, intentions and expectations expressed in this Offering Memorandum with regard to the Issuer, the Guarantors and Metinvest are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; there are no other facts in relation to the Issuer, the Guarantors, Metinvest, the Notes or the Guarantees, the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Offering Memorandum misleading; this Offering Memorandum does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements herein, in light of the circumstances under which they were made, not misleading; and all reasonable enquiries have been made by the Issuer and the Guarantors to ascertain the facts, information and statements contained in this Offering Memorandum.

This Offering Memorandum may only be used for the purposes for which it has been published.

This Offering Memorandum does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Guarantors or the Joint Lead Managers (as defined in “Subscription and Sale” below) to subscribe for or purchase any of the Notes. The distribution of this Offering Memorandum and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Memorandum comes are required by the Issuer, the Guarantors and the Joint Lead Managers to inform themselves about and to observe any such restrictions.

For a description of further restrictions on offers and sales of the Notes and distribution of this Offering Memorandum, see “Subscription and Sale”.

No person is authorised to give any information or to make any representation not contained in this Offering Memorandum and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, the Guarantors or the Joint Lead Managers. Neither the delivery of this Offering Memorandum nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer, the Guarantors or Metinvest since the date hereof or the date upon which this Offering Memorandum has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer, the Guarantors or Metinvest since the date hereof or the date upon which this Offering Memorandum has been most recently amended or supplemented or that the information contained in it or any other information supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.

To the fullest extent permitted by law, the Joint Lead Managers accept no responsibility whatsoever for the contents of this Offering Memorandum or for any other statement made or purported to be made by any Joint Lead Manager or on its behalf in connection with the Issuer, the Guarantors, Metinvest or the issue and offering of the Notes. Each Joint Lead Manager accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Offering Memorandum or any such statement.

Prospective investors should not construe anything in this Offering Memorandum as legal, business or tax advice. Each prospective investor should consult its own advisers as needed to make its investment decision and determine whether it is legally able to purchase the Notes under applicable laws or regulations.

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No representation or warranty, express or implied, is made by the Joint Lead Managers or the Trustee as to the accuracy or completeness of the information set forth in this Offering Memorandum, and nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Neither the Joint Lead Managers nor the Trustee assumes any responsibility for the accuracy or completeness of the information set forth in this Offering Memorandum. Each person contemplating making an investment in the Notes must make its own investigation and analysis of the creditworthiness of the Issuer and the Guarantors and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors which may be relevant to it in connection with such investments.

None of the Issuer, the Guarantors, the Joint Lead Managers or any of their respective representatives is making any representation to any offeree or purchaser of the Notes regarding the legality of an investment by such offeree or purchaser under appropriate legal investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of a purchase of the Notes.

The Notes have not been recommended by or approved by the U.S. Securities and Exchange Commission or any other federal or State securities commission or regulatory authority in the United States, nor has any such commission or regulatory authority passed upon the accuracy or adequacy of this Offering Memorandum. Any representation to the contrary is a criminal offence in the United States.

The Notes have not been and will not be registered under the Securities Act. The Notes may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Regulation S Notes are being offered and sold outside the United States in reliance on Regulation S and the Rule 144A Notes are being offered and sold within the United States to QIBs in reliance on the exemption from registration under the Securities Act provided by Rule 144A. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers, sales and transfers of the Notes and distribution of this Offering Memorandum, see “Subscription and Sale” and “Selling and Transfer Restrictions”.

TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENCED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

This Offering Memorandum has been prepared solely for use in connection with the proposed offering of the Notes described in this Offering Memorandum. This Offering Memorandum is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire Notes. Distribution of this Offering Memorandum to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorised, and any other disclosure of any of its contents, without the prior written consent of the Issuer, the Guarantors and the Joint Lead Managers is prohibited. Each prospective investor, by accepting delivery of this Offering Memorandum, agrees to the foregoing and to make no photocopies of this Offering Memorandum or any documents referred to in this Offering Memorandum.

In connection with the issue of any Notes, ING Bank N.V., London Branch (or persons acting on its behalf) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level

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higher than that which might otherwise prevail. However, there is no assurance that ING Bank N.V., London Branch (or persons acting on its behalf) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the relevant Notes. Any stabilisation action or over-allotment shall be conducted in accordance with all applicable laws and rules.

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AVAILABLE INFORMATION

The Issuer has agreed that, for so long as any Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, it will, during any period in which it is neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner or to the Principal Paying Agent (as defined herein) for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner, prospective purchaser or Principal Paying Agent, the information required to be provided by Rule 144A(d)(4) under the Securities Act.

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FORWARD-LOOKING STATEMENTS

This Offering Memorandum contains “forward looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act which relate, without limitation, to any of the Issuer’s or the Guarantors’ plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial performance and future operations and development, business strategy and the trends in the industry and the political and legal environment in which Metinvest operates and other information that is not historical information. The words “anticipates”, “estimates”, “expects”, “believes”, “intends”, “plans”, “may”, “will”, “should” and any similar expressions to identify forward-looking statements may be used herein. Prospective purchasers of the Notes are cautioned that actual results could differ materially from those anticipated in forward-looking statements. Also, where estimates relating to Metinvest’s reserves and resources are made, these estimates may differ from comparable estimates in the technical reports dated 1 January 2010 and 31 March 2010 (the “Reserves Reports”) prepared by SRK and Marshall Miller & Associates, Inc. (“MM&A”), respectively, and from reserves estimates reported under Ukrainian guidelines. The forward-looking statements contained in this Offering Memorandum are largely based on Metinvest’s expectations, which reflect estimates and assumptions made by Metinvest’s management and by SRK and MM&A in the Reserves Reports and Ukrainian reserves estimates. These estimates and assumptions reflect Metinvest’s best judgement based on currently known market conditions and other factors, some of which are discussed below. Although Metinvest believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond Metinvest’s control. In addition, assumptions about future events may prove to be inaccurate. Metinvest cautions prospective purchasers of the Notes that the forward-looking statements contained in this Offering Memorandum are not guarantees of outcomes of future performance and Metinvest cannot assure any prospective purchasers of the Notes that such statements will be realised or the forward-looking events and circumstances will occur.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, many of which are beyond Metinvest’s control and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. These risks, uncertainties and other factors include, among other things, those described in the section headed “Risk Factors”, as well as those included elsewhere in this Offering Memorandum. Prospective purchasers of the Notes should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements.

When relying on forward-looking statements, prospective purchasers of the Notes should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which Metinvest operates. Such forward-looking statements speak only as of the date on which they are made. Accordingly, Metinvest does not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Metinvest does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. These cautionary statements qualify all forward-looking statements attributable to Metinvest or persons acting on its behalf.

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ENFORCEABILITY OF JUDGMENTS

The Issuer is incorporated under the laws of The Netherlands. Each of the Guarantors is incorporated under the laws of Ukraine and certain of the officers and members of the board of directors of the Issuer (the “Board” and each member, a “Director”) and certain other persons referred to herein are residents of Ukraine. A substantial portion of the assets of such persons and the Guarantors are located outside the United Kingdom and the United States. As a result, it may not be possible for investors to effect service of process upon such persons in the United Kingdom or the United States or to enforce against them or the Issuer or the Guarantors judgements obtained in the courts of the United Kingdom and the United States.

The courts of Ukraine will not recognise or enforce any judgment obtained in a court established in a country other than Ukraine unless such enforcement is envisaged by an international treaty to which Ukraine is a party providing for enforcement of such judgments, and then only in accordance with the terms of such treaty. There is no such treaty between the United Kingdom and Ukraine or between the United States and Ukraine providing for enforcement of judgments.

In the absence of an international treaty providing for enforcement of judgments, the courts of Ukraine may only recognise or enforce a foreign court judgment on the basis of the principle of reciprocity. Unless proven otherwise, reciprocity is deemed to exist in relations between Ukraine and the country where the judgment was rendered. Ukrainian law does not provide any clear rules on the application of the principle of reciprocity and there is no official interpretation or court practice in this respect. Accordingly, there can be no assurance that the courts of Ukraine will recognise or enforce a judgment rendered by the courts of the United Kingdom or the United States on the basis of the principle of reciprocity. Furthermore, the courts of Ukraine might refuse to recognise or enforce a foreign court judgment on the basis of the principle of reciprocity on the grounds provided in the applicable Ukrainian legislation.

As Ukraine and The Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitral awards) in civil and commercial matters, a final and conclusive judgment for the payment of money rendered by any courts in Ukraine based on civil liability would not be enforceable in The Netherlands. However, if the party in whose favor such final judgment is rendered brings a new suit in a court of competent jurisdiction in The Netherlands, such party may submit to the Dutch court the final judgment that has been rendered in Ukraine. If and to the extent the Dutch court finds that the jurisdiction of the court in Ukraine has been based on grounds which are internationally acceptable and that proper legal procedures have been observed, the Dutch court will, in principle, give binding effect to such final judgment, without substantive re-examination or re-litigation on the merits of the subject matter thereof, unless such judgment contravenes public order in The Netherlands.

Ukraine is party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Consequently, a foreign arbitral award obtained in a state which is party to the New York Convention should be recognised and enforced by a Ukrainian court (under the terms of the New York Convention).

A Ukrainian court may apply Ukrainian law notwithstanding the choice of foreign law by the parties if the court determines that (a) the content of foreign law in respect of the relevant matter cannot be established within a reasonable time, (b) the relevant matter is not of a contractual nature and falls under the mandatory regulatory requirements of Ukraine or another relevant jurisdiction (including tax, currency exchange, banking or financial services legislation) or (c) the application of the relevant foreign law provisions would produce a result incompatible with the public order of Ukraine. Ukrainian legislation and court practice do not determine the precise scope or content of the concept of the “public order” of Ukraine.

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Table of Contents

Page

PRESENTATION OF CERTAIN INFORMATION...... 1

OVERVIEW OF METINVEST ...... 5

OVERVIEW OF THE OFFERING ...... 13

RISK FACTORS...... 17

USE OF PROCEEDS ...... 54

EXCHANGE RATES...... 55

CAPITALISATION ...... 56

SELECTED CONSOLIDATED FINANCIAL INFORMATION ...... 57

UNAUDITED SUPPLEMENTAL INFORMATION ON THE GUARANTORS...... 60

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 61

INDUSTRY...... 104

BUSINESS DESCRIPTION...... 120

MANAGEMENT ...... 173

SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ...... 177

TERMS AND CONDITIONS OF THE NOTES ...... 182

BOOK-ENTRY, DELIVERY AND FORM ...... 219

SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM ...... 225

TAXATION...... 227

CERTAIN ERISA AND OTHER CONSIDERATIONS ...... 235

SELLING AND TRANSFER RESTRICTIONS ...... 237

SUBSCRIPTION AND SALE ...... 239

LISTING AND GENERAL INFORMATION...... 243

APPENDIX I: GLOSSARY OF SELECTED TERMS ...... 246

APPENDIX II: CLASSIFICATION OF RESERVES AND RESOURCES ...... 251

INDEX TO FINANCIAL INFORMATION...... F-1

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PRESENTATION OF CERTAIN INFORMATION

Certain Defined Terms

In this Offering Memorandum:

The “Company” or the “Issuer” means Metinvest B.V.;

“Metinvest” means Metinvest B.V. together with its consolidated subsidiaries at the relevant time;

“Avdiivka Coke” means Open Joint Stock Company Avdeevskiy Coke Processing Works (Ukraine) otherwise known as Avdiivka Coke Plant; “Azovstal” means Open Joint Stock Company Azovstal Iron & Steel Works (Ukraine) otherwise known as Azovstal Iron and Steel Works; “Central GOK” means Joint Stock Company Central Mining-Dressing Integrated Works (Ukraine) otherwise known as Centralny GOK Open Joint Stock Company and Central Iron Ore Enrichment Works; “Danube Shipping” means Danube Shipping and Stevedoring Company otherwise known as Danube Shipping-Stevedoring Company Ltd.; “Yenakiieve Iron and Steel Works” means Open Joint Stock Company Enakievo Metallurgical Works (Ukraine) otherwise known as Yenakiieve Iron and Steel Works; “Metalen” means Ukraine-Switzerland Joint Venture Limited Liability Company Metalen (Ukraine) and (together with Yenakiieve Iron and Steel Works, “Yenakiieve Steel”); “Ferriera Valsider” means Joint Stock Company “Ferriera Valsider S.P.A.” (Italy); “Ingulets GOK” means Open Joint Stock Company Ingulets’kyi Ore Mining and Processing Enterprise (Ukraine) otherwise known as Ingulets Iron Ore Enrichment Works; “Inkor Chemicals” means Limited Liability Company “Scientific & Manufacturing Association “Inkor & Co” otherwise known as Inkor & Co Chemical Company; “Khartsyzsk Pipe” means Open Joint Stock Company Khartsyzsk Tube Works (Ukraine) otherwise known as Khartsyzsk Pipe Plant; “Krasnodon Coal” means Open Joint Stock Company Krasnodonvugillya (Ukraine) otherwise known as Krasnodon Coal Company; “Krivoy Rog Iron Ore Works” means Joint Stock Company Krivoj Rog’s Iron-Ore Combine (Ukraine); “MMK Illycha” means Open Joint Stock Company Ilyich Iron and Steel Works of Mariupol; “Makiivka Steel” means Joint Stock Company “Makiivka Steel Works” otherwise known as Makiivka Iron and Steel Works; “Promet” means Promet Limited otherwise known as Promet Steel of Metinvest; “SCM” means Closed Joint Stock Company System Capital Management (Ukraine); “SCM Group” means SCM and its consolidated subsidiaries at the relevant time; “Northern GOK” means Joint Stock Company Severniy GOK (Ukraine), otherwise known as Northern Iron Ore Enrichment Works and Joint Stock Company “SevGOK”; “SMART” means the group of companies controlled directly or indirectly by Mr. Vadim Novinskiy as of the date hereof; “Spartan” means Spartan UK Limited (United Kingdom); and “Metinvest Trametal” means Metinvest Trametal S.P.A. (Italy).

All references to “US” and “United States” are to the United States of America, all references to the “UK” and “United Kingdom” are to the United Kingdom of Great Britain and Northern Ireland and all references to the “EU” are to the European Union and its member states as of the date of this Offering Memorandum. All references to the “CIS” are to the following countries that formerly comprised part of the Union of Soviet Socialist Republics and that are now members of the Commonwealth of Independent States: Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine and Uzbekistan.

Financial Information

The financial information of Metinvest set forth herein has, unless otherwise indicated, been derived from:

(i) the Issuer’s audited consolidated balance sheet and consolidated income statement, statement of comprehensive income, statement of cash flows and statement of changes in shareholders’ equity as of and for the year ended 31 December 2008 (the “2008 Financial Statements”); and

(ii) the Issuer’s audited consolidated balance sheet and consolidated income statement, statement of comprehensive income, statement of cash flows and statement of changes in shareholder’s equity as of and for the year ended 31 December 2009 (the “2009 Financial Statements”, and together with the 2008 Financial Statements, the “Financial Statements)”, all prepared in accordance with International Financial Reporting Standards (“IFRS”)).

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The Financial Statements have been audited by the Issuer’s independent auditors, PricewaterhouseCoopers Accountants N.V., located at Thomas R. Malthusstraat 5, 1066 JR Amsterdam, P.O. Box 90357, The Netherlands. PricewaterhouseCoopers Accountants N.V. have expressed an unqualified opinion on the Financial Statements.

This document includes certain non-GAAP measures, including Adjusted EBITDA, calculated as profit before income tax before finance income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, corporate overheads, share of result of associates and other non core expenses. Management uses Adjusted EBITDA, among other things, to assess Metinvest’s operating performance and make decisions about allocating resources. Adjusted EBITDA is a supplemental measure of Metinvest’s performance and is not in accordance with IFRS and may not be comparable to similarly titled measures of other companies. Adjusted EBITDA should not be considered as an alternative to operating profit, net profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flows from operating activities as a measure of Metinvest’s liquidity. For a reconciliation of Adjusted EBITDA to profit before income tax see “Selected Consolidated Financial Information”.

Market, Economic and Industry Data

Market, economic and industry data used throughout this Offering Memorandum has been derived from various industry and other independent sources. The accuracy and completeness of such information is not guaranteed.

Information contained in this Offering Memorandum relating to the industries in which Metinvest operates in Ukraine and the competitors of the Issuer (which may include estimates and approximations) was derived from publicly available sources, including official data published by certain government and international agencies, industry publications and press releases, including the State Committee on Statistics of Ukraine (“SCSU“), the National Bank of Ukraine (the “NBU”), the American Petroleum Institute (“API”), the World Steel Association (“WSA”) (formerly known as the International Iron and Steel Institute (“IISI”)), Metal Bulletin Top Steel Makers of 2007 (“Metal Bulletin”), the Quality Management Institute (“QMI”), State Enterprise Ukrainian Industrial External Expertise (“UIEE”), State Enterprise Ukrpromzovnishexpertyza (“UkrProm”), Metal-Courier Limited (“Metal-Courier”), the Commodities Research Unit (“CRU”), the UBS Investment Research Equity Guide for 2009 (“UBS Guide”), the State Information Agency IRC (“IRC”) and the United States Geological Survey Mineral Summaries 2009 (“USGS”). The Issuer and each Guarantor jointly and severally confirm that such information has been accurately reproduced from its sources and, as far as the Issuer and each Guarantor is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. However, the Issuer and each Guarantor have jointly and severally relied on the accuracy of this information without carrying out an independent verification thereof.

Certain information in this Offering Memorandum in relation to Ukraine has been extracted from documents and other publications released by, and is presented on the authority of, various officials and other public and private sources, including participants in the capital markets and financial sector of Ukraine. There is not necessarily any uniformity of views among such sources as to the information provided therein. Accordingly, the Issuer and each Guarantor jointly and severally accept responsibility for accurately reproducing such extracts as they appear in this Offering Memorandum, but accept no further or other responsibility in respect of such information.

Operating Data

All data relating to Metinvest’s production and operations, such as volumes of production, production capacity and certain sales information presented by sector, geographical region and product, cited in “Business Description” and elsewhere in this Offering Memorandum, were derived from management accounts and information, which were not reviewed or audited by PricewaterhouseCoopers Accountants N.V., the independent auditors of Metinvest.

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Currency

In this Offering Memorandum, all references to “hryvnia” and “UAH” are to the lawful currency for the time being of Ukraine, all references to “dollars”, “U.S. dollars” and “U.S.$” are to the lawful currency for the time being of the United States of America, all references to “pounds sterling“ or “£” are to the lawful currency for the time being of the United Kingdom and all references to “Euro”or “€” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended.

Translations of amounts from hryvnia to dollars are solely for the convenience of the reader and are made at exchange rates based on those established by the NBU and effective as at the dates or for the periods of the respective financial information presented elsewhere in this Offering Memorandum in respect of both balance sheet and income statement items. No representation is made that the hryvnia or dollar amounts referred to herein could have been converted into dollars or hryvnia, as the case may be, at any particular exchange rate or at all. See “Exchange Rates”.

Rounding

Some figures included in this Offering Memorandum have been subject to rounding adjustments.

Iron Ore Reserves and Coal Reserves located in the United States

All data relating to Metinvest’s iron ore reserves and resources in Ukraine and coal reserves and resources located in the United States presented in “Business Description—Reserves” are calculated by reference to estimates provided by SRK and MM&A in their respective Reserve Reports, which were prepared in accordance with terms and definitions given in the 2004 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the “JORC Code”) as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia (“JORC”) and the United States Securities and Exchange Commission (the “SEC”) Industry Guide 7—Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations (“Industry Guide 7”) reporting standards, respectively. For additional information on JORC and SEC reporting standards, see Appendix II.

Reporting on Coal Reserves Located in Ukraine – Cautionary Note to United States Investors

In determining the feasibility of developing and operating its coal mines located in Ukraine, Metinvest estimates its coal reserves based on its legal right to mine specified coal mines pursuant to the state licences it holds. Ukraine’s coal mining rights belong to the state, which then grants such rights to third parties who have applied for and been granted a licence to mine. Metinvest’s reserve estimates include only those mines for which it has received a mining licence. When the state issues a coal mining licence, the licence sets forth the mine’s coal reserves at the time of the issuance of such licence based on the state’s estimation of the reserves located in the licenced area, which is calculated in accordance with various laws and regulations.

Metinvest presents in this Offering Memorandum estimated “industrial reserves,” which are the recoverable reserves that it believes are economically feasible to mine and which are greater than 60 centimeters in thickness. Metinvest does not present in this Offering Memorandum its “non-industrial reserves,” which are recoverable reserves that are less than 60 centimeters thick or which it believes are not economically feasible to mine, such as reserves located under heavily populated areas.

Metinvest estimates its industrial reserves for each of its coal mines as of 31 December of each year in accordance with the reporting requirements prescribed by Ukrainian law which differ significantly from both (i) the internationally accepted reserve estimation standards under the Petroleum Resources Management System sponsored by the Society for Petroleum Engineers, the American Association of Petroleum Geologists, World Petroleum Council and the Society for Petroleum Evaluation Engineers and (ii) the reserves classifications permitted by the SEC, in particular with respect of the manner in which and the extent to which commercial factors are taken into account in calculating reserves. Metinvest implements such Ukrainian requirements by taking the original amount of industrial reserves estimated by the state when that

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coal mine’s licence was originally issued and deducting (i) the amount of industrial reserve coal extracted from the mine in each subsequent year and losses incurred upon coal extraction and (ii) any additional industrial reserves that it subsequently determines to have been improperly classified as industrial reserves and by adding (i) any additional industrial reserves that it has discovered during the course of mining or (ii) any additional industrial reserves that it has acquired from third parties or from the state. Metinvest relies exclusively on the state’s initial estimates of its coal mine reserves when the licences were issued and its subsequent adjustments as set forth above after taking into account Metinvest’s knowledge, experience and industry practice, without the input of third party reserves engineers or the benefit of further reviews by the state’s reserve engineers. The reserves data with respect to Ukrainian coal contained in this Offering Memorandum, unless otherwise stated, are taken from reserves analyses prepared in accordance with Ukrainian law by Metinvest’s professional engineering staff. Metinvest’s industrial coal reserves estimates may require future revision based upon actual production experience, changes in operating or extraction costs, changes in world coal prices and other factors that it is unable to foresee. As a result, its estimates of its coal resources or reserves that appear valid when made may change significantly in the future when new information becomes available. See “Risk Factors—Risks Relating to Metinvest—Estimates of Metinvest’s mining reserves and resources are subject to uncertainties and estimates of its resources are speculative”.

As discussed above, reporting requirements for reserves prescribed by Ukrainian law differ substantially from reporting requirements in the United States, where reserves must be presented under the requirements as adopted by the SEC in its Industry Guide 7, which provides that only proved (measured) or probable (indicated) reserves can be reported.

The SEC has applied the following reporting definitions to coal reserves under Industry Guide 7: • A “reserve” is “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of “ore” when dealing with metalliferous minerals; when other materials such as coal, oil, shale, tar, sands, limestone, etc. are involved, an appropriate term such as “recoverable coal” may be substituted.” • “Proven (measured) reserves” are “reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and

(b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well- established.” • “Probable (indicated) reserves” are “reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.”

THIS OFFERING MEMORANDUM USES THE TERMS “INDUSTRIAL RESERVES” AND “NON-INDUSTRIAL RESERVES” IN RESPECT OF UKRAINIAN COAL RESERVE DATA. UNITED STATES INVESTORS ARE ADVISED THAT, WHILE SUCH TERMS MAY BE RECOGNISED BY SOME INVESTORS, THE SEC DOES NOT RECOGNISE THEM OR THE STANDARDS OR METHODS BY WHICH THEY ARE DETERMINED.

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OVERVIEW OF METINVEST

This condensed description of Metinvest and the Offering may not contain all the information that may be important to the prospective purchasers of the Notes. This entire Offering Memorandum, including the more detailed information about Metinvest’s business and the Financial Statements included elsewhere in this Offering Memorandum, should be read carefully. Investing in the Notes involves risks. The information set forth under the “Risk Factors” should be carefully considered. Certain statements in this Offering Memorandum are forward-looking statements that also involve risks and uncertainties as described under “Forward-looking Statements”.

Metinvest is the largest fully vertically integrated mining and steel business in Ukraine, operating assets in each link of the production chain from iron ore mining and processing, coking coal mining and coke production, through to semi-finished and finished steel production, pipe rolling and coil production and production of other value-added products. In the year ended 31 December 2009, Metinvest produced 17.6 million tonnes of merchant iron ore concentrate, 11.6 million tonnes of pellets, 9.6 million tonnes of coking coal (after full consolidation of United Coal production volumes in 2009), 4.1 million tonnes of coke, 7.0 million tonnes of crude steel and 9.2 million tonnes of semi-finished and finished steel products. In 2008, Metinvest produced 18.6 million tonnes of merchant iron ore concentrate, 11.4 million tonnes of pellets, 6.2 million tonnes of coking coal, 5.2 million tonnes of coke, 8.2 million tonnes of crude steel and 9.4 million tonnes of semi-finished and finished steel products.

Metinvest’s iron ore and coal and coke segments sell a significant portion of their output to Metinvest’s steel segment for the production of steel. In the year ended 31 December 2009, Metinvest’s iron ore segment sold approximately 7.8 million tonnes of its products and derived 28.8% of its revenues from sales to other Metinvest segments, while selling approximately 22.8 million tonnes of its iron ore products externally. The coal and coke segment sold approximately 4.9 million tonnes of its products and derived 45% of its revenue from the sales to other Metinvest segments, while selling approximately 5.6 million tonnes of its products externally. In the same period, 98.8% of Metinvest’s steel segment revenues were derived from sales to third parties.

For the year ended 31 December 2009, Metinvest had consolidated revenue of U.S.$6.0 billion and consolidated Adjusted EBITDA of U.S.$1.4 billion, as compared to consolidated revenue of U.S.$13.2 billion and consolidated Adjusted EBITDA of U.S.$4.8 billion for the year ended 31 December 2008.

Metinvest’s business is divided into three segments: (i) steel, (ii) iron ore extraction and processing and (iii) coal mining and coke production. In the year ended 31 December 2009, the iron ore segment accounted for 56.0% of Metinvest’s consolidated Adjusted EBITDA, while the steel and coal and coke segments accounted for 27.2% and 16.8% of its consolidated Adjusted EBITDA, respectively. In the year ended 31 December 2009, the steel segment accounted for 66.2% of Metinvest’s external revenue, while the iron ore and coal and coke segments accounted for 21.6% and 12.2% of its external revenue, respectively.

In 2009, Metinvest derived 72.9% of its total revenue from export sales, primarily to South-East Asia, Europe, the CIS, the Middle East and North Africa. Steel products, iron ore products, and coal and coke accounted for 79%, 13% and 8%, respectively, of Metinvest’s export revenue in 2009.

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Metinvest has eight industrial assets in the steel segment: Azovstal, the second largest Ukrainian steel producer in 2009, according to Metal-Courier; Yenakiieve Steel, a fully integrated steel producer located in Ukraine; Makiivka Steel, a producer of shapes and bars located in Ukraine; Khartsyzsk Pipe, the only producer of large diameter pipes in Ukraine; Ferriera Valsider and Metinvest Trametal, a producer of plates and coils located in Italy; Promet, a producer of shapes and bars located in Bulgaria; and Metinvest Trametal and Spartan, producers of plates located in Italy and the United Kingdom. • Iron ore segment. In the year ended 31 December 2009, Metinvest’s external iron ore segment revenue and the iron ore segment’s Adjusted EBITDA were U.S.$1.3 billion and U.S.$811 million, respectively. Metinvest’s key products in this segment are merchant iron ore concentrate and pellets. Metinvest has three industrial assets in the iron ore segment, which are located in the Kryvyi Rih region of Ukraine: Northern GOK and Ingulets GOK, two of the leading European mining companies and the two largest iron ore mining companies in Ukraine in 2009 by production volume, according to Ukrrudprom, and Central GOK, the sixth largest iron ore mining company in Ukraine by production volume, according to Ukrrudprom. • Coal and coke segment. In the year ended 31 December 2009, Metinvest’s external coal and coke segment revenue and the coal and coke segment’s Adjusted EBITDA were U.S.$0.7 billion and U.S.$244 million, respectively. Metinvest’s key products in this segment are coking and steam coal, coke and chemical products. Metinvest has three industrial assets in the coal and coke segment based in the Donbass region of Ukraine and one industrial asset based in the United States. Avdiivka Coke is one of the leading European coke companies (excluding Russia) and the largest coke and chemical plant in Ukraine in 2009, according to Ukrkoks, and Krasnodon Coal is the second largest coking coal producer in Ukraine, according to the Ministry of Coal industry of Ukraine. In August 2008, Metinvest acquired a 100.0% stake in Inkor Chemicals, one of the largest manufacturers of chemical products in CIS and Europe and in April 2009, Metinvest acquired a 100.0% stake in United Coal, a US producer of coking and steam coal.

Metinvest’s trading and logistical assets service all three business segments.

Metinvest’s management implemented a series of anti-crisis measures in the steel segment in 2008 in order to decrease the cost of production of its steel products. Among other things, Metinvest optimised its production facilities through the reduction of open hearth production at Azovstal and the closing of a blooming mill at Yenakiieve Steel. Management also took steps to minimise Metinvest’s costs by decreasing consumption coefficients through technological and organisational improvements at its steel making and rolling facilities. In addition, Metinvest used low-cost materials such as slagging scrap instead of iron ore concentrate at Azovstal’s sinter plant, decreased its repairs and maintenance expenses and reduced headcount. In the iron ore segment, Metinvest shifted the production to its lowest cost facilities by temporarily suspending production at the two open pits and at a tailings enrichment facility at Central GOK, shifting the electricity-consuming stages of production process at all iron ore production facilities to lower tariff zone hours and decreasing the iron ore stripping coefficients. Management believes that all these measures contributed to Metinvest’s ability to help partially mitigate the negative effect of downward price movements in 2008.

The Company is owned by SCM, a holding company registered in Cyprus whose ultimate controlling shareholder is Mr. Akhmetov, and SMART, a group controlled by a Russian businessman, Vadim Novinskiy. SCM and SMART own 75.0% and 25.0% of the share capital of the Company, respectively.

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proved and probable coal reserves in Ukraine and approximately 151 million tonnes of proved and probable coal reserves in the United States. In 2009, Metinvest was self sufficient in its iron ore, coking coal and coke requirements (having the capacity to produce approximately 270.0%, 105.7% and 135.0% of its requirements respectively), based on its annual capacity (assuming that 100% of coking coal produced by United Coal is sold internally rather than to external customers). Management expects that the acquisition of United Coal, a producer of coking and steam coal located in the United States, will enable Metinvest to source higher quality coking coal internally and to reduce its steel production costs and improve the quality of its products in the future. Metinvest sells the iron ore and coke products it does not consume to third parties, which diversifies its revenue sources. In addition, Metinvest sources approximately 19.0% of its coking coal requirements and approximately 68.0% of its electricity requirements from Donbass Fuel-Energy Company (“DTEK”), which is controlled by the SCM Group. The electricity is supplied pursuant to long-term contracts at competitive rates and represents less than 11.0% of the total cost of Metinvest’s steel production. Metinvest believes that its ability to source raw materials internally or from affiliates provides it with greater stability of operations, better control of end product quality and improved flexibility and planning latitude in the production of steel. In addition, management believes that vertical integration enables Metinvest to achieve economies of scale and reduce per unit costs. • Strong market position and increasing capacity. Metinvest is the sixth largest iron ore producer in the world, based on published annual reports and operating results of the largest iron ore producing companies. In addition, according to Metal Bulletin, Metinvest is among the ten largest steel plate producers in the world as of 31 December 2009. Metinvest is the largest producer of iron ore and the second largest steel producer in Ukraine, having produced 56.0% of all iron ore concentrate in Ukraine according to Ukrrudprom and 24% of all steel manufactured in Ukraine according to Metal- Courier in 2009. In 2009, Metinvest was also the largest coke producer in Ukraine with a 27.5% share of production, according to Ukrkoks. Management believes that Metinvest’s strong market position, combined with strong historical cash flow generation, enables it to continue to capitalise on the expected growth of export and Ukrainian markets for its products. Metinvest has actively sought to strengthen its market position globally and domestically through a number of acquisitions in 2007, 2008 and 2009, which resulted in increases in its iron ore concentrate production capacity by approximately 14.8 million tonnes; its annual flat products production capacity by approximately 0.8 million tonnes; its annual rolled products capacity by approximately 1.4 million tonnes; and its coking and steam coal production capacities by approximately 5.4 and approximately 3.8 million tonnes, respectively. • Low cost producer. Management believes that Ukraine is one of the lowest cost regions for steel production worldwide, enabling Metinvest to benefit from lower production costs compared to some of its competitors elsewhere in the world. In particular, Metinvest benefits from: • Secure and ready access to raw materials. Metinvest is self sufficient in iron ore and coke for its steel operations. It produces annually 270.0% of the iron ore and 135.0% of the coke which could be used by its steel producing assets based on its annual capacity. Metinvest’s iron ore and many of its coke producing assets are located close to its steel producing assets, thus enabling it to benefit from a secure supply of key raw materials and from relatively low raw material transportation costs. • Low electricity and natural gas cost. Metinvest’s main production companies, including Azovstal, Northern GOK, Central GOK and Yenakiieve Steel, benefit from low cost electricity supplied by its affiliate DTEK and low cost natural gas supplied by the state owned company Naftogaz of Ukraine, compared to European and American tariffs on electricity and natural gas. • Low transportation and logistics costs with prime location of assets. Metinvest’s production facilities benefit from access to relatively low cost sea and rail transport. Azovstal is located in the port city of Mariupol on the sea of Azov and operates its own port facilities. Both Yenakiieve Steel and Khartsyzsk Pipe are located close to main rail junctions and within 200 kilometres of the Mariupol port. Metinvest controls most of its logistics, including owning and

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operating a number of railcars. Metinvest’s favourable geographic location allows for the relatively inexpensive shipment of its products to domestic, CIS, European and Asian markets. • Low labour costs. Ukraine currently has relatively low labour costs including lower pension obligations (which are paid by employers in the form of regular payroll-related contributions to the State pension fund) as compared to other steel producing countries, such as the United States, Western Europe, Japan and South Korea. In addition, Metinvest is continuously working to optimise the size of its labour force. • Capital expenditures to maintain cost competitiveness. Metinvest is investing in modern technology in order to reduce production costs and maintain its cost competitiveness. Metinvest has commissioned new equipment including new coke batteries and furnaces at Azovstal and Yenakiieve Steel, a new pipe welding plant at Khartsyzsk Pipe and a new rolling stand at Makiivka Steel, which contributed to an increase in Metinvest’s annual production capacity, improvements in product quality, a reduction in overall production costs and a reduction in dust and carbon dioxide emissions. • Growing geographical diversification. Management believes that Metinvest is uniquely positioned geographically to benefit from access to the mature markets of Western Europe and North America following its recent acquisitions in the United States and Europe, including in the United Kingdom, Bulgaria and Italy. Management expects that the acquisition of United Coal in the United States will enhance its presence in the North American steel market. Metinvest may also pursue selective acquisition opportunities to expand its steel rolling capacity. Management also believes that global diversification allows Metinvest to benefit from global steel industry know-how and access best practice across the world. • Access to high-growth domestic and export markets. Management believes that Metinvest has a leading market position in products with strong expected growth in export and domestic markets, including sales of iron ore, coal and coke for the global and Ukrainian steel producing sectors, as well as bars, rebars and sections supplied to the construction sector and rails for railway infrastructure development. Metinvest believes that it is also well-positioned to capitalise on growth in the Middle Eastern, North African and South-East Asian markets as well as in the EU as a result of favourable logistics and cost competitiveness. • Diversified steel product range. Metinvest produces a diversified range of semi-finished and finished steel products including slabs, billets, hot rolled plates, hot rolled coils, shapes and bars, rails and large diameter pipes. Management believes that Metinvest’s diversified steel product range reduces Metinvest’s exposure to fluctuations in the demand for any particular steel product, and hence its dependence on the performance of any particular steel consuming industry. • Diversified end customer base. Metinvest exports a substantial portion of its steel products to over 1,000 customers located in more than 75 countries, principally in South East Asia, Europe, the CIS, the Middle East and North Africa. Export sales accounted for 72.9% of Metinvest’s total sales in the 2009 and for 64.5% of Metinvest’s total sales in 2008. Metinvest’s customers operate in a number of industries, including steel-making, construction, engineering, oil and gas and automobile production. Management believes that Metinvest’s diversified customer base contributes to the stability of its revenue base and margins, provides it with additional growth opportunities, in particular in the developing markets of the Middle East, South East Asia, the CIS and China and reduces Metinvest’s reliance on the economy of any single market or performance of any particular industry. • Experienced management team. Metinvest’s senior management team combines extensive industry and market experience with financial and management expertise, and its board of directors includes individuals who have been involved in Metinvest’s business for an average of between five and ten years, as well as two internationally experienced independent non-executive directors. At an operational level, Metinvest has developed, and continues to refine, an improved management structure that is focused on enhancing accountability and decision making processes. Management believes that, equipped with international experience and advanced business qualifications, its ability

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to improve the performance of the Company’s assets is evidenced by Metinvest’s increased operating efficiency and maintenance of profitability despite its recent highly volatile operating environment. • Strong corporate governance. Metinvest maintains high standards of corporate governance and transparency throughout all of its activities and communications. Metinvest’s Supervisory Board, which is responsible for key decisions related to its activities including approval of Metinvest’s long- term business strategy and annual business plans, currently consists of ten members, two of whom are independent directors. The Supervisory Board is assisted by various committees including Strategy Committee, Audit Committee, Health, Safety & Environment (HSE) Committee and Compensation and Appointment Committee. Management recognises the importance of strong corporate governance and aims to develop Metinvest’s corporate governance structure in accordance with international best practices.

Strategy • Increasing vertical integration. Metinvest seeks to enhance its profitability and security of supply by increasing vertical integration, in particular in respect of iron ore and high quality coking coal. Management believes that the integration of Ingulets GOK following its acquisition in 2007 yielded cost, revenue, procurement and technology synergies. Metinvest also plans to intensify the production of iron ore at Northern GOK through both operational improvements and targeted investments in volume expansion and the removal of bottlenecks in the production process. The acquisition of United Coal improved Metinvest’s self sufficiency in coking coal by approximately 48.4% (based on its annual capacity) and management believes that this acquisition will help it to further secure long-term supplies of high quality coal to its steel making facilities in Ukraine. • Integrating downstream activities and strengthening its position in finished products. Management expects that the planned integration into Metinvest of its additional downstream assets in the EU, including Ferriera Valsider, Metinvest Trametal, Spartan and Promet, will enable Metinvest to benefit from access to the EU markets. Metinvest also expects that this integration will strengthen its market position in value-added products by expanding its downstream flat product finishing capacity, which will allow it to increase its production of structural products that yield higher margins and have higher barriers to entry. Metinvest expects that this will allow it to reduce its reliance on sales of lower value, semi-finished steel products such as slabs, and ultimately to cease to be a supplier of semi-finished products, except to the extent needed for internal consumption. In particular, Metinvest intends to reconstruct plate mill No. 3600 at Azovstal, modernise its rolling mill No. 250 atYenakiieve Steel and build a new hot rolled coil mill at Promet. Metinvest expects that these projects will increase its annual long product production capacity by approximately 0.7 million tonnes and its annual flat steel production capacity by approximately 5.5 million tonnes. In the long term, Metinvest plans to increase the output of its finished steel products so that it uses all of its iron ore products internally. • Implementing operational efficiency programmes and human resource programmes to reduce costs. Metinvest plans to maximise the efficiency of its operating facilities and use of resources based on world class know-how, including operating efficiency projects with McKinsey, BCG and other consultants. Metinvest plans to reduce the cost of its steel production by (i) implementing pulverised coal injection (“PCI”) technology at its blast furnaces at Yenakiieve Steel, replacing inefficient open hearth furnaces with more efficient basic oxygen furnaces at Azovstal and discontinuing the use of ingot casting processes; (ii) managing employee headcount; and (iii) outsourcing its non-core operations, such as repair and maintenance and other support functions. Metinvest also plans to continue to carry out a series of human resources programmes to train production workers in the use of new technologies, which is expected to improve the skills of line managers, and improve the transparency of personnel performance evaluations and remuneration policy. • Enhancing operating efficiency and increasing productivity through improvements in technology. Metinvest intends to invest in improved technologies for steel and rolled products in accordance with its Long-Term Plan and the strategy developed in cooperation with technical advisers including Siemens VAI and Corus Consulting. In particular, Metinvest plans to implement PCI

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technology at the blast furnaces at Yenakiieve Steel, which is expected to nearly eliminate the consumption of natural gas, reduce the consumption of the more expensive coking coals by replacing coke with cheaper PCI coals and assist in maintaining furnace stability and improve the quality of hot steel. Metinvest also plans to construct additional continuous casting machines produced by Danieli, a world leader in the supply of billet continuous casters, at Yenakiieve Steel, which is expected to increase its annual casting capacity, reduce its operating costs and improve output quality and safety and environmental standards due to the use of secondary metallurgical processes which have the advantages of economy, savings on primary energy and utilities and use of low cost charge materials. Among other projects aimed at reducing production costs are relining of blast furnace No. 3 and construction of a new basic oxygen furnace No. 3 at Azovstal. • Growing organically based on existing assets. Metinvest intends to leverage its cost competitiveness by maximising the utilisation of its existing capacity (for example, by increasing its production of iron ore concentrate at Northern GOK, which in 2009 had excess capacity of 0.7 million tonnes, and by increasing the output of steel products at Azovstal, which in 2009 had excess capacity of 1.6 million tonnes); investing in existing assets to optimise production (for example, by installing accelerated cooling at Azovstal plate mill, which is expected to result in an increase in its annual production capacity by approximately 20%, a significant reduction in costs and an expansion in its product range); and planning for the future sustainability of production and costs (including investments in logistics such as the planned construction of a general purpose terminal to be operated by Danube Shipping at the port of Mykolaiv with approximately 3.4 million tonnes annual capacity to handle merchant iron ore concentrate and pellets which is expected to be completed in 2011 and decrease costs through a reduction in port handling fees and the removal of existing logistical restrictions due to the proximity of the port of Mykolaiv to Metinvest’s iron ore deposits). • Continue to produce high-quality products. Metinvest produces a wide range of high quality steel products used in major steel consuming industries. In order to achieve higher quality standards, Metinvest has implemented strict quality control procedures at its production facilities with its quality control departments monitoring the production process to control output quality and the types of technology employed. Overall, Metinvest’s products meet high standard requirements recognised world-wide as confirmed by leading global certification organisations including Lloyd’s Register, Germanischer Lloyd, Det Norske Veritas, American Bureau of Shipping, Bureau Veritas, Registro Italiano Navale (RINA), Nippon Kaiji Kyokai (NKK), AMI, TÜV NORD CERT GmbH and many other. Metinvest also intends to continue to improve its product mix by producing high quality iron ore concentrate with higher iron content and reduced silicon content and increasing its production of value-added iron ore pellets. • Building long-term customer relationships and delivering high quality customer service worldwide. Metinvest plans to build long-term relationships with its customers worldwide by entering into long-term framework contracts with key and strategic customers, targeting key industries and markets (including the CIS, Europe and South East Asia), integrating its products with end-users, providing technical support to its customers and strengthening the Metinvest brand by continuing to build a reputation for quality and reliability. Having recently restructured its sales organisation and centralised its financial and statistical functions, Metinvest expects its distribution network to become more product oriented, focusing on value-added products, such as long and flat products. • Maintaining transparency of operations and corporate responsibility. Metinvest intends to continue to build and retain an experienced and motivated professional management team and maintain the transparency and efficiency of its management system through high corporate governance standards and setting and retaining key performance indicators. Metinvest also intends to fully implement its health, safety and environmental (HSE) strategy, which has been formulated in line with global best practice, in the next three years. Metinvest’s integrated HSE management system complies with OHSAS 18001 and ISO 14001 standards. Metinvest obtained environmental certificates of compliance with ISO and OHSAS standards for most of its facilities with Azovstal, Yenakiieve Steel, Khartsyzsk Pipe and Krasnodon Coal certified to comply with OHSAS 18001, while Northern GOK, Ingulets GOK, Central GOK and Inkor Chemicals are certified to comply with

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both ISO 14001 and OHSAS 18001 standards. Ferriera Valsider is certified to comply with ISO 14001. • Pursuing selective acquisition opportunities. Metinvest expects to continue its structured approach to acquisitions to facilitate its strategy of vertical integration and improving its product mix. In its core business areas, Metinvest may consider acquisition opportunities to gain access to additional sources of raw materials or to production facilities for higher margin products if the acquisition costs are more attractive than the costs of constructing a similar production facility. In addition, Metinvest may pursue acquisitions in non-core areas, such as transportation facilities, including railway cars and ports to decrease its reliance on services provided by third parties. • Diversifying coal supplies. Metinvest intends to diversify and secure its supplies of coal by importing high quality, low sulphur coal from countries outside of the CIS, primarily the United States and Australia. Metinvest plans to primarily import PCI coal, which can be used as a source of energy and as a replacement for coke at those of Metinvest’s blast furnaces equipped with PCI technology. Metinvest currently intends to implement PCI technology at the blast furnaces at Yenakiieve Steel. While Metinvest plans to continue to source coal from Ukraine and from Russia, it believes that its decreased reliance on suppliers in these markets will allow it to negotiate more favourable purchase terms, including lower prices.

Recent Developments

An affiliate of one of Metinvest’s shareholders has submitted an indicative bid for a stake of up to 50 per cent. of the equity or assets of the Zaporizhstal Group and, while there can be no assurance of this, if its bid is accepted, Metinvest expects the acquisition to be announced in the nearest future (which could be prior to the Closing Date). Metinvest believes that, if such a bid is successful, its shareholder’s affiliate intends that part of the Zaporizhstal Group’s assets would be combined with Metinvest, and that in such case Metinvest would be required to fund the acquisition of such assets, which Metinvest would expect to do principally through operating cash flow. The terms of any potential acquisition (including the amount of equity or assets to be acquired) are subject to negotiation and agreement and the indicative bid could change.

The Zaporizhstal Group’s principal asset is OJSC Zaporizhstal (“Zaporizhstal”), an iron and steel works with an annual production capacity of approximately 3.5 million tonnes of flat steel products and 600,000 tonnes of cold roll-formed sections. It was the fifth largest steel producer in Ukraine and produced 3.3 million tonnes of crude steel in 2009, according to CRU.

Zaporizhstal focuses on flat products and produces hot-rolled and cold-rolled coils and sheets, strip for pipe manufacturing and some stainless steel. Zaporizhstal also manufactures semifinished products, such as slabs.

Metinvest believes that it provides Zaporizhstal with approximately two thirds of its iron ore requirements and (through an affiliate) more than two thirds of its coke requirements. Zaporizhstal had total assets of approximately UAH 9.8 billion (approximately equivalent to US$1.2 billion) as at 31 December 2009 and its revenue for the year then ended was approximately UAH 9.0 billion (approximately equivalent to US$1.2 billion) according to its publicly available statutory accounts dated 1 January 2010 prepared in accordance with Ukrainian accounting standards.

Metinvest understands that other bidders are competing for the same assets as its shareholder’s affiliate. The indicative bid may not be accepted, and even if it is accepted there can be no assurance that the acquisition will be completed. Accordingly, no assurance can be given as to what part of the Zaporizhstal assets (if any) Metinvest would acquire following any such acquisition by its shareholder's affiliate, at what price, on what terms, or when such acquisition would take place. Any such acquisition of assets by Metinvest may be subject to regulatory approvals (including the approval of the Ukrainian competition authorities) and subject to approval of Metinvest’s shareholders. Accordingly, potential investors would be required to make an investment decision regarding the Notes without information as to whether a combination of the Zaporizhstal assets with Metinvest is likely to occur.

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If such acquisition does occur, Metinvest may experience difficulties and unanticipated financial liabilities or losses as a result of integrating any such assets into its operations. See also “Risk Factors—Risks Relating to Metinvest’s Acquisition Strategy—Metinvest may experience difficulties and higher costs or unanticipated financial liabilities or losses when it integrates either completed acquisitions or any future targets into its operations” and “Risk Factors—Risks Relating to the Notes—The Conditions provide significant flexibility for value to leave Metinvest through the payment of dividends and the making of investments and charitable and sponsorship payments, including to affiliated entities”.

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OVERVIEW OF THE OFFERING

The capitalised terms used in this overview of the terms of the Notes but not defined herein have the meanings ascribed to them in the Conditions.

Notes U.S.$500,000,000 10.25 per cent. Guaranteed Notes due 2015.

Issuer Metinvest B.V.

Initial Guarantors Avdiivka Coke, Ingulets GOK and Khartsyzsk Pipe. See “General Information — Information Relating to the Initial Guarantors”.

Additional Guarantors The Issuer will, on the relevant dates set forth in Condition 3.15, cause each of Azovstal, Yenakiieve Iron and Steel Works, Metalen, Northern GOK and Central GOK to guarantee the Notes. Yenakiieve Iron and Steel Works and Metalen are collectively referred to herein as “Yenakiieve Steel”.

Joint Lead Managers BNP Paribas, Credit Suisse Securities (Europe) Limited, ING Bank N.V., London Branch, The Royal Bank of Scotland plc and VTB Capital plc.

Maturity Date 20 May 2015

Trustee BNY Corporate Trustee Services Limited.

Registrar The Bank of New York (Luxembourg) S.A.

Principal Paying Agent and The Bank of New York Mellon. Transfer Agent

U.S. Paying Agent, Transfer The Bank of New York Mellon, New York Branch. Agent and Registrar Irish Listing Agent The Bank of New York Mellon (Ireland) Limited.

Use of Proceeds The net proceeds from the issue of the Notes will be used primarily (i) to fund Metinvest’s capital expenditure programme; and (ii) for general corporate purposes, including to repay Metinvest’s existing outstanding indebtedness as it falls due and to fund selective acquisition opportunities.

Risk Factors An investment in the Notes involves a high degree of risk. See “Risk Factors”.

Issue Price 99.046 per cent. of the principal amount of the Notes.

Interest The Notes will bear interest from 20 May 2010 at a rate of 10.25 per cent. per annum payable semi-annually in arrear on 20 November and 20 May in each year, commencing on 20 November 2010.

Guarantees The Initial Guarantors will unconditionally and irrevocably guarantee on a joint and several basis the due and punctual payment of all amounts becoming due and payable in respect of the Notes.

The Issuer will, in accordance with Condition 3.15 (Additional Guarantee) and on the relevant dates set forth therein, cause the Additional Guarantors to execute and deliver to the Trustee a deed of accession to the Surety Agreement pursuant to which they will, jointly and severally amongst themselves and the Initial Guarantors,

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unconditionally and irrevocably guarantee the due and punctual payment of all amounts becoming due and payable in respect of the Notes.

The Guarantees will constitute suretyships for the purposes of Ukrainian law.

Payment of amounts due under the Guarantees will require compliance with certain Ukrainian currency control regulations. See “Risk Factors — Risks Relating to the Notes — The claims of Noteholders under the Surety Agreement may be limited under Ukrainian law in the event that one or more of the Guarantors is declared bankrupt” and “Risk Factors — Risks Relating to the Notes — Ukrainian currency control regulations may impact the Guarantors’ ability to make payments under the Guarantees”.

Ranking of the Notes and the The Notes will constitute senior, unsubordinated, unconditional and Guarantees unsecured obligations of the Issuer and shall rank equal in right of payment with all existing and future senior, unsubordinated, unconditional and unsecured indebtedness of the Issuer. The Notes shall at all times rank pari passu and without preference among themselves. Each Guarantee constitutes or will constitute a senior, unsubordinated and unsecured obligation of the relevant Guarantor.

Withholding Tax; Gross-up All payments of principal, premium and interest by or on behalf of the Issuer or the Guarantors in respect of the Notes or under the Guarantees will be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within The Netherlands or Ukraine, as the case may be, or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event, subject to customary exceptions, the Issuer or the Guarantors, as the case may be, will pay such additional amounts to cover the amounts so withheld or deducted as described in Condition 7 (Taxation).

Redemption for Taxation Reasons The Issuer may redeem the Notes in whole, but not in part, at 100 per cent. of their principal amount, plus accrued and unpaid interest, in the event of specified developments affecting taxation. See Condition 5.2 (Redemption for Taxation Reasons).

Change of Control Following a Change of Control, a Noteholder will have the right to require the Issuer to repurchase all of the Notes held by such Noteholder at 101 per cent. of their principal amount, plus accrued and unpaid interest. See Condition 5.3 (Redemption at the Option of the Holders Upon a Change of Control).

Covenants The Conditions will, among other things, restrict the ability of the Issuer and its Subsidiaries (as defined in Condition 19 (Definitions)) to: • borrow additional money; • pay dividends, redeem or repurchase share capital or make other distributions; • make principal payments on or redeem or repurchase indebtedness that is junior to the notes or the guarantees;

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• create liens; • create restrictions on subsidiaries’ ability to pay dividends or other amounts to the Issuer; • enter into transactions with affiliates; or • sell assets or consolidate or merge with or into other companies.

Each of the covenants is subject to significant exceptions and qualifications. See Condition 3 (Covenants).

Lock-up The Issuer and the Guarantors have agreed that, for a period of 30 days from the Closing Date, they will not, without the prior written consent of the Joint Lead Managers, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any debt securities of the Issuer or the Guarantors which are substantially similar to the Notes (including, without limitation, direct issues of debt securities by the Issuer or the Guarantors or by any other person and guaranteed by the Issuer or the Guarantors) or that are convertible into, or exchangeable for, the Notes or such other debt securities.

Form and Denomination The Notes will be issued in registered form in the denomination of U.S.$100,000 each and integral multiples of U.S.$1,000 in excess thereof. The Regulation S Notes and the Rule 144A Notes will be represented by a Regulation S Global Note Certificate and a Rule 144A Global Note Certificate, respectively. The Regulation S Global Note Certificate and the Rule 144A Global Note Certificate will be exchangeable for Definitive Certificates in the limited circumstances specified in the Regulation S Global Note Certificate and the Rule 144A Global Note Certificate.

Initial Delivery of Notes On or before the Issue Date, the Rule 144A Global Note Certificate will be deposited with a custodian for DTC and the Regulation S Global Note Certificate will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. The Rule 144A Notes will be registered in the name of a nominee of DTC and the Regulation S Notes will be registered in the name of a common nominee for Euroclear and Clearstream, Luxembourg.

Listing and admission to trading Currently, there is no public market for the Notes. Application has been made to the Irish Stock Exchange to approve these listing particulars and to admit the Notes to listing on the Official List and to trading on the Global Exchange Market, of the Irish Stock Exchange. There is no assurance that the Notes will be listed and admitted to trading on the Global Exchange Market of the Irish Stock Exchange.

Selling Restrictions The Notes may be sold only in compliance with applicable laws and regulations. See “Subscription and Sale” and “Selling and Transfer Restrictions”.

ERISA Considerations The Notes should not be acquired by an “employee benefit plan” (as defined in Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended, “ERISA”) that is subject to Title I of ERISA, a “plan” subject to Section 4975 of the U.S. Internal

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Revenue Code of 1986, as amended, (the “Code”) or any entity whose assets are treated as assets of any such plan unless such purchase and holding of the Notes will not result in a non-exempt prohibited transaction under ERISA or the Code. Each purchaser and/or holder of Notes and each transferee thereof will be deemed to have made certain representations as to its status under ERISA and the Code. Potential purchasers should read the sections entitled “ERISA” and “Selling and Transfer Restrictions”.

Governing Law The Notes, the Surety Agreement and the Trust Deed will be governed by English law.

Security Codes Regulation S ISIN: XS0511379066

Regulation S Common Code: 051137906

Rule 144A ISIN: US591555AA54

Rule 144A Common Code: 051137922

Rule 144A CUSIP: 591555AA5

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RISK FACTORS

Prospective investors should carefully consider the risks set forth below and the other information contained in this Offering Memorandum prior to making any investment decision with respect to the Notes. Each of the risks highlighted below could have a material adverse effect on the business, operations, financial condition or prospects of the Company, the Guarantors or Metinvest, which, in turn, could have a material adverse effect on the amount of principal, premium and interest which investors will receive in respect of the Notes. In addition, each of the risks highlighted below could adversely affect the trading price of the Company’s securities, including the Notes or the rights of investors under the Notes and, as a result, investors could lose some or all of their investment.

Prospective investors should note that the risks described below are not the only risks the Company, the Guarantors and Metinvest face. The Company has described only those risks relating to its operations of which it is aware and that it considers to be material. There may be additional risks that the Company currently considers not to be material or of which it is not currently aware and any of these risks could have the effects set forth above.

Risks Relating to Metinvest

Metinvest’s financial performance is dependent on the global price of and demand for steel and steel products as well as the Ukrainian economy and prices of steel and steel products in Ukraine

Metinvest’s business is cyclical because the major industries in which the majority of steel customers operate, including the construction, automotive, engineering and oil and gas recovery and processing industries, are themselves cyclical and sensitive to changes in general economic conditions. The demand for steel products is thus generally correlated with macroeconomic fluctuations in the economies in which steel producers sell products, which are in turn affected by global economic conditions. Particular economic and market factors may also have a significant effect on Metinvest’s operations, such as the current global economic downturn which has led to a decrease in production by Metinvest’s customers, resulting in a decrease in demand for Metinvest’s products. The prices of steel products are influenced by many factors, including demand, worldwide production capacity, capacity utilisation rates, raw material costs, exchange rates, trade barriers and improvements in steel making processes. For example, during 2004, steel prices reached their highest levels in nearly 20 years, driven to a significant extent by demand for steel in China, while global steel production volumes reached approximately 1.0 billion tonnes per year. This rapid increase was followed by a reduction of global steel prices in the second half of 2005, which continued until the beginning of 2006. However, prices remained above pre-2004 levels. From late 2006 until the first half of 2008 (inclusive), steel prices continued to increase, influenced by significant cost inflation and increasing demand, particularly from emerging markets such as China and India. For example, in July 2008 the price for merchant slab was approximately 430.0% higher than December 2002 levels. In the third quarter of 2008, global steel prices decreased due to the global financial crisis and the resulting downturn in the world economy. This downward trend continued until the second quarter of 2009. Although there has been a slight increase in steel prices during the second half of 2009, on average as of February 2010 prices for steel products were approximately 56.0% lower than in July 2008, and no assurance can be made the prices will continue to grow in the future. Accordingly, steel prices have in recent years experienced, and in the future may continue to experience, significant fluctuations as a result of factors beyond Metinvest’s control. Any decline in steel prices may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest derived 27.1% of its total consolidated revenue in 2009 from sales to customers in Ukraine. The Ukrainian economy has experienced significantly fluctuating growth rates over the past 20 years. From 1991 to 2000, the Ukrainian economy contracted in real terms by approximately 7.6% according to the World Bank; after the Russian financial crisis in 1998, the economy recovered and grew in real terms at an average rate of approximately 7.4% annually from 2000 to 2007. In 2008 and 2009, due largely to the global financial crisis, Ukrainian economic growth declined. Between January and October 2008 real GDP growth slowed to 5.8% and in 2009 the economy contracted by 15.0%, according to the World Bank, with inflation being

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16.4%. Ukraine’s GDP growth in 2010 is expected to be approximately 2.5%, according to the World Bank, compared with GDP growth of 0.4% in 2009, 2.3% in 2008 and 7.9% in 2007, according to the NBU.

Production of steel in Ukraine suffered a substantial decline from approximately 32,609 million tonnes in 1993 to approximately 22,308 million tonnes in 1995. Production did not recover to 1993 levels until 2001, when production reached 33,108 million tonnes. From 2001, production increased year-on-year, reaching approximately 37.4 million tonnes in 2008. In 2009, according to the Ukrainian Association of Metallurgical Enterprises, production of crude steel in Ukraine declined by 17.4% to 29.8 million tonnes, which is the lowest level of crude steel output since 2000. The Ukrainian Ministry of Industrial Policy reported that it expects the Ukrainian steel sector to grow by approximately 2.0% in 2010 as compared to 2009, with production of crude steel reaching approximately 30.5 million tonnes in 2010.

Similarly, pig iron production in Ukraine decreased from 27.0 million tonnes in 1993 to 17.7 million tonnes in 1996 and only recovered to 1993 levels in 2002 when production was approximately 27.6 million tonnes. Save for a relatively small decline in production in 2005, production has increased year-on-year since 2002, reaching approximately 35.6 million tonnes in 2007. In 2009, production of pig iron in Ukraine decreased by 17.1% as compared to 2008 to approximately 25.7 million tonnes, according to the World Steel Association. According to the Ukrainian Association of Metal Producers, in 2010 Ukrainian steelmaking companies have increased their daily average production of pig iron by 25.0% to 75.4 thousand tonnes as compared to January 2009.

Further, Metinvest is particularly sensitive to trends in the construction, ship-building and engineering (including heavy machine-building and oil and gas) industries, as they are primary markets for Metinvest’s steel products. Global downturns in these and other industries that Metinvest serves could reduce the demand for Metinvest’s products. A significant amount of Metinvest’s exports are to Russia, other CIS countries, North Africa, South East Asia and the Middle East, and the economies of these countries and regions, like Ukraine’s, are relatively volatile. Accordingly, any significant decrease in demand for steel products or decline in the price of these products in Ukraine or in Metinvest’s principal export markets could result in lower revenue and thereby materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s financial performance is dependent on world market prices of iron ore and coal

Metinvest sells iron ore and coal to third parties. Cyclical and other changes in world market prices for these commodities could affect the results of Metinvest’s mining activities. Changes in these prices result from factors that are beyond Metinvest’s control, such as fluctuations in global supply and demand (particularly as a result of the prevailing level of worldwide demand for steel products) and transportation costs. Prices of these commodities have varied significantly in the past and could vary significantly in the future and are also positively correlated with demand from steel producers. For example, prices of both iron ore and coking coal increased significantly by 2008, reaching their highest levels since the late 1990s, largely as a result of increasing global demand by steel producers and a high degree of consolidation in the global iron ore industry, primarily in the seaborne iron ore trade. However, according to the IMF, in 2009 the benchmark prices of iron ore fines and pellets decreased by 28.0% and 48.0%, respectively, compared to 2008 levels due to global economic crisis. At the same time, the price for iron ore fines in 2009 remained approximately 20.0% higher than in 2007, while the price for pellets in 2009 was approximately the same as in 2007. Any decline in the prices of the commodities Metinvest sells to third parties may materially adversely affect Metinvest’s business, results of operations and financial condition.

Until March 2010 worldwide prices for iron ore were set based on a benchmark price determined in part based on the outcome of annual negotiations between the world’s largest steel manufacturers and the world’s largest iron ore mining companies, to which Metinvest was not party. In March 2010, this benchmark system was replaced with a new system involving quarterly contracts with pricing linked to the spot market. Prior to 2009, fast growth in demand for iron ore in emerging markets, particularly China, accompanied by the slow growth in supply, coming largely from China (following increased domestic steel production), Australia, Brazil and India, had a significant effect on iron ore prices in the market. In 2008, the price for iron ore reached its highest historical level, according to the IMF. While the growth in supply of iron ore

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slowed further in 2009 a global decrease in steel production resulted in decreased demand and a reduction in prices for iron ore. Any significant increase in global supplies or decrease in global demand for iron ore could reduce the prices for Metinvest’s products. Furthermore, the introduction in March 2010 of the new system in which pricing is linked to the spot market could lead to greater volatility in iron ore prices. In addition, in the third quarter of 2009 local demand for and domestic consumption of iron ore and coking coal in Ukraine started to increase gradually, following the decrease in the last quarter of 2008. Any significant reduction in Ukrainian demand for, or consumption of, iron ore may result in an increase in the volume of exports of iron ore by Ukrainian producers, which could reduce the contract price which Metinvest is able to charge. A decrease in the prices of iron ore and coal or an increase in production costs not offset by a corresponding price increase may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s success depends on its ability to compete effectively in the steel industry

The steel industry is characterised by intense competition. Metinvest competes with a number of other large steel companies in Ukraine, Russia and other countries, including China, which is developing as a significant export market for steel products. Metinvest’s principal competitors in steel production include foreign and domestic competitors, including OJSC Arcelor Mittal Kryvyi Rih, OJSC MMK Illicha, Industrial Union of Donbass and OJSC Zaporizhstal Integrated Iron and Steel Works. In Russia, Metinvest’s principal competitors include OAO Magnitogorsk Iron & Steel Works, OAO Novolipetsk Steel Mill, OAO Severstal, OAO Mechel and the Evraz Group, which controls such major steel mills as OAO Nizhny Tagil Iron and Steel Works and OAO West Siberian Iron and Steel Works. Metinvest’s steel business competes primarily on the basis of price, quality and the ability to meet customers’ product specifications and delivery schedules.

A number of Metinvest’s competitors are undertaking modernisation and expansion plans, which may make them more efficient or allow them to develop new products. In addition, while Metinvest has relatively low operating costs compared with steel producers in more developed countries, it has slightly higher operating costs than the world’s lowest cost producer, primarily due to the lower quality of its iron ore feedstock. Metinvest also faces price-based competition from steel producers in other emerging market countries, including Russia in particular. Recent consolidation in the steel industry globally has led to the creation of several large global steel producers, such as the global market leader ArcelorMittal, some of which have total assets and financial resources substantially greater than those of Metinvest, as well as more technologically advanced steel production facilities (in particular, more basic oxygen furnaces and fewer of the less efficient open-hearth furnaces). ArcelorMittal and some other large competitors may, in the future, use their substantial resources to enter into purchase agreements with Metinvest’s customers, which may result in a loss of market share for Metinvest. Competition from foreign steel producers, or foreign direct investment in Metinvest’s domestic competitors, may also result in losses of market share for Metinvest. Increased competition from Ukrainian or international steel producers could result in more competitive pricing. In the future, steel producers may also increasingly compete with producers of substitute materials, such as plastics and ceramics, particularly in certain consumer industries, such as automotive, construction and packaging industries.

The highly competitive nature of the steel industry combined with excess production capacity for some steel products has exerted, and may in the future continue to exert, downward pressure on prices of certain of Metinvest’s steel products.

In addition, Metinvest’s competitive position may be affected by the recent trend towards consolidation in the steel industry. While there are still a significant number of small companies operating in the steel sector worldwide, the 1990s were marked by an active consolidation process within the steel industry, through mergers and acquisitions involving, among others, the Mittal Steel Group, Arcelor, ThyssenKrupp Stahl and JFE. These and many other large international steel companies have greater financial resources and more extensive global operations than Metinvest. Major international steel producers have begun to seek to expand their operations into emerging markets as evidenced by the acquisition in 2005 by Mittal Steel of Kryvorizhstal, the largest steel producer in Ukraine. The Russian steel industry has also experienced increased conglomeration and consolidation, including the formation of the EvrazHolding Group. Major Russian steel producers have expanded their operations in Ukraine by acquiring interests in Ukrainian steel

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companies. In 2008 EvrazHolding Group acquired several steel, coke and iron ore producing assets from Privat Group, a Ukraine business group controlling, inter alia, various steel companies. In early 2010 a group of Russian investors including Carbofer Group, a Swiss-based company co-owned by Russian businessman Alexander Katunin, acquired over 50.0% of the share capital of Industrial Union of Donbass, a Ukrainian metallurgical company.

Metinvest is mainly operating in recently liberalised markets in what is globally a highly competitive industry. Metinvest expects that its competitors will continue to improve their products while also reducing costs. Metinvest’s success will depend on its ability to compete effectively in this environment. Metinvest cannot guarantee that its market share will not decrease if competitors further modernise and improve their plants and machinery, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest is leveraged following the completion of certain debt financings and is required to meet certain financial and other restrictive covenants under the terms of this indebtedness

As at 31 December 2009, Metinvest has long-term borrowings of U.S.$929 million (38.2% of its total indebtedness, calculated as total loans and borrowings plus Sellers’ Notes (as defined below)) and short-term borrowings of U.S.$1,014 million (41.7% of its total indebtedness, calculated as total loans and borrowings plus the Sellers’ Notes). Its short-term debt included U.S.$482 million of debt incurred under trade finance facilities, which generally have a maturity of less than one year. As a result of the significant proportion of short-term borrowings in Metinvest’s capital structure, it is exposed to the risk that it may be unable to refinance such borrowings, in particular its trade finance facilities. If it is unable to do so, its liquidity could be adversely affected.

Certain Metinvest entities are subject to financial and other restrictive covenants under the terms of their indebtedness that limit their ability to, among other things: • borrow money; • create liens; • give guarantees; • sell or otherwise dispose of assets; • engage in mergers, acquisitions or consolidations; and • pay dividends. In addition, Metinvest pledged 60.0% plus one share of the issued share capital of each of Northern GOK and Central GOK as security for a third-party loan provided to the SCM Group by a syndicate of banks; 100% of the issued share capital of Metinvest Trametal and 100% of the issued share capital of Spartan UK Ltd to secure an acquisition loan facility to an Issuer subsidiary, Metinvest Trametal; and fixed assets of Avdiivka Coke to secure term loan facilities provided by Raiffeisen Zentralbank Österreich, VTB Capital and FUIB. The terms of Metinvest’s indebtedness also require it to operate within certain specified financial ratios. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources—Capital Resources”.

Compliance with these covenants could materially adversely affect Metinvest’s ability to finance its future operations or capital needs or to engage in other business activities that may be in its best interest. In addition, a breach of the terms of Metinvest’s indebtedness could cause a default under the terms of the indebtedness, causing some or all of such indebtedness to become due and payable prior to its stated maturity. There can be no assurance that Metinvest will be able to generate the funds necessary to repay its indebtedness in the event of its acceleration. Any such default could also result in Metinvest’s creditors proceeding against the collateral securing Metinvest’s indebtedness, including the share pledges as described above. A default in the third-party loan provided to the SCM Group by a syndicate of banks could also result in the SCM Group creditors proceeding against the collateral securing such loan, including the shares of

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Northern GOK and Central GOK as described above. See “Shareholders and Related Party Transactions”. Any such action could materially adversely affect Metinvest’s business, results of operations and financial condition.

If Metinvest’s indebtedness were to be accelerated, Metinvest may not have sufficient funds to satisfy its obligations, and even if it does, such acceleration may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s substantial capital investment programme may not be implemented on schedule or within budget

Steel production and mining operations are capital intensive. Metinvest plans to continue to invest in its production facilities. It intends to make selective investments designed to increase production capacity, lower operating costs and improve output quality of its steel and iron ore production facilities, such as increasing the use of continuous casting in its steel production, refurbishing blast furnaces and modernising its rolling mills. See “Business Description—Steel Business—Production Facilities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements”. Due to the global economic crisis, in 2009 Metinvest partially suspended the implementation of its capital investment programme. During 2009, Metinvest invested U.S.$324 million in this programme. Total capital expenditures for 2010 are expected to be approximately U.S.$511.0 million, of which U.S.$163 million, U.S.$212 million and U.S.$136 million are allocated for capital expenditures in the steel business, iron ore business, and coking coal mining and coke production, respectively. For more information on Metinvest’s planned capital investment programme for the next two years, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Expenditures”. Metinvest may not be able to implement its capital investment programme on schedule or within budget as a result of, among other factors, any or all of the following: the unavailability of external financing sources on satisfactory terms; changes in the terms of existing financing arrangements; the pursuit of new business opportunities or significant additional investment in existing businesses; changes in economic conditions; fluctuations in the Ukrainian or global steel markets; regulatory developments; delays in project completion; cost overruns; and defects in design or construction. In addition, because a large portion of Metinvest’s expected capital expenditures relates to equipment purchased from European suppliers, the prices of which are denominated in Euros and other currencies, the overall cost of the programme, as measured in U.S. dollars, is subject to significant fluctuations due to changes in exchange rates. Furthermore, the actions of the Ukrainian government (the “Government”) may influence the implementation of Metinvest’s capital investment programme.

Metinvest’s capital expenditures are expected to be funded from existing cash balances, cash flow from operating activities, borrowings and the proceeds from the issuance of the Notes. If Metinvest is unable to finance planned capital investments, to finance such investments at an acceptable cost, or to implement its capital investment programme for any other reason, its prospects and ability to execute its strategy of expansion may be adversely affected which may in turn materially adversely affect its business, results of operations and financial condition.

Estimates of Metinvest’s mining reserves and resources are subject to uncertainties and estimates of its resources are speculative

Metinvest’s estimates of its iron ore reserves and mineral resources for the iron ore assets contained in this Offering Memorandum are reproduced by reference to the statements provided by SRK Consulting in its Reserves Report dated 31 March 2010, prepared in accordance with JORC reporting standards. Information relating to Metinvest’s coal deposits located in the United States has been prepared by reference to estimates provided by MM&A in its Reserves Report dated 31 March 2010, prepared under SEC standards. Metinvest’s coal deposits located in Ukraine have not yet been evaluated in accordance with international methodologies. Information relating to those coal deposits has been prepared on the basis of State Approved Reserves Classification Systems (“SARCS”) as currently applied in the CIS countries, which differ from international methodologies and the standards applied by the SEC, among others. See “Business Description—Reserves”. The estimates of Metinvest’s iron ore and coal reserves and resources were based

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on interpretations of geological data obtained from sampling techniques and projected rates of production. Sampling techniques and projections are inherently uncertain and variances in reserves and resources estimates under different methodologies may be difficult to determine and evaluate.

In determining the feasibility of developing and operating its Ukrainian coal mines, Metinvest uses estimates of coal reserves that are based on its legal right to mine specified coal mines pursuant to its state licenses, the state’s classification of the available reserves and Metinvest’s internal analysis of the available reserves. Metinvest estimates its reserves for each of its coal mines as of 31 December of each year in accordance with the guidelines prescribed by Ukrainian law by taking the original amount of industrial reserves estimated by the state when that coal mine’s license was originally issued and deducting (i) the amount of industrial reserve coal extracted from the mine in each subsequent year and losses incurred upon coal extraction and (ii) any industrial reserves that it subsequently determines to have been improperly classified as industrial reserves and by adding (i) any additional industrial reserves that it has discovered during the course of mining or (ii) any additional industrial reserves that it has acquired from third parties or from the state. This methodology differs significantly from both (i) the internationally accepted reserve estimation standards under the Petroleum Resources Management System sponsored by the Society for Petroleum Engineers, the American Association of Petroleum Geologists, the World Petroleum Council and the Society for Petroleum Evaluation Engineers and (ii) the reserves classifications permitted by the SEC, in particular with respect of the manner in which and the extent to which commercial factors are taken into account in calculating reserves. Metinvest relies exclusively on the state’s initial estimates of our coal mine reserves when the licenses were issued and its subsequent adjustments as set forth above after taking into account its knowledge, experience and industry practice, without the input of third party reserves engineers or the benefit of further reviews by the state’s reserve engineers. Therefore, Metinvest coal reserves estimates may require revision based upon actual production experience, changes in operating or extraction costs, changes in world coal prices and other factors that Metinvest is unable to foresee. As a result, its estimates of its coal reserves that appear valid when made may change significantly in the future when new information becomes available.

If Metinvest’s actual production of iron ore and coal in the future is significantly less than Metinvest’s planned production based on these estimates of its reserves, Metinvest may not be able to supply iron ore and coal to its steel operations at an economically feasible price, or at all, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest faces trade restrictions on the export of steel products

All of Metinvest’s principal steel producing subsidiaries, except for Ferriera Valsider, Metinvest Trametal, Spartan and Promet Steel, are located in Ukraine. As a major Ukrainian steel producer, which exports approximately 89% of its steel products, Metinvest is subject to protective tariffs, duties and quotas imposed by certain countries into which Metinvest exports its steel products, which could reduce its competitiveness in, and limit its access to, certain markets. Although WTO members are expected to abolish all quantitative restrictions on trade flows with Ukraine as quantitative restrictions are prohibited under the WTO rules, several steel importing countries (some of which are WTO members), such as Russia, the United States, Canada, Argentina and Australia, currently have import restrictions in place with respect to certain steel imports from Ukraine. The United States has minimum price restrictions in place with respect to certain Ukrainian steel imports (hot-rolled cut-to-length carbon steel plates). See also “—Trade-related legal proceedings and agreements may force Metinvest to decrease exports of its steel products and adversely affect Metinvest’s business”.

Metinvest’s mining and steel manufacturing operations are subject to a number of risks and hazards, including the significant risk of disruption or damage to persons and property

Metinvest’s mining and steel manufacturing operations, like those of other mining companies, are subject to a number of risks and hazards, including industrial accidents, equipment unavailability (whether due to equipment failure, the need for unscheduled maintenance or otherwise), unusual or unexpected geological conditions, environmental hazards, labour disputes, changes in the regulatory environment, extreme weather conditions (especially in winter) and other natural phenomena.

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Metinvest has six open-pit and four close-pit iron ore mines and nine close-pit coal mines in Ukraine. Metinvest also has six open-pit and twelve close-pit coal mines in the United States.

Additional hazards associated with deep-pit mining include underground fires and explosions, including those caused by flammable gas; cave-ins or ground falls; discharges of gases and toxic chemicals; flooding; sinkhole formation and ground subsidence; and other accidents and conditions resulting from drilling, blasting and removing and processing material from an underground mine.

Hazards associated with open-pit mining include accidents involving the operation of open-pit mining and rock transportation equipment and the preparation and ignition of large scale open-pit blasting operations, collapses of the open-pit wall, flooding of the open-pit, production disruptions due to weather and hazards associated with the disposal of mineralised waste water, such as groundwater and waterway contamination.

In 2007, 2008 and 2009, Metinvest experienced 528, 400 and 313 accidents, respectively, which are defined as lost time injuries that prevent the employee from working for at least one day, and 19, 15 and 13 work- related fatalities, respectively.

The occurrence of any of these events could result in material mine or plant shutdowns or periods of reduced production. Such occurrences could also result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental and natural resource damage, delays in mining, delays in shipment, reduced sales, increased costs, the need to incur significant capital expenditures to remedy the situation, other monetary losses and possible legal liability which may materially adversely affect Metinvest’s business, results of operations and financial condition.

For example, in 2006, an explosion occurred at Azovstal’s blast furnace No. 3 causing considerable damage and interruption to business. Metinvest’s losses of U.S.$30.7 million were covered by the “All Risk” insurance policy, including U.S.$2.3 million for property damage and U.S.$28.4 million for interruption to business.

While Metinvest maintains mandatory insurance policies against certain types of risk in accordance with Ukrainian law, including life and health insurance, third party liability insurance on hazardous industrial assets and in respect of cargo and motor vehicles, as well as voluntary insurance cover for most of its production facilities in respect of cargo and motor vehicles; “All Risk” insurance to cover property damage and provide business interruption coverage (other than deep-pit mining) and “inter-dependency” coverage for its key production facilities including Azovstal, Yenakiieve Steel, Northern GOK, Central GOK, Ingulets GOK and Avdiivka Coke, covering both physical damage and loss of profit; life and health insurance; and product liability insurance in respect of Metinvest’s products sold to the markets outside the CIS region, the liabilities resulting from the risks listed above may not be adequately covered by insurance, and no assurance can be given that Metinvest will be able to obtain additional insurance at rates it considers to be reasonable or at all.

Increases in transportation costs or delays in transport could adversely affect Metinvest’s business and results of operations

Metinvest currently relies substantially on the rail freight network operated by Ukrzaliznytsya, the Ukrainian state-owned railway authority, for transportation of its raw materials and finished products. Railway tariffs for freight increase periodically, resulting in corresponding increases in transportation costs. For example, in April 2005, railway tariffs increased by 50.0% and continued to increase through 2006. In 2007, railway tariffs were further increased by 20.6%. In August 2008, the tariffs were increased by an additional 93.4% for iron ore and by 39.8% for steel products transportation. In May 2009 the Ukrainian Ministry of Transportation and Communication introduced new railway transportation tariffs which created beneficial conditions for the transportation of steel products for distances not exceeding 200 kilometres, while increasing long distance railway tariffs by 10.0%. The tariffs for transportation of iron ore between plants increased by approximately 15.0% while the tariffs for transportation between plants and ports decreased by approximately 5.0%. There can be no assurance that substantial additional increases will not occur in the future. In addition, certain of Metinvest’s customers depend on the rail networks of countries that neighbour Ukraine and therefore the

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competitiveness of Metinvest’s products can be impacted by rail tariffs in those countries. If Metinvest is unable to pass higher transportation costs on to its customers through price increases, a significant increase in rail freight or other transportation costs could materially increase Metinvest’s costs.

The Ukrainian railway system is subject to risks of disruption as a result of the declining physical condition of the facilities, a shortage of rail cars, the limited capacity of border stations and load shedding, including those due to poorly maintained rail cars and train collisions. In particular, the rolling stock of Ukrainian railways is generally in a poor state of repair and the failure of Ukrainian railways to upgrade its rolling stock within the next few years could result in a shortage of available working rolling stock, a disruption in transportation of Metinvest’s raw materials and products and increased costs of rail or other substituted transport, that could also have a material adverse effect on Metinvest’s business, results of operations and financial condition.

In addition, Metinvest transports a portion of its products by sea, principally through the ports at Mariupol, Sevastopol, Berdyansk, Odessa, Illichivsk, Mykolayiv, Oktyabrsk, Yuzhniy and its own port at Azovstal in Mariupol. Metinvest competes with a number of other exporters for limited storage and berthing facilities at these ports, which can result in delays in loading Metinvest’s products and expose Metinvest to the risks of demurrage and increased handling costs. The lack of sufficient dedicated storage facilities at ports also increases Metinvest’s exposure to risks of interruption in rail transport to the port and of contamination of its products. Any limitations on shipping capacity at any of these ports could impede Metinvest’s ability to deliver its products on time or expand its sales and thereby materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest is dependent on third party suppliers for a portion of its raw materials

Metinvest’s steel production business sources a significant portion of the raw materials it requires for the production of steel, including all of its coke, iron ore concentrate and pellets requirements from Metinvest’s iron ore and coal and coke businesses. However, it relies on third parties for the remainder of its raw materials, including 57.1% of its coking coal requirements by volume in 2009 and all of the ferroalloys and refractory materials it uses in the production of steel.

While Ukraine is almost self sufficient in lower quality coals, extraction costs are high and domestic production cannot meet domestic demand for higher quality coals. For example, Ukraine’s low-volatile coking coal (“KS” and “OS”) consumption amounted to 2.1 million tonnes in 2009, of which only 0.5 million tonnes were produced domestically, while Ukraine’s mid-volatile coal (“K” and “Zh”) consumption amounted to 14.4 million tonnes in 2009, of which 11.1 million tonnes were produced domestically, according to IRC and Ukrkoks. Accordingly, Ukraine imports a significant amount of coal from Russia where the quality of coal is higher and coal extraction is cheaper than in Ukraine.

The availability of raw materials from third party suppliers may be negatively affected by a number of factors largely beyond Metinvest’s control, including interruptions in production by suppliers, the allocation of raw materials by suppliers to other customers, price fluctuations and transport costs. Metinvest may not always be able to adjust its prices to recover the costs of increases in raw materials from third party suppliers, which may materially adversely affect Metinvest’s business, results of operations and financial condition. See also “—The externally purchased raw materials Metinvest uses to produce steel, such as coking coal, scrap metal and ferroalloys are subject to price fluctuations that could increase Metinvest’s costs of production” below.

The externally purchased raw materials Metinvest uses to produce steel, such as coking coal, scrap metal and ferroalloys are subject to price fluctuations that could increase Metinvest’s costs of production

Metinvest purchases certain raw materials for steel production, including coking coal, ferrous scrap metal and ferroalloys, from third parties. Prices for these materials have fluctuated significantly in the past. Prices are affected by cyclical, seasonal and other market factors, including periodic shortages, freight costs, speculation by brokers and export markets, and protective actions by the Government. While Metinvest’s coal and coke and iron ore businesses produce a significant part of the raw materials required by its steel production business, for some of its raw materials Metinvest remains subject to longer-term price fluctuations and shortages which are beyond its control.

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Historically, prices for coking coal, ferroalloys, scrap metal and other important raw materials have increased as a result of global changes in supply of, and demand for, these materials. Prices for most of the raw materials that Metinvest uses increased regularly until late 2008 following price increases for steel, reflecting increased global demand for these products from steel producers. Increases in raw materials costs may outpace increases in the average selling prices for steel products and Metinvest‘s ability to appropriately react through normal price changes. In the fourth quarter of 2008, although prices for raw materials generally decreased following decreases in demand from steel producers, profit margins contracted due to a time lag of up to three months between the market acceptance of reduced selling prices for finished steel products and the decrease in raw material prices. While steel prices have been gradually increasing since February 2009, if prices for steel products fall in the future, Metinvest may be exposed to further reductions in its profits margins resulting from delays in the reduction of raw material prices, which may materially adversely affect its business, results of operations and financial condition.

Metinvest’s mining operations are subject to environmental laws and regulations that may be difficult and costly to comply with, and future changes in or unanticipated breaches of, such laws and regulations could require Metinvest to incur increased costs

Metinvest operates in an industry that is hazardous to the environment and its operations and properties are subject to environmental, health and safety and other laws and regulations. For instance, mining operations generate large amounts of pollutants and waste, some of which are hazardous to the environment, such as benzapiren, sulphur oxide, nitrogen, ammonium sulphates, nitrites and sludges (including sludges containing chrome, copper, nickel and zinc). Mining operations involve the storage of overburden and tailings, the use of hazardous materials such as explosives, harmful emissions into the air and the production of waste water. The discharge, storage and disposal of hazardous waste are subject to a number of laws and regulations relating to environmental protection in the jurisdictions in which it operates.

The environmental, health and safety and other laws and regulations to which Metinvest’s mining operations are subject may also require clean-ups of contamination and reclamation, such as requirements for cleaning up highly hazardous waste oil. In addition, pollution risks and related clean-up costs are often impossible to assess unless environmental audits have been performed and the extent of liability under environmental laws is clearly determinable.

A significant part of Metinvest’s operations are located in Ukraine. Under the current environmental protection system, the Ukrainian authorities review Metinvest’s operations and determine the amount of discharge into the atmosphere or water, and waste, including tailings and overburden, that is permissible for Metinvest based on its expected production output. Metinvest is required to pay quarterly environmental charges to the state budget based on these quotas (calculated separately for each pollutant) and, to the extent that Metinvest exceeds the quotas, it will have to pay a penalty amounting to ten times the amount of the relevant charge. There have been instances where Metinvest has exceeded its permitted quotas in the past and there can be no assurance that it will not be subject to substantially higher environmental charges and penalties in the future. In particular, in connection with Metinvest’s plans to expand its mining operations and increase production, it will need to apply to the Ukrainian authorities for new emissions quotas. Metinvest’s failure to obtain higher quotas could hinder its ability to increase production or require Metinvest to pay such additional amounts as may be necessary for exceeding its emissions allocation quota or make additional capital expenditures for equipment to reduce emissions in connection with any production increase.

Metinvest has not generally been indemnified against environmental liabilities or any required land reclamation expenses of its acquired businesses that may arise from activities that occurred prior to the acquisition of such businesses.

Environmental legislation in Ukraine is currently weaker and less stringently enforced than in the EU or the United States. However, Ukraine’s integration into the world economy and increasing relations with the EU may lead Ukraine to accelerate the process of adopting more comprehensive legislation that reflects more stringent European environmental standards. Based on the applicable regulatory requirements, certain Metinvest companies, including Ingulets GOK (located in Ukraine) and United Coal (located in the United

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States), have created general reserve funds which may be used to cover environmental liabilities and compliance costs.

Future changes in environmental laws or in the enforcement of such laws may require Metinvest to make significant capital expenditures to modify production processes, install pollution control equipment, perform site clean-ups, curtail or cease certain operations, pay fees, fines or make other payments for discharges or other breaches of environmental standards or otherwise alter aspects of Metinvest’s operations, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Also, in the event of an environmental investigation, in the course, or as a result, of such investigation the relevant regulatory authorities may issue an order halting certain processes at a production facility which has violated environmental standards. Suspension of production at one or more of Metinvest’s facilities due to the imposition of such order may materially adversely affect its business, results of operations and financial condition.

Metinvest may receive contaminated scrap metal

To supplement its use of iron ore and concentrate, Metinvest includes scrap metal in the charge it processes into steel. Some of the scrap metal which Metinvest sources from external suppliers may be contaminated due to the Chernobyl disaster in Ukraine in 1986. As a result of strict monitoring procedures, management assesses the risk of shipments of contaminated scrap metal passing into Metinvest’s plants as very low. However, any use of contaminated scrap metal could result in losses and liabilities, including with respect to medical claims and work stoppages, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest benefits from limitations on the export of scrap metal that may be eliminated in the future

The price that Metinvest pays for scrap metal in Ukraine is generally significantly below world benchmark scrap prices. Favourable scrap metal prices are due in part to high duties on the export of Ukrainian scrap metal and generally high costs of transporting scrap metal over long distances. In the event that Ukrainian export restrictions on scrap were to be removed, the prices that Metinvest pays for scrap metal could increase, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s compliance with health and safety laws may require increased capital expenditures, and non- compliance may subject Metinvest to significant penalties

A violation of health and safety laws relating to a mine or plant, or failure to comply with the instructions of the relevant health and safety authorities, could lead to, amongst other things, the temporary shut down of all or part of the mine or plant; the loss of the right to mine or operate a plant; or the imposition of costly compliance procedures. If the health and safety authorities require Metinvest to shut down all or part of a mine or plant or to implement costly compliance measures, whether pursuant to existing or new health and safety laws and regulations, or the more stringent enforcement of existing laws and regulations, such measures could materially adversely affect Metinvest’s business, results of operations and financial condition. In addition, Metinvest’s stated objective of enhancing health and safety compliance at its facilities in line with international best practice may entail significant costs, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s business depends on exploration and mining licences issued by the Government of Ukraine and such licences may be withheld, revoked or not renewed

In Ukraine, where most of Metinvest’s mines are located, all subsurface resources belong to the people of Ukraine. Currently, exploration and mining licences are granted by the Ministry of Environmental Protection of Ukraine. Exploration and mining licences are not granted in perpetuity and any renewal must be obtained before expiry of the relevant licence.

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A business activity licence is required for the extraction of mineral resources from deposits of national importance. Business activity licences are generally not renewable. The applicant must apply for a new business activity licence once the previous licence expired.

The licences may be suspended or revoked, or an extension may be refused, if Metinvest does not satisfy the conditions of its licence, including the payment of licencing fees, the commencement of work within the period stipulated in the licence or compliance with mining, environmental, health and safety regulations. While Metinvest believes that it has complied with all material applicable regulations there can be no assurance that Metinvest will be able to achieve compliance with all applicable regulations at all times.

In addition, Metinvest’s business outside Ukraine also depends on the continuing validity of licences, the issuance of new licences and compliance with the terms of such licences, which may involve uncertainties and additional costs to Metinvest.

Any or all of these factors may affect Metinvest’s ability to obtain, maintain or renew necessary licences. If Metinvest is unable to obtain, maintain or renew necessary licences or is only able to obtain or renew them with newly introduced material restrictions, it may be unable to benefit fully from its reserves and implement its long-term expansion plans, which may materially adversely affect Metinvest’s business, results of operations and financial condition. See “Business Description—Licences”.

Title to Metinvest’s mineral properties or production facilities, or to any privatised company acquired by Metinvest, may be challenged

Some of the properties and facilities that Metinvest has acquired may be subject to prior claims or unregistered agreements, and title may be affected by undetected defects. There can be no assurance that Metinvest’s title to these properties will not be challenged. In addition, competitors may from time to time also seek to deny Metinvest’s rights to develop certain natural resource deposits by challenging its compliance with tender rules and procedures or compliance with licence terms.

Most of Metinvest’s steelmaking and mining assets in Ukraine consist of companies that have been privatised, and Metinvest may seek to acquire additional companies that have been privatised. Privatisations in some former Soviet republics (including Ukraine) have been subject to political controversy and legal challenge or reversal, including the re-privatisation (by way of re-nationalisation and re-sale by tender) of OJSC Kryvorizhstal (now OJSC Arcelor Mittal Kryviy Rih), Ukraine’s largest steel mill, in 2005. Privatisation legislation in Ukraine is vague, internally inconsistent and in conflict with other elements of Ukrainian legislation. As a result, most, if not all, privatisations are arguably deficient and vulnerable to challenge, including through selective action by governmental authorities. While Metinvest believes that it has complied with applicable legislation and regulations with respect to the acquisitions of its assets, if any of Metinvest’s acquisitions are successfully challenged as having been improperly conducted and Metinvest is unable successfully to defend itself, Metinvest may lose its ownership interests, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s competitive position and future prospects are heavily dependent on its senior managers’ experience and expertise

Metinvest’s ability to maintain its competitive position and to implement its business strategy and to carry out its day to day activities is dependent to a significant extent on the services of its senior management team. However, there can be no assurance that these individuals will continue to make their services available to Metinvest in the future. The loss of the services of members of Metinvest’s senior management team or an inability to attract and retain additional or replacement senior management personnel could have a material adverse effect on Metinvest’s business, results of operations and financial condition. Moreover, competition, particularly in Ukraine, for personnel with relevant expertise is intense due to the relatively small number of available qualified individuals, and therefore Metinvest’s ability to retain its existing senior management and attract additional suitably qualified senior management personnel may be limited. As a result of these factors, the departure of key members of management could have a material adverse effect on the business, results of operations and financial condition of Metinvest.

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Fluctuations in currencies may adversely affect Metinvest’s financial condition and results of operations

The functional currency of the majority of Metinvest’s companies located in Ukraine is the Hryvnia. The functional currencies of the Issuer and its other non-Ukrainian subsidiaries are the U.S. dollar, pound sterling or the Euro. On consolidation, income statements and cash flows of Metinvest’s subsidiaries for which the U.S. dollar is not the functional currency are translated into U.S. dollars, the presentation currency for Metinvest, at year-end official exchange rates. Assets and liabilities are translated into U.S. dollar at the official exchange rate as of the relevant respective balance sheet dates. The exchange rate between the Hryvnia and the U.S. dollar has historically fluctuated, and the translation effect of such fluctuations could have a material adverse effect on Metinvest’s consolidated, results of operations.

Metinvest produces steel products, iron and coal which are commodities that are typically priced by reference to prices in U.S. dollars, while a substantial portion of Metinvest’s costs are incurred in Hryvnia. In 2006, the Hryvnia remained stable against the U.S. dollar, while it depreciated in real terms against the Euro and Russian Rouble by approximately 11.4% and 9.3%, respectively. In May 2008, the Hryvnia started to strengthen against the U.S. dollar following the NBU’s decision to allow the Hryvnia to appreciate. However, by the end of 2008 the Hryvnia had depreciated against the U.S. dollar by 58.4% as compared to September 2008. While Metinvest benefited from the depreciation of the Hryvnia in 2008 and accrued an operating foreign exchange gain of U.S.$621 million in that year, there is no assurance that Metinvest will be able to similarly benefit from currency fluctuations in the future. Although the Hryvnia remained relatively stable through the first half of 2009, it began to depreciate again in the third quarter of 2009. The Hryvnia remained relatively stable against the U.S. dollar through the fourth quarter of 2009 and in the three months ended 31 March 2010. See “—Risks Relating to Ukraine—Ukraine’s currency is subject to exchange rate volatility”. If the Hryvnia strengthens against the U.S. dollar, this also could have an adverse effect on Metinvest’s business, results of operations and financial condition.

Transfer pricing rules may potentially affect Metinvest’s results of operations

Ukrainian transfer pricing rules apply to a wide range of situations involving cross-border and certain domestic transactions, most typically regulating pricing for goods and services sold or purchased to or from related parties. Under Ukraine’s law “On Taxation of Profits of Enterprise”, dated 28 December 1994, as restated and amended on 22 May 1997 (the “ Corporate Income Tax Law” or “CIT Law”), transactions between related parties must be carried out at arm’s length. More specifically, a taxpayer must report the higher of the contractual prices and market prices, which are termed “usual prices” in the parlance of the CIT Law, in connection with the sale of goods or services to related parties. Similarly, a taxpayer’s deductible expenses may not exceed the “usual prices” for goods and services.

Under the CIT Law, “usual prices” also apply to transactions with persons who either do not pay corporate income tax or pay it at a rate other than the standard rate of 25.0%. Because Metinvest’s foreign counterparties, excluding those that have a permanent establishment in Ukraine, may not be payers of Ukrainian corporate income tax at the rate of 25.0%, the tax authorities may interpret this rule to apply to any transaction between Metinvest, as a resident entity, and its foreign counterparties, regardless of whether they are related parties.

Metinvest’s historical and current trading relationships, including sales between businesses in each of its segments, could fall within these transfer pricing rules. No “safe harbour” is provided by the CIT Law if the sale price deviates from the arm’s length price. Accordingly, Metinvest must report corporate income tax on export transactions at prices at which it makes purchases and prices used in transactions between its subsidiaries, as adjusted to the arm’s length prices, that is, not lower than the usual prices for such products and supplies. Metinvest’s Ukrainian subsidiaries must also report deductible expenses for corporate income tax purposes at the level not greater than usual prices on import transactions and on transactions with other Ukrainian related parties and non-standard rate payers of corporate income tax.

The CIT Law offers a number of methods to establish the usual price. According to the commonly used comparable uncontrolled price method (the “CUP”), the usual price is determined by reference to the sales price of identical (or similar) goods, works, or services between unrelated parties taking into account the commercial value of such agreements including the amount, volume of goods, contractual obligations,

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payment terms and other relevant terms. Other methods are largely based on national accounting standards and include the resale price method, the cost plus method and the balance sheet value method. However, there can be no guarantee that the transfer pricing method and underlying data used by the tax authorities to determine the usual price would correspond to the method and data used by management. Accordingly, any discrepancies between such tax assessments could lead to a dispute between tax authorities and Metinvest which could have an adverse effect on Metinvest’s business, results of operations and financial condition.

Ukraine’s law “On Value-Added Tax”, dated 3 April 1997, as amended (the “VAT Law”), requires that the relevant VAT liability must be reported with respect to the higher of the contractual price and usual price of the relevant goods or services irrespective of whether or not the transaction takes place between related parties. Similarly, input VAT must not exceed input VAT calculated by reference to usual prices. In contrast to the CIT Law, however, the VAT Law provides a “safe harbour” rule, under which usual prices apply only if and when such prices deviate, as explained above, from the contractual prices by more than 20.0%.

Metinvest has developed and follows an internal transfer pricing policy which its management believes is based on market practice and complies with tax and customs legislation in Ukraine. Management believes that the prices at which Metinvest purchases supplies and raw materials from, and the prices at which it sells products to, related parties, are the usual prices for such supplies and products. However, the relevant laws, rules and standards used for the purpose of determining usual prices in Ukraine are vaguely drafted and leave wide scope for interpretation by the Ukrainian tax authorities and administrative courts. In addition, to date, there has been only limited guidance as to how these laws, rules and standards are to be applied. As a result, there can be no assurance that the tax authorities in Ukraine will not challenge Metinvest’s prices and propose adjustments for corporate income tax as well as VAT purposes. If such price adjustments are implemented, Metinvest’s effective tax rate could increase and future financial results could be adversely affected. In addition, Metinvest could face significant losses associated with the assessed amount of prior tax underpaid and related tax interest and penalties, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

If Metinvest is unable to obtain or maintain quality certifications for its facilities, it may lose existing customers or fail to attract new customers

In order to expand its sales of higher quality steel products, Metinvest will need to maintain existing and may need to obtain additional quality certifications. Consumers of high quality steel, particularly those in the EU and the United States, often require that their suppliers have these certifications before commencing new supplier trials. In addition, Metinvest may need to undertake further measures in order to maintain the competitiveness of its products.

Most of Metinvest’s operating facilities are certified as complying with, among others, ISO 9001, ISO 14001 and OHSAS 18001 standards and most of its major products are certified by leading international classification societies, including Lloyd’s Register, Germanischer Lloyd, Det Norske Veritas, TÜV-NORD and others. These certifications are widely recognised. Metinvest’s certified products include slabs, billets, plates and shapes and bars. If Metinvest’s certifications are cancelled or approvals withdrawn, its ability to continue to serve its targeted markets or to retain customers may be impaired.

Trade-related legal proceedings and agreements may force Metinvest to decrease exports of its steel products and adversely affect Metinvest’s business

Steel exports are frequently the target of countervailing duty claims relating to anti-dumping and/or safeguard measures. Metinvest faces protective tariffs, duties and quotas which reduce its competitiveness in, and limit its access to, particular markets. See “—Metinvest faces trade restrictions on the export of steel products.”

Although following Ukraine’s accession to WTO in 2008, the EU abolished import quotas on Ukrainian steel, several steel importing countries (some of which are WTO members), such as Russia, the United States, Canada, Argentina and Australia currently have import restrictions in place with respect to certain steel imports from Ukraine due to the fact that the WTO agreement allows governments to act against dumping where there is genuine material injury to the competing domestic industry.

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In December 2006, Russia introduced a special 8% three-year duty on imports of large-diameter pipes. This duty applies equally to all large-diameter pipes imported to Russia. In August 2007 Russia imposed import quotas on Ukrainian steel rebars. The total quota was 1.2 million tonnes of steel rebars but it is being currently reviewed.

As a major Ukrainian steel producer, which exports 89% of its steel products, Metinvest may continue to be subject to such trade-related proceedings or quotas in the future. Anti-dumping proceedings or any other form of import restrictions may limit the access to export markets for Metinvest’s products and thereby adversely impact Metinvest’s sales or limiting its opportunities for growth. See also “Industry—Steel Industry—Metinvest’s Markets for Steel Products”.

Metinvest is subject to risks relating to equipment failure, production curtailment and shutdown

As with any manufacturer, Metinvest’s manufacturing process depends on critical items of steelmaking equipment, such as furnaces and rolling equipment, as well as electrical equipment such as transformers. Such equipment may, from time to time, be taken out of service as a result of unanticipated failures. In the future, Metinvest may experience material plant shutdowns or periods of reduced production as a result of such equipment failure. Metinvest may also be subject to interruptions in production related to catastrophic events such as fires, explosion or natural disasters. Although Metinvest has business interruption insurance in place, including “inter-dependency” coverage for its key companies, an interruption in production capability may require Metinvest to make large capital expenditures to remedy the situation, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest does not carry the types of insurance coverage customary in more economically developed countries for a business of its size and nature

At present, Metinvest maintains mandatory insurance policies against certain types of risk in accordance with Ukrainian law, including life and health insurance, third party liability insurance on hazardous industrial assets and in respect of cargo and motor vehicles. Additionally, Metinvest maintains voluntary insurance cover for most of its production facilities in respect of cargo and motor vehicles; “All Risk” insurance for property damage and business interruption (other than deep-pit mining) and “inter-dependency” coverage for its key production facilities including Azovstal, Yenakiieve Steel, Northern GOK, Central GOK, Ingulets GOK and Avdiivka Coke, covering both physical damage and loss of profit; life and health insurance; and product liability insurance in respect of Metinvest’s products sold to markets outside the CIS region. It does not, however, maintain public liability insurance against claims by members of the public for personal injury or damage to property caused by Metinvest’s operations or product recall insurance to cover the costs involved in the recall of Metinvest’s products.

In the case of a major event affecting any of Metinvest’s facilities, Metinvest could experience substantial property loss and/or significant disruption to its production capacity, and may face claims, amongst other things, for personal injury, death and/or damage to property caused by Metinvest’s operations. Accordingly, Metinvest may incur uninsured losses of assets and may be subject to claims which are not covered, or not sufficiently covered, by insurance. Any such loss or third-party claim for damages that is not fully covered by insurance may materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s subsidiaries in Ukraine are in many cases one of the largest employers in their respective regions, which may subject Metinvest to social and political pressures

Metinvest’s subsidiaries are in many instances among the largest employers in the regions and cities where they operate. While under Ukrainian legislation Metinvest does not have any specific social obligations or responsibilities in relation to these regions or to trade unions to which most of Metinvest’s employees belong,

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Metinvest’s ability to reduce its workforce may nevertheless be subject to local political and social considerations.

In addition, the majority of Metinvest’s employees belong to the Federation of Trade Unions of Ukraine and are generally employed under labour agreements entered into for an indefinite period of time. While Metinvest’s management believes that its current relations with the trade unions are satisfactory, no assurance can be given that work stoppages will not occur. Work stoppages could reduce production and negatively affect Metinvest’s profitability. Any inability to make scheduled or unanticipated reductions in its workforce, or any long-lasting work stoppages caused by strikes or labour disputes could materially adversely affect Metinvest’s business, results of operations and financial condition.

Metinvest’s operating subsidiaries have minority shareholders

Metinvest owns less than 100.0% of the equity in its production subsidiaries based in Ukraine, with the remaining equity being held by a large number of individual minority shareholders. In particular, minority shareholders hold approximately 9.4% and 9.0%, respectively, in the share capital of Yenakiieve Steel and Avdiivka Coke. The governing authorities of Metinvest’s operating subsidiaries, including their shareholders’ meetings, supervisory councils and management boards, have in the past made and continue to make strategic and operational decisions and approve various business transactions which may be challenged by minority shareholders under Ukrainian law. Under the Law of Ukraine on Joint Stock Companies, which became effective on 30 April 2009, any proposal by a shareholder or shareholders who in aggregate own 5.0% or more of the company’s shares must be included into the agenda of the company’s general shareholders’ meeting.

Therefore, minority shareholders controlling 5.0% or more of the shares of a company have the right to request the inclusion of additional items into the agenda of the shareholders’ meeting. Also, under the Joint Stock Company Law, any shareholder has the right to challenge decisions taken at the general shareholders’ meeting in breach of legislative requirements if such decisions violate his interests.

Metinvest may incur liabilities in connection with its pension plans

Metinvest has pension plans under which Metinvest is required to provide agreed benefits to current and former employees. In 2009, the value of Metinvest’s unfunded defined benefit obligations was U.S.$385 million and the value recognised in the consolidated income statement was U.S.$79 million. See “Management’s Discussions and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments”. Metinvest may not be able to meet its obligations under unfunded benefit obligations. Furthermore, Metinvest’s net liabilities under the defined benefit plans may be significantly affected by changes in the discount rate, the expected return on the plan’s assets, the social security rate, the rate of increase in salaries and pension contributions, changes in demographic variables or other events and circumstances. Changes to local legislation and regulation relating to defined benefit plan funding requirements may result in significant deviations in the timing and size of the expected cash contributions under such plans. There can be no assurance that Metinvest will not incur additional liabilities relating to its pension plans, and these additional liabilities could have a material adverse effect on Metinvest’s business, results of operations and financial condition.

Risks Relating to Metinvest’s Acquisition Strategy

Metinvest may experience difficulties and higher costs or unanticipated financial liabilities or losses when it integrates either completed acquisitions or any future targets into its operations

Metinvest is a large integrated steel producer whose businesses cover steel production, iron ore, coal mining and logistics. It has grown rapidly in a relatively short period of time primarily through the integration of businesses under common control and acquisitions of additional assets, and its strategy is based on its ability to successfully integrate these businesses in order to enhance its position as a vertically integrated steel and mining group.

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In April 2009, Metinvest acquired a 100.0% interest in United Coal Company (“United Coal”). In December 2009, Metinvest also completed the acquisition of Promet Steel and acquired control of Makiivka Steel. The integration of newly acquired businesses (or businesses previously under common control but outside Metinvest) may be difficult for a variety of reasons, including differing culture or management styles, poor records or internal controls. As a result, the need to integrate recently acquired businesses (or businesses previously under common control but outside Metinvest) poses significant risks to Metinvest’s existing operations, including: • additional demands placed upon Metinvest’s senior management, who are also responsible for managing Metinvest’s existing operations; • increased overall operating complexity of Metinvest’s business, requiring greater personnel and other resources; • significant cash expenditures to integrate recent acquisitions; • outstanding or unforeseen legal, regulatory, contractual, labour or other issues arising from the acquisitions; • incurrence of additional debt to finance acquisitions and higher debt service costs related thereto; and • the ability to attract and retain sufficient numbers of qualified management and other personnel. If Metinvest cannot successfully integrate these recently completed and future acquisitions on a timely and efficient basis, it may incur higher than expected costs and not realise all the anticipated benefits of these acquisitions. Moreover, newly acquired businesses may expose Metinvest to unforeseen losses or liabilities and it may not be able to obtain indemnification for such losses or liabilities from the sellers due to limitations in the sale and purchase agreement and/or the seller’s inability to pay. See also “— Metinvest may have only limited financial and other information about potential targets and their financial performance may differ from that of Metinvest.” Newly acquired business may also require Metinvest to increase significantly its outstanding indebtedness. See “Metinvest is permitted under the Conditions to incur a significant amount of additional indebtedness at the level of Non-Guarantor Subsidiaries and on a secured basis. Payments under the Notes will be structurally subordinated to indebtedness incurred at the level of Non-Guarantor Subsidiaries and, prior to the Additional Guarantors guaranteeing the Notes, to the indebtedness incurred at the level of the Additional Guarantors, and will be effectively subordinated to secured Indebtedness of the Issuer and the Subsidiaries.”

Metinvest may have only limited financial and other information about potential targets and their financial performance may differ from that of Metinvest

As part of Metinvest’s expansion strategy, it has acquired a number of companies in Ukraine, Europe, the United Kingdom and the United States and it may continue to explore acquisition opportunities elsewhere in the world. Target companies may not prepare financial statements in accordance with IFRS, U.S. GAAP or any other set of internationally recognised accounting standards and may prepare accounts based on local GAAP, which may not always reflect all material transactions. Therefore, Metinvest may not be able to rely on a target’s financial information as indicative of its past financial performance. In addition, there may be significant differences between Metinvest’s accounting policies and those of a target (including policies related to revenue recognition, valuation of assets and capitalisation of expenses), which may also affect the comparability between a target and Metinvest. Because Metinvest may not have the benefit of reliable financial statements, it may discover areas of financial concern after making an acquisition that it did not foresee prior to the acquisition.

Although Metinvest generally conducts due diligence prior to acquiring a business, in some instances it may have limited time or restricted access to the target and its records and may not always be able to conduct full diligence prior to completing an acquisition. Any unforeseen problems with an acquired company’s financial performance or conduct of its business prior to its acquisition by Metinvest may cause Metinvest not to realise the value or achieve the strategic objective it anticipated from its investment and could lead to adverse

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consequences, including the need to make provisions or to write down acquired assets and may place additional demands upon Metinvest’s senior management in order to integrate the business.

Because of the relatively short period of time Metinvest has owned or operated its newly acquired businesses or assets, particularly in cases where it carried out limited pre-acquisition due diligence, Metinvest may not yet be fully aware of the extent of acquired liabilities or other problems. Metinvest may be required to pay a substantial portion of the purchase price for acquisitions prior to the closing of the transactions and prior to the receipt of any of the shares or assets that are the subject of the transactions. In such event, Metinvest may be exposed to the risk of failing to recover the purchase price in the event that transactions fail to complete and/or may not be able to obtain indemnification for any loss or damage from the sellers.

Metinvest may not be able to secure sufficient financing to fund its acquisition strategy

Metinvest anticipates that its cash flows will not be sufficient to fund its future acquisitions. As such, obtaining sufficient external financing can be crucial to its acquisition strategy. Metinvest may not in the future be able to arrange financing for planned acquisitions at an attractive cost or at all due to the interest rate environment and limitations on its ability to enter into financing transactions imposed under the Terms and Conditions of the Notes. Metinvest’s ability to arrange financing in the longer term, and the cost of financing generally, depends on many factors, including: • economic and capital markets conditions generally, and in particular the non-investment grade debt market; • investor confidence in the Ukrainian steel, iron ore and coal industries and in Metinvest; • Metinvest’s business performance; • regulatory developments; • credit available from banks and other lenders; and • provisions of tax and securities laws that are conducive to raising capital. The terms and conditions on which future funding or financing may be made available may not be acceptable or funding or financing may not be available at all. Banks and capital markets, globally, have experienced a significant disruption since August 2008 that has been characterised by severe reductions in liquidity, greater volatility, general widening of spreads and, in some cases, lack of price transparency in money and capital markets interest rates. As a result, many lenders have reduced or ceased providing funding to borrowers, particularly in the emerging markets, and there has been a general increase in the cost of borrowing for private-sector borrowers, including Metinvest. The continuation or worsening of this market disruption may adversely impact Metinvest’s ability to borrow from banks or in the capital markets and may further increase the cost of such borrowing. Moreover, if additional funds are raised by incurring debt, Metinvest may become more leveraged and subject to additional or more restrictive financial covenants and ratios. Metinvest’s inability in the longer term to procure sufficient financing for these purposes could adversely affect its ability to expand its business and meet its production targets, may result in Metinvest facing unexpected costs and delays in relation to the implementation of its project development plans, and, if the reductions in financing levels are severe enough, they could adversely affect Metinvest’s ability to maintain its production at current levels which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Rapid growth and a rapidly changing operating environment may strain Metinvest’s resources

Metinvest has experienced rapid growth in a short period of time. Managing its growth has significantly strained Metinvest’s managerial and operational resources and is likely to continue to do so. Metinvest’s operational, administrative and financial resources may be inadequate to allow it to achieve the growth that it desires. As Metinvest integrates its acquisitions and as its customer base expands, increased investments are needed in its technology, facilities and other areas of operations, in particular research and development, customer service and sales and marketing, which are important to Metinvest’s future success. As a result of

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such growth, Metinvest will need to continue to improve its operational and financial systems and managerial controls and procedures. Metinvest will also have to maintain close coordination among its production, technical, accounting, finance, marketing and sales personnel. If Metinvest is unable to manage its growth and expansion effectively, the quality of its products and services and customer support could deteriorate which may materially adversely affect Metinvest’s business, results of operations and financial condition.

Further expansion of Metinvest’s business outside Ukraine, the EU and the United States may expose it to risks

Further expansion of Metinvest’s business into markets outside Ukraine, the EU and the United States may expose it to risks that are not present in the these markets. In addition, Metinvest cannot be certain that elements of its business model that are successful in these markets will also be successful outside such markets. The geographic spread, revenue mix as between regions and operations, regulatory profile and other important aspects of Metinvest’s business profile may differ and change depending on the nature and extent of Metinvest’s future acquisitions. Such risks, if they materialise, may materially adversely affect Metinvest’s business, results of operations and financial condition.

Some transactions of Metinvest’s Ukrainian subsidiaries, including the Guarantors, may be subject to additional corporate approval requirements

There is uncertainty as to whether Metinvest’s Ukrainian subsidiaries existing as open joint stock companies (“OJSCs”) or closed joint stock companies (“CJSCs”), including the three Initial Guarantors (Avdiivka Coke, Ingulets GOK and Khratsyzsk Pipe), should be subject to the additional corporate approval requirements set out in the new Law of Ukraine “On Joint Stock Companies”, effective from 20 April 2009 (the “New Joint Stock Company Law”), including the requirements related to the approval of “transactions with interested parties” and “material transactions” (as defined below). Currently, such subsidiaries, including the Initial Guarantors, rely on the official position of the State Commission on Securities and the Stock Market of Ukraine (the “Securities Commission”) according to which the requirements of the New Joint Stock Company Law do not apply to the companies established as OJSCs or CJSCs before the effective date of the New Joint Stock Company Law and not yet transformed into public joint stock companies or private joint stock companies in accordance with the New Joint Stock Company Law. Given that such subsidiaries, including the Initial Guarantors, have not yet been so transformed, they have not undertaken the corporate approval procedures required under the New Joint Stock Company Law, including the procedures related to transactions with interested parties and material transactions. There is no indication that the above specified position of the Securities Commission may change in the future. In the event that such a change would occur or the Ukrainian courts would take a different interpretation of the New Joint Stock Company Law, certain transactions of Metinvest’s Ukrainian subsidiaries, including the Surety Agreement to which the Initial Guarantors are parties may be subject to challenge as such which did not undergo proper corporate approvals. In such case, the binding nature of the Surety Agreement on any of the Initial Guarantors affected by such decision may be challenged.

Four of the five Additional Guarantors, which are Ukrainian OJCS (Azovstal, Yenakiieve Steel and Iron Works, LLC Metalen, Northern GOK and Central GOK), would need to transform into public joint stock companies and, as a result to obtain the above specified corporate approvals in accordance with the New Joint Stock Company Law prior to their entry into the Surety Agreement.

Under the new Joint Stock Company Law, an “interested party transaction” is subject to a specific approval procedure described below. An “interested party transaction” is a transaction in which an Interested Party (as defined below): • is the company’s counterparty; • is the representative or intermediary of a party (except for the representation of a company by its officers); • is remunerated by the company (or its officers) or another party to the transaction in return for undertaking the transaction;

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• acquires property or achieves other business purposes; and/or • is affiliated with a legal entity that is a party to the transaction or is a representative or intermediary of one of the parties, or is remunerated by the company or another party to the transaction or acquires property or achieves other business purposes as a result of the transaction.

An “Interested Party” is any of the following: • an officer of the company (being a member of the Management Board, Supervisory Board, Audit Committee or any other body established in accordance with the company’s charter)) or a person affiliated with any such officer, or • a shareholder who alone or together with its affiliated parties holds 25% or more of the company’s ordinary shares

An “interested party transaction” requires an approval of the supervisory board of the company. The supervisory board may disapprove or submit an “interested party transaction” for the consideration by the general shareholders meeting.

If the Interested Party is a member of the supervisory board it may not participate in voting regarding an “interested party transaction”. At the same time, if the majority of the members of the supervisory board are Interested Parties such “interested party transaction” must be approved by the general shareholders meeting.

Any “interested party transaction” intentionally undertaken by the Interested Party without the approval of the supervisory board may be invalidated by the court, and in such case the Interested Party may be required to compensate the company for any loss or damage suffered as a result.

Absent any established court practice, “interested party transactions” may be subject to challenge. Any such challenge could result in the invalidation of certain transactions that are important to the business of the Company.

A transaction is defined as material if the value of the property and services which are subject to such transaction equals or exceeds 10% of the value of the assets based on the last annual financial statements of the company.

Risks Relating to Ukraine

Ukraine’s economy is vulnerable to fluctuations in the global economy.

When the global economic and financial situation began to deteriorate in 2008, the effect on Ukraine’s economy was particularly severe. Because Ukraine is a major producer and exporter of steel and agricultural products, the Ukrainian economy is especially vulnerable to world commodity prices and the imposition of import tariffs by the United States, the EU or by other major export markets.

Ukraine’s industrial output decreased dramatically starting from the fourth quarter of 2008: the full-year decline in industrial output in 2008 amounted to 3.1%, compared to a growth of 10.2% in 2007. Industrial output further declined in 2009 by 21.9%, as compared to 2008. In addition, consumer price inflation in Ukraine was 11.6% in 2006, 16.6% in 2007, 22.3% in 2008 and 12.3% in 2009, in each case as compared to the previous year. Wholesale prices are also vulnerable to the increases in world prices for steel products and grain, as well as natural gas and oil, and wholesale price inflation, or WPI, levels have been high (at year- end 2008 and 2009, Ukraine had 23.0% and 14.3% inflation, respectively, over the end of the previous year as measured by WPI).

Further, Ukraine’s economy has been significantly affected by the global credit crisis that began in 2008, as a result of which the international capital markets ceased to be available for Ukrainian borrowers. This could affect the liquidity of Metinvest’s customers located in Ukraine, which could in turn impact their ability to repay amounts due to Metinvest. The reduced availability of external financing for Ukrainian companies contributed to a decline in industrial production and a general cutback of investment projects and capital expenditures. The ongoing global financial crisis has resulted in a significant devaluation of the national

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currency against other major currencies. In addition, in the fourth quarter of 2008, international agencies began to downgrade the country’s credit ratings. A sustained deterioration of global or regional economic conditions may lead to a further worsening of the economic and financial crisis in Ukraine.

The global economic crisis had a negative effect on export oriented sectors that are dependent on global commodities prices. Specifically, metallurgy, the chemical industry and machinery building were among the main drivers of the economic decline that began in third quarter of 2008.

Any such developments, including the continued unavailability of external funding and increases in world prices for goods imported by Ukraine or decreases in world prices for goods exported from Ukraine, may have or continue to have a material adverse effect on the economy and thus on Metinvest’s ability to repay principal and interest under the Notes.

Emerging markets such as Ukraine are subject to greater risks than more developed markets

An investment in a country such as Ukraine, which achieved independence less than 20 years ago and whose economy is in transition, is subject to substantially greater risks than an investment in a country with a more developed economy and more mature political and legal systems. Although some progress has been made since independence in 1991 in reforming Ukraine’s economy and political and judicial systems, to a large extent Ukraine still lacks the necessary legal infrastructure and regulatory framework that are essential to support market institutions, the effective transition to a market economy and broad-based social and economic reforms. As a consequence, an investment in Ukraine carries risks that are not typically associated with investing in more mature markets. These risks may be compounded by incomplete, unreliable or unavailable economic and statistical data on Ukraine, including elements of the information provided in this Offering Memorandum. See “— Official economic data and third party information in this Offering Memorandum may not be reliable”. Investors should also note that emerging economies, such as Ukraine’s, are subject to rapid change and that the information set out in this Offering Memorandum may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investments in emerging markets, such as Ukraine, are only suitable for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult their own legal and financial advisors before making an investment in the Notes.

Ukraine may continue to experience political instability or uncertainty

Since obtaining independence in 1991, Ukraine has undergone substantial political transformation from a constituent republic of the former Union of Soviet Socialist Republics to an independent sovereign state. In parallel with this transformation, Ukraine is transitioning from a centrally planned economy to a market economy However, this process of economic transition is not complete. Historically, a lack of political consensus in the Verkhovna Rada, or Parliament of Ukraine has made it difficult for the Government to sustain a stable coalition of parliamentarians to secure the necessary support to implement a variety of policies intended to foster economic reform and financial stability.

The current Parliament was elected at the parliamentary elections held on 30 September 2007. In December 2007, the new Parliament appointed Yuliya Tymoshenko as the Prime Minister of Ukraine. On 9 October 2008, the President issued a decree dissolving the Parliament and designating 7 December 2008 as the date for new parliamentary elections. However, this decree was challenged in court and cancelled by a subsequent decree by the President. In December 2008, the Parliament elected its new Speaker, Volodymyr Lytvyn, and a new majority coalition was formed comprising three parliamentary factions: Our Ukraine – People’s Self Defense Bloc, Yuliya Tymoshenko’s Bloc and the Volodymyr Lytvyn Bloc.

The first round of the recent presidential elections was held on 17 January 2010; however, no candidate won 50% or more of the popular vote and the two highest polling candidates, Victor Yanukovych, a leader of Partiya Regioniv (the Party of Regions), and Yuliya Tymoshenko, a leader of Yuliya Tymoshenko’s Bloc, took part in the second round of elections. On 7 February 2010 Victor Yanukovych and Yuliya Tymoshenko won 48.95% and 45.7% of the popular vote, respectively. Although Yuliya Tymoshenko initially contested

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the results of the elections, she subsequently conceded and Viktor Yanukovych was inaugurated as President of Ukraine on 25 February 2010.

On 3 March 2010 the incumbent Prime Minister Yuliya Tymoshenko was voted out of the Government following a vote of no confidence by the Parliament. On 11 March 2010, factions of Party of Regions, Volodymyr Lytvyn Bloc and Communist Party of Ukraine and several other deputies formed a new parliamentary coalition consisting of 235 deputies. On the same day, the Parliament appointed Mykola Azarov, a member of Party of Regions, as the new Prime Minister of Ukraine and endorsed the new members of the Government. Currently, the Government consists mainly of members of the President’s Party of Regions with a few positions being occupied by representatives of other political forces.

On 11 March 2010 the Law of Ukraine amending the Regulation on the Parliament of Ukraine (the “Parliament Law”) in relation to the procedure for forming the Parliamentary coalition came into effect. Under the Parliament Law, the coalition is formed by majority of members of Parliament, including fractions and individual members of Parliament. On the same day, the Parliament endorsed the establishment of a new coalition “Stability and Reforms”, formed by fractions of the Party of Regions, the Communist Party of Ukraine and Bloc Lytvyna as well as 16 individual members of Parliament.

In March 2010, two applications have been submitted to the Constitutional Court of Ukraine by two groups of members of the Parliament, one of which requested an official interpretation, while the other questioned the constitutionality of certain provisions of the Law of Ukraine “On regulations of the Verkhovna Rada of Ukraine” (the “Parliament Regulations Law”) dated 10 February 2010 in the context of the ability of individual deputies (as opposed to parliamentary factions) to take part in the formation of the majority coalition in the Parliament. On 6 April 2010, the Constitutional Court of Ukraine ruled in its decision that the provisions of the Parliament Regulations Law and the Constitution of Ukraine should be interpreted as allowing individual deputies to join the majority coalition. This decision of the Court, however, was issued in response to the request for an official interpretation of the provisions of the Parliament Regulations Law, and the Court has not expressly opined on the constitutionality of such provisions in its decision. Accordingly, no assurance can be given that the Court will not declare the relevant provisions of the Parliament Regulations Law unconstitutional in response to the submission of the second group of parliamentarians in future. Such outcome may result in further political upheaval and instability in Ukraine.

As of the date of this Offering Memorandum, relations between the President, the Government and Parliament, as well as the procedures and rules governing the political process in Ukraine, including formation and dissolution of a coalition and of factions, remain in a state of uncertainty and may be subject to change through the process of political alliance-building or, if the required action is taken, through constitutional amendments and decisions of the Constitutional Court. Recent political developments have also highlighted potential inconsistencies between the Constitution of Ukraine and various laws and presidential decrees. Furthermore, such developments have raised questions regarding the judicial system’s independence from economic and political influences. A number of factors could adversely affect political stability in Ukraine. These could include: • failure to obtain or maintain the number of parliamentary votes required to form or maintain a stable Government; • lack of agreement within the fractions and amongst the deputies that form a governing coalition; • court action taken by opposition parliamentarians against decrees and other actions of the President, the Government or the parliamentary coalition; or • court action by the President against parliamentary or governmental resolutions or actions. If political instability occurs, it may have negative effects on the Ukrainian economy and, as a result, a material adverse effect on Metinvest’s business, results of operations and financial condition. Such instability could also cause trading in the Notes to be volatile or adversely affect the trading price of the Notes.

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Ukraine may experience economic instability

The negative impact of the global economic and financial downturn has been compounded by weaknesses in the Ukrainian economy, which is sensitive to external and internal events. In particular, although the Government has generally been committed to economic reform, the implementation of reform has been impeded by lack of political consensus, controversies over privatisation (including privatisation of land in the agricultural sector and privatisation of large industrial enterprises), restructuring of the energy sector, and removal of exemptions and privileges for certain state owned enterprises or for certain industry sectors. The negative trends in the Ukrainian economy may continue while commodity prices on the external market remain low and access to foreign credit is limited, unless Ukraine undertakes certain important economic and financial structural reforms. The most critical structural reforms that need to be implemented or continued include: (i) comprehensive reforms of Ukrainian tax legislation with a view to broadening the tax base by bringing a substantial portion of the shadow economy into the reporting economy; (ii) reform of the energy sector through the introduction of uniform market-based energy prices and improvement in collection rates (and, consequently, the elimination of the persistent deficits in that sector); and (iii) reform of social benefits and pensions.

According to the SSCU, the rate of inflation in 2009 was 12.3%, which is lower that the 16.6% and 22.3% recorded in 2007 and 2008, respectively, but higher than the 11.6% and 10.3% recorded in 2006 and 2005, respectively.

In 2009, the Ukrainian government incurred a budget deficit of UAH19.9 billion according to the Ministry of Finance of Ukraine and GDP, as calculated in the national currency, decreased by 20.2% in the first quarter of the year, 17.8% in the second quarter of the year, 16.0% in the third quarter of the year and 6.8% in the fourth quarter of the year, each as compared to the corresponding periods in 2008. However, it should be noted that the international investment markets generally evaluate Ukrainian GDP in U.S. dollar terms and that the recent U.S. dollar/hryvnia exchange rate volatility has further impacted the reported GDP decrease. Accordingly, the International Monetary Fund (the “IMF”) reported that Ukraine’s GDP amounted to US$179.6 billion in 2008 and US$115.7 billion in 2009, a decrease of 35.6% year-on-year.

Failure to achieve the political consensus necessary to support and implement such reforms and any resulting instability could adversely affect the country’s macroeconomic indices and economic growth. Furthermore, future political instability in the executive or legislative branches could hamper efforts to implement necessary reforms. There can be no assurance that the political initiatives necessary to achieve these or any other reforms described elsewhere in this Offering Memorandum will continue, will not be reversed or will achieve their intended aims. Rejection or reversal of reform policies favouring privatisation, industrial restructuring and administrative reform, may have negative effect on the Ukrainian economy and, as a result, on Metinvest’s business, results of operations and financial condition.

In addition, the current global financial crisis has led to the collapse or bailout of some Ukrainian banks and to significant liquidity constraints for others. The crisis has prompted the government to inject substantial funds into the banking system amid reports of difficulties among Ukrainian banks and other financial institutions. The continuation or worsening of the financial crisis, further insolvencies of Ukrainian banks, and the failure to adopt and implement a system of banking regulation that achieves an increased degree of soundness and stability in the nation’s banks could have a material adverse effect on the Ukrainian economy and, as a result, on Metinvest’s business, results of operations and financial condition.

Restricted access to international capital markets may adversely affect the Ukrainian economy

Ukraine’s internal debt market remains illiquid and underdeveloped as compared with markets in most Western countries. In the wake of the emerging market crisis in the autumn of 1998 and until the second half of 2002, loans from multinational organisations such as the EBRD, the World Bank, the EU and the IMF comprised Ukraine’s only significant sources of external financing. Consequently, unless the international capital markets or syndicated loan markets are available to Ukraine, the Government will have to continue to rely to a significant extent on official or multilateral borrowings to finance part of the budget deficit, fund its payment obligations under domestic and international borrowings and support foreign exchange reserves. These borrowings may be conditioned on Ukraine’s satisfaction of certain requirements, which may include,

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among other things, implementation of strategic, institutional and structural reforms; reduction of overdue tax arrears; absence of increase of budgetary arrears; improvement of sovereign debt credit ratings; and reduction of overdue indebtedness for electricity and gas.

Ukraine achieved its highest credit rating of B (with negative outlook) from Standard & Poor’s Rating Services, a division of McGraw Hill Companies, Inc., a credit rating agency (“S&P”). In February 2009 S&P revised its credit rating for Ukraine to CCC+ (with negative outlook), while in November 2009 Fitch Ratings Ltd. (“Fitch”) and Moody’s Investors Service (“Moody’s”) set their credit ratings for Ukraine at B- (with stable outlook) and B2 (with negative outlook), respectively. The global financial crisis and its negative impact on economic conditions in Ukraine caused Moody’s to lower Ukraine’s rating to “B2”, as of 12 May 2009, and downgrade its outlook to negative. However, on 11 March 2010 S&P increased credit rating of Ukraine under obligations in foreign currency from CCC+/C to B-/C (stable) and under obligations in national currency, from B-/C to B/B (stable) due to formation of the parliamentary coalition and the new Government and on 17 May 2010 S&P announced that it had raised the foreign currency sovereign credit rating of Ukraine to B/B and raised the fiscal currency rating to B+/B.

From 2003 until 2008, the international capital markets were Ukraine’s main source of external financing but they ceased to be available from mid-2008 due to the global economic and financial crisis. As a result, Ukraine sought IMF financing. In November 2008, the IMF approved a two-year Stand-By Arrangement with Ukraine (the “SBA”) for approximately U.S.$16.4 billion to assist the Ukrainian Government in restoring financial and economic stability. The drawdowns of IMF financing are contingent upon Ukraine’s satisfaction of certain requirements including: • reducing the budget deficit by imposing additional taxes and taking other non-tax measures, • introducing a comprehensive approach to budget and fiscal sector management, • strengthening the independence of the NBU as the principal regulator in the banking sector and developing and implementing a comprehensive bank refinancing and restructuring programme, and • bringing domestic natural gas prices in line with international market prices. According to the official IMF statements issued upon the second review of Ukraine’s economic performance under the SBA in July 2009, which was followed by the release of the U.S.$3.3 billion third tranche of the IMF financing, Ukraine’s authorities have succeeded in cutting down on non-priority expenditures and have taken a number of measures to restore viability in the natural gas sector. At the same time, IMF stressed that further fiscal measures and structural reforms should be implemented to ensure fiscal sustainability and restore confidence in the banking system. As at the date of this Offering Memorandum, the total disbursements under the SBA amounted to approximately U.S.$10.6 billion. In November 2009, IMF cancelled the next tranche under the SBA in amount of U.S.$3.8 billion due to increased levels of political instability and controversies among the President, the Government and the Parliament of Ukraine before the presidential elections. In March 2010, following the outcome of the presidential elections, IMF renewed its negotiations with Ukraine regarding the disbursement of the next tranche under the SBA. To secure further financing from IMF, the Government of Ukraine undertook to decrease the state budget deficit to approximately 5% and to increase the GDP to approximately 3.7% in 2010.

If Ukraine is unable to resort to the international capital markets or syndicated loan markets, a failure by official creditors and of multilateral organisations such as the EBRD, the World Bank or the EU to grant adequate financing may put pressure on Ukraine’s budget and foreign exchange reserves and materially adversely affect the Ukrainian economy and, as a result on Metinvest’s business, results of operations and financial condition.

Any unfavourable changes in Ukraine’s regional relationships, especially with Russia, may adversely affect the Ukrainian economy and thus Metinvest’s business

Ukraine’s economy depends heavily on its trade flows with Russia and the other countries of the former Soviet Union, largely because Ukraine imports a large proportion of its energy requirements, especially from

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Russia (or from countries that transport energy-related exports through Russia). In addition, a large share of Ukraine’s services receipts comprise of transit charges for oil and gas from Russia.

As a result, Ukraine considers its relations with Russia to be of strategic importance. However, relations between Ukraine and Russia cooled to a certain extent due to: • disagreements in late 2005 and early 2006 over the prices and methods of payment for gas delivered by the Russian gas monopolist OJSC Gazprom (“Gazprom”) to, or for transportation through, Ukraine; • unresolved issues relating to the temporary stationing of the Russian Black Sea Fleet (Chernomorskyi Flot) in the territory of Ukraine; and • a Russian ban on imports of meat and milk products from Ukraine and anti-dumping investigations conducted by Russian authorities in relation to certain Ukrainian goods.

If bilateral trade relations between Russia and Ukraine were to deteriorate or if Russia were to stop transiting a large portion of its oil and gas through Ukraine or if Russia halted supplies of natural gas to Ukraine, Ukraine’s balance of payments and foreign currency reserves could be materially and adversely affected and there could be a materially adverse effect on Metinvest’s business, results of operations and financial condition.

Russia has, recently and in the past, threatened to cut off the supply of oil and gas to Ukraine in order to apply pressure on Ukraine to settle outstanding gas debts and maintain low transit fees for Russian oil and gas through Ukrainian pipelines to European consumers. In early January 2009, Gazprom substantially decreased natural gas supplies to Ukraine reportedly due to failure by National Joint-Stock Company “Naftogas of Ukraine” (“Naftogas”), the Ukrainian state-owned oil and gas company, to timely repay all outstanding debts owed to Gazprom for natural gas supplied to Ukraine for domestic consumption in 2008, which led to distortion of gas supplies to the EU. Following negotiations between the governments of Russia and Ukraine and the signing of agreements between Naftogas and Gazprom setting out the terms of further natural gas supplies without Swiss-based intermediary RosUkrEnergo and transit through the territory of Ukraine, Gazprom in January 2009 resumed natural gas supplies to Ukraine and Western Europe. Also, Naftogaz faces serious penalties if it reduces the country’s gas consumption, while Gazprom faces no penalties if it supplies less than the agreed upon amount of gas to Ukraine. While this agreement could be used by Russian Federation to put pressure on Ukraine, on 20 November 2009 it was altered after a meeting between Ukraine’s Prime Minister Mrs. Tymoshenko and Prime Minister of Russian Federation Mr. Putin to allow Ukraine to buy less gas in view of the financial crisis in Ukraine in 2008 and 2009 without penalties.

Prices for natural gas supplied by Gazprom for domestic consumption in Ukraine increased in each of 2006, 2007 and 2008 from U.S.$50.0 per 1,000 cubic metres as of 1 January 2005 to U.S.$179.5 per 1,000 cubic metres as of 1 January 2008. Pursuant to the agreements for natural gas supplies and transit entered into between Naftogas and Gazprom on 19 January 2009 and covering a period between 2009 and 2019, the price for natural gas supplied to Ukraine for domestic consumption and the tariff for transit of natural gas through the territory of Ukraine are to be determined pursuant to formulas set out in the agreements. The Government estimates that the average annual price for natural gas supplied for domestic consumption in Ukraine in the three months ended 31 March 2010 was U.S.$305.2 per 1,000 cubic meters. In April 2010, Ukraine and the Russian Federation agreed to amend the existing gas supply agreements between Naftogas and Gazprom whereby Gazprom will provide a 30% discount to the natural gas price supplied to Ukraine but such discount will not exceed U.S.$100, to the price of 1,000 cubic meters of natural gas price.

Russia currently accounts for approximately 20.0% of Ukrainian exports, while much of Russia’s exports of energy resources are delivered to the EU via Ukraine. The increase in the price for natural gas by Russia may adversely affect the pace of economic growth of Ukraine due to the considerable dependence of the Ukrainian economy on Russian exports of energy resources. Furthermore, although the gas price increases have increased pressure for reforms in the energy sector and modernisation of major energy-consuming industries of Ukraine through the implementation of energy-efficient technologies and the modernisation of production facilities, there can be no assurance that these reforms will succeed.

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Political relations between Russia and Ukraine, which have become further strained in 2009, may adversely affect economic relations between the two countries. In August 2009, the presidents of the Russian Federation and Ukraine exchanged letters with regard to the most crucial issues affecting Ukraine-Russia relations, such as Ukraine’s intention to join NATO and to cooperate more closely with the EU, Ukraine’s support of Georgia, and efforts taken by the Ukrainian Government to reconsider common Ukrainian- Russian history.

Changes in Ukraine’s relations with Russia, in particular any such changes adversely affecting supplies of energy resources from Russia to Ukraine or Ukraine’s revenues derived from transit charges for Russian oil and gas, may have negative effects on certain sectors of the Ukrainian economy and, as a result, may materially adversely affect Metinvest’s business, results of operations, financial condition and prospects.

Relations with Russia and other CIS states may also affect Ukraine’s economy indirectly, through the actions of companies directly or indirectly owned or otherwise controlled by these states or their subdivisions and agencies. For example, in May 2008, the Russian company OJSC “Tatneft” (“Tatneft”) filed a request for arbitration against Ukraine. According to its published financial reports, Tatneft is significantly influenced by the government of Tatarstan, an autonomous republic within Russia. In addition, the Russian state owned bank the State Corporation “Bank of Development and External Economic Activity (Vneshekonombank)” (“Vneshekonombank”), whose Supervisory Board is chaired by the Prime Minister of the Russian Federation, Mr. Vladimir Putin, in January 2009 acquired controlling stake of over 75% of shares in Ukrainian PJSC “Industrial and Investment Bank” (“Prominvestbank”) and further increased its share in Prominvestbank to 93.8% in September 2009. More recently Vneshekonombank financed the acquisition of over 50.0% interest in the share capital of Industrial Union of Donbass, a Ukrainian metallurgical company by a group of Russian investors including Carbofer Group, a Swiss-based company co-owned by Russian businessman Alexander Katunin. There can be no assurance that actions of companies owned or controlled by foreign states would not have negative effects on the Ukrainian economy.

Weaknesses relating to the legal system and legislation may create an uncertain environment for investment and business activity

Since independence in 1991, as Ukraine has been developing from a planned to a market-based economy, the Ukrainian legal system has also been developing to support this market-based economy. Ukraine’s legal system is, however, in transition and is, therefore, subject to greater risks and uncertainties than a more mature legal system. In particular, risks associated with the Ukrainian legal system include, but are not limited to: • inconsistencies between and among the Constitution of Ukraine and various laws, presidential decrees, governmental, ministerial and local orders, decisions, resolutions and other acts; • provisions in the laws and regulations that are ambiguously worded or lack specificity and thereby raise difficulties when implemented or interpreted; • difficulty in predicting the outcome of judicial application of Ukrainian legislation due to, amongst other factors, a general inconsistency in the judicial interpretation of such legislation in the same or similar cases; • corruption within the judiciary system; and • the fact that not all Ukrainian resolutions, orders and decrees and other similar acts are readily available to the public or available in comprehensive form.

Furthermore, the recent origin of many of the Ukrainian laws, their limited history of applicability in the conditions of economic downturn, as well as lack of consensus as to measures necessary to address adverse developments in the Ukrainian economy may place the enforceability and underlying constitutionality of such laws in doubt and result in ambiguities, inconsistencies and anomalies. In addition, Ukrainian legislation often contemplates implementing regulations. Often such implementing regulations have either not yet been promulgated, leaving substantial gaps in the regulatory infrastructure, or have been promulgated

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with substantial deviation from the principal rules and conditions imposed by the respective legislation, which results in a lack of clarity and growing conflicts between companies and regulatory authorities.

These and other factors that have an impact on Ukraine’s legal system make an investment in the Notes subject to greater risks and uncertainties than an investment in a country with a more mature legal system.

Official economic data and third-party information in this Offering Memorandum may not be reliable

Although a range of governmental ministries, along with the NBU and the SSCU, produce statistics on Ukraine and its economy, there can be no assurance that these statistics are as accurate or as reliable as those compiled in more developed countries. Prospective investors in the Notes should be aware that figures relating to Ukraine’s GDP and many other aggregate figures cited in this Offering Memorandum may be subject to some degree of uncertainty and may not have been calculated in accordance with international standards. Furthermore, standards of accuracy of statistical data may vary from ministry to ministry or from period to period due to the application of different methodologies. In this Offering Memorandum, data are presented as provided by the relevant ministry to which the data is attributed, and no attempt has been made to reconcile such data to the data compiled by other ministries or by other organisations, such as the IMF. Since the first quarter of 2003, Ukraine has produced data in accordance with the IMF’s Special Data Dissemination Standard. There can be no assurance, however, that this IMF standard has been fully implemented or correctly applied. The existence of a sizeable unofficial or shadow economy may also affect the accuracy and reliability of statistical information. In addition, Ukraine has experienced variable rates of inflation, including periods of hyperinflation. Unless indicated, the information and figures presented in this Offering Memorandum have not been restated to reflect such inflation and, as a result, period to period comparisons may not be meaningful. Prospective investors should be aware that none of these statistics has been independently verified and that the data was extracted and reproduced by Metinvest, rather than prepared in connection with this Offering Memorandum. Metinvest accepts responsibility only for the correct extraction and reproduction of such information.

Metinvest has also provided information on certain matters pertaining to documentation that belongs to independent third parties. In certain of these circumstances, Metinvest has relied on reported information in presenting such matters but is unable to independently verify such information.

Ukraine’s currency is subject to exchange rate volatility

In view of the high dollarisation of the Ukrainian economy and increased activity of Ukrainian borrowers on external markets in 2005, 2006 and 2007, Ukraine has become increasingly exposed to the risk of Hryvnia exchange rate fluctuations. Since September 2008, the interbank U.S. dollar/Hryvnia exchange rate has fluctuated significantly. The official U.S. dollar/Hryvnia exchange rate increased from UAH 4.86 per U.S. dollar as at 30 September 2008 to UAH 7.70 per U.S. dollar as at 31 December 2008. In total, in 2008, the Hryvnia depreciated against the dollar by 52.5% and against the euro by 46% as compared to year-end 2007, and further depreciated against these currencies in the twelve months ended 31 December 2009 by 3.7% and 5.5%, respectively.

The NBU sought to address the instability of the Hryvnia by taking administrative measures (including certain foreign exchange market restrictions), and used approximately U.S.$5.0 billion of its foreign exchange reserves to support the Ukrainian currency in 2009. The official exchange rate was UAH 7.98 to U.S.$1.00 at the end of 2009. The fluctuations in the U.S. dollar/Hryvnia exchange rate have negatively affected the ability of Ukrainian borrowers to repay their indebtedness to Ukrainian banks (more than 50.0% of the domestic loans are denominated in foreign currency) as well as to external lenders.

The sharp devaluation of the Hryvnia led investors to withdraw from assets denominated in that currency and currency risk was a significant factor hampering investments into Ukraine in 2009. The Ukrainian currency may depreciate further in the near future, given the absence of significant currency inflow from exports and foreign investment, as well as the need for borrowers to repay a substantial amount of short-term external private debt (estimated by the NBU to be approximately U.S.$19.7 billion as at 1 January 2010). Any further currency fluctuations may negatively affect the Ukrainian economy in general and, as a result, Metinvest’s business, results of operations and financial condition.

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Any adverse changes in Ukraine’s relationships with western governments and institutions may adversely affect the Ukrainian economy and thus Metinvest’s business

Ukraine continues to pursue the objectives of achieving a closer relationship with the NATO and the EU and, on 16 May 2008, joined the WTO. With effect from 30 December 2005 and 1 February 2006, Ukraine was given market economy status by the EU and the United States respectively, though without any immediate prospect of EU membership for Ukraine. Any eventual accession of Ukraine to NATO may require a national referendum held after Ukraine has fulfilled all pre-accession formalities. Any major changes in Ukraine’s relations with Western governments and institutions, in particular any such changes adversely affecting the ability of Ukrainian manufacturers to access or to fully compete in world export markets, may have negative effects on the Ukrainian economy as a whole and thus on Metinvest’s business, results of operations and financial condition.

Corruption and money laundering may have an adverse effect on the Ukrainian economy

Independent analysts, including the Financial Action Task Force on Money Laundering (“FATF”) and Transparency International, an anti-corruption body based in the UK, have identified corruption and money laundering as problems in Ukraine. In accordance with Ukrainian anti-money laundering legislation which came into force in June 2003, the NBU and other state authorities, as well as various entities performing financial transactions, are required to closely monitor certain financial transactions for evidence of money laundering. As a result of the implementation of this legislation, Ukraine was removed from the list of non- cooperative countries and territories by the FATF in February 2004, and in January 2006 FATF suspended the formal monitoring of Ukraine. In February 2010 Ukraine was mentioned by FATF as having demonstrated progress in improving its AML/CFT regime despite still having certain strategic AML/CFT deficiencies. Ukraine has made a high-level political commitment to work with the FATF and MONEYVAL to address these deficiencies, including by: (i) adequately criminalising money laundering and terrorist financing (Recommendation 1 and Special Recommendation II), (ii) enhancing financial transparency (Recommendation 4); and (iii) establishing and implementing an adequate legal framework for identifying and freezing terrorist assets (Special Recommendation III). In early June 2009, the Parliament adopted several laws setting forth a general framework for the prevention and counteraction of corruption in Ukraine. In particular, the laws contain provisions relating to measures to prevent corruption, introduce a more detailed regulation of responsibility for involvement in corruption (including the responsibility of legal entities) and provide for international cooperation in combating corruption. Although the newly adopted legislation is expected to facilitate anti-corruption efforts in Ukraine upon its entry into force on 1 January 2011, there can be no assurance that the laws will be effectively applied and implemented by the relevant supervising authorities. Any future allegations of corruption in Ukraine or evidence of money laundering could have a negative effect on the ability of Ukraine to attract foreign investment and thus have a negative effect on the Ukrainian economy and thus on Metinvest’s business, results of operations and financial condition.

The judiciary’s lack of independence and overall experience, difficulty in enforcing court decisions and governmental discretion in enforcing claims could prevent Metinvest or investors from obtaining effective redress in a court proceeding

The independence of the judicial system and its immunity from economic and political influences in Ukraine remain questionable. Although the Constitutional Court of Ukraine is the only body authorised to exercise constitutional jurisdiction, the system of constitutional jurisdiction itself remains complicated and, accordingly, it is difficult to ensure smooth and effective removal of discrepancies between the Constitution and applicable Ukrainian legislation on the one hand and among various laws of Ukraine on the other hand.

The court system is understaffed and underfunded. Because Ukraine is a civil law jurisdiction, judicial decisions under Ukrainian law generally have no precedential effect. For the same reason, courts themselves are generally not bound by earlier decisions taken under the same or similar circumstances, which can result in the inconsistent application of Ukrainian legislation to resolve the same or similar disputes.

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Not all Ukrainian legislation is readily available to the public or organised in a manner that facilitates understanding. Furthermore, to date only a small number of judicial decisions have been publicly available and, therefore, the role of judicial decisions as guidelines in interpreting applicable Ukrainian legislation to the public at large is generally limited. However, according to the law “On Access to Court Decisions”, dated 22 December 2005 which became effective on 1 June 2006, decisions of courts of general jurisdiction in civil, economic, administrative and criminal matters have been made generally available to the public from 1 January 2007.

The Ukrainian judicial system has become more complicated and hierarchical as a result of the recent judicial reforms. The generally perceived result of these reforms is that the Ukrainian judicial system is now even slower than before.

Enforcement of court orders and judgements can in practice be very difficult in Ukraine. The State Enforcement Service (“SES”), a body independent of the Ukrainian courts, is responsible for the enforcement of court orders and judgements in Ukraine. Often, enforcement procedures are very time- consuming and may fail for a variety of reasons, including the defendant lacking sufficient bank account funds and property, the complexity of auction procedures for the sale of the defendant’s property or the defendant undergoing bankruptcy proceedings. In addition, SES has limited authority and capacity to enforce court orders and judgements quickly and effectively and is strictly bound by the respective court order or judgement being enforced. Furthermore, notwithstanding successful execution of a court order or judgement, a higher court could reverse the court order or judgement and require that the relevant funds or property be restored to the defendant. Moreover, in practice, the procedures employed and the actions taken by SES do not always comply with applicable legal requirements, resulting in delays or failure in enforcement of court orders or judgements.

These uncertainties also extend to certain rights, including investor rights. In Ukraine, there is no established history of investor rights or responsibility to investors and in certain cases, the courts may not enforce these rights. In the event courts take a consistent approach in protecting rights of investors granted under applicable Ukrainian legislation, the legislature of Ukraine may attempt legislatively to overrule any such court decisions by backdating such legislative changes to a previous date.

All of these factors make judicial decisions in Ukraine difficult to predict and effective redress uncertain and court orders are not always enforced or followed by law enforcement institutions. In addition, court claims are often used in the furtherance of political aims. Metinvest may be subject to such claims and may not be able to receive a fair hearing. Finally, court orders are not always enforced or followed by law enforcement institutions. The uncertainties of the Ukrainian judicial system could have a negative effect on the Ukrainian economy and thus on Metinvest’s business, results of operations and financial condition.

Ukraine’s tax system is undeveloped and subject to frequent change, which may create an uncertain environment for investment and business activity

Ukraine currently has a number of laws related to various taxes imposed by both central and local authorities. Applicable taxes include value-added tax, corporate income tax (profits tax), customs duties, payroll (social) taxes and other taxes. These tax laws have not been in force for significant periods of time, compared to more developed market economies, and often result in unclear or non-existent implementing regulations.

Moreover, tax laws in Ukraine are subject to frequent changes and amendments, which can result in either a friendlier environment or unusual complexities for Metinvest and its business generally. For example, with effect from 1 January 2004, personal income tax was reformed by the introduction of a new flat tax of 13.0% for most levels of income, which was subsequently increased to 15.0% from 1 January 2007. In addition, with effect from 1 January 2004, the rate of corporate income tax was reduced from 30.0% to 25.0%.

This notwithstanding, the amendments introduced to the tax legislation by the laws on the State budget (contrary to the Law of Ukraine On the System of Taxation No.1251-XII of 25 June 1991) lacked a systemic nature, for which reason the legal framework of Ukraine’s taxation remains rather complex, obscure and uncoordinated. Apart from special laws, the issues of taxation are frequently governed by other statutory enactments. The frequent and unsystematic amendments of tax legislation impact negatively on the

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predictability of the country’s taxation system, and, therefore, tell adversely on business activity, reducing the attractiveness of the national economy for foreign investors and restricting its opportunities for medium- and long-term planning.

The most recent legislative initiatives have been aimed at creation of more favourable taxation conditions that facilitate the attraction of foreign capital and retention of national capital. A solution for dealing with the taxation problem in Ukraine could be the adoption of a Tax Code as a uniform document, governing both individual taxes and duties and their administration and the country’s taxation system as a whole. To date there are two versions of a Tax Code. One of them is the result of the legislative initiative of Ukraine’s Parliament, while the State Tax Administration of Ukraine and the Ministry of Finance of Ukraine are currently working on the alternative draft.

The ambiguity of interpretation of some tax laws, and the discrepancies in the attitudes of taxpayers and government control agencies caused the need for issuing a large amount of explanations for the application of such laws.

For example, the difficulties in refunding VAT remain an obstacle for investing in the export-oriented sectors of economy. The complicated process of tax inspections and the contradictory rules on when they should be held create serious barriers during the administration of the taxes. Due to the budget deficit, even the taxpayers entitled to VAT refund, may not receive such refund in practice or may not be able to offset it against future tax liabilities because of the absence of the effective legislative mechanism to offset the sums of VAT against taxes and duties (mandatory payments).

The inconsistencies in the provisions of Ukrainian tax legislation (for example the CIP Law) raise issues in relation to the tax treatment of foreign exchange losses, in particular during the financial crisis.

Metinvest occasionally conducts intercompany transactions at terms that may be assessed by the Ukrainian tax authorities as non-market. Because of non-explicit requirements of the applicable tax legislation, such transactions have not been challenged in the past. However, it is possible with evolution of the interpretation of tax law in Ukraine and changes in the approach of tax authorities, that such transactions could be challenged in the future.

Differing opinions regarding legal interpretations often exist both among and within governmental ministries and organisations, including the tax authorities, creating uncertainties and areas of conflict. Recent events within Ukraine suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Tax declarations/returns, together with other legal compliance areas (for example, customs and currency control matters), are subject to review and investigation by a number of authorities, which are authorised by law to impose substantial fines, penalties and interest charges. These circumstances generally create tax risks in Ukraine more significant than typically found in countries with more developed tax systems. Generally, tax returns in Ukraine remain open and subject to inspection for an indefinite period of time; however, the Ukrainian tax authorities may re-assess tax liabilities of taxpayers only within a period of three years after the filing of the relevant tax return. Nonetheless, this statutory limitation period may not be observed or may be extended in certain circumstances. Moreover, the fact that a period has been reviewed does not exempt this period, or any tax declaration or return applicable to that period, from further review. While the Ukrainian tax authorities have consistently found Metinvest to be in compliance in all material respects with tax laws, it is possible that relevant authorities could in the future take differing positions with regard to interpretative issues, which may have a material adverse effect on Metinvest’s business, results of operations and financial condition.

Disclosure and reporting requirements and fiduciary duties remain less developed than those of more developed countries

Metinvest’s operations are conducted primarily through Ukrainian companies. Disclosure and reporting requirements have only recently been enacted in Ukraine. Anti-fraud legislation has only recently been adapted to the requirements of a market economy and remains largely untested. Most Ukrainian companies

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do not have corporate governance procedures that are in line with U.S. standards, including the standards set forth in the U.S. Sarbanes-Oxley Act of 2002 or with generally accepted international standards. The concept of fiduciary duties of management or members of the board to their companies or shareholders remains undeveloped in Ukraine. While the Company considers that it has implemented corporate governance and internal reporting procedures that are more stringent than those adopted by most Ukrainian companies, any violations of disclosure and reporting requirements or breaches of fiduciary duties by the Company’s Ukrainian subsidiaries or their management could significantly affect the receipt of material information or result in inappropriate management decisions, and thereby materially adversely affect Metinvest’s business, results of operations and financial condition.

Ukraine may not be able to maintain access to foreign trade and investment

Notwithstanding improvements in the Ukrainian economy in recent years and because of the impact of the world financial crisis, cumulative foreign direct investment remains low for a country the size of Ukraine. As a result of a significant shortage of internal financial resources, Ukraine has sought to attract foreign investment as an important contributor to economic growth and structural reform. However, the pace and amount of foreign direct investment in Ukraine has been adversely affected by overly complex and inconsistent legislation and non-transparent procedures, including in the areas of privatisation, government intervention and taxation, and by perceived corruption. Nevertheless, the amount of foreign direct investment has been increasing in recent years. Cumulative foreign direct investment increased by 29.3% in 2006 as compared to 2005, by 39.2% in 2007 as compared to 2006, by 21.1% in 2008 as compared to 2007 and by 12.0% in 2009 as compared to 2008. Investments made in Ukraine to date have primarily been in the fields of industry, financial sector, real estate, rent, engineering and rendering of services for entrepreneurs, trade and repair of cars and household goods.

Any increase in the perceived risks associated with investing in Ukraine and tightening of the foreign investment regulations could dampen foreign direct investment in Ukraine and adversely affect the Ukrainian economy. No assurance can be given that Ukraine will remain attractive to foreign trade and investment, in particularly in respect of privatisation of state owned companies. Although the repeat auction in October 2005 of OJSC Krivorizhstal was generally perceived as having been conducted in a fair and transparent manner, Ukraine continuously failed to carry out privatisation of such major assets as OJSC “Ukrtelecom”, JSC “Odessa Port Plant” and some regional energy distribution companies (and these assets are not listed by the State Property Fund for privatisation in 2010). The most recent and negative sign to investors was given on 29 September 2009 when the State Property Fund controversially cancelled the results of auction on privatisation of JSC “Odessa Port Plant”.

On 23 December 2009 the Government approved the list of nine investment projects that are strategically important for Ukraine’s economy, including the construction of a high-speed railway between Kyiv and Boryspil Airport; modernisation of Illichivsk maritime merchant port; construction of an aviation logistics centre in Uzyn in Kyiv region; modernisation and completion of the power facilities of Zakhidenergo and Centrenergo energy companies; construction of facilities for processing solid industrial waste in the cities of Khmelnytsky, Vinnytsia, Sumy, Lutsk, and Chernivtsi; creation of 10 industrial parks in different Ukrainian regions; construction of a blood plasma fractionation plant with annual capacity of 200,000 litres per year; construction of wind power facilities at Pivdenmash (Pivdenny engineering plant); and development of the Cyclone-4 space rocket complex.

Any future attempts to nationalise private enterprises or reverse the results of privatisation auctions, as well as tighten the rules of foreign investment in Ukraine could adversely affect the climate for foreign direct investment. Any deterioration in the climate for foreign direct investment in Ukraine could have an adverse effect on the economy of Ukraine which in turn may adversely affect Metinvest’s business, results of operations and financial condition.

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Social instability in Ukraine could increase support for renewed centralized authority, nationalism or violence and could thus have an adverse effect on Metinvest’s operations

Due to multiple factors and, primarily, as a result of the financial crisis in Ukraine, the failure of the Ukrainian government and a number of private enterprises in previous years to pay full salaries on a regular basis and the failure of salaries and benefits in Ukraine generally to keep pace with the rapidly increasing cost of living have led in the past to labor and social unrest. Labor and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralized authority, increased nationalism, restrictions on foreign ownership in the Ukrainian economy, and violence. Although Metinvest have not experienced any such pressures in the past, no assurance can be given that Metinvest will not experience labor or social problems in the future. Any of these events could adversely affect Metinvest’s business, results of operations and financial condition.

Risks Relating to the Notes

The Initial Guarantors do not account for a significant portion of the Company’s consolidated Adjusted EBITDA or total assets and there is no assurance that the Additional Guarantors will significantly add to the amount of consolidated Adjusted EBITDA or total assets contributed by the Guarantors. The proportion of consolidated Adjusted EBITDA and total assets contributed by the Guarantors in the future could be significantly less than the proportion contributed or expected to be contributed at the Closing Date.

The assets and Adjusted EBITDA of the Initial Guarantors accounted for 21% and 33% of Metinvest’s consolidated assets and consolidated Adjusted EBITDA, respectively, as of and for the year ended 31 December 2009. Azovstal, Yenakiieve Iron and Steel Works and Metalen will not be Guarantors upon issue of the Notes, but are required to become Guarantors on or before the date falling 60 days after 31 July 2012 and Central GOK and Northern GOK will not be Guarantors upon issue of the Notes, but are required to become Guarantors on or before the date falling 60 days after 31 March 2011. The assets and Adjusted EBITDA of the Additional Guarantors accounted for 36% and 34% of Metinvest’s consolidated assets and consolidated Adjusted EBITDA, respectively, as of and for the year ended 31 December 2009. There is no requirement under the Conditions that the Guarantors maintain their absolute or percentage contributions to the Company’s consolidated Adjusted EBITDA or total assets or that other Subsidiaries become Guarantors under the Notes if such absolute amounts or percentage contributions fall below the amounts and contributions at the time of issue of the Notes. The Conditions also do not restrict the Company’s ability to transfer assets or sales to Subsidiaries which are not Guarantors. If the Adjusted EBITDA and assets of the Non-Guarantor Subsidiaries increase, including through the transfer of assets or sales from Guarantors, the acquisition of additional assets by Non-Guarantor Subsidiaries or the acquisition of new Non-Guarantor Subsidiaries, the Guarantors’ contribution to Adjusted EBITDA and total assets may decrease as a percentage of Metinvest’s consolidated Adjusted EBITDA and total assets. Noteholders will be structurally subordinated to creditors of Non-Guarantor Subsidiaries and those creditors will have greater access to such Subsidiaries’ Adjusted EBITDA and assets to service the obligations owed to them. A reduction in the contribution of Adjusted EBITDA and assets represented by the Guarantors could have a material adverse effect on the value of an investment in the Notes. See “Business Description – Strategy – Pursuing selective acquisition opportunities.”

Metinvest is permitted under the Conditions to incur a significant amount of additional indebtedness at the level of Non-Guarantor Subsidiaries and on a secured basis. Payments under the Notes will be structurally subordinated to indebtedness incurred at the level of Non-Guarantor Subsidiaries and, prior to the Additional Guarantors guaranteeing the Notes, to the indebtedness incurred at the level of the Additional Guarantors, and will be effectively subordinated to secured Indebtedness of the Issuer and the Subsidiaries.

Metinvest is able to incur a significant amount of additional indebtedness (including indebtedness to fund acquisitions), which may include indebtedness at the level of Non-Guarantor Subsidiaries and indebtedness which can be secured by the assets of the Company and any of its Subsidiaries. Noteholders will be structurally subordinated to creditors of Non-Guarantor Subsidiaries. See Condition 3.1 (Limitations on Liens) (and the related definition of Permitted Liens) and Condition 3.2 (Incurrence of Indebtedness).

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Azovstal, Yenakiieve Iron and Steel Works and Metalen are not required to provide Additional Guarantees until the date falling 60 days after 31 July 2012. Until such time, Noteholders will be structurally subordinated to the creditors of Azovstal, including the holders of its 9.125 per cent. Loan Participation Notes due 2011, and creditors of Yenakiieve Iron and Steel Works. Central GOK and Northern GOK are also not required to provide Additional Guarantees until the date falling 60 days after 31 March 2011. Noteholders will, accordingly, also be structurally subordinated to creditors of Central GOK and Northern GOK, until such time as they become Guarantors. In addition, the Noteholders will be structurally subordinated to indebtedness of the creditors of any of the Company’s other Subsidiaries that are not Guarantors.

Certain of the Issuer’s Subsidiaries have incurred debt on a secured basis and they may continue to do so in the future. The Issuer and its Subsidiaries will be permitted to incur a substantial amount of debt on a secured basis under the Conditions, subject to the limitations set forth in Condition 3.1 (Limitation on Liens) and payments under the Notes will effectively be subordinated to such indebtedness to the extent of the collateral over which security has been given.

In addition, the Issuer is a holding company with limited assets other than the shares of its subsidiaries and any right that the Issuer has to receive any assets of any Subsidiary which is not a Guarantor upon liquidation or reorganisation, and the consequent right of Noteholders to realise proceeds from the sale of any such Subsidiary’s assets, will be subordinated to claims of that Subsidiary’s creditors. See also “— The Company is a holding company and is completely dependent on cash flows from its operating subsidiaries to service its indebtedness including the Notes”.

The Conditions provide significant flexibility for value to leave Metinvest through the payment of dividends and the making of investments and charitable and sponsorship payments, including to affiliated entities.

The Issuer has paid dividends to its shareholders in the past and may do so in the future. The Conditions permit the Issuer to declare and pay dividends in respect of profits for the financial years ended 31 December 2008 and 2009, such profits equalling U.S.$2,803 million and U.S.$334 million, respectively. The Conditions allow the Issuer to declare and pay dividends in respect of these financial years in an amount of up to 25% of Consolidated Net Income (as defined in Condition 19 (Definitions)) for each of those years, with few restrictions. The Issuer is also permitted to make certain other dividend payments and other distributions, as well as investments in third parties, under the Conditions.

In addition, the Group has in the past made, and expects to continue to make significant charity and sponsorship payments. In 2008, the Issuer’s aggregate sponsorship and charitable payments to related parties were U.S.$92 million. In 2009, the Issuer’s aggregate sponsorship and other charitable payments were U.S.$197 million, including U.S.$186 million paid to related parties in the form of non-refundable financial assistance. See “Shareholders and Related Party Transactions—Charity and Sponsorship Payments”. The Conditions do not limit the amount of such payments. The payment of dividends and other distributions and the making of investments and sponsorship and charity payments will result in value leaving Metinvest which would otherwise be available to the Issuer to service its obligations under the Notes and meet its other obligations. See Condition 3.3 (Limitation on Restricted Payments) and 3.4 (Transactions with Affiliates).

The shares of Central GOK and Northern GOK have been pledged in favour of third-party lenders under the SCM Facility and the enforcement of these pledges would be an Event of Default under the Notes. A breach of the SCM Facility by the SCM Group, which is outside the Company’s control, could also cause the Company to cross default its other debt obligations.

In February 2007, the Issuer’s shareholder, SCM, entered into a U.S.$400 million facility with BNP Paribas (Suisse) SA (the “SCM Facility”), which was subsequently amended and restated in August 2007 to increase the size of the facility to U.S,$545 million. Metinvest believes U.S.$237 million remained outstanding under the SCM Facility as at 31 December 2009. Amounts outstanding under this facility are secured by a pledge of 60% plus one share of each of Central GOK and Northern GOK. If SCM were to default under the SCM Facility, the lenders would be entitled to enforce the pledges over such shares. This

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could result in an event of default under the Group’s borrowings and would be an Event of Default under the Notes. Accordingly, events outside of the Group’s control could result in the Issuer losing control of Central GOK and Northern GOK and cause it to be in default under its own indebtedness. This could have a material adverse effect on the Issuer’s business, operations, financial condition or prospects.

The Company is a holding company and is completely dependent on cash flow from its operating subsidiaries to service its indebtedness, including the Notes

The Company is a holding company and its primary assets consist of its shares in its subsidiaries and cash in its bank accounts. The Company has no revenue generating operations of its own, and therefore the Company’s cash flow and ability to service its indebtedness, including the Notes, will depend primarily on the operating performance and financial condition of its operating subsidiaries and the receipt by the Company of funds from such subsidiaries in the form of interest payments, dividends or otherwise. The operating performance and financial condition of the Company’s operating subsidiaries and the ability of such subsidiaries to provide funds to the Company by way of interest payments, dividends or otherwise will in turn depend, to some extent, on general economics, financial, competitive, market and other factors, many of which are beyond the Company’s control. The Company’s operating subsidiaries may not generate income and cash flow sufficient to enable Metinvest to meet the payment obligations on the Notes.

The terms of other agreements to which the Company and its subsidiaries may be or may become subject may restrict the ability of its subsidiaries to provide funds to the Company. In addition, the Company and its subsidiaries may incur other debts, in the future that may contain financial or other covenants more restrictive than those contained in the Trust Deed governing the Notes.

If the Company’s future cash flows from operations and other capital resources are insufficient for Metinvest to pay its obligations as they mature or to fund liquidity needs of the Company and its subsidiaries, the Company and its subsidiaries may be forced, among other things, to: reduce or delay business activities and capital expenditure; sell assets; obtain additional debt or equity capital; restructure or refinance all or a portion of their debt on or before maturity; or forego opportunities such as acquisitions of other businesses.

There can be no assurance that any of these alternatives can be accomplished on a timely basis or on satisfactory terms, if at all. In addition, the terms of the Company’s and its subsidiaries’ existing and future debt, including the Notes, may limit their ability to pursue any of these alternatives.

The Notes may be redeemed prior to maturity

In the event that a change in tax law causes the Issuer or the Guarantors to be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of The Netherlands or Ukraine or any political subdivision thereof or any authority therein or thereof having power to tax, the Company may redeem all outstanding Notes in accordance with the Conditions. See Condition 5.2 (Redemption and Purchase for Taxation Reasons).

The Company may not be able to finance a redemption at the option of the Noteholders upon a Change of Control

Should a Change of Control (as defined in Condition 19) in the Company be triggered, the Noteholders will have the right to require the Company to repurchase all or part of the Notes at 101% of their principal amount, plus accrued and unpaid interest. See Condition 5.3 (Redemption at the Option of the Holders Upon a Change of Control). There can be no assurance made that the Company will be in a position to finance a redemption at the option of the Noteholders upon a Change of Control at all times throughout the term of the Notes.

Relevant local insolvency laws may not be as favourable to the Noteholders as other insolvency laws

In the event that any one or more of the Issuer, the Guarantors or any of the Issuer’s other subsidiaries experience financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings. Prospective

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investors in the Notes should consult their own legal advisors with respect to such limitations and considerations.

The claims of Noteholders under the Surety Agreement may be limited under Ukrainian law in the event that one or more of the Guarantors is declared bankrupt

Ukrainian bankruptcy law may prohibit the Guarantors from making payments pursuant to the Surety Agreement or any inter-company loan agreement(s) under which a part of the proceeds may be distributed to the Ukrainian subsidiaries of the Company, including the Guarantors (the Proceeds Recipients). Ukrainian bankruptcy law differs from the bankruptcy laws of the United Kingdom and the United States and is subject to varying interpretations. Currently, there is not enough precedent to be able to predict how claims of the Noteholders would be resolved in the event of the bankruptcy of one or more of the Guarantors. In the event of the bankruptcy of a Guarantor, the Noteholders’ claims would be treated as claims of unsecured creditors and the Guarantor’s obligations to Noteholders would be subordinated to the following obligations: • obligations secured by a pledge or mortgage over the assets of the Guarantor; • severance pay and employment related obligations; • expenditures associated with the conduct of the bankruptcy proceedings and expenses of the liquidator; • obligations arising as a result of causing death or damage to health; • workplace injury compensation; • local and state taxes and other mandatory payments (including mandatory pension and social security contributions); and • expenditures associated with ecological damage prevention measures during bankruptcy proceedings incurred by the competent state agencies.

In the event of the bankruptcy of one or more of the Guarantors, Ukrainian bankruptcy law may materially adversely affect their ability to make payments to Noteholders and, in particular, the Guarantees may be challenged, or withdrawn, if they are deemed to be: (i) preferential for some of the Guarantor’s creditor(s), or (ii) a loss-making or long-term (over 1 year) transaction, or (iii) concluded with “interested parties”, or (iv) a transaction hindering the financial rehabilitation of the Guarantor.

Furthermore, any Guarantors that fall under the definition of “particularly dangerous enterprises” under Ukrainian bankruptcy legislation may be subjected to a special bankruptcy procedure, whereby the relevant state authorities would be entitled to intervene and, in particular, to request a court order initiating the financial rehabilitation of the Guarantor on terms that might be unfavourable to certain creditors.

Ukrainian legislation on financial services may impact the Guarantors’ capacity to enter into and perform under the Surety Agreement

Under Ukrainian legislation guarantees are considered “financial services” which can only be provided by banks or other financial institutions unless such services fall under the exception covered by regulations issued by the Ukrainian State Commission on the Markets of Financial Services (the “Financial Services Commission”). Although the Financial Services Commission’s regulations permit non-financial institutions to issue suretyships, such permission is subject to the issuer’s compliance with relevant anti-money laundering regulations. The Financial Services Commission’s regulations are ambiguous with regards to the scope and content of the applicable anti-money laundering requirement. Additionally, the regulations do not specify whether such suretyships must be governed by Ukrainian law.

Currently, Ukrainian companies that are not financial institutions regularly enter into suretyships, and such practice has not yet been challenged by the Financial Services Commission, or, to Metinvest’s knowledge, in the Ukrainian courts. However, due to ambiguity of the Regulations and the resulting risk of this adverse interpretation, the ability of the Noteholders to enforce their rights under the Surety Agreement may be adversely affected.

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Ukrainian currency control regulations may impact the Guarantors’ ability to make payments under the Guarantees

NBU regulations are subject to substantial change and varying interpretations which complicate the process of determining whether a licence is needed to make certain payments as well as the process of obtaining such licence.

The NBU is empowered to establish policies for and to regulate currency operations in Ukraine and has the power to establish restrictions on currency operations and repatriation. Ukrainian currency controls and practice are subject to change, with the NBU exercising considerable autonomy in interpretation and practice.

Although no licence from the NBU or other Ukrainian state authority is required for any Guarantor to enter into the Surety Agreement, or for the Guarantee to be valid and legally binding, a conservative reading of the applicable Ukrainian legislation suggests that each Guarantor would need to obtain an individual licence (a “Cross-Border Payment Licence”) from the NBU in order to make cross-border payments pursuant to the Guarantee. However, the NBU does not issue Cross-Border Payment Licences in advance or for contingent payments when the amount and date of a cross-border payment are not known. Metinvest is aware of situations where the NBU has applied a liberal interpretation of the relevant legislation and has not required a Cross-Border Payment Licence to be obtained in order to make a cross-border payment under a suretyship. However, there can be no assurance that the NBU will apply such interpretation in a particular situation or in the future. Metinvest believes that each Guarantor will be in a position to obtain a Cross-Border Payment Licence from the NBU if and when required under the terms of the Guarantees and the applicable legislation. However, if such licence is not granted for any reason, the Guarantees would still remain valid and enforceable, and the Guarantor should be permitted to make cross-border payments thereunder pursuant to an appropriate order of a Ukrainian court (enforcing a foreign arbitral award or adopted as a result of review of the merits of the dispute).

The applicable NBU regulations currently do not permit the Guarantors to convert hryvnia into foreign currency or to borrow foreign currency for purposes of payments under the Guarantees (regardless of whether or not a Cross-Border Payment Licence is available for such payments). Accordingly, unless such regulations are amended accordingly by the date of the payment, each Guarantor would need to use its otherwise available foreign currency funds (such as proceeds from foreign trade operations) to make payments pursuant to the Guarantees.

Foreign judgments may not be enforceable against the Issuer

The Issuer is a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid or B.V.) incorporated under the laws of The Netherlands. It may be difficult for investors to enforce against the Issuer judgments obtained in courts outside The Netherlands. Where there is no treaty on the recognition and enforcement of judgments between a country and The Netherlands, as is the case for Ukraine and the United States (other than for arbitral awards), a judgment rendered by a court of such country (a “Foreign Court”) will not be enforced by the courts in The Netherlands. In order to obtain a judgment which is enforceable in The Netherlands, the claim must be relitigated before a competent Dutch court. However, if a party in whose favor a final judgment is rendered by a Foreign Court brings a new suit in a competent court in The Netherlands, such party may submit to a Dutch court the final judgment that has been rendered by the Foreign Court. If the Dutch court finds that the jurisdiction of the Foreign Court has been based on grounds which are internationally acceptable and that proper legal procedures have been observed, the Dutch court will, in principle, uphold such final judgment and regard it as conclusive evidence, without substantive re- examination or re-litigation on the merits of the subject matter thereof, unless such judgment contravenes public order in The Netherlands.

Foreign judgements may not be enforceable against the Guarantors

Courts in Ukraine will not recognise and/or enforce any judgement obtained in a court established in a country other than Ukraine unless such enforcement is envisaged by an international treaty to which Ukraine is a party and only in accordance with the terms of such treaty. There is no such treaty in effect between

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Ukraine and the United Kingdom or the United States. Accordingly, the Noteholders and other parties to the relevant transaction documents may not be able to enforce their rights thereunder.

In the absence of such treaty, the courts of Ukraine may only recognise or enforce a foreign court judgment on the basis of the principle of reciprocity. Unless proven otherwise, reciprocity is deemed to exist in relations between Ukraine and the country where the judgment was rendered. Ukrainian law does not provide for any clear rules on the application of the principle of reciprocity and there is no official interpretation or court practice in this respect. Accordingly, there could be no assurance that the Ukrainian courts will recognise or enforce a judgment rendered by United States or United Kingdom courts on the basis of the principle of reciprocity. Furthermore, the courts of Ukraine might refuse to recognise or enforce a foreign court judgment on the basis of the principle of reciprocity on the grounds provided in the applicable Ukrainian legislation.

Since Ukraine is a party to the New York Convention, a foreign arbitral award obtained in a state which is also a party to the New York Convention would be enforceable in Ukraine, subject to the terms of the New York Convention. See “Enforceability of Judgements”.

The Company is not required to pay any additional amounts on account of withholding pursuant to the EU Savings Directive

If the Company, a Paying Agent or any other person by or through whom a payment on the Notes is made or received is required to withhold any amount from any such payment as a consequence of or pursuant to any law implementing the EU Savings Directive (2003/48/EC), there is no requirement for the Company to pay any additional amounts on account of that withholding. In this regard, prospective Noteholders should read the information about the EU Savings Directive in the section entitled “Taxation” and consult their advisers.

As the Global Note Certificates are held by or on behalf of Euroclear, Clearstream, Luxembourg and DTC, investors will have to rely on their procedures for transfer, payment and communication with the Company and/or the Guarantors

The Notes will be represented by the Global Note Certificates except in certain limited circumstances described therein. The Regulation S Global Note Certificate will be deposited with the Common Depositary for Euroclear and Clearstream, Luxembourg. The Rule 144A Global Note Certificate will be registered in the name of a nominee of, and deposited with a custodian for, DTC. Except in certain limited circumstances described in the Global Note Certificates, investors will not be entitled to receive definitive Notes. Euroclear, Clearstream, Luxembourg and DTC will maintain records of the beneficial interests in the Global Note Certificates. While the Notes are represented by the Global Note Certificates, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.

The Company and the Guarantors will discharge their payment obligations under the Notes by making payments through DTC or to the Common Depositary for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in the Global Note Certificates must rely on the procedures of DTC, Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Company and the Guarantors have no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Note Certificates.

Holders of beneficial interests in the Global Note Certificates will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by DTC, Euroclear and Clearstream, Luxembourg to appoint appropriate proxies.

Notes may not be a suitable investment for all investors

Each potential investor in any Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: • have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Offering Memorandum;

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• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio; • have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes; • understand thoroughly the terms of the Notes; and • be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

A potential investor should not invest in the Notes, which are complex financial instruments, unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of such Notes and the impact this investment will have on the potential investor’s overall investment portfolio.

The market price of the Notes may be volatile

The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in Metinvest’s own and Metinvest’s competitors’ operating results, adverse business developments, changes to the regulatory environment in which Metinvest operates, changes in financial estimates by securities analysts, and the actual or expected sale of a large number of Notes, as well as other factors, including the trading market for Notes issued by or on behalf of Ukraine as a sovereign borrower. In addition, in recent years the global financial markets have experienced significant price and volume fluctuations which, if repeated in the future, could adversely affect the market price of the Notes without regard to Metinvest’s results of operations, prospects or financial condition.

Any negative change in Ukraine’s or (if applicable) any Metinvest’s own credit rating could adversely affect the market price of the Notes

Ukraine sovereign bonds are rated “B- (positive outlook)” by S&P, “B2 (negative outlook)” by Moody’s and “B- (stable outlook)” by Fitch. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Any negative change in Ukraine’s or (if applicable) Metinvest’s credit rating or that of the Notes could materially adversely affect the market price of the Notes.

Financial turmoil in emerging markets could cause the price of the Notes to suffer

The market price of the Notes is influenced by economic and market conditions in Ukraine and, to a varying degree, economic and market conditions in other CIS, Eastern European and emerging markets generally. Financial turmoil in Ukraine and other emerging markets in the past have adversely affected market prices in global securities markets for companies that operate in those developing economies. Even if the Ukrainian economy remains relatively stable, financial turmoil in these countries could materially adversely affect the market price of the Notes.

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USE OF PROCEEDS

The net proceeds to the Issuer from the offering of the Notes are estimated to be approximately U.S.$491,930,000 after deducting management and underwriting commissions but before the estimated offering expenses. The net proceeds from the issue of the Notes will be used primarily (i) to fund Metinvest’s capital expenditure programme and (ii) for general corporate purposes, including to repay existing outstanding indebtedness as it falls due and to fund selective acquisition opportunities.

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EXCHANGE RATES

The following table sets forth, for the periods indicated, the average and period-end official rates set by the NBU, all expressed in hryvnia per U.S. dollar.

Period High Low Average(1) End ———— ———— ———— ———— (hryvnia per U.S. dollar)

2010(2) ...... 8.01 7.92 7.97 7.93 2009 ...... 8.01 7.61 7.79 7.99 2008 ...... 7.88 4.84 5.27 7.70 2007 ...... 5.05 5.05 5.05 5.05 2006 ...... 5.05 5.05 5.05 5.05 2005 ...... 5.31 5.05 5.12 5.05 2004 ...... 5.33 5.31 5.32 5.31 2003 ...... 5.33 5.33 5.33 5.33 2002 ...... 5.33 5.30 5.33 5.33 2001 ...... 5.43 5.27 5.37 5.30

Notes: (1) In accordance with official data published by the NBU. (2) Up to and including 17 May 2010 and in relation to average exchange rate up to and including 30 April 2010.

Certain financial data have been translated from hryvnia into U.S. dollars at the rate of UAH7.99 to U.S.$1.00 on 31 December 2009, UAH7.70 to U.S.$1.00 on 31 December 2008 and UAH5.05 to U.S.$1.00 on 31 December 2007, based on the official rate reported by the NBU on those dates (after rounding adjustments). No representation is made that the hryvnia or dollar amounts referred to herein could have been converted into dollars or hryvnia, as the case may be, at any particular exchange rate or at all. The NBU’s hryvnia/dollar exchange rate as reported on 17 May 2010 (after rounding adjustments), was UAH7.93 to U.S.$1.00.

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CAPITALISATION

The following table sets forth Metinvest’s consolidated capitalisation as at 31 December 2009 and as adjusted to reflect the issuance of the Notes. The table below should be read in conjunction with “Selected Consolidated Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the 2009 Financial Statements included elsewhere in this Offering Memorandum.

As at 31 December 2009 ———————————— Actual As Adjusted ————— ————— (millions of U.S. dollars) Current loans and borrowings ...... 1,014 1,014 Non-current loans and borrowings ...... 929 929 Sellers’ notes ...... 491 491 Notes offered hereby ...... – 491(3) ————— ————— TOTAL DEBT(1) ...... 2,434 2,925 ————— ————— TOTAL EQUITY...... 6,972 6,972 ————— ————— TOTAL CAPITALISATION(2) ...... 9,406 9,897 ————— —————

Notes: (1) Since 31 December, the Company has incurred additional non-current loans and borrowings, including EUR21 million under the FUIB Loan Facility and EUR40 million and U.S.$40 million under the Amsterdam Trade Bank N.V. Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Loan Facilities” for the description of long-term indebtedness incurred since 31 December 2009. (2) Total capitalisation is total loans and borrowings, net of current portion, and total equity. (3) The aggregate principal amount of the Notes offered hereby is U.S.$500 million. Metinvest's liability in respect of the Notes is recorded in accordance with IFRS 39 at its fair value less transaction costs (being U.S.$491 million).

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected financial information set forth below should be read in conjunction with the section headed “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements included elsewhere in this Offering Memorandum. The Financial Statements have been prepared in accordance with IFRS. The selected financial information set forth below as at and for the years ended 31 December 2007, 2008 and 2009 has been extracted from the Financial Statements which are included elsewhere in this Offering Memorandum. The selected financial information set forth below is qualified in its entirety by reference to the Financial Statements. See also “Presentation of Certain Information—Financial Information”.

Year Ended 31 December ——————————————— 2007 2008 2009 ———— ———— ———— (millions of U.S. dollars) INCOME STATEMENT INFORMATION Revenue...... 7,425 13,213 6,026 Cost of sales(1) ...... (4,895) (8,375) (4,365) Gross profit(1) ...... 2,530 4,838 1,661 ———— ———— ———— Distribution costs(1) ...... (465) (969) (696) General and administrative expenses ...... (230) (326) (267) Other operating (expenses)/income, net ...... (62) 418 (94) Operating profit ...... 1,773 3,961 604 ———— ———— ———— Finance income...... 60 53 43 Finance costs...... (188) (477) (167) Share of result of associates ...... (3) 21 (5) Profit before income tax ...... 1,642 3,558 475 ———— ———— ———— Income tax expense...... (321) (755) (141) Profit for the year ...... 1,321 2,803 334 ———— ———— ———— Profit is attributable to: Owners of the Company ...... 953 1,931 384 Non-controlling interests ...... 368 872 (50) Profit for the year ...... 1,321 2,803 334 ———— ———— ————

Note: (1) In 2009, management changed the classification of expenses for transportation of Metinvest's products from its operating entities to its trading companies from cost of sales to distribution costs, resulting in a U.S.$130 million reduction of cost of sales and a corresponding increase in distribution costs in 2008. As a result, cost of sales, gross profit and distribution costs are not comparable as between the years ended 31 December 2007 and 2008.

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As at 31 December ——————————————— 2007 2008 2009 ———— ———— ———— (millions of U.S. dollars) BALANCE SHEET INFORMATION ASSETS Total non-current assets ...... 8,400 7,622 9,134 ———— ———— ———— Total current assets...... 4,039 3,734 3,036 ———— ———— ———— TOTAL ASSETS ...... 12,439 11,356 12,170 ———— ———— ———— EQUITY Equity attributable to the owners of the Company...... 6,028 4,938 5,645 ———— ———— ———— Non-controlling interest ...... 1,287 1,348 1,327 ———— ———— ———— TOTAL EQUITY ...... 7,315 6,286 6,972 ———— ———— ———— LIABILITIES Total non-current liabilities ...... 2,489 2,367 2,624 ———— ———— ———— Total current liabilities ...... 2,635 2,703 2,574 ———— ———— ———— TOTAL LIABILITIES ...... 5,124 5,070 5,198 ———— ———— ———— TOTAL LIABILITIES AND EQUITY...... 12,439 11,356 12,170 ———— ———— ————

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Year Ended 31 December ——————————————— 2007 2008 2009 ———— ———— ———— (millions of U.S. dollars) STATEMENT OF CASH FLOWS INFORMATION Net cash from operating activities...... 1,125 2,856 1,210 ———— ———— ———— Net cash generated by/used for investing activities ...... (1,424) (3,059) (490) ———— ———— ———— Net cash generated in financing activities ...... 1,173 (653) (818) ———— ———— ———— Effect of exchange rate changes on cash and cash equivalents ...... 36 (17) (4) Net increase in cash and cash equivalents ...... 910 (873) (102) ———— ———— ———— OTHER MEASURES Adjusted EBITDA(1) ...... 2,343 4,769 1,449

Note: (1) Adjusted EBITDA represents profit before income tax before finance income and costs, depreciation and amortisation, impairment and devaluation of property, plant and equipment, sponsorship and other charity payments, corporate overheads, share of result of associates and other non core expenses. Adjusted EBITDA is included because it is frequently used by certain investors, securities analysts and other interested parties in evaluating similar companies. However, because all companies do not calculate Adjusted EBITDA identically, Metinvest’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Management uses Adjusted EBITDA to, among other things, assess Metinvest’s operating performance and make decisions about allocating resources. Adjusted EBITDA is a supplemental measure of Metinvest’s performance and is not in accordance with IFRS. Adjusted EBITDA should not be considered as an alternative to operating profit, net profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flows from operating activities as a measure of Metinvest’s liquidity. Adjusted EBITDA has limitations as an analytical tool, and potential investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under IFRS. Some of these limitations include: • Adjusted EBITDA does not reflect the impact of financing or financing costs on Metinvest’s operating performance, which can be significant and could further increase if we were to incur more debt; • Adjusted EBITDA does not reflect the impact of income taxes on Metinvest’s operating performance; and • Adjusted EBITDA does not reflect the impact of depreciation and amortization on Metinvest’s operating performance. The reconciliation of Adjusted EBITDA to profit before income tax is as follows:

Year Ended 31 December ——————————————————— 2007 2008 2009 ———— ———— ———— (millions of U.S. dollars) ADJUSTED EBITDA Profit before income tax...... 1,642 3,558 475 Reconciling items: Sponsorship and other charity payments ...... 6 83 189 Depreciation and amortisation ...... 454 641 555 Corporate overheads...... 58 34 49 Impairment and devaluation of property, plant and equipment ...... 52 50 49 Finance costs ...... 188 477 167 Finance income...... (60) (53) (43) Share of results of associates ...... 3 (21) 5 Other...... ––3 ———— ———— ———— Adjusted EBITDA ...... 2,343 4,769 1,449

Set forth below is Metinvest’s Adjusted EBITDA by segment for the years ended 31 December 2007, 2008 and 2009.

Year Ended 31 December ——————————————————— 2007 2008 2009 ———— ———— ———— (millions of U.S. dollars) Steel segment ...... 1,259 1,941 394 Iron ore segment ...... 801 2,177 811 Coal and coke segment...... 283 651 244 ———— ———— ———— Eliminations ...... ––– ———— ———— ———— Consolidated Adjusted EBITDA...... 2,343 4,769 1,449 ———— ———— ————

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UNAUDITED SUPPLEMENTAL INFORMATION ON THE GUARANTORS

The Issuer’s obligations under the Notes will be guaranteed on a joint and several basis by the Guarantors. The following table sets forth the revenue, Adjusted EBITDA (calculated as profit before income tax before finance income and costs, depreciation and amortisation, impairment or devaluation of property, plant and equipment, sponsorship and other charity payments, corporate overheads, share of result of associates and other non core expenses), and total assets of the Initial Guarantors, Additional Guarantors and the Non- Guarantor Subsidiaries (in absolute terms and expressed as a percentage of the consolidated revenues, Adjusted EBITDA and assets of Metinvest) as at and for the year ended 31 December 2009, reflecting, in each case, intercompany eliminations. This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements of Metinvest and related notes thereto included elsewhere in this Offering Memorandum.

As at and for the Year Ended 31 December 2009 ———————————————————————————————— Initial Additional Non- Issuer Guarantors Guarantors(1) Guarantors Total –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– (million (million (million (million (million U.S.$) % U.S.$) % U.S.$) % U.S.$) % U.S.$) % REVENUE Combined standalone revenue ...... – – 1,607 11 4,023 28 8,780 61 14,409 100 Intercompany eliminations ...... – – (968) (3,900) (3,514) (8,383) Consolidated revenue ...... – – 638 11 123 2 5,265 87 6,026 100 ADJUSTED EBITDA(2) Consolidated Adjusted EBITDA ...... – – 479 33 491 34 479 33 1,449 100 TOTAL ASSETS Combined standalone assets ...... 4,389 16 3,281 12 7,873 28 12,423 44 27,965 100 Intercompany eliminations ...... (4,193) (775) (3,530) (7,297) (15,795) Consolidated assets ...... 195 2 2,506 21 4,343 36 5,126 42 12,170 100

Notes: (1) The Issuer is contractually obliged to cause each of Azovstal, Yenakiieve Iron and Steel Works, Metalen, Northern GOK and Central GOK to become Guarantors under the Notes upon expiration of certain restrictions contained in their current financing instruments. Azovstal, Yenakiieve Iron and Steel Works and Metalen are expected to become Guarantors no later than 60 days after 31 July 2012 and Northern GOK and Central GOK are expected to become Guarantors no later than 60 days after 31 March 2011. Yenakiieve Iron and Steel Works and Metalen are collectively referred to herein as “Yenakiieve Steel”. (2) See “Selected Consolidated Financial Information” for reconciliation of Adjusted EBITDA to profit before income tax.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of Metinvest’s financial condition and results of operations should be read in conjunction with the Financial Statements, the notes thereto and the other information included elsewhere in this Offering Memorandum. This section contains forward-looking statements that involve risks and uncertainties. Metinvest’s actual results may differ materially from those discussed in such forward looking statements due to various factors, including those described under “Risk Factors” and “Forward-Looking Statements”.

Overview

For the year ended 31 December 2009, Metinvest had consolidated revenue of U.S.$6.0 billion and Adjusted EBITDA of U.S.$1.4 billion, as compared to consolidated revenue of U.S.$13.2 billion and Adjusted EBITDA of U.S.$4.8 billion for the year ended 31 December 2008. See “Selected Consolidated Financial Information” for reconciliation of Adjusted EBITDA to profit before income tax.

Metinvest reports its business in three segments: • Steel segment, comprising the production and sale of semi-finished and finished steel products. In the year ended 31 December 2009, Metinvest’s steel segment’s external revenue was U.S.$4.0 billion, representing 66.2% of Metinvest’s consolidated revenue for that period, while the steel segment’s Adjusted EBITDA was U.S.$394 million, or 27.2% of Metinvest’s consolidated Adjusted EBITDA for that period. In the year ended 31 December 2009, intersegment sales accounted for 1.2% of the steel segment’s total revenue. • Iron ore segment, comprising the production, enrichment and sale of iron ore products. In the year ended 31 December 2009, Metinvest’s iron ore segment’s external revenue was U.S.$1.3 billion, representing 21.6% of Metinvest’s consolidated revenue for that period, while the iron ore segment’s Adjusted EBITDA was U.S.$811 million or 56.0% of Metinvest’s consolidated Adjusted EBITDA for that period. In the year ended 31 December 2009, intersegment sales accounted for 28.8% of the iron ore segment’s total revenue, and this segment met all of Metinvest’s iron ore concentrate and pellets demand for its Ukrainian steel-making operations. • Coal and coke segment, comprising the mining and sale of coking and steam coal and production and sale of coke. In the year ended 31 December 2009, Metinvest’s coal and coke segment’s external revenue was U.S.$737 million, representing 12.2% of Metinvest’s consolidated revenue for that period, while the coal and coke segment’s Adjusted EBITDA was U.S.$244 million, or 16.8% of Metinvest’s consolidated Adjusted EBITDA for that period. In the year ended 31 December 2009, intersegment sales accounted for 45.0% of the coal and coke segment’s total revenue, and this segment supplied 42.9% of Metinvest’s coal requirements (by volume) for its Ukrainian steel-making operations.

Reorganisation and Formation of Metinvest

The Company was incorporated under the laws of The Netherlands on 21 May 2001. In October 2004, as part of a comprehensive reorganisation of the SCM group of companies, the Issuer became the ultimate holding company for the Metinvest group.

As a result of the reorganisation, the SCM group transferred to the Issuer direct or indirect control over all of its steel, iron ore, coal and coke production assets, as well as related sales and logistics companies. As

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Metinvest was formed through the reorganisation of a number of entities under common control, its consolidated financial statements have been prepared using the predecessor basis, which is similar to the pooling of interests method. As a result, the Financial Statements, including corresponding amounts, have been presented as if the transfers of controlling interests in Metinvest’s subsidiaries had occurred from the beginning of the earliest period presented (1 January 2007), or, if later, on the date of acquisition of a given subsidiary by SCM.

Until November 2007, 100% of the Company’s shares were owned by SCM Limited, registered in Cyprus and ultimately beneficially owned by Mr Rinat Akhmetov. See “—Summary of Acquisitions and Disposals—Acquisitions in 2007” below.

Summary of Acquisitions and Disposals

Metinvest has sought to develop a vertically integrated steel and mining business through the purchase of assets that it believes offer significant upside potential, particularly in light of Metinvest’s plan to implement improved working practices and operational methods.

The following is a summary of the terms of Metinvest’s principal steel and mining acquisitions and disposals. The acquired entities were consolidated in Metinvest’s financial statements from the date on which Metinvest acquired, directly or indirectly, an interest of more than one half of voting rights in an entity or otherwise obtained power to govern the financial and operating policies of an entity to obtain economic benefits. Acquisitions were accounted for using the purchase method of accounting. The cost of an acquisition is measured at a fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Acquisitions in 2007 • Ingulets GOK (iron ore segment). In 2007, the Company acquired an 82.46% interest in Ingulets GOK in exchange for the issue of 2,250 new ordinary shares in the Company, constituting 25% of the entire issued share capital of the Company, to companies controlled by SMART.

Acquisitions in 2008 • Metinvest Trametal and Spartan (steel segment). On 8 February 2008, Metinvest acquired a 100% equity interest in Metinvest Trametal and its subsidiary Spartan for cash consideration of EUR1,150 million. Metinvest Trametal and Spartan are steel rolling mills located in Italy and the United Kingdom, respectively.

Acquisitions in 2009 • Promet and Makiivka Steel (steel segment). In 2007, SCM negotiated a transaction with SMART whereby SMART was to acquire a veto right over management decisions of the Issuer (through the acquisition of one additional share in the share capital of the Issuer) and the right to appoint three members of the Issuer’s board. Metinvest was to acquire control over Makiivka Steel and Promet (and its subsidiary Promet Intertrade). The transfer of shares in Promet and Promet Intertrade was completed in December 2009 following receipt of approvals from competition authorities in various jurisdictions and resulting in Metinvest holding 95% of the shares in Promet. Metinvest also acquired control over Makiivka Steel through the right to appoint the members of Makiivka Steel’s management. The transfer of the interest in Makiivka Steel to Metinvest, the transfer of one additional share in the share capital of the Issuer to SMART and the determination of the precise scope of SMART’s veto rights are expected to be completed by the end of 2010. • United Coal (coal and coke segment). In April 2009, Metinvest acquired from the United Company and other parties unrelated to Metinvest 100.0% of the share capital of United Coal, a producer of coking and steam coal located in the United States, for an aggregate consideration of U.S.$899 million, of which U.S.$443 million was paid in cash. A further U.S.$599 million is payable under subordinated notes issued to the seller by Metinvest U.S., Inc. and United Coal (the “Sellers’ Notes”).

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Amounts outstanding under the Sellers’ Notes are payable in semi-annual instalments through 2015 with an interest rate of 2.5% per annum for the period from the date of acquisition through 31 December 2011 and 5.0% per annum thereafter (resulting in a fair value of the Seller’s Notes of U.S.$456 million). In addition, in March 2010, as required under the terms of the Sellers’ Notes, United Coal made a payment to the holders of the Seller’s Notes in an aggregate amount of U.S.$31.2 million and the amount outstanding under the Seller’s Notes was reduced by that amount. The amounts of semi-annual payments under the Seller’s Notes were also reduced. See also “Liquidity and Capital Resources Contractual Obligations and Commercial Commitments”.

Recent Developments

In February 2010, Metinvest transferred its entire interest in the share capital of Kryvyi Rih Central Mining Machines Repairing Plant, Kryvyi Rih Central Mining Equipment Plant, Avlita and Marine Industrial Complex to the SCM Group. The transfers were effected as part of a series of transactions between SCM and SMART which envisage the combination of the parties’ steel and mining businesses through eventual acquisition of joint control over the Issuer. The transferred assets are not part of Metinvest’s core steel and mining assets and are excluded from the scope of transactions between SCM and SMART.

In March 2010, Metinvest acquired from SCM the remaining 34.4% interest in MetalUkr Holding Limited for U.S.$510 million, which it has agreed to set off against payment for subsidiaries and associates acquired by SCM in February 2010. As a result of this acquisition, Metinvest increased its interest in MetalUkr Holding Limited to 100%.

The Zaporizhstal Group’s principal asset is Zaporizhstal, an iron and steel works with an annual production capacity of approximately 3.5 million tonnes of flat steel products and 600,000 tonnes of cold roll-formed sections. It was the fifth largest steel producer in Ukraine and produced 3.3 million tonnes of crude steel in 2009, according to CRU.

Metinvest understands that other bidders are competing for the same assets as its shareholder's affiliate. The indicative bid may not be accepted, and even if it is accepted there can be no assurance that the acquisition will be completed. Accordingly, no assurance can be given as to what part of the Zaporizhstal assets (if any) Metinvest would acquire following any such acquisition by its shareholder’s affiliate, at what price, on what terms, or when such acquisition would take place. Any such acquisition of assets by Metinvest may be subject to regulatory approvals (including the approval of the Ukrainian competition authorities) and subject to approval ofMetinvest's shareholders. Accordingly, potential investors would be required to make an investment decision regarding the Notes without information as to whether a combination of the Zaporizhstal assets with Metinvest is likely to occur.

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Certain Factors Affecting Metinvest’s Results of Operations

The world market prices of iron ore and coal

Prices for iron ore and coal are influenced by fluctuations in global supply and demand (particularly as a result of the prevailing level of worldwide demand for steel products) and transportation costs. Prices of these commodities have varied significantly in the past and could vary significantly in the future and are also positively correlated with demand from steel producers. For example, prices of both iron ore and coking coal increased significantly by 2008, reaching their highest levels since the late 1990s, largely as a result of increasing global demand by steel producers and a high degree of consolidation in the global iron ore industry, primarily in the seaborne iron ore trade. However, according to the IMF, in 2009 due to the global economic crisis the benchmark prices of iron ore fines and pellets decreased by 28.0% and 48.0%, respectively, compared to 2008 levels. At the same time, the price for iron ore fines in 2009 remained approximately 20.0% higher than in 2007, while the price for pellets in 2009 was approximately the same as in 2007.

Worldwide prices for iron ore are set based on a benchmark price which is determined in part based on the outcome of negotiations between the world’s largest steel manufacturers and the world’s largest iron ore mining companies, to which Metinvest is not party. Prior to 2009, the fast growth in demand for iron ore in emerging markets, particularly in China, accompanied by the slow growth in supply, coming largely from China (following increased domestic steel production), Australia, Brazil and India, had a significant effect on iron ore prices in the market. In 2008 the price for iron ore reached its highest historical level, according to the IMF. In the fourth quarter of 2008, the prices for iron ore products began to decrease following the decrease in demand for iron ore products as a result in reduction in the steel production levels worldwide. This downward trend continued in the first half of 2009. The demand for iron ore products and coal started to increase gradually in the second half of 2009, resulting in an increase in prices for such products.

In early 2010, the system of annual contracts and benchmark prices that existed since the 1960s was replaced with new short term pricing mechanisms linked to the spot market. Prior to this change the iron ore price was first agreed between one of the major iron ore producers and a steelmaker during annual negotiations. The agreed price then became a benchmark followed by the rest of the industry for a year. However, strong growth in the volume of internationally traded iron ore prompted the development of a large spot market for the product. In March 2010, BHP Billiton reached a settlement with its Asian customers resulting in BHP Billiton selling iron ore to Asian steelmakers on the basis of shorter term landed price contracts. As a result, steelmakers and miners are now pricing their contracts against the spot market. The new system uses quarterly rather than annual contracts and the price of iron ore is set against an average determined by the spot market instead of being based on negotiations. The new pricing system for iron ore products is expected to result in significant increases in prices for iron ore. See also “Industry—Iron Ore Mining and Processing Industry—Global Overview”.

Demand and price for steel in the markets in which Metinvest operates

The prices of Metinvest’s products are affected to a significant extent by fluctuations in the prices of steel products. According to the OECD and WSA, during 2004, steel prices reached their highest levels in nearly 20 years, driven to a significant extent by demand for steel from China and North America, while global steel production volumes reached approximately 1.1 billion tonnes per year. This rapid increase was followed by a reduction of global steel prices in the second half of 2005, which continued until the beginning of 2006. From December 2006 through the first half of 2008, steel prices continued to increase, influenced by

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significant cost inflation and increasing demand, particularly from emerging markets including China. In the third quarter of 2008, global steel prices decreased due to the global financial crisis and the resulting downturn in the world economy. This downward trend continued until the second quarter of 2009.

Steel prices have been gradually increasing since the second half of 2009 with prices for billets increasing slightly to U.S.$415 per tonne as of 31 December 2009 as compared to U.S.$407.5 per tonne as of 30 June 2009, according to Bloomberg. However, on average as of 31 March 2010 prices for billets were approximately 48% lower than as of 30 June 2008, according to Bloomberg.

Raw materials

Metinvest’s principal raw materials for steel production are coke, iron ore, iron ore concentrate, iron ore pellets, scrap metal, dolomite, dolomite fluxes and ferroalloys and refractory materials. While Metinvest’s steel production business sources a significant portion of these raw materials, including all of its coke, iron ore concentrate and pellets requirements from Metinvest’s iron ore and coal and coke businesses, it relies on third parties for the remainder of its raw materials, including approximately 57.1% of its coking coal requirements in the year ended 31 December 2009, and all of the ferroalloys and refractory materials used in the production of steel in the same period. Prices of all of these raw materials are affected by cyclical, seasonal and other market factors, including periodic shortages, freight costs, speculation by brokers and export markets. Therefore, with respect to some of its raw materials, Metinvest remains subject to longer- term price fluctuations and shortages which are beyond its control. See “Risk Factors—Risks Relating to Metinvest—The externally purchased raw materials Metinvest uses to produce steel, such as coking coal, scrap metal and ferroalloys are subject to price fluctuations that could increase Metinvest’s costs of production”. While the average prices for raw materials increased significantly in 2007 and 2008, the growth in Metinvest’s own iron ore production, primarily due to the acquisition of Ingulets GOK, shielded it to a considerable extent from the impact of these increases. In addition, the expansion of Metinvest’s iron ore operations enables it to benefit from the generally favourable conditions in the domestic and export iron ore markets. In 2009 Metinvest benefited from the significant decrease in prices for its principal raw materials due to the global economic downturn.

Cyclicality

Metinvest’s business is cyclical because the major industries in which the majority of steel customers operate, including the construction, automotive, oil and gas and engineering industries, are themselves cyclical and sensitive to changes in general economic conditions. The steel industry is currently suffering from significant overcapacity. While Metinvest benefited from the business cycle in late 2007 and 2008, the prices for steel products declined significantly in the second half of 2008 and continued to decline in 2009, reflecting a significant decrease in demand for steel products as a result of the global economic downturn. The sharp decline in steel prices resulted in significant reductions in steel production volumes worldwide.

Although prices have recovered slightly in the second half of 2009, the timing and extent of price recovery and return to prior levels cannot be predicted. An eventual rebound in steel prices will likely depend on a broad recovery from the current global economic downturn and a more favourable supply-demand balance, although the length and nature of business cycles affecting the steel industry have historically been unpredictable. The demand for steel products is thus generally correlated with macroeconomic fluctuations in the economies in which steel producers sell products, which are in turn affected by global economic conditions.

Currency exchange rates

Metinvest’s export sales generate foreign currency earnings. As Metinvest exports a significant portion of its production, for which it is paid in U.S. dollars and Euros, it is exposed to currency exchange rate fluctuations. Metinvest’s finance costs are denominated primarily in foreign currencies, principally in U.S. dollars. However, a substantial portion of Metinvest’s costs (in particular, wages, salaries, electricity and transportation services within Ukraine) is incurred in Hryvnia. Therefore, depreciation of the Ukrainian Hryvnia against the U.S. dollar has a positive effect on Metinvest’s results of operations. While the Ukrainian

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Hryvnia remained stable against the U.S. dollar in 2007 and in the first nine months of 2008, it began to depreciate against the U.S. dollar in the fourth quarter of 2008 due to the impact of global financial downturn on the Ukrainian economy. The Hryvnia depreciated from an average exchange rate of 1.00 U.S. dollar to 5.05 Hryvnia in 2007, to 1.00 U.S. dollar to 5.27 Hryvnia in 2008, and to 1.00 U.S. dollar to 7.79 Hryvnia in 2009. As depreciation of Hryvnia began in the fourth quarter of 2008, it had a more significant impact on Metinvest’s results of operations in 2009 as compared to 2008.

The table below shows the nominal exchange rate and real effective exchange rate for Hryvnia in 2007, 2008 and 2009.

Year Ended 31 December –––––––––––––––––––––––––––– 2007 2008 2009 –––––– –––––– –––––– Nominal exchange rate (Hryvnia per dollar)(1) ...... 5.05 5.27 7.79 Nominal exchange rate (Hryvnia per euro)(1) ...... 6.92 7.71 10.87 Change in real effective exchange rate(2)...... (0.6)% (14.8)% (2.3)%

Source: NBU Notes: (1) Average of the official exchange rates set by the NBU during the relevant period. (2) Effective exchange rate is a multilateral exchange rate which is a weighted average of exchange rates of domestic and foreign currencies, with the weight for each foreign country equal to its share in trade. It measures the average price of a home good relative to the average price of goods of trading partners, using the share of trade with each country as the weight for that country.

As a result of the recent acquisitions by Metinvest of assets outside Ukraine, Management believes that the share of Metinvest’s costs and capital expenditures denominated in currencies other than Hryvnia will gradually increase. See “—Quantitative and Qualitative Disclosures about Market Risk” below and “Risk Factors—Risks Relating to Metinvest—Fluctuations in currencies may adversely affect Metinvest’s financial condition and results of operations”.

Macroeconomic trends in Ukraine

Most of Metinvest’s operations are based in Ukraine and it generates a significant proportion of its sales in Ukraine, with 35.5% and 27.1% of its consolidated revenue being generated from sales to customers in Ukraine in 2008 and 2009, respectively. As a result, Ukrainian macroeconomic trends, including the overall decline or growth in the economy and in the markets in which Metinvest operates, significantly influences its performance.

The table below summarises certain key macroeconomic indicators relating to the Ukrainian economy in 2007, 2008 and 2009.

Year Ended 31 December –––––––––––––––––––––––––––– 2007 2008 2009 –––––– –––––– –––––– GDP growth ...... 7.9% 2.1% (15.1%) Consumer price index ...... 16.6% 22.3% 12.3% Producer price index ...... 23.3% 23.0% 14.3% Unemployment rate(1) ...... 6.7% 6.5% 9.4%

Source: SSCU. Note: (1) Calculated under the International Labour Organisation’s methodology.

The growth of the Ukrainian economy between 2000 and 2008 resulted in greater domestic consumption of steel and has also resulted in increases in the costs of raw materials and energy due to greater demand. In 2007, domestic consumption of finished steel products increased by approximately 33.0% year-on-year, while in 2008 it decreased by approximately 17.0%. When the global economic and financial situation began to deteriorate in 2008, the effect on Ukraine’s economy was particularly severe, with consumption of steel products decreasing by approximately 42.0% in 2009 as compared to 2008.

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Financial Statements Discussed

Consolidated financial statements of the Issuer as of and for the years ended 31 December 2007, 2008 and 2009 presented in this Offering Memorandum have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and audited by PricewaterhouseCoopers Accountants N.V. (PricewaterhouseCoopers).

In 2009, Management changed the classification of expenses for transportation of Metinvest’s products from its operating entities to its trading companies from cost of sales to distribution costs, resulting in a U.S.$130 million reduction of cost of sales and a corresponding increase in distribution costs for 2008. As a result, cost of sales, gross profit and distribution costs are not comparable as between the years ended 31 December 2007 and 2008.

Effective 1 January 2009, IFRS 8 “Operating Segments” replaced IAS 14 “Segment Reporting”. IFRS 8 requires a “management approach” under which segment information is presented on the same basis as that used for internal reporting purposes and reported to the “chief operating decision-maker”. The chief operating decision-maker has been identified as Metinvest’s General Director. The adoption of IFRS 8 has resulted in a change of presentation of segment results (while the segments identified have remained the same). Management uses Adjusted EBITDA as a measure for evaluation of financial performance of Metinvest's segments, while previously it used operating profits. Comparative segment disclosures in the 2009 financial statements have been restated to conform to the new presentation. Segment result for 2007 has not been restated and accordingly differs from that presented for 2008 and 2009 primarily due to following items: depreciation and amortization, impairment and devaluation of property, plant and equipment and sponsorship and other charity payments. See also “Selected Consolidated Financial Information”.

Total result for all Metinvest’s segments in 2007 was U.S.$1,832 million, while its consolidated Adjusted EBITDA in 2007 was U.S.$2,343 million.

Components of Principal Income Statement Items

Revenue

Metinvest’s revenue is generated from the sales of its steel, iron ore and coal and coke products and resales of products manufactured by third parties.

Cost of sales

Metinvest’s cost of sales consists primarily of costs of raw materials, such as coal and ferroalloys, costs of energy materials, including gas and electricity, payroll and related expenses for employees at its production facilities, amortization and depreciation, expenses in relation to repairs and maintenance, taxes and other costs.

Distribution costs

Metinvest’s distribution costs consist largely of transportation costs, salaries paid to sales and distribution employees, commissions paid by Metinvest’s European subsidiaries to third party sales agents and trade offices for their services and cost of materials.

General and administrative expenses

Metinvest’s general and administrative expenses consist largely of salaries paid to administration employees; consultancy, auditors, legal and banking services expenses; depreciation; insurance costs and lease payments.

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Other operating income and expenses

Metinvest’s other operating income and expenses consist primarily of operating foreign exchange gains less losses, sponsorship and other charity expenses, maintenance of social infrastructure, gain or loss on disposal of property, plant and equipment, and gains or losses on sales of inventory. Social infrastructure expenses and sponsorship and other charity expenses include such items as maintenance of medical centres, recreational centres and employee holiday allowances and the sponsorship of sports teams and athletic and charitable events.

Finance income

Metinvest’s finance income includes interest income, gain on origination of financial liabilities and other finance income.

Finance costs

Metinvest’s finance costs include finance foreign exchange losses, interest expense on its bank borrowings and debt securities and other finance costs.

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Results of Operations for the Years Ended 31 December 2008 and 2009

The following table sets out Metinvest’s income statement data for the years ended 31 December 2008 and 2009 in absolute terms and as a percentage of revenue as well as year-on-year comparisons for 2008 and 2009.

Revenue

Metinvest’s consolidated revenue in 2009 amounted to U.S.$6,026 million, a 54.4% decrease compared to revenue of U.S.$13,213 million in 2008. The steel segment accounted for 73.4% of the decrease in consolidated revenue, principally as a result of a decline in average realised prices for Metinvest’s steel products by 40.8% in 2009 as compared to 2008. Metinvest’s sales volumes for steel products decreased from 9.9 million tonnes in 2008 to 7.2 million tonnes in 2009 primarily due to a decrease in demand for steel products due to the global economic downturn. The iron ore segment and the coal and coke segment accounted for 18.6% and 8.1%, respectively, of the decrease in Metinvest’s consolidated revenue.

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The following table presents Metinvest’s consolidated revenue by segment for 2008 and 2009, as well as geographic breakdown of Metinvest’s revenue from external sales for these periods (based on the location of the customer) in absolute terms and as a percentage of segment revenue.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––– 2008 2009 2009 v 2008 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of total of total segment segment % Amount revenue Amount revenue Change change –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Revenue by segment Steel segment Sales – external Ukraine ...... 1,542 16.5% 536 13.3% (1,006) (65.2%) South East Asia(1) ...... 1,405 15.0% 994 24.6% (411) (29.3%) Europe ...... 3,133 33.5% 963 23.8% (2,170) (69.3%) CIS...... 1,073 11.5% 908 22.5% (165) (15.4%) Middle East and North Africa ...... 1,416 15.2% 543 13.4% (873) (61.7%) North America...... 572 6.1% 2 0.0% (570) (99.7%) Other countries ...... 122 1.3% 44 1.1% (78) (63.9%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for external sales ...... 9,263 99.1% 3,990 98.8% (5,273) (56.9%) Sales to other segments...... 80 0.9% 49 1.2% (31) (38.8%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for steel segment ...... 9,343 100% 4,039 100% (5,304) (56.8%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Iron ore segment Sales – external Ukraine ...... 1,931 45.5% 719 39.4% (1,212) (62.8%) South East Asia(1) ...... 249 5.9% 387 21.2% 138 55.4% Europe ...... 370 8.7% 150 8.2% (220) (59.5%) CIS...... 17 0.4% (17) (100%) Middle East and North Africa ...... 26 0.6% 43 2.4% 17 65.4% North America...... 41 1.0% (41) (100%) Other countries ...... –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for external sales ...... 2,634 62.0% 1,299 71.2% (1,335) (50.7%) Sales to other segments...... 1,614 38.0% 526 28.8% (1,088) (67.4%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for iron ore segment .... 4,248 100% 1,825 100% (2,423) (57.0%) –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

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Note: (1) Includes revenue from sales to China.

External revenue from the steel segment accounted for 66.2% of Metinvest’s consolidated revenue in 2009 as compared to 70.1% of consolidated revenue in 2008. External revenue from the iron ore segment accounted for 21.6% of Metinvest’s consolidated revenue in 2009 as compared to 19.9% of consolidated revenue in 2008. The increase in the share of the iron ore segment’s external revenue in Metinvest’s consolidated revenue reflected the higher level of resiliency of this segment to the economic downturn due to Metinvest’s ability to redirect the sales of iron ore products from internal sales to other segments to external markets, such as China. External revenue from the coal and coke segment as percentage of Metinvest’s consolidated revenue increased in 2009 to 12.2% as compared to 10.0% in 2008, primarily as a result of the acquisition of United Coal, which resulted in an increase in external sales volumes.

Steel segment revenue

The steel segment’s revenue decreased by 56.8% to U.S.$4,039 million in 2009 compared to U.S.$9,343 million in 2008. The decrease was principally attributable to a decline in average prices for steel products in 2009 as compared to 2008 and lower sales volumes due to decreased demand for Metinvest’s steel products. The decreases in prices for, and volumes of, steel products sold contributed to the decrease in Metinvest’s steel segment revenue in approximately equal proportions.

For 2008 and 2009, steel segment sales to the coal and coke and iron ore segments amounted to U.S.$80 million and U.S.$49 million, respectively.

Revenue from sales of steel products in Europe (other than Ukraine and CIS) decreased by 69.3% in 2009 to U.S.$963 million as compared to U.S.$3,133 million in 2008. Revenue from external sales in Ukraine decreased to U.S.$536 million in 2009 from U.S.$1,542 million in 2008. In 2009, sales to the CIS and South East Asia increased to 22.5% and 24.6%, respectively, as a percentage of steel segment revenue, as compared to 11.5% and 15.0% in 2008. Sales to the CIS remained relatively stable in monetary terms as Metinvest continued to supply large diameter pipes for the construction of the Central Asia-China natural gas pipeline during 2009.

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The decrease in revenue from sales to customers in Europe (other than Ukraine and CIS), Ukraine and Middle East and North Africa accounted for 41.2%, 19.1% and 16.6%, respectively, of the overall decrease in external revenue of Metinvest’s steel segment in 2009 as compared to 2008. These decreases in revenue were due to the sharp decline in demand for steel products in construction and machine-building industries in these regions from the second half of 2008 onwards. Decrease in revenue from sales to customers in South East Asia, North America and in other countries accounted for 7.8%, 10.8% and 1.5%, respectively, of the overall decrease in revenue in Metinvest’s steel segment in 2009 as compared to 2008.

The following table shows the average price trends of Metinvest’s principal steel products in 2008 and 2009.

Year Ended 31 December ––––––––––––––––––––––––––––––––––––––––– 2008 2009 ––––––––––––––––––– ––––––––––––––––––– (U.S. dollars per tonne)(1) Weighted Average Prices for Metinvest’s Steel Products(2) Semi-finished products: Slabs...... 795 409 Square billets ...... 725 383 Flat products: Hot-rolled plates ...... 1,298 731 Hot-rolled coils ...... 720 570 Long products: Shapes and bars ...... 971 482 Rails ...... 795 1,050 Other products: Pipes...... 1,763 1,286

Notes: (1) Revenue denominated in Hryvnia was converted into U.S. dollars using the quarterly averages of the Hryvnia to U.S. dollar exchange rates published by the NBU for 2008, and monthly averages of the Hryvnia to U.S. dollar exchange rates published by the NBU for 2009. (2) Prices include transportation costs and costs of brokerage and other services related to the sales of Metinvest’s products. Prices do not reflect the terms of delivery of Metinvest’s products.

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The following table shows the breakdown of Metinvest’s steel segment revenue from external sales in 2008 and 2009.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––– 2008 2009 2009 v 2008 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of total of total segment segment % Amount revenue Amount revenue Change change –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Pig iron ...... 197 2.1% 20 0.5% (177) (89.8%) Semi-finished products: Slabs ...... 1,511 16.3% 655 16.4% (856) (56.7%) Square billets...... 2,247 24.3% 536 13.4% (1,711) (76.1%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for semi-finished products ...... 3,758 40.6% 1,191 29.8% (2,567) (68.3%) Flat products: Hot-rolled plates ...... 2,337 25.2% 950 23.8 % (1,387) (59.3%) Hot rolled coils ...... 144 1.6% 114 2.9% (30) (20.8%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for flat products: ...... 2,481 26.8% 1,064 26.7% (1,417) (57.1%) Long products: Shapes and bars...... 1,650 17.8% 867 21.7% (783) (47.5%) Rails...... 159 1.7% 105 2.6% (54) (34.0%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for long products ...... 1,809 19.5% 972 24.4% (837) (46.3%) Other products: Pipes ...... 705 7.6% 643 16.1% (62) (8.8%) Grinding balls ...... 43 0.5% 27 0.7% (16) (37.2%) Rail fasteners...... 17 0.2%---- Other ...... 253 2.7% 73 1.8% (180) (71.1%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for other products ...... 1,018 11.0% 743 18.6% (275) (27.0%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 9,263 100% 3,990 100.0% (5,273) (56.9%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– The decrease in Metinvest’s steel segment revenue was primarily attributable to the average decrease in prices for the whole range of steel products by approximately 40.8% in 2009 as compared to 2008 and the decrease in external sales volumes by 27.3% from 9.9 million tonnes in 2008 to 7.2 million tonnes in 2009. Revenue from sales of semi-finished products decreased as a percentage of Metinvest’s steel segment revenue as a result of a decrease of sales volumes from approximately 5.0 million tonnes in 2008 to approximately 3.0 million tonnes in 2009 partially due to optimisation of Metinvest’s steel-making facilities in response to the economic downturn and a decrease in realised prices for these products. Revenue from sales of long products increased as a percentage of steel segment revenue while the sales volumes remained unchanged at 1.9 million tonnes. See also “Business Description—Steel Business—Products”.

Iron ore segment revenue

Iron ore segment revenue includes revenue from sales and resales of iron ore products, flux and dolomite products. The iron ore segment’s revenue decreased by 57.0% to U.S.$1,825 million in 2009 compared to U.S.$4,248 million in 2008. The decrease principally reflected the decrease in average prices for iron ore products on the regional and world markets, which resulted from excessive volumes of iron ore products made available for sale in the first half of 2009 and a decrease in demand for pellets due to decrease in production of pig iron.

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The following table shows the average price trends of Metinvest’s principal iron ore products in 2008 and 2009.

Year Ended 31 December ––––––––––––––––––––––––––––––––––––––––– 2008 2009 ––––––––––––––––––– ––––––––––––––––––– (U.S. dollars per tonne)(1) Average Weighted Prices for Metinvest’s Iron Ore Products(2) Iron ore concentrate...... 113.8 59.3 Pellets...... 139.6 70.7

In 2009, the average weighted price for iron ore products (calculated as total revenue from sales of iron ore concentrate and pellets divided by sales volumes) decreased by 48.2% to U.S.$62.2 per tonne from U.S.$120.2 per tonne in 2008. Average weighted prices for iron ore concentrate decreased by 48.0% to U.S.$59.3 per tonne in 2009 from U.S.$113.8 per tonne in 2008. Average weighted prices for pellets decreased by 49.4% to U.S.$70.7 per tonne in 2009 from U.S.$139.6 per tonne in 2008. However, the volume of products sold to external customers increased from 20.7 million tonnes in 2008 to 22.8 million tonnes in 2009 primarily due to demand for iron ore products from China.

Metinvest’s output of merchant iron ore concentrate decreased slightly to 17.6 million tonnes in 2009 from 18.6 million tonnes in 2008, primarily due to decrease in demand for iron ore products due to the global economic crisis. Metinvest’s output of pellets increased slightly from 11.4 million tonnes in 2008 to 11.6 million tonnes in 2009.

For 2008 and 2009, iron ore segment sales to other Metinvest’s segments (primarily steel segment) amounted to U.S.$1,614 million (38.0% of iron ore segment sales) and U.S.$526 million (28.8% of iron ore segment sales), respectively. The volume of products sold by the iron ore segment to other Metinvest’s segments decreased from 13.8 million tonnes in 2008 to 7.8 million tonnes in 2009 primarily due to decrease in steel production volumes. The decrease in the share of sales by the iron ore segment to other Metinvest segments also reflected the shift to higher volume of sales to third parties, in particular to customers in China in South East Asia. In 2008 and 2009, the iron ore segment met all of Metinvest’s demand for iron ore concentrate and pellets.

Sales to customers in Ukraine accounted for 73.3% and 55.4% of the iron ore segment’s external revenue in 2008 and 2009, respectively. The decrease in sales to customers in Ukraine accounted for 90.8% of the overall decrease in external revenue in Metinvest’s iron ore segment in 2009 as compared to 2008. This was primarily due to the sharp decrease in demand for raw materials for steel production in Ukraine in the first half of 2009 and resulting decrease in prices for iron ore products. The decreases in sales to Europe (other than Ukraine and CIS) and CIS were to a certain extent mitigated by the 55.4% increase in revenue from sales to South East Asia from U.S.$249 million in 2008 to U.S.$387 million in 2009. The increase in sales to South East Asia was primarily driven by sales to China due to its rising consumption of, and growing need for imports of iron ore products, as well as the competitiveness of Metinvest’s iron ore products in the Chinese market due to decreases in freight rates in 2009. Sales to Middle East and North Africa increased by 65.4% from U.S.$26 million in 2008 to U.S.$43 million in 2009. Sales to Metinvest’s other segments decreased by 67.4% in 2009 as compared to 2008 primarily due to the decreased demand from Metinvest’s steel segment and decrease in average prices for iron ore products.

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Coal and coke segment revenue

The coal and coke segment’s revenue decreased by 47.8% to U.S.$1,339 million in 2009 compared to U.S.$2,566 million in 2008. This decrease largely reflected the decrease in the average weighted prices of coke products by 60.5% to U.S.$127.9 per tonne in 2009 from U.S.$323.4 per tonne in 2008. The average weighted prices for coal products decreased by 39.4% to U.S.$110.6 per tonne in 2009 from U.S.$182.3 per tonne in 2009. The smaller decrease in prices for coal products as compared to the decrease in prices for coke products reflects the consolidation of United Coal in Metinvest’s financial statements from May 2009. United Coal sells a higher proportion of its coal under long-term contracts than other entities in the coal and coke segment and the pricing in these contracts was favourable in comparison to the spot market. In addition, the quality of its coal is higher which contributes to higher pricing.

The following table shows the average price trends of Metinvest’s principal coal and coke products in 2008 and 2009.

Year Ended 31 December ––––––––––––––––––––––––––––––––––––––––– 2008 2009 ––––––––––––––––––– ––––––––––––––––––– (U.S. dollars per tonne)(1) Average Weighted Prices for Metinvest’s Coal and Coke Products(2) Coke products ...... 323.4 127.9 Coal products...... 182.3 110.6

Metinvest’s output of coal increased to 12.4 million tonnes in 2009 from 6.2 million tonnes in 2008 primarily due to the acquisition of United Coal in April 2009. Metinvest’s output of coke decreased by 21.2% to 4.1 million tonnes in 2009 as compared to 5.2 million tonnes in 2008 primarily due to the decrease in demand for coke from Ukrainian steel producers.

For 2008 and 2009, coal and coke segment sales to the steel and iron ore segments amounted to U.S.$1,250 million (48.7% of coal and coke segment sales) and U.S.$602 million (45.0% of coal and coke segment sales) respectively. Approximately 36.7% and 42.9% of Metinvest’s coking coal requirements by volume were met by the coke and coal segment in 2008 and 2009, respectively.

In 2008 and 2009, 92.8% and 51.2%, respectively, of third party sales in the coal and coke segment were to customers in Ukraine. The decrease in sales to customers in Ukraine as percentage of external segment revenue was primarily due to the acquisition of United Coal, which sold approximately 96% of its output from the date of its consolidation into Metinvest until the end of 2009 to external customers primarily located outside Ukraine. The revenue from sales to customers in Ukraine declined by 69.1% in 2009 as compared to 2008 primarily due to decrease in demand from Ukrainian steel producers. This decrease was partially mitigated by revenue from sales in North America of U.S.$282 million, most of which was generated by sales of coal by United Coal.

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Operating Expenses

The table below sets forth Metinvest’s operating expenses by category for 2008 and 2009, including as a percentage of total revenue.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––– 2008 2009 ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of total of total Amount revenue Amount revenue –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Cost of sales...... 8,375 63.4% 4,365 72.4% Distribution costs...... 969 7.3% 696 11.5% General and administrative expenses ...... 326 2.5% 267 4.4% –––––––– –––––––– –––––––– –––––––– Total operating expenses ...... 9,670 73.2% 5,328 88.4% –––––––– –––––––– –––––––– –––––––– Metinvest’s consolidated cost of sales amounted to U.S.$8,375 million and U.S.$4,365 million in 2008 and 2009, respectively. The decrease was principally attributable to the decrease in the cost of raw materials and goods for resale (as described in more detail below). Cost of sales as a share of consolidated revenue increased from 63.4% in 2008 to 72.4% in 2009. This increase was in part due to the decrease in revenue in 2009, which resulted in a lesser degree of absorption of certain fixed costs (including wages and salaries, depreciation and maintenance costs). In addition, the prices for certain raw materials (such as natural gas) increased and Metinvest experienced a time lag between the decrease in prices for its products and the decrease in prices for its raw materials and other inputs.

In addition, the implementation of anti-crisis measures by Metinvest’s management contributed to the decrease in the cost of production of its steel products. The effect of these measures, which were implemented in the second half of 2008, was more pronounced in 2009 as compared to 2008. Among other things, Metinvest optimised its production facilities through the reduction of open hearth production at Azovstal and the closing of a blooming mill at Yenakiieve Steel. Management also took steps to minimise Metinvest’s costs by decreasing consumption coefficients through technological and organisational improvements at its steel making and rolling facilities. In addition, Metinvest used low-cost materials such as slagging scrap instead of iron ore concentrate at Azovstal’s sinter plant, decreased its repairs and maintenance expenses and reduced headcount. In the iron ore segment, Metinvest shifted the production to its lowest cost facilities by temporarily suspending production at the two open pits and at a tailings enrichment facility at Central GOK, shifting the electricity-consuming stages of production process at all iron ore production facilities to lower tariff zone hours and decreasing the iron ore stripping coefficients.

Gross profit decreased by 65.7% from U.S.$4,838 million in 2008 to U.S.$1,661 million in 2009, while gross profit margin, calculated as gross profit divided by revenue, decreased from 36.6% in 2008 to 27.6% in 2009. The decrease in gross profit margin is primarily attributable to lower revenue and the time lag between the decrease in prices for Metinvest’s products and the decrease in prices for its raw materials and other inputs.

Distribution costs decreased by 28.2% from U.S.$969 million in 2008 to U.S.$696 million in 2009, but increased as a share of consolidated revenue from 7.3% in 2008 to 11.5% in 2009. The decrease in distribution costs in monetary terms was primarily due to a decrease in sales volumes for Metinvest’s steel products, a decrease in freight rates for steel and iron ore products and a resulting decrease in transportation costs. The decrease in cost of packing materials and a decrease in commissions also contributed to the decrease in distribution costs. Distribution costs increased to 11.5% of total revenue in 2009 as compared to 7.3% in 2009, primarily due to the increase in export sales, in particular by the iron ore segment, as well as the increase of export sales to more distant regions, such as South East Asia.

General and administrative expenses decreased by 18.1% from U.S.$326 million (2.5% of consolidated revenue) in 2008 to U.S.$267 million (4.4% of consolidated revenue) in 2009, primarily due to the decrease in salaries paid in U.S. dollar terms as a result of depreciation of Ukrainian Hryvnia. The decrease in

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employee training and communication expenses also contributed to the decrease in general and administrative expenses.

The following table provides additional information relating to Metinvest’s cost of sales, distribution costs and general and administrative expenses for 2008 and 2009, which are spread across all of the items listed below.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––– 2008 2009 ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of total of total Amount revenue Amount revenue –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Raw materials including coke and coal and change in finished goods and work in progress ...... 3,584 27.1% 1,661 27.6% Goods for resale...... 1,629 12.3% 232 3.8% Energy materials including gas and electricity ...... 1,020 7.7% 860 14.3% Wages and salaries...... 682 5.2% 519 8.6% Transportation services ...... 832 6.3% 603 10.0% Repairs and maintenance expenses ...... 385 2.9% 232 3.8% Pension and social security costs ...... 216 1.6% 160 2.7% Pension costs – defined benefit obligations ...... 145 1.1% 79 1.3% Depreciation and amortisation...... 641 4.9% 555 9.2% Impairment of property, plant and equipment and devaluation of PPE ...... 50 0.4% 34 0.6% Impairment of trade and other receivables ...... 29 0.2% 11 0.2% Other costs ...... 457 3.5% 382 6.3% –––––––– –––––––– –––––––– –––––––– Total...... 9,670 73.2% 5,328 88.4% –––––––– –––––––– –––––––– –––––––– The aggregate amount of cost of sales, distribution costs and general and administrative expenses decreased by U.S.$4,342 million in 2009 as compared to 2008. The decrease was primarily attributable to the decrease in the cost of raw materials by U.S.$1,923 million; the decrease in cost of goods for resale by U.S.$1,397 million; the decrease in the cost of transportation services by U.S.$229 million and the decrease in cost of repairs and maintenance by U.S.$153 million.

Raw material costs decreased by 53.7% from U.S.$3,584 million in 2008 to U.S.$1,661 million in 2009 due to the sharp decrease in prices for coking coal and ferroalloys purchased by Metinvest, decreased production volumes and depreciation of the Ukrainian Hryvnia against the U.S. dollar.

Cost of goods for resale decreased by 85.8% from U.S.$1,629 million in 2008 to U.S.$232 million in 2009. The steel segment accounted for 27.2% of Metinvest’s revenue from sales of goods for resale in 2009 as compared to 79.6% in 2008. Goods for resale in Metinvest’s steel segment primarily comprise iron ore concentrate sold by Azovstal to MMK Illycha for processing into sinter for use in Azovstal’s steel production and resales by Metinvest’s trading companies of steel products of other steel producers. In 2008, cost of goods for resale in Metinvest’s steel segment included the cost of Promet’s and Makiivka Steel’s products. The cost of goods for resale and revenue from sales of goods for resale decreased sharply in 2009 as compared to 2008 due to consolidation of Promet and Makiivka Steel into Metinvest’s financial statements in 2009 and the termination in the fourth quarter of 2008 of iron ore processing arrangements between Azovstal and MMK Illycha. Goods for resale in Metinvest’s iron ore segment include flux and dolomite materials. Goods for resale in Metinvest’s coal and coke segment include coke produced by companies affiliated with Metinvest.

Cost of energy materials including gas and electricity decreased by 15.7% from U.S$1,020 million in 2008 to U.S$860 million in 2009 primarily due to the decline in consumption of natural gas at Metinvest’s production facilities in late 2008 and early 2009 as part of Metinvest’s cost optimisation programme. In addition, in November 2008, Ukrainian companies operating in mining and smelting industries signed a memorandum with the Government of Ukraine (the “Memorandum”), pursuant to which the Government

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of Ukraine assumed the obligation to decrease prices for electricity used by Ukrainian steel-making companies. This measure was introduced in exchange for the establishment of restrictions on prices for steel products which Ukrainian steel companies could charge in the domestic market. The Memorandum remained in force until 1 April 2010. The Government of Ukraine also significantly decreased the amount of surcharge to natural gas tariff in 2009 compared to 2008. The cost control measures contained in the Memorandum and taken by the Government had the effect of mitigating increases in Metinvest’s natural gas costs and magnifying the decrease in Metinvest’s electricity costs. On 24 March 2010, the Government resolved to recommend NERC not to increase electricity tariffs in relation to mining and steel smelting companies until 30 June 2010.

Wages and salaries decreased by 23.9% from U.S.$682 million in 2008 to U.S.$519 million in 2009, primarily due to the decrease in headcount and salaries paid in response to global economic downturn and as a part of Metinvest’s anti-crisis measures as well as a decrease in wages and salaries paid in dollar terms due to depreciation of Ukrainian Hryvnia.

Cost of transportation services decreased by 27.5% from U.S.$832 million in 2008 to U.S.$603 million in 2009 primarily due to the decrease in volumes of products shipped and a decrease in short-distance railway transportation tariffs for steel products and in tariffs for transportation of iron ore products between plants and sea ports pursuant to the terms of the Memorandum, as well as the overall decrease in sea and ocean freight rates in 2009 as compared to 2008.

Repairs and maintenance expenses decreased by 39.7% from U.S.$385 million in 2008 to U.S.$232 million in 2009 primarily due to the suspension of non-critical repairs and maintenance projects in response to financial crisis and decrease in market prices for spare parts.

Pension and social security costs decreased by 25.9% from U.S.$216 million in 2008 to U.S$160 million in 2009 primarily due to the decrease in wages and salaries in dollar terms due to depreciation of Ukrainian Hryvnia and the decrease in headcount.

Pension costs (defined benefit obligations) primarily comprise expenses in relation to Metinvest’s participation in a mandatory state-defined retirement plan and decreased by 45.5% from U.S$145 million in 2008 to U.S$79 million in 2009 primarily due to the decrease in recognised cost of past service from U.S.$64 million in 2008 to U.S.$8 million in 2009. Metinvest incurred a higher past service cost in 2008 due to the changes in pension legislation in that year which resulted in an increase in payable benefits. See also “— Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments”.

Depreciation costs decreased by 13.4% from U.S$641 million in 2008 to U.S$555 million in 2009 primarily due to depreciation of Hryvnia.

Impairment of property, plant and equipment and devaluation of PPE decreased by 32.0% from U.S.$50 million in 2008 to U.S.$34 million in 2009.

Other costs decreased by 16.4% from U.S.$457 million in 2008 to U.S.$382 million in 2009. These costs consisted primarily of costs of services provided by third parties, including blasting overburden services, drilling degassing wells, coal beneficiation and other services, taxes (other than income tax), including customs duties, transport tax and land tax, and insurance costs.

Other Operating Income/(Expenses), Net

Other operating income was U.S.$418 million in 2008, compared to other operating expense of U.S.$94 million in 2009. The change was primarily due to a decrease in net foreign exchange gains from U.S.$621 million in 2008 to U.S$179 million in 2009, which was principally due to the slower rate of depreciation of the Ukrainian Hryvnia against the U.S. Dollar in 2009 as compared to 2008. The Ukrainian Hryvnia depreciated against the U.S. Dollar by 3.6% as at 31 December 2009 as compared to 31 December 2008, while between 31 December 2007 and 31 December 2008 the Ukrainian Hryvnia depreciated against the U.S. Dollar by 52.5%. In addition, sponsorship and other charity payments increased by U.S.$96 million to U.S.$197 million in 2009 as compared to U.S.$101 million in 2008.

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Operating Profit and Adjusted EBITDA

Operating profit decreased by 84.8% from U.S.$3,961 million for 2008, amounting to 30.0% of consolidated revenue, to U.S.$604 million, amounting to 10.0% of consolidated revenue, for 2009. The decrease in operating profit primarily reflects the decreases in prices for products in all segments, the decrease in production volumes, the decrease in operating foreign currency exchange gains, as well as the increase in charity payments. The decrease in consolidated operating margin was primarily driven by the steel segment and mainly resulted from a lower rate of decrease in operating expenses as compared to decrease in revenue.

Management assesses the performance of Metinvest’s operating segments based on Adjusted EBITDA. See “Selected Consolidated Financial Information” for reconciliation of Adjusted EBITDA to profit before income tax.

Adjusted EBITDA decreased by 69.6% from U.S.$4,769 million for 2008, amounting to 36.1% of Metinvest’s consolidated revenue, to U.S.$1,449 million, amounting to 24.0% of Metinvest’s consolidated revenue, for 2009. The decrease primarily reflects the decrease in gross profit.

The following table presents Adjusted EBITDA by segment for 2008 and 2009.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2008 2009 2009 v 2008 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of of segment segment % Amount revenue Amount revenue Change change –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Steel segment...... 1,941 20.8% 394 9.8% (1,547) (79.7%) Iron ore segment ...... 2,177 51.2% 811 44.4% (1,366) (62.7%) Coal and coke segment ...... 651 25.4% 244 18.2% (407) (62.5%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 4,769 36.1%(1) 1,449 24.0%(1) (3,320) (69.6%) –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

Note: (1) Percentage of Metinvest’s consolidated revenue.

Steel segment

The steel segment’s Adjusted EBITDA decreased by 79.7% from U.S.$1,941 million in 2008 to U.S.$394 million in 2009. Adjusted EBITDA as a percentage of segment revenue decreased from 20.8% in 2008 to 9.8% in 2009.

Iron ore segment

The iron ore segment’s Adjusted EBITDA decreased by 62.7% from U.S.$2,177 million in 2008 to U.S.$811 million in 2009. Adjusted EBITDA amounted to 51.2% and 44.4% of the segment revenue in 2008 and 2009, respectively. The decrease in margin was primarily attributable to prices for iron ore products decreasing at a higher rate than operating costs per tonne of iron ore products. The decrease in the iron ore segment’s Adjusted EBITDA in monetary terms was mainly attributable to the decrease in prices for iron ore products.

Coal and coke segment

The coal and coke segment’s Adjusted EBITDA decreased by 62.5% from U.S.$651 million in 2008 to U.S.$244 million in 2009. Adjusted EBITDA as a percentage of segment revenue amounted to 25.4% and 18.2% in 2008 and 2009, respectively. The decrease in the coke and coal segment’s Adjusted EBITDA in monetary terms was mainly attributable to the decrease in prices for coal and coke.

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Finance income

Metinvest’s finance income includes interest income, gain on origination of financial liabilities and other finance income. Finance income decreased by 18.9% from U.S.$53 million in 2008 to U.S.$43 million in 2009. The decrease was primarily due to the decrease in the interest income on bank deposits from U.S.$20 million in 2008 to U.S.$2 million in 2009 primarily due to the significant decrease in the aggregate amount of Metinvest’s bank deposits and also due to the decrease in other finance income from U.S.$17 million in 2008 to U.S.$8 million in 2009. This decrease was partially offset by a U.S.$21 million of gains on origination of financial liabilities incurred in 2009.

Finance costs

Finance costs decreased by 65.0% from U.S.$477 million in 2008 to U.S.$167 million in 2009. The decrease was primarily due to the decrease in foreign exchange losses from U.S.$258 million in 2008 to U.S.$18 million in 2009 due to the exchange rates being significantly more stable in 2009 as compared to 2008. In addition, interest expense on borrowings decreased from U.S.$198 million in 2008 to U.S.$75 million in 2009 as a result of a decline in floating interest rates applicable to Metinvest’s borrowings and a decrease in the aggregate amount of Metinvest’s outstanding indebtedness due to repayment of amounts due under several of Metinvest’s 2007 loan facilities arranged by BNP Paribas and decreased trade credit lines. These decreases were partially offset in 2009 by additional interest expense of U.S.$37 million in relation to the notes issued by Metinvest to the sellers of the equity interests in United Coal and the increase in other finance costs from U.S.$20 million in 2008 to U.S.$27 million in 2009 due to the increase in expenses arising from origination of financial assets (such as discounting of receivables).

Income tax expense

Income tax expense decreased by 81.3% from U.S.$755 million in 2008 to U.S.$141 million in 2009. The decrease was primarily due to the 86.6% decrease in Metinvest’s profit before tax in 2009 in comparison with 2008. Metinvest’s effective tax rate, calculated as income tax expense divided by profit before income tax, was 21.2% and 29.7% in 2008 and 2009, respectively. Income tax expense calculated at domestic tax rates applicable to Metinvest’s profits in the respective countries amounted to U.S.$923 million (representing weighted average applicable tax rate of 25.9%, calculated as tax calculated at domestic tax rates applicable to profits in the respective countries divided by profit before income tax) in 2008 and U.S.$67 million (representing weighted average applicable tax rate of 14.1%) in 2009. In 2008 and 2009, the effective tax rates of Metinvest’s Swiss operations were 9% and 11%, respectively, and the effective tax rates of Metinvest’s other European operations varied from 29.2% to 45.8%, as compared to the range of 25.5% to 34% in 2008. In 2009, the effective tax rate for Metinvest’s U.S. operations was 40%, while Metinvest did not have any U.S. operations in 2008. The increase in the effective tax rate was also due to differences between IFRS and tax accounting principles, in particular in respect of the recognition of foreign exchange gains.

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Results of Operations for the Years Ended 31 December 2007 and 2008

The following table sets out Metinvest’s income statement data for the years ended 31 December 2007 and 2008 in absolute terms and as a percentage of revenue as well as year-on-year comparisons for 2007 and 2008.

(1) The 2008 values are presented after U.S.$130 million reclassification in cost of sales, gross profit and distribution costs. See “— Financial Statements Discussed” above for more detail.

Revenue

Metinvest’s consolidated revenue in 2008 amounted to U.S.$13,213 million, a 78.0% increase compared to revenue of U.S.$7,425 million in 2007. The steel segment accounted for 59.3% of the increase in consolidated revenue, principally as a result of the increase in average steel prices in the first half of 2008 and a slight increase in the sales volumes for steel products from 9.4 million tonnes in 2007 to 9.9 million tonnes in 2008. Metinvest was able to mitigate the effect of the decrease in the prices for steel products by supplying its products at the prices which were contracted for before the prices began to decrease in October 2008. The iron ore segment and the coal and coke segment accounted for 32.4% and 8.3% of the increase in Metinvest’s consolidated revenue, respectively.

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The following table presents Metinvest’s consolidated revenue by segment for 2007 and 2008, as well as the geographic breakdown of Metinvest’s revenue from external sales for these periods (based on the location of the customer) in monetary terms and as a percentage of segment revenue.

Year Ended 31 December –––––––––––––––––––––––––––––––––––––––– 2007 2008 2008 v 2007 ––––––––––––––––––– ––––––––––––––––––– ––––––––––––––––––– Percentage Percentage of total of total segment segment % Amount revenue Amount revenue Change Change –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (millions of U.S. dollars, except percentages) Revenue by segment Steel segment Sales – external Ukraine ...... 1,284 21.8% 1,542 16.5% 258 20.1% Europe ...... 1,573 26.7% 3,133 33.5% 1,560 99.2% Middle East and North Africa...... 1,119 19.0% 1,263 13.5% 144 12.9% CIS...... 924 15.7% 1,089 11.7% 165 17.9% South East Asia(1) ...... 720 12.2% 1,542 16.5% 822 114.2% Other countries ...... 211 3.6% 694 7.4% 483 228.9% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for external sales ...... 5,831 98.9% 9,263 99.1% 3,432 58.9% Sales to other segments...... 64 1.1% 80 0.9% 16 25.0% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for steel segment ...... 5,895 100% 9,343 100% 3,448 58.5% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Iron ore segment Sales – external Ukraine ...... 394 20.5% 1,931 45.5% 1,537 390.1% Europe ...... 169 8.8% 370 8.7% 201 118.9% Middle East and North Africa ...... 30 1.6% 26 0.6% (4) (13.3%) CIS...... 1 0.1% 17 0.4% 16 1600% South East Asia(1) ...... 99 5.1% 249 5.9% 150 151.5% Other countries ...... 65 3.4% 41 1.0% (24) (36.9%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for external sales ...... 758 39.4% 2,634 62.0% 1,876 247.5% Sales to other segments...... 1,165 60.6% 1,614 38.0% 449 38.5% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for iron ore segment .... 1,923 100% 4,248 100% 2,325 120.9% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Coal and coke segment Sales – external Ukraine ...... 747 41.7% 1,221 47.6% 474 63.5% Europe ...... 51 2.8% 56 2.2% 5 9.8% Middle East and North Africa ...... 1 0.1% 8 0.3% 7 700% CIS...... 26 1.5% 26 1.0% 0 0% South East Asia(1) ...... — — 3 0.1% 3 n/a Other countries ...... 11 0.6% 2 0.1% (9) (81.8%) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for external sales ...... 836 46.7% 1,316 51.3% 480 57.4% Sales to other segments...... 955 53.3% 1,250 48.7% 295 30.9% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total for coal and coke segment...... 1,791 100% 2,566 100% 775 43.3% –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Eliminations ...... (2,184) (2,944) –––––––– –––––––– Total revenue ...... 7,425 13,213 5,788 78.0% –––––––– –––––––– –––––––– ––––––––

Note: (1) Includes revenue from sales to China.

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External revenue from the steel segment accounted for 70.1% of Metinvest’s consolidated revenue in 2008 as compared to 78.5% of consolidated revenue in 2007. External revenue from the iron ore segment accounted for 19.9% of Metinvest’s consolidated revenue in 2008 as compared to 10.2% of consolidated revenue in 2007. The increase in the share of the iron ore products sales in Metinvest’s consolidated revenue was primarily due to the acquisition of Ingulets GOK, which resulted in higher sales volumes, as well as an increase in the share of products with higher iron content in Metinvest’s product mix, which allowed Metinvest to charge higher prices for its iron ore products. The weighted average price for iron ore products increased by 47.0% in 2008.

External revenue from the coal and coke segment as percentage of Metinvest’s consolidated revenue decreased slightly in 2008 to 10.0% as compared to 11.3% in 2007.

Steel segment revenue

The steel segment’s revenue increased by 58.5% to U.S.$9,343 million in 2008 compared to U.S.$5,895 million in 2007. The increase was principally attributable to increased prices for steel products in the first half of 2008 and the increasing proportion of higher margin products from Metinvest’s operations sold on the domestic and export markets.

For 2007 and 2008, steel segment sales to the coal and coke and iron ore segments amounted to U.S.$64 million and U.S.$80 million, respectively.

Revenue from sales of steel products in Europe (excluding Ukraine and CIS) increased by 99.2% in 2008 to U.S.$3,133 million as compared to U.S.$1,573 million in 2007. The increase primarily reflected the consolidation of revenue from Metinvest Trametal’s and Spartan’s operations into Metinvest’s financial statements from February 2008. Revenue from external sales in Ukraine increased to U.S.$1,542 million in 2008 from U.S.$1,284 million in 2007, while decreasing as a share of steel segment’s aggregate revenue to 16.5% in 2008 compared to 21.8% in 2007.

The following table shows the average price trends of Metinvest’s principal steel products in 2007 and 2008.

Year Ended 31 December ––––––––––––––––––––––––––––––––––––––––– 2007 2008 ––––––––––––––––––– ––––––––––––––––––– (U.S. dollars per tonne)(1) Weighted Average Prices for Metinvest’s Steel Products(2) Semi-finished products: Slabs...... 500 795 Square billets ...... 512 725 Flat products: Hot-rolled plates ...... 862 1,298 Hot-rolled coils ...... 560 720 Long products: Shapes and bars ...... 601 971 Rails ...... 623 795 Other products: Pipes...... 1,244 1,763

Notes: (1) Revenue denominated in Hryvnia was converted into U.S. dollars using the quarterly averages of the Hryvnia to U.S. dollar exchange rates published by the NBU for 2008. In 2007, the exchange rate was stable at 1.00 U.S. dollar to 5.05 Hryvnia. (2) Prices include transportation costs and costs of brokerage and other services related to the sales of Metinvest’s products. Prices do not reflect the terms of delivery of Metinvest’s products.

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The following table shows the breakdown of Metinvest’s steel segment revenue from external sales in 2007 and 2008. 111121111211133311112111121111211112Year Ended 31 December 11112111122007 1111211112 2008 1111211112 2008 v 2007 Percentage Percentage of total of total segment segment 11112Amount 11112 revenue 11112 Amount 11112 revenue 11112 Change 11112 % change (millions of U.S. dollars, except percentages) Pig iron ...... 14 0.2% 197 2.1% 183 1,307.1% Semi-finished products: ...... Slabs ...... 1,250 21.4% 1,511 16.3% 261 20.9% Square billets...... 11112 1,330 11112 22.8% 11112 2,247 11112 24.3% 11112 917 11112 68.9% Total for semi-finished products ...... 2,580 44.2% 3,758 40.6% 1,178 45.7% Flat products: Hot-rolled plates ...... 1,120 19.2% 2,337 25.2% 1,217 108.7% Hot rolled coils ...... 11112 112 11112 1.9% 11112 144 11112 1.6% 11112 32 11112 28.6% Total for flat products: ...... 1,232 21.1% 2,481 26.8% 1,249 101.4% Long products: Shapes and bars...... 1,021 17.5% 1,650 17.8% 629 61.6% Rails ...... 11112 249 11112 4.3% 11112 159 11112 1.7% 11112 (90) 11112 (36.1%) Total for long products ...... 1,270 21.8% 1,809 19.5% 539 42.4% Other products: Pipes ...... 622 10.7% 705 7.6% 83 13.3% Grinding balls ...... 35 0.6% 43 0.5% 8 22.9% Rail fasteners...... 2 0.0% 17 0.2% 15 750.0% Other ...... 11112 77 11112 1.3% 11112 253 11112 2.7% 11112 176 11112 228.6% Total for other products ...... 11112736 11112 12.6% 11112 1,018 11112 11.0% 11112 282 11112 38.3% Total ...... 5,831 100% 9,263 100% 3,432 58.9% aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112

The increase in Metinvest’s steel segment revenue was primarily attributable to increases in prices. The weighted average realized price for the whole range of steel products increased by 50.8% in 2008 as compared to 2007 while the sales volumes for these products did not change significantly. The consolidation of Metinvest Trametal and Spartan into Metinvest’s financial statements from February 2008 also contributed to the increase of the segment revenue.

The increase in revenue from sales to customers in Europe (other than Ukraine and CIS), South East Asia and Ukraine accounted for 45.5%, 24.0% and 7.5%, respectively, of the overall increase in external revenue in Metinvest’s steel segment in 2008 as compared to 2007. The increase in revenue from sales to Europe and Ukraine was due to the acquisition of Metinvest Trametal and Spartan, the continuing increase in production of steel products in Europe in 2008 as compared to 2007 and increased demand for steel products in construction and machine-building industries in Ukraine in the first half of 2008. The increase in revenue from sales to South East Asia was due to the increase in demand for semi-finished products, slabs and billets. Increase in revenue from sales to customers in Middle East and North Africa, and the CIS accounted for 4.2% and 4.8%, respectively, of the overall increase in external revenue in Metinvest’s steel segment in 2008 as compared to 2007.

Iron ore segment revenue The iron ore segment’s revenue increased by 120.9% to U.S.$4,248 million in 2008 compared to U.S.$1,923 million in 2007. The increase principally reflected the acquisition by Metinvest of Ingulets GOK in late 2007 from SMART. Metinvest’s consolidated financial statements in respect of 2007 reflect the revenue from the resales of a portion of iron ore produced by Ingulets GOK in late 2007, while its consolidated financial statements in respect of 2008 reflect revenue from sales of iron ore produced by Ingulels GOK during the full year. In addition, from late 2007, Azovstal started purchasing a portion of the iron ore produced by

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Ingulets GOK for its steel production, which resulted in increased external sales of iron ore by Central GOK and Northern GOK. Furthermore, the average iron content of concentrate and pellets produced by Metinvest was higher in 2008 as compared to 2007, enabling Metinvest to charge slightly higher prices for its iron ore products in 2008. The increase in iron ore segment revenue was also due to an increase in the average weighted price of iron ore products (calculated as total revenue from sales of iron ore concentrate and pellets divided by sales volumes) by 47.0% to U.S.$120.2 per tonne in 2008 from U.S.$81.8 per tonne in 2007.

Metinvest’s output of merchant iron ore concentrate (including all of 2007 production by Ingulets GOK) decreased slightly to 18.6 million tonnes in 2008 from 18.9 million tonnes in 2007, while its output of pellets decreased by 14.3% to 11.4 million tonnes in 2008 from 13.3 million tonnes in 2007. The decrease was primarily due to a decrease in demand for iron ore products in the second half of 2008 due to the global financial crisis.

For 2008 and 2007, iron ore segment sales to the steel segment amounted to U.S.$1,614 million (38.0% of iron ore segment sales) and U.S.$1,165 million (60.6% of iron ore segment sales), respectively. In 2008 and 2007, the iron ore segment met all of Metinvest’s iron ore concentrate and pellets demand.

In 2007 and 2008, 52.0% and 73.3%, respectively, of third party sales in the iron ore segment were to customers in Ukraine. The increase in sales to customers in Ukraine, Europe (other than Ukraine and CIS) and South East Asia accounted for 81.9%, 10.7% and 8.0%, respectively, of the overall increase in external revenue in Metinvest’s iron ore segment in 2008 as compared to 2007. This was primarily due to the increased demand for raw materials for steel production in Ukraine in the first half of 2008 and resulting increase in prices for iron ore products during that period. The increase in third party sales outside Ukraine is mainly attributable to customers from Central and Eastern Europe and China, which Metinvest views as its strategic markets for iron ore products. Sales to Metinvest’s other segments increased by 38.5% in 2008 as compared to 2007 primarily due to the increase in average prices for iron ore products.

Coal and coke segment revenue

The coal and coke segment’s revenue increased by 43.3% to U.S.$2,566 million in 2008 compared to U.S.$1,791 million in 2007. This increase largely reflected the growth in the average weighted prices of coke products by 79.2% to U.S.$323.4 per tonne in 2008 from U.S.$180.5 per tonne in 2007. The average weighted price for coal products also increased by 73.3% to U.S.$182.3 per tonne in 2008 from U.S.$105.2 per tonne in 2007.

The following table shows the average weighted prices for Metinvest’s principal coal and coke products in 2007 and 2008. Year Ended 31 December ––––––––––––––––––––––––––––––––––––––––– 2007 2008 ––––––––––––––––––– ––––––––––––––––––– (U.S. dollars per tonne)(1) Average Weighted Prices for Metinvest’s Coal and Coke Products(2) Coke products ...... 180.5 323.4 Coal products ...... 105.2 182.3

Metinvest’s output of coking coal at Krasnodon Coal increased to 6.2 million tonnes in 2008 from 5.7 million tonnes in 2007, while its output of coke at Avdiivka Coke increased from 3.0 million tonnes in 2007 to 3.3 million tonnes 2008. The consolidation of Inkor Chemicals into Metinvest’s financial statements from July 2008 also contributed to the increase in the coal and coke segment’s revenue.

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For 2007 and 2008, coal and coke segment sales to the steel and iron ore segments amounted to U.S.$955 million (53.3% of coal and coke segment sales) and U.S.$1,250 million (48.7% of coal and coke segment sales), respectively. The coal and coke segment met approximately 33.8% and 36.7% of Metinvest’s coking coal requirements (by volume) in 2007 and 2008, respectively.

In 2007 and 2008, respectively, 89.4% and 92.8% of third party sales in the coal and coke segment were to customers in Ukraine. The increase in sales to customers in Ukraine accounted for 98.8% of the overall increase in external revenue in Metinvest’s coal and coke segment in 2008 as compared to 2007. The increase in sales to customers in Ukraine is primarily attributable to increase in prices for coke and to a lesser extent coal in 2008 as compared to 2007. The increase in third party sales outside Ukraine is mainly attributable to chemical products produced by the Group and sold to customers in Europe.

Operating expenses

The table below sets forth Metinvest’s operating expenses by category for 2007 and 2008, including as a percentage of total revenue.

11112233111122341111223311112Year Ended 31 December 11112233111122007 1111223311112 2008 Percentage Percentage of total of total 11112Amount 11112 revenue 11112 Amount 11112 revenue (millions of U.S. dollars, except percentages) Cost of sales(1) ...... 4,895 65.9% 8,375 63.4% Distribution costs(1)...... 465 6.3% 969 7.3% General and administrative expenses ...... 11112 230 11112 3.1% 11112 326 11112 2.5% Total operating expenses ...... 5,590 75.3% 9,670 73.2% aaaas11112 aaaas11112 aaaas11112 aaaas11112

Note: (1) Cost of sales and distribution costs are not fully comparable as between the years ended 31 December 2007 and 2008. See “— Financial Statements Discussed” above.

Metinvest’s consolidated cost of sales amounted to U.S.$4,895 million and U.S.$8,375 million in 2007 and 2008, respectively. The increase was principally attributable to the increase in the cost of raw materials and goods for resale (as described in more detail below). Cost of sales as a share of consolidated revenue slightly decreased from 65.9% in 2007 to 63.4% in 2008. This decrease was primarily attributable to Metinvest’s own iron ore, coke and partially coal production having mitigated the impact of increases in raw materials prices on Metinvest’s consolidated gross profit. Cost of sales is not fully comparable as between the years ended 31 December 2007 and 2008. See “—Financial Statements Discussed” above.

Although Metinvest’s cost of sales increased in 2008 as compared to 2007, the increase was partially mitigated through the implementation of anti-crisis measures by Metinvest’s management in the second half of 2008. Among other things, Metinvest optimised its production facilities through the reduction of open hearth production at Azovstal and the closing of a blooming mill at Yenakiieve Steel. Management also took steps to minimise Metinvest’s costs by decreasing consumption coefficients through technological and organisational improvements at its steel making and rolling facilities. In addition, Metinvest used low-cost materials such as slagging scrap instead of iron ore concentrate at Azovstal's sinter plant, decreased its repairs and maintenance expenses and reduced headcount. In the iron ore segment, Metinvest shifted the production to its lowest cost facilities by temporarily suspending production at two open pits and at a tailings enrichment facility at Central GOK, shifting the electricity-consuming stages of production process at all iron ore production facilities to lower tariff zone hours and decreasing the iron ore stripping coefficients.

Gross profit increased by 91.2% from U.S.$2,530 million in 2007 to U.S.$4,838 million in 2008, while gross profit margin, calculated as gross profit divided by revenue, remained relatively stable at 34.1% and 36.6% of consolidated revenue in 2007 and 2008, respectively. The slight increase in gross margin is primarily attributable to the increase in prices for Metinvest’s products. Gross profit and gross profit margin are not

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fully comparable as between the years ended 31 December 2007 and 2008. See “—Financial Statements Discussed” above.

Distribution costs increased by 108.4% from U.S.$465 million in 2007 to U.S.$969 million in 2008, and increased slightly as a share of consolidated revenue from 6.3% in 2007 to 7.3% in 2008. The increase in distribution costs in monetary terms was primarily due to increase in sea transportation tariffs driven by sales to Middle East, North Africa and South East Asia, increased costs in connection with the distribution of output of Ingulets GOK, Spartan and Metinvest Trametal and gradual increases in the hryvnia-denominated railway tariffs by 93.7% for iron ore cargo and by 39.8% for steel products as at 31 December 2008 as compared to 31 December 2007. Distribution costs are not fully comparable as between the years ended 31 December 2007 and 2008. See “—Financial Statements Discussed” above.

General and administrative expenses increased by 41.7% from U.S.$230 million (3.1% of consolidated revenue) in 2007 to U.S.$326 million (2.5% of consolidated revenue) in 2008, primarily due to an increase in average salaries and the acquisition of Ingulets GOK, Spartan and Metinvest Trametal.

The following table provides additional information relating to Metinvest’s cost of sales, distribution costs and general and administrative expenses for 2007 and 2008, which are spread across all of the items listed below.

11112234441111223111122344411112Year Ended 31 December 1111223444111122007 111122344411112 2008 Percentage Percentage of total of total 11112Amount 11112 revenue 11112 Amount 11112 revenue (millions of U.S. dollars, except percentages) Raw materials ...... 2,337 31.5% 3,584 27.1% Goods for resale...... 633 8.5% 1,629 12.3% Gas and electricity ...... 708 9.5% 1,020 7.7% Wages and salaries...... 510 6.9% 682 5.2% Purchased services, including transportation ...... 519 7.0% 832 6.3% Repairs and maintenance expenses ...... 259 3.5% 385 2.9% Pension and social security costs ...... 162 2.2% 216 1.6% Pension costs – defined benefit obligations ...... 70 0.9% 145 1.1% Depreciation and amortisation...... 454 6.1% 641 4.9% Impairment of property, plant and equipment and devaluation of PPE ...... 52 0.7% 50 0.4% Impairment of trade and other receivables ...... 7 0.1% 29 0.2% Other costs ...... 190 2.6% 457 3.5% Change in finished goods and work in progress ...... 11112 (311) 11112 (4.2%) 11112 – 11112 – Total...... 5,590 75.3% 9,670 73.2% aaaas11112 aaaas11112 aaaas11112 aaaas11112

The aggregate amount of cost of sales, distribution costs and general and administrative expenses increased by U.S.$4,080 million in 2008 as compared to 2007. The increase was primarily attributable to the increase in the cost of raw materials by U.S.$1,247 million; the increase in cost of goods for resale by U.S.$996 million; the increase in the cost of purchased services (including transportation) by U.S.$313 million; the increase in cost of gas and electricity by U.S.$312 million; the increase in depreciation and amortisation costs by U.S.$187 million; the increase in cost of repairs and maintenance by U.S.$126 million and the increase in other costs by U.S.$267 million.

Raw material costs increased by 53.4% from U.S.$2,337 million in 2007 to U.S.$3,584 million in 2008 due to higher prices for coking coal and ferroalloys purchased by Metinvest, higher production volumes and the full consolidation of Ingulets GOK in 2008 and consolidation of Metinvest Trametal and Spartan into Metinvest’s financial statements from February 2008.

Cost of goods for resale increased by 157.3% from U.S.$633 million in 2007 to U.S.$1,629 million in 2008 primarily due to an increase in average prices for steel products and iron ore concentrate. The steel segment accounted for 79.6% of Metinvest’s revenue from sales of goods for resale in 2008, as compared to 58.7%

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in 2007. Goods for resale in Metinvest’s steel segment primarily comprise iron ore concentrate sold by Azovstal to MMK Illycha for processing into sinter for use in Azovstal’s steel production and resales by Metinvest’s trading companies of steel products of other steel producers, primarily Promet and Makiivka Steel. Goods for resale in Metinvest’s iron ore segment include flux and dolomite materials. Goods for resale in Metinvest’s coal and coke segment include coke produced by companies affiliated with Metinvest.

Cost of gas and electricity increased by 44.1% from U.S.$708 million in 2007 to U.S$1,020 million in 2008 primarily due to the increases in electricity and natural gas tariffs and the acquisitions of Ingulets GOK, Spartan and Metinvest Trametal.

Wages and salaries increased by 33.7% from U.S.$510 million in 2007 to U.S.$682 million in 2008 primarily due to the increase in salaries paid and also as a result of the full consolidation of Ingulets GOK into Metinvest’s financial statements in 2008, and consolidation of Spartan and Metinvest Trametal from February 2008.

Purchased services, which primarily consist of transportation services, increased by 60.3% from U.S.$519 million in 2007 to U.S$832 million in 2008 primarily due to the increase in freight charges and the increase in volumes of products shipped due to full consolidation of Ingulets GOK into Metinvest’s financial statements in 2008, and consolidation of Spartan and Metinvest Trametal from February 2008.

Repairs and maintenance expenses increased by 48.6% from U.S.$259 million in 2007 to U.S$385 million in 2008 primarily due to the acquisitions of Ingulets GOK, Spartan and Metinvest Trametal and increase in volumes of repairs and maintenance works in the first half of 2008 due to high capacity utilisation rates driven by favourable market conditions during that period.

Pension and social security costs increased by 33.3% from U.S.$162 million in 2007 to U.S$216 million in 2008 primarily due to the increase in wages and salaries.

Pension costs (defined benefit obligations) primarily comprise expenses in relation to Metinvest’s participation in a mandatory state-defined retirement plan and increased by 107.1% from U.S.$70 million in 2007 to U.S$145 million in 2008 primarily due to the increase in wages and salaries, acquisition of Ingulets GOK and recognition in 2008 of past service cost of U.S.$64 million due to the changes in Ukrainian pension legislation in 2008 which increased the amount of payable benefits. See also “—Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments”.

Depreciation costs increased by 41.2% from U.S.$454 million in 2007 to U.S$641 million in 2008 primarily due to the increase in the value of property, plant and equipment as a result of acquisitions of Ingulets GOK, Spartan and Metinvest Trametal and revaluations.

During 2007, finished goods and work in progress increased by U.S.$311 million primarily due to favourable market conditions for sales of Metinvest’s products resulting in a decrease in cost of sales by U.S.$311 million.

Other costs increased by 140.5% from U.S.$190 million in 2007 to U.S.$457 million in 2008 primarily due to inventory write-down of U.S.$273 million recognised as an expense in 2008 as compared to a write-down U.S.$15 million in 2007. Other costs also include taxes (other than income tax) and insurance costs.

Other Operating Income/(Expenses), net

Other operating income increased from an expense of U.S.$62 million in 2007, representing 0.8% of consolidated revenue, to income of U.S.$418 million in 2008, representing 3.2% of consolidated revenue. The increase was primarily due to a significant foreign exchange gain of U.S.$621 million accrued in 2008 principally due to revaluation of accounts receivable to reflect the 52.4% devaluation of Ukrainian Hryvnia as a result of global economic crisis from UAH5.05 to U.S.$1.00 as at 31 December 2007 to UAH7.70 to U.S.$1.00 as at 31 December 2008. The foreign exchange gain was partially offset by an increase in Metinvest’s charitable donations by 339.1% from U.S.$23 million in 2007 to U.S.$101 million in 2008.

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Operating profit

Operating profit increased by 123.4% from U.S.$1,773 million for 2007, amounting to 23.9% of consolidated revenue, to U.S.$3,961 million, amounting to 30.0% of consolidated revenue, for 2008. The increase primarily reflects the increase in gross profit. In addition, Metinvest had U.S.$418 million of other operating income in 2008 as compared U.S.$62 million of other operating expense in 2007, which also contributed to the increase in both operating profit and operating margin. The increase in consolidated operating margin was primarily driven by the iron ore segment.

The following table presents consolidated operating profit and segment results for 2007 and 2008, including as a percentage of segment revenue.

1111233331111211112333311112222411112333311112Year Ended 31 December 111123333111122007 11112333311112 2008 11112333311112 2008 v 2007 Percentage Percentage of segment of segment 11112Amount 11112 revenue 11112 Amount 11112 revenue 11112 Change 11112 % change (millions of U.S. dollars, except percentages) Steel segment...... 1,015 17.2% 1,648 17.6% 633 62.4% Iron ore segment ...... 656 34.1% 1,860 43.8% 1,204 183.5% Coal and coke segment ...... 161 9.0% 487 19.0% 326 202.5% Unallocated expense, net(1) ...... 11112 (59) 11112 — 11112 (34) 11112 — 11112 25 11112 (42.4%) Consolidated operating profit ...... 1,773 23.9% 3,961 30.0% 2,188 123.4% aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112

Note: (1) Relates primarily to expenses associated with the activities of Metinvest’s headquarters and its trading companies servicing all segments.

Steel segment

The steel segment result increased by 62.4% from U.S.$1,015 million in 2007 to U.S.$1,648 million in 2008. The steel segment result as a percentage of segment revenue remained relatively stable at 17.6% in 2008 as compared to 17.2% in 2007. The increase in Metinvest’s steel segment result was primarily due to the changes in Metinvest’s product mix in favour of value added products, which was in part due to the acquisition of Spartan and Metinvest Trametal in 2008.

Iron ore segment

The iron ore segment result increased by 183.5% from U.S.$656 million in 2007 to U.S.$1,860 million in 2008. The iron ore segment result amounted to 34.1% and 43.8% of segment revenue in 2007 and 2008, respectively. The increase in the margin was primarily attributable to prices for iron ore products growing at a higher rate than operating costs per tonne of iron ore products. The devaluation of the Ukrainian Hryvnia in the fourth quarter of 2008 as compared to 2007 and improvements in operating efficiency, including decreases in the consumption of diesel fuel, electricity and natural gas per tonne of iron ore products, mitigated the increase in Metinvest’s operating costs per tonne of such products. The increase in the result of the iron ore segment in monetary terms is mainly attributable to the increase in price for iron ore and increase in sales volumes due to the acquisition of Ingulets GOK.

Coal and coke segment

The coal and coke segment result increased by 202.5% from U.S.$161 million in 2007 to U.S.$487 million in 2008. The coal and coke segment result as a percentage of segment revenue amounted to 9.0% and 19.0% in 2007 and 2008, respectively. The increase in the margin resulted from the increase in prices for coke and coal products. The increase in the result of the coke and coal segment in monetary terms is mainly

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attributable to the increase in price, which was set off by a slight decrease in external sales volumes from 5.6 million tonnes in 2007 to 4.9 million tonnes in 2008.

Finance income

Finance income decreased by 11.7% from U.S.$60 million in 2007, to U.S.$53 million in 2008. The decrease was primarily due to the decrease in the interest income on bank deposits from U.S.$29 million in 2007 to U.S.$20 million in 2008, which was in turn mainly due to the decrease in interest rates offered by the banks on deposits and Metinvest’s bank deposits. This decrease was partially offset by the increase in other finance income from U.S.$15 million in 2007 to U.S.$17 million in 2008 primarily due to the increase of notional interest applied to accounts payable and financial instruments such as notes.

Finance costs

Finance costs increased by 153.7% from U.S.$188 million in 2007 to U.S.$477 million in 2008. The increase was primarily due to the foreign exchange loss of U.S.$258 million in 2008 incurred as a result of an increase (due to depreciation of Hryvnia) of Hryvnia-denominated balance sheet value of the U.S. dollar-denominated indebtedness of Metinvest's Ukrainian subsidiaries after conversion of such indebtedness into the functional currency of these subsidiaries, Ukrainian Hryvnia. The increase in interest expense on borrowings from U.S.$132 million in 2007 to U.S.$198 million in 2008 also contributed to increase in finance costs as a result of Metinvest entering into a substantial portion of its loan facilities in the middle of 2007 and incurring interest expense in relation to such loans only in the second half of 2007 as compared to the full year in 2008. These increases were partially offset by decreases in other interest expense from U.S.$27 million in 2007 to U.S.$1.0 million in 2008 due to the decrease in non-bank loans and in financial instruments, including notes which were discounted in 2007 and the decrease in other finance costs from U.S.$29 million in 2007 to U.S.$20 million in 2008 due to a decrease in expenses related to early repayment of liabilities and a decrease in loss from origination of assets (such as bonds purchased for higher than market value).

Income tax expense

Income tax expense increased by 135.2% from U.S.$321 million in 2007 to U.S.$755 million in 2008. The effective tax rate (calculated as income tax expense divided by profit before income tax) was 19.5% and 21.2% in 2007 and 2008, respectively. Income tax expense calculated at domestic tax rates applicable to Metinvest’s profits in each country in which it operates amounted to U.S.$372 million (representing a weighted average applicable tax rate of 22.7%, calculated as tax calculated at domestic tax rates applicable to profits in respective countries divided by profit before income tax) in 2007 and U.S.$923 million (representing a weighted average applicable tax rate of 25.9%) in 2008. In 2007 and 2008, the effective tax rates of Metinvest’s Swiss operations were 11% and 9%, respectively and the effective tax rates of Metinvest’s other European operations varied from 25.5% to 34%, as compared to 31% in 2007. The weighted average tax rate for Metinvest in 2008 was 3.2% higher than in 2007 due in part to acquisition of Metinvest Trametal and Spartan. However, the effective tax rate only increased by 1.7% in 2008 due to the tax calculated at domestic tax rates applicable to profits in the respective countries being substantially set off by the tax effect of non-taxable income (primarily operating exchange gains) of U.S.$204 million (as compared to U.S.$14 million in 2007). At the same time, the tax effect of non-deductible expenses increased from U.S.$33 million in 2007 to U.S.$90 million in 2008, resulting in an increase in income tax expense.

Liquidity and Capital Resources

Metinvest expects that working capital requirements, capital expenditures, repayment of outstanding debt and selective acquisition opportunities will represent its most significant uses of funds for the next several years. In the years under review, Metinvest has generally met its liquidity needs out of cash generated from operating activities, bank borrowings and issuances of debt securities.

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Cash flows

The following is the summary of Metinvest’s cash flows for the periods indicated:

111122234331111211112Year Ended 31 December 111122007 11112 2008 11112 2009 (millions U.S. dollars) Net cash from operating activities ...... 1,125 2,856 1,210 Net cash used in investing activities...... (1,424) (3,059) (490) Net cash used in financing activities ...... 1,173 (653) (818) Effect of exchange rate changes on cash and cash equivalents ...... 11112 36 11112 (17) 11112 (4) Net increase/(decrease) in cash ...... 910 (873) (102) aaaas11112 aaaas11112 aaaas11112

Net cash from operating activities

Metinvest generated U.S.$1,210 million of cash from operating activities in 2009, as compared to U.S.$2,856 million in 2008. The principal reason for the decrease was the decrease in profit before income tax, which was partially offset by the decrease in finance costs by U.S.$310 million, the decrease in foreign exchange differences of U.S.$585 million and changes in working capital including a decrease in inventories of U.S.$884 million and in trade and other accounts receivable of U.S.$296 million. The decreases in inventories and accounts receivable were primarily due to anti-crisis measures implemented by Metinvest in 2009, in particular selling off its products and reducing stocks of raw materials as well as restructuring its receivables to extend the repayment terms and to convert receivables denominated in the Ukrainian Hryvnia into U.S Dollars.

Metinvest generated U.S.$2,856 million from operating activities in 2008, as compared to U.S.$1,125 million in 2007. The principal reason for the increase in net cash from operating activities in 2008 as compared to 2007 was the increase in profit before tax. This was partially offset by an increase in foreign exchange differences of U.S.$585 million primarily due to depreciation of Hryvnia against the U.S. dollar in the second half of 2008 and an increase in inventory of U.S.$201 million resulting primarily from a slowdown in sales and the accumulation of stock in the second half of 2008 due to the global economic downturn.

Net cash used in investing activities

Metinvest used U.S.$490 million of cash in investing activities in 2009, as compared to U.S.$3,059 million in 2008. The decrease reflected the payments for acquisitions of Metinvest Trametal and Spartan of U.S.$1.7 billion in 2008, the payment of deposits in connection with the acquisition of United Coal of U.S.$400 million in September and October 2008 and the decrease in purchases of property, plant and equipment from U.S.$679 million in 2008 to U.S.$324 million in 2009 in connection with planned decrease in capital expenditures.

Metinvest used U.S.$3.1 billion of cash in investing activities in 2008, as compared to U.S.$1.4 billion in 2007. The increase was primarily due to the payments for subsidiaries and non-controlling interests acquired from third parties in 2008, in particular, in connection with the acquisition of Metinvest Trametal, Spartan and United Coal.

Net cash from financing activities

Metinvest used U.S.$818 million of cash in financing activities in 2009, as compared to U.S.$653 million used in 2008. The increase was primarily due to the significant decrease in proceeds from debt financing due to lower levels of access to debt financing as a result of the global financial crisis, which was partially offset by a decrease in repayments of loans and borrowings due to repayments of various bridge loans related to the acquisitions of assets located in Italy and in the United Kingdom.

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Metinvest used U.S.$653 million of cash in financing activities in 2008 as compared to U.S.$1.2 billion generated from financing activities in 2007. The decrease was primarily due to the increase in the amounts repaid by Metinvest under loans and borrowings from U.S.$614 million in 2007 to U.S.$1,591 million in 2008. This reduction principally resulted from Metinvest’s entering into its long-term loan agreements in the second half of 2007 (as described in more detail in “ Capital Resources Loan Facilities” below) and making payments under its long-term loans for the full year in 2008 as compared to the second half of 2007.

Capital expenditures

Metinvest is implementing a strategic capital expenditure programme aimed at the modernisation of its production facilities to increase their efficiency and to increase the share of value-added products in Metinvest’s product mix.

Historical capital expenditures

The following table summarises Metinvest’s capital expenditures by segment for the periods indicated.

11112222341111211112Year Ended 31 December 111122007 11112 2008 11112 2009 (millions of U.S. dollars) Steel segment ...... 260 285 174 Iron ore segment ...... 125(1) 292 81 Coal and coke segment ...... 83 102 69 11112 11112 11112 Total: ...... 468 679 324 aaaas11112 aaaas11112 aaaas11112

Note: (1) Excludes U.S.$755 million spent on the acquisition of Ingulets GOK.

During 2007, 2008 and 2009, Metinvest invested a total of U.S.$719 million in its steel production facilities. These expenses primarily related to the capital expenditure programme implemented by Metinvest at Azovstal, primarily including the installation of two ladle furnaces, a vacuum degasser and a continuing casting machine for the production of slabs at an aggregate cost of U.S.$170 million, the installation of the rolling stand 390 at Makiivka Steel at an aggregate cost of U.S.$105 million, modernisation of blast furnace No. 3 at Yenakiieve Steel, which is expected to be completed in 2011, at an aggregate cost of U.S.$104 million, as well as expenses for the construction of a new pipe-welding plant at Khartsyzsk Pipe at an aggregate cost of U.S.$22 million and relining of blast furnaces No. 3 and No. 4 at Azovstal at an aggregate cost of U.S.$25 million.

During 2007, 2008 and 2009, Metinvest invested U.S.$498 million in its iron ore production facilities. These expenses primarily related to the construction of two beneficiation sections at Northern GOK, which was completed in 2008, at an aggregate cost of U.S.$68 million, the installation of pellet plant Lurgi 278-B at Northern GOK at an aggregate cost of U.S.$29 million, the implementation of a flotation module at Ingulets GOK, which is expected to be completed in early 2012, at an aggregate cost of U.S.$19.6 million and modernization of a pellet plant at Northern GOK at an aggregate cost of U.S.$5.4 million.

During 2007, 2008 and 2009, Metinvest invested U.S.$254 million in its coal and coke production facilities. These expenses primarily related to the implementation of an investment programmes at Krasnodon Coal, which mainly involves repairs and replacement of coal extraction equipment at an aggregate cost of U.S.$162 million.

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Budgeted capital expenditures

Metinvest’s budgeted capital expenditures for 2010 and 2011 by segment are summarised in the following table (including maintenance).

111122010 11112 2011 (millions of U.S. dollars) Steel segment ...... 163 158 Iron ore segment ...... 212 276 Coal and coke segment ...... 11112 136 11112 148 Total: ...... 511 582 aaaas11112 aaaas11112

Metinvest’s capital expenditures in 2010 and 2011 are expected to primarily relate to the following:

Steel segment • completion of reconstruction of blast furnace No.3 at Yenakiieve Steel; • construction of accelerated cooling plant at Azovstal’s plate mill; and • construction of a continuous casting machine and reconstruction of blast furnaces No. 1 at Yenakiieve Steel.

Iron ore segment • the implementation of a flotation module at Ingulets GOK; • the completion of installation of pellet plant Lurgi 278-B at Northern GOK; • the construction of iron ore beneficiation section at Northern GOK; and • modernisation of a pellet plant at Northern GOK.

Coal and coke segment • investment into Krasnodon Coal primarily through repairing or replacing existing mining equipment; and • the construction of the Affinity mining complex at United Coal. See also “Business Description—Steel Business—Investment Programme”, “Business Description—Iron Ore Business—Investment Programme” and “Business Description—Coal and Coke Business—Investment Programme”.

Metinvest’s actual capital expenditures may vary significantly from its estimates and depend on a variety of factors, including market conditions, levels of demand for Metinvest’s products, the availability of funding, operating cash flow and other factors fully or partially outside Metinvest’s control.

Capital resources

Historically, Metinvest has relied on net cash from operating activities, bank loans and issuances of debt securities to finance its capital expenditures. Metinvest also plans to use part of the proceeds from the Offering to finance part of its capital expenditures in the future.

The availability of external financing is influenced by many factors, including Metinvest’s financial position and market conditions. Under certain circumstances, Metinvest may be required to repay certain indebtedness. Management expects that Metinvest’s current and expected capital resources will be sufficient for its anticipated capital expenditures under its current business plan, but see “Risk Factors—Risks Related to Metinvest—Metinvest must observe certain financial and other restrictive covenants under the terms of its

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indebtedness, and any failure to comply with such covenants could put Metinvest in default”. In addition, Makiivka Steel and Krasnodon Coal are currently subject to insolvency proceedings, which may limit the ability of these entities to obtain financing. See “—Bankruptcy Proceedings” below for more detailed description of these proceedings.

The following table sets forth information about Metinvest’s borrowings as at the dates indicated:

1111213343111121111231 December 111122007 11112 2008 11112 2009 (millions of U.S. dollars) Long-term Bank borrowings...... 1,073 1,140 750 Non-bank borrowings...... 25 4 4 Bonds ...... 11112 175 11112 175 11112 175 Total non-current borrowings ...... 111121,273 11112 1,319 11112 929 Current Bank borrowings (excluding trade financing) ...... 925 727 528 Trade financing...... 754 638 482 Non-bank borrowings...... 11112 — 11112 1 11112 3 Total current borrowings ...... 111121,679 11112 1,366 11112 1,014 Total borrowings ...... 2,952 2,685 1,943 aaaas11112 aaaas11112 aaaas11112

The following table sets forth the weighted average effective interest rates and currency denominations of Metinvest’s loans and borrowings as at the dates indicated:

1111111111231 December 2007 11111111112 31 December 2008 11111111112 31 December 2009 111UAH 111 U.S.$ 111 Euro 111 U.S.$ 111 Euro 111 GBP 111 UAH 111 U.S.$ 111 Euro % per annum Bank borrowings ...... — 6% 5% 3% 4% 11% 27% 3% 2% Non-bank borrowings ...... — 6% — 6% — — — 4% — Bonds issued ...... 111 — 111 9% 111 — 111 9% 111 — 111 — 111 — 111 9% 111 — Amount (millions)...... — 2,778 174 1,994 684 7 18 1,381 544 aaa111 aaa111 aaa111 aaa111 aaa111 aaa111 aaa111 aaa111 aaa111

The following table summarises Metinvest’s outstanding interest-bearing borrowings by interest rate method as of 31 December 2009.

1111122222111112111112111112As at 31 December 2009 U.S. Dollar- Euro- Hryvnia- 111112denominated 111112 denominated 111112 denominated 111112 Total (millions of U.S. dollars) Total borrowings, of which: ...... 1,381 544 18 1,943 Fixed-rate borrowings ...... 181 18 198 Floating rate borrowings ...... 1,200 544 1,744

Debt securities in issue

Metinvest’s debt securities in issue are summarised below. For information regarding maturities, see “— Contractual obligations and commercial commitments “.

Azovstal 9.125% Notes due 2011. On 28 February 2006, Azovstal issued loan participation notes (“Azovstal Notes”) in an aggregate amount of U.S.$175 million. The Azovstal Notes bear interest at a rate of 9.125% per annum payable semi-annually in arrear in equal instalments and mature on 28 February 2011. The terms of the Azovstal Notes, subject to certain exceptions and qualifications, limit the ability of Metinvest to: • undertake any amalgamation, merger, division, spin-off, transformation or other reorganisation or restructuring;

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• incur additional indebtedness; • pay dividends or distributions in respect of its share capital or redeem or repurchase capital stock or subordinated debt; • create mortgages, pledges, security interests, encumbrances, liens or other charges; • transfer or sell assets; • engage in sale and leaseback transactions; and • enter into transactions with affiliates.

Loan facilities

BNP Paribas 2007 Loan Facility. On 11 July 2007, the Issuer, Azovstal, Yenakiieve Iron and Steel Works and Metalukr Holding Limited (“Metalukr”) entered into a loan agreement with BNP Paribas (Suisse) SA and certain other creditors for the provision of two loan facilities in an aggregate amount of U.S.$1.5 billion to be used by the Company, Azovstal, Yenakiieve Iron and Steel Works and Metalukr (i) to refinance their (and the Company’s other subsidiaries’) indebtedness, (ii) to finance their working capital requirements, capital expenditures and investments and (iii) for their general corporate purposes. U.S.$1.0 billion was made available to the Company, Azovstal, Yenakiieve Iron and Steel Works and Metalukr as a term loan facility and U.S.$0.5 billion was made available to the Company and Metalukr as a revolving loan facility. Each of the facilities currently bears interest at a rate of LIBOR plus 1.7% per annum, except that with respect to the term loan facility, the borrowers have the option to request that interest be calculated according to a fixed rate. None of the borrowers have exercised this option. The term loan facility was fully utilised in July 2008. The loans are secured by assignments by Azovstal, Yenakiieve Iron and Steel Works, Northern GOK, Central GOK, Avdiivka Coke and Metinvest International S.A. of their respective rights under various sales, export and commission contracts and by bank account pledges by Azovstal and Yenakiieve Iron and Steel Works with respect to amounts receivable under certain export contracts. The term loan facility (Facility A) is repayable in 49 equal monthly instalments starting from 31 July 2008. The loan agreement contains customary financial covenants, negative undertakings and restrictions applicable to each of the Company, Azovstal, Yenakiieve Iron and Steel Works and Metalukr, including restrictions on their ability to incur or guarantee additional indebtedness. As at 31 December 2009, the amount outstanding under the term loan facility was U.S.$633 million and the amount outstanding under the revolving loan facility was U.S.$35 million.

VTB Capital Loan Facility. On 5 June 2008, the Issuer entered into a loan agreement with Credit Suisse International for the provision of a EUR50.0 million term loan facility to be used by the Company for its general corporate purposes. The loan facility was fully utilised in June 2008 and is repayable in full 14 June 2010. With effect on 9 March 2009, VTB Capital plc became a new lender under this loan as a result of novation by Credit Suisse of all of its lender’s rights and obligations to VTB Capital plc. The loan bears interest at a rate of annual EURIBOR plus 5% and is secured by fixed assets of Avdiivka Coke. The loan agreement contains negative undertakings and restrictions applicable to the Issuer. As at 31 December 2009, the amount outstanding under this facility was U.S.$22 million.

ABN AMRO, BNP Paribas and Unicredit Bank D’Impresa SpA Loan Facilities. On 15 January 2008, Metinvest Holding Italy S.P.A. (“Metinvest Italy”) as borrower and Metinvest Holding B.V. (“Metinvest Holding B.V.”) as guarantor entered into a loan agreement with ABN AMRO Bank N.V., BNP Paribas S.A. and Unicredit Bank D’Impresa SpA for the provision of medium-term loan facilities (Facilities A, B, C, D and Revolving Credit Facility 2) in an aggregate amount of a EUR410.0 million to be used by Metinvest Italy (i) towards funding part of the purchase price for the acquisition by it of Trametal S.P.A. and Spartan from the Malacalza family, (ii) towards funding capital expenditures of Metinvest Trametal, and Spartan and (iii) for the general corporate and working capital purposes of Metinvest Trametal. In December 2008, Trametal S.P.A. and Metinvest Italy merged to create Metinvest Trametal. Facility A and Facility D are repayable in instalments by February 2013 with interest LIBOR/EUROBOR plus a margin that varies depending on

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leverage ratio. EUR360.0 million was made available to Metinvest Italy as a term loan facility bearing interest at a rate of three months EURIBOR plus 4.5%.

Facility A was fully utilized in February 2008 and is repayable in February 2013. Facilities B and C were fully utilized in February 2009 and are repayable in full in January 2014 and January 2015, respectively. Facility D which has a limit of EUR30.0 million has not yet been utilized. The loan is secured by pledges of shares in Metinvest Trametal. The loan agreement contains negative undertakings and restrictions applicable to each of Metinvest Holding B.V., Metinvest Italy, Spartan, Metinvest Trametal and Kabiria. Under the loan agreement, Metinvest Italy is required to comply with certain covenants, including financial covants and covenants with respect to its capital expenditure. As at 31 December 2009, the aggregate amount outstanding under these facilities were U.S.$402 million.

ABN AMRO 2008 Loan Facility. On 14 November 2008, Metinvest B.V. as borrower and Azovstal as surety entered into an agreement with ABN AMRO for the provision of a loan facility in an aggregate amount of U.S.$102.5 million to be used by Metinvest B.V. to finance its general corporate purposes. This facility currently bears interest at a rate of annual LIBOR plus 5.25%. The loan is secured by assignment by Azovstal and Metinvest International S.A. of their respective rights under export contract and by bank account pledge by Azovstal with respect to amounts receivable under its export contracts and by suretyship of Azovstal. The repayment under this facility is due in November 2010. As at 31 December 2009, the amount outstanding under this facility is U.S.$67 million.

Raiffeisen Bank Facility. On 17 July 2009 the Issuer entered into loan facility agreement with Raiffeisen Zentralbank Osterreich for a provision of the revolving term loan facility in an aggregate amount of U.S.$20.0 million to finance working capital requirements. The term loan facility was utilized on 23 July 2009 and is repayable in full in January 2011. It bears interest at a rate of 7% per annum over the LIBOR and is secured by pledge of fixed asset of Avdiivka Coke and by surety issued by Avdiivka Coke. The loan facility contains negative undertakings applicable to the Issuer and Avdiivka Coke. As at 31 December 2009, the amount outstanding under this facility was U.S.$17 million.

ING Bank Ukraine Facility. On 4 September 2009 Azovstal, Avdiivka Coke, Yenakiieve Steel, Khartsyzsk Pipe, Northern GOK, Central GOK and Ingulets GOK (the “Borrowers”) entered into a financial services agreement for the provision by ING Bank Ukraine (the “Bank”) to the Borrowers of a multicurrency revolving loan facility in an aggregate amount of U.S.$60.0 million to finance the Borrowers’ working capital requirements. The U.S. dollar and Euro advances bear interest at a rate of 6% per annum over LIBOR equal to relevant advance period and the Ukrainian Hryvnia advance bears interest at a rate of 6% over the Bank’s reference rate in the respective advance period. The loan facility is repayable in full on 31 July 2011 and imposes certain undertakings and restrictions on the Borrowers. As at 31 December 2009, the amount outstanding under this facility was U.S.$28.7 million.

FUIB Loan Facility. On 11 February 2010 Avdiivka Coke and Metinvest Holding LLC entered into loan facilities agreements with First Ukrainian International Bank (“FUIB”) for the provision of revolving loan facilities in an aggregate amount of a EUR21 million to finance working capital requirements. The loan facilities are repayable in full on 11 February 2011 and are secured by pledge of equipment of Avdiivka Coke. It bears interest at a rate of 14.5% per annum. The loan agreements contain customary undertakings and representations. Both facilities in the total amount of EUR21 million were drawn in full on 11 February 2010.

Amsterdam Trade Bank N. V. Facility. On 26 March 2010, Metinvest B.V. as borrower and Ingulets GOK and Khartsyzsk Pipe as guarantors entered into two credit agreements with Amsterdam Trade Bank N.V. for the provision of a revolving loan facility in the amount of U.S.$40.0 million and a term loan facility in the amount of EUR40.0 million for general corporate purposes, both repayable in 2013. The revolving loan facility bears interest at a rate of 8.50% per annum and the term loan facility bears interest at a rate of 11.0% per annum. Both facilities in the amount of U.S.$40.0 million and EUR40.0 million were drawn in full on 1 April 2010.

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Trade finance facilities

Metinvest uses trade financing is used for the financing of inventory and receivables. As at 31 December 2009, Metinvest had U.S.$482 million outstanding under its trade finance facilities. Metinvest uses trade lines with interest rates not exceeding 4% per annum, and the maturity of its trade lines is generally less than one year. The majority of Metinvest’s trade lines are used by Metinvest International S.A. (“MISA”), the main trading company of Metinvest. As at 31 December 2009, MISA had U.S.$390 million outstanding under its trade finance facilities. Metinvest's trade lines are typically secured by pledge of inventories and assignment of export proceeds.

Contractual obligations and commercial commitments

The following table sets forth the amount of Metinvest’s contractual obligations and commitments, presented on undiscounted basis, as of 31 December 2009 by maturity.

Less than More than 11112Total 11112 1 year 11112 1- 2 years 11112 2-5 years 11112 5 years (millions of U.S. dollars) Borrowings ...... 2,040 1,057 498 479 6 Sellers’ Notes ...... 673 174 100 306 93 Capital commitments ...... 128 128 Payables for property, plant and equipment ...... 11112 15 11112 15 11112 11112 11112 Total ...... 2,856 1,374 598 785 99 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112

As of 31 December 2007, 2008 and 2009, Metinvest had incurred liabilities in respect of retirement benefit obligations of U.S.$311 million, U.S.$287 million and U.S.$343 million, respectively. These liabilities relate to the participation of certain entities within the Metinvest group in a mandatory state-defined retirement plan, which provides for early pension benefits for employees employed at facilities with hazardous and unhealthy working conditions. Metinvest also provides, subject to certain conditions, lump sum benefits to its employees upon retirement. The liability recognised in respect of the defined retirement benefit obligations is the present value of the defined benefit obligation, adjusted for unrecognised actuarial gains or losses and past service costs. In addition, Metinvest makes statutory contributions to the Ukrainian Social Insurance Fund, Pension Fund and Fund for Insurance Against Unemployment in respect of its employees. These contributions are based on gross salary payments and are paid when due. These contributions are expensed as incurred.

In April 2009, Metinvest acquired 100.0% in the share capital of United Coal, a producer of coking and steam coal located in the United States, for an aggregate consideration of U.S.$899.0 million, of which U.S.$443.0 million were paid in cash. A further U.S.$599.0 million is payable pursuant to the Sellers’ Notes in semi-annual instalments through 31 December 2015, the maturity date of the Seller’s Notes. The Sellers’ Notes bear interest at a rate of 2.5% per annum for the period from the acquisition date through 31 December 2011 and 5.0% per annum thereafter (resulting in a fair value of the Seller’s Notes of U.S.$456.0 million). In addition, in March 2010, as required under the Sellers’ Notes, United Coal made a payment to the holders of the Seller’s Notes in an aggregate amount of U.S.$31.2 million and the amount outstanding under the Seller’s Notes was reduced by that amount. The amounts of semi-annual payments under the Seller’s Notes were also reduced. Metinvest U.S. Inc.’s and United Coal Company LLC’s (the “Notes Issuers”) obligations under the Seller’s Notes are subordinated to the prior payment in full in cash of any senior indebtedness of the Notes Issuers (calculated pursuant to the terms of the Sellers’ Notes) in an aggregate principal amount not exceeding U.S.$3.0 billion (excluding interest and fees) less any permanent repayments of indebtedness the proceeds of which were used to acquire any entity plus any additional incurrence of indebtedness the proceeds of which are used for maintaining or expanding current operations. The Sellers’ Notes will not be subordinated to any indebtedness in excess of this amount.

Management expects to fund its contractual and other commitments from net cash generated from operating activities, bank borrowings and issuances of debt securities.

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Bankruptcy Proceedings

Krasnodon Coal and Makiivka Steel are currently subject to bankruptcy proceedings, which may affect these subsidiaries’ ability to borrow funds. The bankruptcy proceedings in respect of Makiivka Steel were initiated on 7 December 2009 by Metalen. The bankruptcy proceedings in respect of Krasnodon Coal were initiated on 30 May 2006 by Limited Liability Company automobile enterprise “Shlyakh”. Metinvest directly and indirectly represents a majority of the creditors’ committees of each Krasnodon Coal and Makiivka Steel. Management believes that the creditors of Makiivka Steel and Krasnodon Coal will not pursue the liquidation of these entities. See “Business Description—Legal Proceedings” for more information on these proceedings.

Off Balance Sheet Arrangements

As at 31 December 2009, Metinvest had outstanding guarantees issued to third parties in the amount of U.S.$60.0 million, including a surety issued by Khartsyzsk Pipe in favour of Nomos Bank to guarantee the quality of pipes delivered to Kazakhstan under Central Asia - China pipeline project in an aggregate amount of U.S.$56.8 million and guarantees issued by Metinvest Trametal in favour of third parties in the ordinary course of business.

60% plus one share of the share capital of each of Central GOK and Northern GOK have been pledged in favour of the lenders under the U.S.$545 million SCM Facility entered into between SCM and BNP Paribas (Suisse) SA. As at 31 December 2009, Metinvest believes that U.S.$237 million was outstanding under the SCM Facility. See “Risk Factors — Risks Related to the Notes — The shares of Central GOK and Northern GOK have been pledged in favour of the lenders under the SCM Facility and the enforcement of these pledges would be an Event of Default under the Notes” and “Shareholders and Related Party Transactions — Pledges.”

Pledges

Metinvest has pledged certain of its fixed assets, movable property and inventories to secure its obligations under its long-term loans with BNP Paribas (Suisse SA), ABN AMRO Bank N.V., VTB Capital plc, Raiffeisen Zentralbank Osterreich and FUIB.

As at 31 December 2009, Metinvest’s borrowings in an aggregate amount of U.S.$396.0 million were secured by pledges over Metinvest’s inventories, property, plant and equipment. In addition, borrowings in an aggregate amount of U.S.$818.0 million were secured by a pledge over Metinvest’s accounts receivable. As at 31 December 2009, the value of inventories and buildings, plant and machinery pledged by Metinvest to secure its borrowings was U.S.$356 million and U.S.$192 million, respectively.

As at 31 December 2009, Metinvest had pledged 100% of the issued share capital of Metinvest Trametal and 100% of the issued share capital of Spartan to secure the loans received in connection with the acquisition of Metinvest Trametal with outstanding balances under this loans of EUR280.0 million as at 31 December 2009.

Qualitative and Quantitative Disclosure About Market Risks

Financial risk management

Metinvest’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. Metinvest’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on Metinvest’s financial performance.

Risk management is carried out by a central treasury department (Metinvest’s treasury). Metinvest’s treasury identifies and evaluates financial risks in close co-operation with the group’s operating units. Metinvest’s treasury provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, and investment of excess liquidity.

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Market risk

Foreign exchange risk

Metinvest operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

Metinvest has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of Metinvest’s foreign operations is managed through (i) borrowings denominated in the relevant foreign currencies; (ii) different treasury operations like forward, swap and other. Fair value of derivatives as at 31 December 2009 and 2008 is immaterial.

Foreign exchange risk is managed centrally by Metinvest’s treasury. Metinvest’s treasury has set up a policy to manage foreign exchange risk. Metinvest’s treasury sets limits on the level of exposure by currency and maximum amount of exposure. The subsidiaries have not entered into transactions designed to hedge against these foreign currency risks without permission of Metinvest’s treasury.

At 31 December 2009, if the Ukrainian Hryvnia had strengthened or weakened by 10% against the U.S. dollar with all other variables held constant, post-tax profit for the year would have been U.S.$73 million (2008: USD 436 million at 25% change) higher or lower, mainly as a result of foreign exchange losses/gains on translation of U.S. dollar-denominated trade receivables and foreign exchange gains/losses on translation of U.S. dollar denominated borrowings.

At 31 December 2009, if the Ukrainian Hryvnia had strengthened or weakened by 10% against the Euro with all other variables held constant, post-tax profit for the year would have been U.S.$77 million lower or higher (2008: USD 238 million higher/lower at 25% change), mainly as a result of foreign exchange losses/gains on translation of Euro denominated trade receivables and foreign exchange gains/losses on translation of Euro denominated borrowings.

Price risk

Metinvest is exposed to equity securities price risk because of investments held by Metinvest and classified as available-for-sale.

The majority of Metinvest’s equity investments are quoted on the over-the-counter electronic exchange. Metinvest determines related fair value gains/losses on the available-for-sale financial assets by reference to the available over-the-counter quotations.

Metinvest’s revenue is exposed to the market risk from price fluctuations related to the sale of its steel and iron ore products. The prices of the steel and iron ore products sold both within Ukraine and abroad are generally determined by market forces. These prices may be influenced by factors such as supply and demand, production costs (including the costs of raw material inputs) and global economic growth. The prices of the products that Metinvest sells to third parties are also affected by supply/demand and global/Ukrainian economic growth. Adverse changes in respect of any of these factors may reduce the revenue that Metinvest receives from the sale of its steel or mined products.

Metinvest’s exposure to commodity price risk associated with the purchases is limited as Metinvest is vertically integrated and is self sufficient for iron ore and coking coal requirements.

Cash flow and fair value interest rate risk

Metinvest’s income and operating cash flows are dependent on changes in market interest rates.

Metinvest’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose Metinvest to cash flow interest rate risk. Borrowings issued at fixed rates expose Metinvest to fair value interest rate risk. Metinvest’s policy is to maintain a balanced borrowings portfolio of fixed and floating rate instruments. As at 31 December 2009, 29% of the total borrowings were provided to Metinvest at fixed rates

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(31 December 2008: 7%). During 2009 and 2008, Metinvest’s borrowings at variable rate were denominated in U.S. dollars and Euros.

Management does not have a formal policy of determining how much of Metinvest’s exposure should be to fixed or variable rates. However, at the time of issuing new debt management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to Metinvest over the expected period until maturity.

At 31 December 2009, if interest rates on U.S. dollar and Euro-denominated borrowings had been on 1% higher or lower (2008: 4.5%) with all other variables held constant, post-tax profit for the year would have been U.S.$13 million (2008: U.S.$113 million) lower or higher.

Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. When wholesale customers are independently rated, these ratings are used for credit quality assessment. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.

Financial assets which potentially subject Metinvest to credit risk consist principally of cash, loans, trade and other accounts receivable.

Cash is placed with major Ukrainian and international reputable financial institutions, which are considered by Metinvest at the time of deposit to have minimal risk of default.

Metinvest has policies in place to ensure that provision of loans and sales of products/services are made to customers with an appropriate credit history. Metinvest’s credit risk exposure is monitored and analysed on a case-by-case basis. Credit evaluations are performed for all customers requiring credit over a certain amount. The carrying amount of loans, trade and other accounts receivable, net of provision for impairment, represents the maximum amount exposed to credit risk. Concentration of credit risk mainly relates to CIS and European countries where the major customers are located.

The maximum exposure to credit risk at 31 December 2009 was U.S.$2,037 million (2008: USD 2,990 million) being the fair value of long and short term loans issued and receivables and cash. Metinvest does not hold any collateral as security.

Management believes that credit risk is appropriately reflected in impairment allowances recognised against assets. No credit limits were exceeded during the reporting period, and management does not expect any significant losses from non-performance by these counterparties.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Metinvest’s treasury maintains flexibility in funding by maintaining availability under committed credit lines.

Metinvest’s treasury analyses the ageing of their assets and the maturity of their liabilities and plans their liquidity depending on the expected repayment of various instruments. In case of insufficient or excessive liquidity in individual entities, Metinvest relocates resources and funds among Metinvest’s entities to achieve optimal financing of the business needs of each entity.

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Capital risk management

Metinvest’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, Metinvest may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, Metinvest monitors capital on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

Metinvest has yet to determine its optimum gearing ratio. Presently, the majority of debt is due within 1 – 5 years and the Group is actively pursuing mechanisms to extend the credit terms to match its long-term investment strategy. The Group has credit ratings assigned by two international rating agencies, Fitch and Moody’s, B- and B2 respectively, ceiled by the Sovereign rating.

31 31 December December 111122009 11112 2008 Total borrowings ...... 1,943 2,685 Less: cash and cash equivalents...... 159 261 Net debt ...... 1,784 2,424 Total equity ...... 6,972 6,286 Total capital ...... 11112 8,756 11112 8,710 Gearing ratio ...... 20% 28% aaaas11112 aaaas11112

Critical Accounting Policies

Metinvest make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the IFRS consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment of property, plant and equipment and goodwill. Metinvest’s entities are required to perform impairment tests for their cash-generating units. One of the determining factors in identifying a cash- generating unit is the ability to measure independent cash flows for that unit. For many of Metinvest’s identified cash-generating units a significant proportion of their output is input to another cash-generating unit.

Metinvest also determines whether goodwill is impaired at least on an annual basis. This requires estimation of the value in use/fair value less costs to sell of the cash-generating units or groups of cash-generating units to which goodwill is allocated. Allocation of goodwill to groups of cash generating units requires significant judgement related to expected synergies. Estimating value in use/ fair value less costs to sell requires Metinvest to make an estimate of expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

The recoverable amount of goodwill and cash-generating units were estimated based on the higher of value in use and fair value less costs to sell.

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receivable and the present value of the future cash flows discounted at the receivables effective interest rate. Factors taken into consideration when estimating the future cash flow include an ageing analysis of trade and other accounts receivable in comparison with the credit terms allowed to customers, and the financial position of and collection history with the customer. In the current environment there is significant judgement in estimating the expected payment date, the discount rate and whether penalty interest will be collected. Should actual collections be less than management’s estimates, Metinvest would be required to record an additional impairment expense.

Makiivka Steel and Promet business combination. Makiivka Steel and Promet have been consolidated effective 1 January 2009; however Makiivka Steel had not been legally transferred to the Group as at 31 December 2009 and the transfer of legal rights over Promet happened in December 2009. In concluding whether to consolidate without legal title, judgement is required to assess whether control, as defined by IFRS 3 (revised), has passed. Such judgement was driven by the following matters: • according to the shareholders’ agreement signed in 2007, SMART committed to transfer its interest in Makiivka Steel and Promet to Metinvest; • the businesses of Makiivka Steel and Promet, owned by SMART as minority shareholders in the Company, became mutually dependent on Metinvest’s operations; • on 1 January 2009 SMART granted to Metinvest B.V. power to manage the financial and operating policies of Makiivka Steel; • on 31 December 2009 Promet issued additional shares in favour of Metinvest B.V. for a total nominal value of U.S.$51 million (BGN 70 million) of which U.S.$13 million were paid in cash. As a result Metinvest became a legal owner of 95% of Promet; • SMART’s intention to contribute Makiivka Steel to the Company in 2010 in accordance with the shareholders’ agreement as disclosed in Note 4 to the Financial Statements.

Post-employment and other employee benefit obligations. Management assesses post-employment and other employee benefit obligations using the Projected Unit Credit Method based on actuarial assumptions which represent management’s best estimates of the variables that will determine the ultimate cost of providing post-employment and other employee benefits. Since the plan is administered by the State, Metinvest may not have full access to information and therefore assumptions regarding when, or if, an employee takes early retirement, whether Metinvest would need to fund pensions for ex-employees depending on whether that ex-employee continues working in hazardous conditions, the likelihood of employees transferring from State funded pension employment to Metinvest funded pension employment could all have a significant impact on the pension obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The major assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. Metinvest determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, Metinvest considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on the current market conditions.

Tax legislation. Ukrainian tax, currency and customs legislation continues to evolve. Conflicting regulations are subject to varying interpretations. Management believes its interpretations are appropriate and sustainable, but no guarantee can be provided against a challenge from the tax authorities.

Related party transactions. In the normal course of business Metinvest enters into transactions with related parties. Judgement is applied in determining if transactions are priced at market or non-market rates, where there is no active market for such transactions. Financial instruments are recorded at origination at fair value using the effective interest method. Metinvest’s accounting policy is to record gains and losses on related party transactions, other than business combination or equity investments, in the income statement. The basis

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for judgement is pricing for similar types of transactions with unrelated parties and an effective interest rate analysis.

Fair valuation of property, plant and equipment. Metinvest engages independent appraisers to determine fair value of its property, plant and equipment. Total amount of revaluation recognised in 2009 is U.S.$1,091 million, with total carrying value of property, plant and equipment U.S.$5,649 million at 31 December 2009. The majority of buildings, structures, plant and machinery is specialised in nature and is rarely sold in the open market in Ukraine, consequently, the fair value was primarily determined using depreciated replacement cost. Fair valuation requires significant judgements to be applied in respect of the costs of reproduction or replacement of the property, plant and equipment and levels of physical, functional or economical depreciation, and obsolescence. Were these judgements be different, the additional revaluation or devaluation should be recorded in the financial statements.

Remaining useful lives of property, plant and equipment. Metinvest’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the technical requirements. Management will increase depreciation charge where useful lives are less than previously estimated lives.

Functional currency. Metinvest’s management selected the U.S. dollar as the functional currency on the basis that (i) the Issuer is not an extension of and is not integral to the Ukrainian operations; (ii) the primary exposure is limited to a number of countries; and (iii) the Issuer retains cash and obtains financing in U.S. dollars. Should a different functional currency be selected, additional translation gains/losses would arise on loans and other payables with no effect on total equity reported. The amount of loans and other payables of the Issuer totalled U.S.$2,302 million as at 31 December 2009 compared to U.S.$2,839 million as at 31 December 2008.

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INDUSTRY

The following information includes extracts from publicly available information, data and statistics and has been extracted from official sources and other sources the Company believes to be reliable. The Company accepts responsibility for accurately reproducing such information, data and statistics but accepts no further responsibility in respect of such information, data and statistics. Such information, data and statistics may be approximations or use rounded numbers.

Steel Industry

Global Overview

Steel is one of the most important, multi-functional and adaptable materials in use today, and is generally considered to be a backbone of industrial development. Steel is highly versatile, as it is hot and cold formable, weldable, hard, recyclable and resistant to corrosion, water and heat. The industries in which steel is used include construction, oil and gas, transportation (including railway) and engineering. Steel is also used in the production of power lines, pipelines, white goods and containers.

The steel industry is affected by a combination of factors, including periods of economic growth or recession, worldwide production capacity and the existence of, and fluctuations in, steel imports and protective trade measures. Steel prices respond to supply and demand and fluctuate in response to general and industry-specific economic conditions. In recent years steel prices have experienced significant fluctuations. During 2004, steel prices reached their highest levels in nearly 20 years, driven to a significant extent by demand for steel in China, while global steel production volumes reached approximately 1 billion tonnes per year. This rapid increase was followed by a reduction of global steel prices in the second half of 2005, which continued until the beginning of 2006. However, prices remained above pre-2004 levels. From late 2006 through the first half of 2008, steel prices continued to grow, influenced by significant cost inflation and increasing demand particularly from emerging markets such as China and India. For example, in July 2008 the price for merchant slab was approximately 430% higher than December 2002 levels. In the third quarter of 2008 the global steel prices decreased due to the global financial crisis and the resulting downturn in the world economy. This downwards trend continued until the second quarter of 2009.

Steel prices have been gradually increasing since the second half of 2009 with the prices for billets increasing to U.S.$612 per tonne as of 31 March 2010 from U.S.$415 per tonne as of 31 December 2009 as compared to U.S.$407.5 per tonne as of 30 June 2009, according to Bloomberg. However, on average as of 31 March 2010, the prices for billets were approximately 48% lower than the peak of U.S.$1,205 per tonne as of 30 June 2008, according to Bloomberg.

The decrease in demand for steel products and lack of consumer confidence in late 2008 and early 2009 prevented many steel consumers from restocking their inventories. The low inventory levels are currently prompting many steel consumers to fill their orders in expectation of recovery in demand. According to CRU, in 2010 global demand for steel and rolled products increased by 22.5% year-on-year largely due to growth in Chinese consumption. For example, consumption of steel rolled products and billets increased by 1.2% in 2009 to 581 million tonnes due to increases in Chinese consumption. Producers of semi-finished products, such as Metinvest, are generally better positioned to benefit from recovery in demand due to other steel producers having their furnaces working at reduced capacity during the downturn and now gradually beginning to increase capacity.

The steel industry operates predominantly on a regional basis as a result of the high cost of transporting steel. However, despite the limitations associated with transportation costs, as well as the restrictive effects of protective tariffs, duties and quotas, global imports and exports have generally increased in the last decade as production has shifted towards low-cost production regions such as China and Southeast Asia.

World steel production decreased by 8.0% in 2009 to 1.2 billion tonnes compared with 2008 production levels, according to the World Steel Association (“WSA”). The most significant reduction in production was shown by the developed countries, such as the EU where overall production decreased by 30.0%, while China along with some other emerging countries remained the driving force in global steel production. In

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2009, the production of crude steel in China increased by 13.5% as compared to 2008 and reached 568.0 million tonnes, accounting for 47% of the world steel production. The production of crude steel in India and Iran increased by 3.0% and 9.0%, respectively, in 2009 as compared to 2008, while the production of steel in the CIS countries on average decreased by approximately 15%, including by 12.5% in Russia and by 20.2% in Ukraine.

Since June 2009 the world steel production started to gradually increase from 99.7 million tonnes in June 2009 to 120.3 million tonnes in March 2010. The production of steel in the CIS countries reached 9.1 million tonnes in March 2010, representing 16.7% increase as compared to June 2009.

The following table sets out crude steel production data by country or region for the period from 2003 through 2009:

2003 2004 2005 2006 2007 2008 2009 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (million tonnes) China ...... 222 280 356 423 489 500 568 EU27(1) ...... 193 202 196 207 210 199 139 Japan ...... 111 113 112 116 120 119 87 United States ...... 94 100 95 99 98 91 58 Russia...... 61 66 66 71 72 69 60 India ...... 32 33 46 49 53 55 57 South Korea ...... 46 48 48 48 51 53 49 Ukraine ...... 37 39 39 41 43 37 30 Other Asia(2) ...... 31 37 36 40 49 22 15 Other Europe(3) ...... 21 24 25 28 31 31 29 Other ...... 122 127 127 129 135 154 128 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total...... 970 1,069 1,146 1,251 1,351 1,330 1,220 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Source: WSA 2009 Steel Statistical Yearbook and steel monthly statistics for 2009

Notes: (1) Includes current twenty seven EU member states (“EU27”). (2) Excludes China, Japan, India and South Korea. (3) Excludes current twenty seven EU member states and all CIS countries.

Steel production has historically been centred in the EU, Japan and the United States. In recent years, steel production in Asia, and in particular China, has increased significantly. Moreover, while production in Europe, Japan and the United States remains significant, steel producers in those regions have increasingly focused on the rolling and finishing of semi-finished products.

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World apparent crude steel consumption decreased by 8.0% in 2009 to 1,197 million tonnes following a 1.2% decline to 1,301 million tonnes in 2008. The following table sets out apparent crude steel consumption data by country or region for 2003 to 2009.

2003 2004 2005 2006 2007 2008 2009 (E) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (million tonnes) China ...... 259 287 362 393 440 453 565 EU27(1) ...... 186 190 182 206 216 198 129 United States ...... 106 124 113 129 114 102 65 Japan ...... 76 81 83 83 86 83 57 South Korea ...... 48 49 49 52 57 61 46 India ...... 34 39 43 49 55 54 58 Russia...... 29 32 35 42 47 41 28 Ukraine ...... 7768984 Other Asia(2) ...... 70 78 80 78 83 82 66 Other Europe(3) ...... 22 25 28 30 32 29 24 Other ...... 136 174 153 167 178 190 154 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total...... 972 1,060 1,134 1,237 1,317 1,301 1,197 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Source: WSA 2009 Steel Statistical Yearbook for 2003 to 2008 and WSA Short Range Outlook Spring 2010 for 2009

Notes: (1) Includes current twenty seven EU member states. (2) Excludes China, Japan, India and South Korea. (3) Excludes current twenty seven EU member states and all CIS countries.

According to WSA, world apparent consumption of finished steel products will increase by 10.7% in 2010. According to the European Confederation of Iron and Steel Industries (“Eurofer”) EU real consumption will increase by 0.3% in 2010 and 4.5% in 2011. The WSA’s forecast in relation to apparent steel consumption by region is set out in the table below.

Consumption Growth rates ––––––––––––––––––––––––––––– –––––––––––––––––– 2008 2009 (E) 2010 (F) 2009 (E) 2010 (F) –––––––– –––––––– –––––––– –––––––– –––––––– (million tonnes) EU27(1) ...... 182 118 135 (35.2%) 13.7% Other Europe(2) ...... 29 24 27 (12.5%) 13.5% CIS ...... 50 36 40 (28.2%) 11.0% NAFTA ...... 130 81 100 (37.4%) 23.5% Central & South America ...... 44 34 40 (24.1%) 20.0% Africa ...... 26 26 29 0.4% 8.6% Of which Algeria, Egypt, Morocco ...... 11 16 16 41.0% 5.8% Middle East...... 43 41 45 (8.0%) 10.0% Of which Iran ...... 16 16 17 4.6% 1.8% Asia & Oceania ...... 694 762 826 8.7% 8.4% Of which China ...... 426 542 579 24.8% 6.7% Of which India ...... 53 55 63 7.7% 13.9% –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 1,197 1,121 1,241 6.7 10.7% –––––––– –––––––– –––––––– –––––––– –––––––– Source: WSA

Notes: (1) Includes current twenty seven EU member states (“EU27”). (2) Excludes current twenty seven EU member states and all CIS countries.

Despite producing significant quantities of steel, the United States is a net importer of steel, while China, Japan and Russia are net exporters of steel, as is Ukraine. The major traded steel products worldwide include semi-finished products, hot and cold-rolled sheets and coils, steel tubes and fittings, galvanised sheet, plates, wire rod, rebars, angles and sections.

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The strategy and product mix of steel producers generally varies between producers in industrial countries and producers in emerging markets. Historically, commodity steel producers in industrial countries had limited export markets due to the high cost of transporting steel relative to the low value of commodity steel grades. In the second half of the twentieth century, producers in emerging markets began to compete with steel producers in industrial countries as they took advantage of the lower manufacturing costs in their countries to offset high transportation costs. In response, producers in Western Europe and Japan invested heavily in new technology and capacity to produce high value-added steel grades in order to differentiate their product portfolio and protect their margins by reducing their exposure to commodity steel prices. However, these similar and simultaneous investments resulted in production overcapacity and put pricing pressures on value-added segments. Over the past decade, the growth and consolidation of both steel consumers and raw material suppliers has weakened the bargaining power of steel producers and put further pressure on their margins. Steel producers have responded with a phase of industry consolidation. In 2002, Usinor, Arbed and Aceralia in Europe merged to form Arcelor, and Kawasaki Steel and NKK in Japan merged to form JFE. In 2002, Nucor acquired the assets of Birmingham Steel, and International Steel Group (“ISG”) acquired the assets of Acme, LTV and Bethlehem Steel in the United States. In late 2004, Ispat International N.V. and LNM Holdings N.V., which comprised the LNM Group, merged to form Mittal Steel and in early 2005 Mittal Steel merged with ISG. In 2006, Arcelor and Mittal Steel merged, forming the world’s largest steel company. In April 2007, India’s Essar Group purchased the Algoma Steel Corporation and the Tata Group acquired the Corus Group (formed as a result of the 1999 merger between Koninklijke Hoogovens N.V. and British Steel Plc). In 2008, the steel industry consolidation process slowed down due to the global economic crisis and, in particular, the freezing of credit markets and the unavailability of financing to support transactions. There were only 14 acquisitions completed in the first quarter of 2009 and 52 during the second half of 2008 compared to 107 acquisitions in the first half of 2008 according to Deloitte Touche Tohmatsu’s recent study of global steel consolidation. However, most steel producers still consider acquisitions a key strategy to achieving business objectives and are expected to be making further acquisitions over the next three years. For example, China’s steel industry is expected to enter a consolidation mode at the domestic level with their largest steel mills being merged to achieve 50.0% of overall Chinese steel production in 2010.

Consolidation has enabled steel companies to lower their production costs and allowed for more stringent supply-side discipline, including through selective capacity closures. Despite the level of consolidation over the past decade, the global steel market remains highly fragmented. According to the WSA, in 2008 the five largest producers, including ArcelorMittal (103.3 million tonnes), Nippon Steel (37.5 million tonnes), Baosteel Group (35.4 million tonnes), POSCO (34.7 million tonnes) and Hebei Steel Group (33.3 million tonnes), accounted for approximately 20.0% of total worldwide steel production, with ArcelorMittal, the largest, accounting for approximately 8.0% of the worldwide steel production.

Metinvest’s Markets for Steel Products

Overview

As a global supplier of steel products, Metinvest operates on various regional markets and, as such, primarily competes with similar steel producers including CIS steel producers.

According to the WSA, in 2009 the steel producers located in the CIS countries produced 97.4 million tonnes of crude steel (including 29.8 million tonnes of crude steel produced in Ukraine), representing a decrease of 14.8% on the 114.3 million tonnes produced in 2008 and a decrease of 21.6% on the 124.2 million tonnes produced in 2007. The CIS was the second world’s largest steel producer after China while Ukraine was the world’s eighth largest steel producer after China, Japan, the United States, Russia, India, South Korea and Germany in 2009, according to the WSA. The CIS was the largest exporter of semi-finished and finished steel products in both 2008 and 2009 with exports of 67.4 and 66.4 million tonnes, respectively, compared to 51.7 and 66.4 million tonnes of exports from China, in the same periods according to the WSA. Ukraine was the third largest net exporter of steel products in 2007 and 2008 after China and Japan and in 2009 after Japan and Russia, according to WSA.

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CIS Steel Producers

Metinvest’s competitors include the following CIS-based steel producers:

NLMK. Novolipetsk Steel (“NLMK”) is a vertically integrated steel producer with operations spanning mining, steelmaking and production of rolled products. NLMK is located in Lipetsk, a region in the centre of western areas of the Russian Federation that lie within Europe. NLMK’s integrated steel-making facility comprises a sintering plant with annual capacity of 14.5 million tonnes; a coke plant with four coke batteries and consolidated annual capacity of 4.5 million tonnes; two blast furnace shops containing five blast furnaces with a total annual capacity of 9.6 million tonnes; two blast open furnace shops with a total annual capacity of 9.5 million tonnes; nine continuous casting lines comprising six curvilinear, one radial-curved and two vertical lines, one hot-rolling mill and three cold-rolling mills with a total annual capacity of 9.1 million tonnes. In 2009 NLMK produced 10.6 million tonnes of crude steel and 10.6 million tonnes of finished products. NLMK’s main customers are located in over 70 countries across Europe, North America, Asia, Africa and the Middle East.

MMK. Magnitogorsk Iron and Steel Works (“MMK”) is a vertically integrated steel producer comprising 62 entities engaged in supplying raw and other input materials, equipment maintenance, downstream processing and sale of MMK’s products, construction, transportation, financial and customs services and services to outside entities. In 2009 MMK produced approximately 9.6 million tonnes of crude steel and 8.8 million tonnes of rolled products. MMK established strong relationships with its customers in the CIS where it sells approximately 66% of its steel products. However, MMK increases its sales in international markets. MMK’s customers are located in over 60 countries. The key regions for MMK’s export sales are the Middle East, Europe and Asia.

Evraz. Evraz is a vertically integrated steel, mining and vanadium business with operations in the Russian Federation, Europe, the United States, Canada and South Africa and interests in China. In 2009, Evraz produced approximately 15.3 million tonnes of crude steel and 14.3 million tonnes of rolled products. Evraz’s customers are located in over 40 countries including CIS, China, the Philippines, South Korea and Taiwan.

Severstal. Severstal is an international, vertically-integrated metals and mining company that sells steel and mining products to customers across the world. In 2009, Severstal produced 16.7 million tonnes of crude steel and 12.7 million tonnes of rolled products. Severstal is a full production cycle operation which includes iron ore and coal mining enterprises, steel mills and rolled product plants as well as downstream production and distribution businesses. Severstal’s production facilities are geographically diversified, with locations in Russia, the United States, Italy, France, Ukraine, the United Kingdom and Kazakhstan. According to Metal Bulletin, the Severstal was the world’s fifteenth largest producer of crude steel in 2007, by volume of production.

Mechel. Mechel is an integrated steel and mining group focused on the production of nickel and steel products, as well as coal and iron ore. Mechel’s steel business comprises the production and sale of semi- finished steel products, carbon and specialty long products, carbon and stainless flat products and value- added downstream steel products including hardware, stampings and forgings. Mechel also produces coke, both for internal use and for sales to third parties. In 2009, Mechel produced approximately 5.5 million tonnes of steel, 5.4 million tonnes of rolled products, 3.8 million tonnes of pig iron and 3.2 million tonnes of coke. Mechel’s subsidiaries are located in 12 regions of Russia, Kazakhstan, the United States, Romania, Bulgaria and Lithuania. Mechel’s customers are located in over 30 countries including China, Taiwan, Europe, United States and the Philippines.

Metalloinvest. Metalloinvest is a Russian vertically integrated steel and iron ore company. The company’s main assets include the Lebedinsky iron ore mine, which includes the largest iron ore pit in Europe, and the OEMK steel complex near Kursk in Russia.

Ukrainian steel producers. The Ukrainian steel industry is characterised by a high level of competition. According to the CRU, published annual reports and (with respect to Metinvest) management estimates, the five largest steel producers in Ukraine are IUD, which produced 7.1 million tonnes of crude steel in 2009 at its steel operations which include Alchevsk Iron & Steel Works located in Lugansk region and Dneprovsky

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Iron & Steel Works located in Dnipropetrovsk region; Metinvest, which produced 7.0 million tonnes of crude steel in 2009; Arcelor Mittal Kryviy Rih (formerly Kryvorizhstal), located in the Dnipropetrovsk region, which produced 5.1 million tonnes of crude steel in 2009; MMK Illycha, located in Mariupol, which produced 4.3 million tonnes of crude steel in 2009; and Zaporizhstal, located in Zaporizhia, which produced 3.3 million tonnes of crude steel in 2009.

Export Markets

The CIS and Ukrainian steel industries are export-oriented. Europe, the Middle East, Asia and Africa are the primary export destinations for Ukrainian steel, accounting for approximately 25%, 25%, 24% and 10% of exports respectively, in 2009 according to ISSB. Semi-finished steel products accounted for approximately 48% of Ukrainian steel exports in 2009, followed by flat products, which accounted for approximately 25% of exports and long products, which accounted for only approximately 20% of exports, in each case according to ISSB. Exports of semi-finished and finished steel products have gradually increased over the last ten years, rising from 16.0 million tonnes in 1998 to 23.8 million tonnes in 2009.

Chinese and South East Asian Markets China has the world’s largest steel industry, both in terms of production and consumption. According to CRU, China produced 568 million tonnes of crude steel in 2009, accounting for 50% of worldwide production. It also consumed 597 million tonnes of finished steel products, accounting for 51% of worldwide consumption. The Asian market as a whole consumed 766 million tonnes.

According to CRU, the Chinese steel market has grown rapidly over the last decade with Chinese consumption increasing by 398% from 120 million tonnes in 2000 to 597 million tonnes in 2009. Unlike other regions, the Chinese market recovered quickly following the economic downturn and demand increased in the first quarter of 2009 which resulted in Chinese consumption growing by 25% year-on-year in 2009. Similarly, demand for steel in other South East Asian countries decreased during the first half of 2009, according to CRU. In the first quarter of 2010 the Asian markets (excluding China's) consumption of finished steel products increased by 1.4% compared to the fourth quarter of 2009.

In China and South East Asia apparent consumption of long products including billets increased by 17.3% in 2009 year-on-year from 330 million tonnes to 387 million tonnes. During the first quarter of 2010 consumption increased by 25.3% to 103 million tonnes, according to CRU.

The spot price for Chinese billets also increased from U.S.$450 per tonne in December 2009 to U.S.$500 per tonne in March 2010. Aside from China, other major consumers in South East Asia are Japan, South Korea and Taiwan, representing 9.5%, 7.6% and 1.9% of global demand, respectively, according to CRU.

European Market Since the economic downturn in 2008, the European steel market has been growing slowly but steadily at an average annual growth rate of 1%, according to CRU. Production of crude steel in 2000 was 195 million tonnes and it increased to 214 million tonnes in 2007. Production decreased by 5% in 2008 and then by a further 30% in 2009, with Europe producing 143 million tonnes and representing 11.7% of worldwide production in 2009, according to CRU. Consumption of both crude steel and finished steel products in Europe has grown in recent years. Domestic consumption of crude steel declined from 186 million tonnes in 2003 to 129 million tonnes in 2007, a decrease of 30.6%. However, demand began to increase in the second quarter of 2009. Consumption of finished steel products in the first quarter of 2010 was 41 million tonnes, a 3.3% increase compared to the fourth quarter of 2009 but a 20% decrease compared to the second quarter of 2008.

Germany and Italy are the largest consumers in Europe representing 20% and 15% of consumption, respectively, in 2009 due to their prominent automotive and manufacturing industries, according to CRU.

Apparent consumption of long products rolled from billet in Western Europe decreased by 23.1% in 2009 year-on-year from 57 million tonnes to 44 million tonnes. In the first quarter of 2010 consumption has increased by 32.1% year-on-year to 14 million tonnes, according to CRU.

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Middle Eastern and North African Market

The Middle Eastern and North African steel market is relatively small in terms of production and consumption, producing 24.9 million tonnes of crude steel in 2009, according to CRU. It produced 15.9 million tonnes in 2000 and has grown steadily over the last decade at a compound annual growth rate of 7%. Although production growth slowed during the global economic downturn, it did not decline as with most countries worldwide according to CRU.

Consumption in the Middle East and North Africa remained positive during the financial crisis, reflecting a trend toward greater steel consumption per capita in the region, according to CRU. Consumption of long products within the Greater Arab Free Trade Area (GAFTA) countries increased from 27.5 million tonnes in 2008 to 32 million tonnes in 2009, according to CRU due to a number of factors including investment of energy revenues into infrastructure, addressing a shortage of housing stock as average family size decreases and supporting efforts to diversify economies away from energy. The GAFTA region is a net importer of finished steel products. Net imports increased to 20.2 million tonnes in 2009, according to CRU.

CIS Market

Since the economic downturn in 2008, the CIS steel market was growing steadily at an annual average growth rate of 3.7%. Production of crude steel in 2000 was 99 million tonnes and it increased to 125 million tonnes in 2007. Production decreased by 8% in 2008 and then by a further 15% in 2009. CIS produced 98 million tonnes of crude steel in 2009, representing 8% of world production. As with China, demand began to increase in the first quarter of 2009, following a quick recovery through the remainder of 2009. Consumption of finished steel products in the first quarter of 2010 was 7% less than the fourth quarter of 2009 at 9.7 million tonnes which is 35% lower than demand levels in the second quarter of 2008.

Apparent consumption of long products rolled from billet in the CIS decreased by 34.0% in 2009 year-on- year from 23 million tonnes to 15 million tonnes. During the first quarter of 2010 consumption increased by 8.4% year-on-year to 3.9 million tonnes, according to CRU.

Ukrainian Market

Domestic consumption of both crude steel and finished steel products have grown in recent years, fuelled by a growing economy. Domestic consumption of crude steel grew from 6.6 million tonnes in 1998 to 9.0 million tonnes in 2007, an increase of 36.3%. According to WSA, domestic crude steel consumption declined to 7.0 and 5.0 million tonnes in 2008 and 2009, respectively, as a result of a global economic downturn. Domestic consumption of finished steel products grew from 5.4 million tonnes in 1998 to 8.2 million tonnes in 2007, an increase of 51.8%. According to WSA, domestic consumption of finished steel products declined to 6.8 and 3.9 million tonnes in 2008 and 2009, respectively, as a result of a global economic downturn.

Major consumers of steel products in Ukraine are the pipe manufacturing, the machine building, metals and mining, steel hardware and construction sectors, which consumed 28%, 12%, 22%, 10% and 28% of total domestic finished steel consumption in 2009, respectively, according to Ukraine metallurgical company UGMK.

Trade Restrictions

As a major Ukrainian steel producer, which exported 88.9% of its steel products in 2009, Metinvest may face protective tariffs, duties and quotas on the export of steel products from Ukraine. Semi-finished steel products, such as those produced by Metinvest, are not subject to trade restrictions. However, Ukrainian steel products face tariffs and quotas in certain markets. Although WTO members are expected to abolish all quantitative restrictions on trade flows with Ukraine as quantitative restrictions are prohibited under the WTO rules, as inconsistent with the requirements of the WTO, several steel importing countries (some of which are WTO members), such as Russia, the United States, Canada, Argentina and Australia currently have import restrictions in place with respect to certain steel imports from Ukraine.

The United States has minimum price restrictions in place with respect to certain Ukrainian steel imports (hot-rolled cut-to-length carbon steel plates). In 1996 the United States initiated an anti-dumping

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investigation against Azovstal in respect of import of steel products. The investigation was further reconsidered in 2002, 2005 and 2008. As a result of this investigation, an anti-dumping 81.4% duty was imposed. However in November 2008 the U.S. Department of Commerce entered into a new market- economy-based suspension agreement with representatives of major Ukrainian cut-to-length carbon steel plate producers including Metinvest. As a result, Metinvest companies, including Azovstal, are now able to export applicable steel products to the Unites States without quotas but in compliance with normal value prices calculated on a semi-annual basis by the U.S. Department of Commerce.

In 2009 Canada initiated an investigation in relation to hot-rolled carbon steel plate and high-strength low- alloy steel plate originating in or exported from Ukraine resulting in a 15% anti-dumping duty being imposed on Metinvest and Azovstal, in particular. In comparison a 21.3% anti-dumping duty has been imposed by Canada in relation to other Ukrainian steel exporters. In March 2010 Canada initiated a further investigation in order to adjust the export volumes and prices in relation to certain steel products originating in or exported from China, Bulgaria, the Czech Republic, Romania and Ukraine.

Following Ukraine’s accession to the WTO in 2008, the EU abolished import quotas on Ukrainian steel.

In 2007 Russia and Ukraine entered into a bilateral agreement introducing a 27.7% anti-dumping duty for imports into Russia of non-coated cold-rolled carbon and alloy steel products, in coil or cut length, with a thickness of 1 millimetre to 3 millimeters for the period from 1 July 2007 to 1 July 2010.

On 1 February 2006, Russia introduced a five-year anti-dumping tariff on Ukrainian small- and medium- diameter steel pipes ranging from 8.9% for oil and gas line pipes and hot-deformed pipes to 55.3% for bearing pipes. In December 2009 Russia initiated a review of its antidumping duties on Ukrainian small- and medium-diameter steel pipes. It is expected that as a result of this review the duties might be increased.

In December 2006, Russia also introduced a special 8% three-year duty on imports of large-diameter pipes. This duty applies equally to all large-diameter pipes imported to Russia. Khartsyzsk Pipe is the only large- diameter pipe manufacturer in Ukraine and is therefore the only Ukrainian manufacturer affected by this duty. Although the duty expired in December 2009, it is expected that Russia may impose a similar duty.

In August 2007 Russia imposed import quotas on Ukrainian steel rebars. The total quota for the period from 2008 to 2010 was 1.2 million tonnes of steel rebars but is currently being reviewed. It is expected that Russia will not renew the quota in 2010.

In 2009 Belarus, Kazakhstan and Russia agreed to create a customs union, which is expected to adopt a common external tariff in relation to external markets including Ukraine.

Overview of the Steel Production Process

The primary components of steel production are coke production, iron making, steel-making and steel rolling. The following is a brief summary of these processes.

Coke Production

Coke is a solid product of coal coking. Coke contains 86.0% to 90.0% carbon and is used as the main fuel in blast furnaces. Coke is produced by heating coking coal that has been ground and dressed without excess air at temperatures of 1,100°C to 1,200°C (pyrolysis) for 16 to 18 hours in coke ovens. After discharge from the ovens, coke is delivered to blast furnaces for use in iron making.

Other products of the coking process include coke-oven gas and various by-products made from the coke- oven gas. Coke-oven gas is used as gaseous fuel in other shops of steel plants and by-products are often supplied to chemical departments for further processing.

Iron Making

Prepared iron ore raw materials (sinter and pellets) and coke are used for hot metal production. Coke and natural gas serve as fuel for the blast furnaces. Coke-oven gas, together with top gas from the blast furnaces,

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is used as fuel for the heating of stoves. Sinter, pellets and coke are mixed and added into a blast furnace from the top using skips. Fuel combustion, reduction of iron from oxides, carbonisation of iron with partial reduction of silicon and manganese, melting of all components of burden and slag-making all occur inside a blast furnace.

Hot metal is tapped into hot metal transfer ladles and delivered to the steel making machinery to be converted into steel. Hot metal can also be delivered to a pig iron casting machine that produces pig iron for sale as a semi-finished product. Slag from blast furnaces is fed to slag processing units, where part of the slag is granulated in granulating units and the rest is processed into crushed rock and slag sand.

At many steel plants, top gas produced in the blast furnaces during the iron making process is also used as a fuel for stoves, coke ovens, boilers, rolling mills and for other purposes.

Steel Making

Steel is produced from raw materials using one of three production techniques.

Oxygen converter process. The oxygen converter process is based on the interaction of process oxygen (practically pure oxygen) with impurities in liquid hot metal. Scrap and hot metal are charged into the vessel and oxygen is then blown via a lance into the vessel, oxidising carbon and other impurities (silicon, manganese, etc.). Metallurgical lime and fluor-spar are fed into the vessel to form slag, which absorbs impurities during the steel making process. The oxygen converter process is generally the most modern and efficient means by which to produce large volumes of high-quality steel.

Electric arc furnaces. Electric arc furnaces produce steel by applying heat generated by electricity arcing between graphite electrodes and a metal bath. The main components of the electric arc furnace are a furnace shell with a tapping device and work opening and a removable roof with electrodes and a tilting device. The steps in the electric arc furnace production process consist of charging, melting, oxidising or purifying, deoxidising or refining. The charge includes scrap, iron, ore, fluxes (lime, fluorspar), reducing agents (carbon) and ferroalloys. Further scrap may be added after the ignition of the electric arc and melting. Temperatures in the electric arc furnace may reach as high as 3,500°C in order to melt alloying components that are otherwise difficult to melt. During the refining stage, iron oxides contained in the slag react with the carbon of the bath, which has the effect of rinsing away impurities. The metallurgical process of the oxidisation and reduction phases can be replaced by secondary metallurgical treatment further downstream in the production process.

Open hearth process. Steel is produced in the open hearth process by melting scrap and hot metal on the hearth of a combustion reverberating furnace bath. Scrap, flux and ore are charged into the furnace prior to heating. Fuel is burned in the furnace and the heat necessary to melt the raw materials is provided by radiation from the burning fuel. Hot metal is charged and slag is formed and flushed. During melting, the oxidisation of carbon and other impurities (such as silicon and manganese) takes place. Metallurgical lime, fluor-spar and brickbats are used to form slag, which absorbs impurities during the steel making process. Open hearth furnaces are disadvantaged by relatively high operating costs due to high levels of energy consumption, high levels of pollutants and relatively low productivity. Open hearth furnaces are also less well suited for continuous casting than oxygen converters or electric arc converters, and as a result open hearth furnaces generally work through the less efficient ingot casting process. For a number of years, the general trend worldwide has been for open hearth furnaces to be replaced by more efficient and environmentally cleaner oxygen converters and electric arc furnaces.

Steel Rolling

Cast steel is a relatively weak mass of coarse uneven metal crystals or “grains”. Rolling the steel makes this coarse grain structure re-crystallise into a much finer grain structure, giving greater toughness, shock resistance and tensile (stress) strength. Rolling is also the main method used to shape steel into different products. The rolling process consists of passing the steel between two rolls revolving at the same speed but in opposite directions. The gap between the rolls is less than the thickness of the steel being rolled, resulting in the steel being reduced in thickness and, at the same time, lengthened. In addition to hot rolling, in which

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the steel is rolled at a high temperature, steel may also be rolled at ambient temperatures, resulting in a different set of properties.

Iron Ore Mining and Processing Industry

Global Overview

The global iron ore industry is characterised by a high degree of consolidation, with BHP Billiton, Vale and Rio Tinto accounting for approximately 65% of the global seaborne iron ore trade, according to CRU. In 2010, the consolidation of the iron ore industry continued following a launch of a production joint venture between Rio Tinto and BHP Billiton, the world’s largest iron ore suppliers. The joint venture is expected to cover both companies’ West Australian iron ore assets. It has been reported that the project is being opposed by steelmakers in China, Japan and Europe as such union will move the global iron ore market further in favour of three producers who already dominate the seaborne iron ore trade. The transaction is subject to approval by the EU and Australian competition authorities.

The major iron ore producing countries are Australia, Brazil and China. According to CRU, in 2007 Brazil’s export of iron ore increased by 9% to 270 million tonnes. Australian exports for same year increased by 8% to 286 million tonnes. In 2008 Australia increased its exports by 16% to 333 million tonnes while Brazil’s full year exports increased only by 3% to 277 million tonnes. In 2009, Australian exports increased by 14% compared to 2008, while Brazilian exports decreased by 4%, reflecting demand for iron ore in their respective markets. According to CRU, despite the global economic downturn the worldwide iron ore trade in 2009 was higher than in 2008.

According to the CRU, published annual reports and (with respect to Metinvest) management estimates, the six largest iron ore producers globally are Vale, which produced approximately 239 million tonnes of iron ore products in 2009; Rio Tinto, which produced approximately 178 million tonnes of iron ore products in 2009; BHP Billiton, which produced approximately 138 million tonnes of iron ore products in 2009; ArcelorMittal, which produced approximately 57 million tonnes of iron ore products in 2009; Anglo American, which produced approximately 45 million tonnes of iron ore products in 2009; and Metinvest, which produced 29.2 million tonnes of iron ore products in 2009.

Iron ore production costs have declined in recent years, largely due to productivity enhancements. Freight rates remain a major cost constraint, comprising approximately half of total costs, according to Metal Bulletin, and helping to maintain the regional segregation of the industry. Iron ore contract (benchmark) prices increased during 2007 and continued to rise in 2008, in response to strong global demand. Despite the decrease in iron ore prices in 2009, they remained above 2007 levels. Overall, over the last five years (from 2004 to 2009) iron ore prices increased by 165% and by 258% over the last ten years (from 1999 to 2009).

In early 2010, the system of annual contracts and benchmark prices that existed since the 1960s has been replaced with new short term pricing mechanisms linked to the spot market. Prior to this change, iron ore price was first agreed between one of the major iron ore producers and a steelmaker during annual negotiations. The agreed price then became a benchmark followed by the rest of the industry for a year. However, the strong growth in the size of the internationally traded iron ore prompted the development of a large spot market for the product. In March 2010, BHP Billiton reached a settlement with its Asian customers resulting in BHP Billiton selling iron ore to Asian steelmakers on a basis of shorter term landed price contracts. As a result, steelmakers and miners are now pricing their contracts against the spot market. The new system uses quarterly rather than annual contracts and the price of iron ore is set against an average determined by the spot market instead of being based on negotiations. The new pricing system for iron ore products is expected to result in significant increases in prices for iron ore. For example, it has been reported that Rio Tinto negotiated a Benchmark price of between U.S.$110 and U.S.$120 per tonne of iron ore for the period from April to June 2010, which is 90%-100% higher than the 2009 Benchmark price. The spot market for iron ore grew by 162% in the twelve months proceeding March 2010 reaching U.S.$155 per tonne of iron ore products as at 31 March 2010 according to Bloomberg. These increases were also due to increase in demand for iron ore products in late 2009 and early 2010 and the effects of restocking beginning to replace the destocking seen in 2009.

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The following table sets forth iron ore production by country or region for 2003 through 2009:

2003 2004 2005 2006 2007 2008 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (million tonnes) China(1) ...... 261 310 426 588 707 824 China(2) ...... 123 146 198 276 332 366 Australia ...... 212 235 258 275 299 350 Brazil ...... 246 271 292 319 337 346 India...... 99 121 143 181 207 214 Russia ...... 92 97 97 104 105 99 Ukraine ...... 62 66 69 73 77 72 United States ...... 48 55 54 53 52 53 Other ...... 192 193 203 217 221 223 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total ...... 1,074 1,184 1,314 1,498 1,630 1,723 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Source: WSA 2009 Steel Statistical Yearbook

Notes: (1) Total production including ore with low iron content and is not included in totals. (2) Converted to correspond with world average iron content.

The major countries exporting iron ore globally include Australia, Brazil and India. The main importers are major steel producing countries, including China, Japan, Germany and South Korea. Historically, Europe, Japan and China have been the major iron ore consumption centers. Following an economic slowdown in 2001 and resulting reduction in iron ore demand, markets rebounded in 2002, with China and certain CIS countries showing significant increases in demand due to their increases in steel production. Since then, global consumption of steel and iron ore has increased significantly. China has experienced the highest growth in iron ore consumption, with an increase in iron ore import of approximately 300% from 111 million tonnes in 2002 to 444 million tones in 2008, according to the WSA 2009 Steel Statistical Yearbook. In 2009, China imported 620 million tonnes of iron ore, a 40% increase compared to 2008, which accounted for more than 67% of the world’s total imports, according to CRU. However, in 2009, Japan, Europe (excluding CIS) and South Korea decreased their import of iron ore by 28%, 30% and 9% respectively, according to CRU. In 2009 some countries showed a decrease in iron ore demand due to economies slowing down and various steel companies facing financial difficulties. However, overall demand for iron ore is expected to remain strong in 2010 due to rising Chinese consumption and its growing need for imports.

Metinvest’s Iron Ore Markets and Competitors

Ukraine accounts for approximately 18.7% of the world’s iron ore reserves. According to the USGS, Ukraine has 30 billion tonnes of iron ore reserves. The largest iron ore deposits are located in the Kryvyi Rih iron ore basin, the Kremenchug iron ore basin, the Belozerskiy iron ore basin and the Kerch iron ore basin.

In 2009, Ukraine produced 66 million tonnes of iron ore according to the Ukrrudprom and was the sixth largest iron ore producer worldwide after Brazil, China, Australia, India and Russia, according to Ukrrudprom, CRU and Soyuzruda.

The Ukrainian iron ore industry is primarily domestically oriented. However, in 2009 the Ukrainian iron ore exports increased to 28.7 million tonnes (or by 26% compared to 2008) due to decrease in consumption by the domestic steel producers, according to Ukrpromzovnishekspertiza. The total imports of iron ore into Ukraine decreased to 3.3 million tonnes in 2009 (or by 16% compared to 2008), according to Ukrpromzovnishekspertiza.

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The following table sets out information on the Ukrainian largest merchant concentrate producers for the years indicated.

Producer 2008 2009 –––––––– ––––––––––––––––––– ––––––––––––––––––– (share of share of (million Ukrainian (million Ukrainian tonnes) production) tonnes) production) ––––––––– ––––––––– ––––––––– ––––––––– Metinvest ...... 18.6 75% 17.6 70% Yuzhny GOK ...... 4.8 19% 6.4 26% Others...... 1.5 6% 1.1 4% ––––––––– ––––––––– ––––––––– ––––––––– Total: ...... 25.0 100.0% 25.0 100.0% ––––––––– ––––––––– ––––––––– ––––––––– Source: Ukkrudprom The following table sets out information on the Ukrainian largest pellets producers for the years indicated.

Producer 2008 2009 –––––––– ––––––––––––––––––– ––––––––––––––––––– (share of share of (million Ukrainian (million Ukrainian tonnes) production) tonnes) production) ––––––––– ––––––––– ––––––––– ––––––––– Metinvest ...... 11.4 56% 11.6 57% Poltavsky GOK ...... 9.0 44% 8.7 43% ––––––––– ––––––––– ––––––––– ––––––––– Total: ...... 20.4 100.0% 20.4 100.0% ––––––––– ––––––––– ––––––––– ––––––––– Source: Ukkrudprom

Iron ore producers

Metinvest’s competitors include major CIS mining companies, such as, Metalloinvest Management Company LLC (“Metalloinvest”), a Russian mining and metallurgy company specializing in the manufacture of steel and NLMK. Metalloinvest’s mining division comprises two mining and processing plants in Russia: Lebedinsky GOK and Mikhailovsky GOK. NLMK’s mining division includes Stoilensky GOK, an iron ore producer, Dolomite, a furnace dolomite producer and Stagdok, a fluxing limestone producer.

Lebedinsky GOK. Lebedinsky GOK is one of the leading iron ore producers in Russia specialising in extraction and beneficiation of iron ore as well as production of high quality raw materials for ferrous metallurgy. Lebedinsky GOK produces iron ore concentrate with iron content of 69.5%, iron ore non-fluxed pellets with iron content of 66.5% and iron ore briquettes (hot briquetted iron) with iron content of 90%.

Mikhailovsky GOK. Mikhailovsky GOK is one of the largest and fastest growing mining and metallurgical companies in Russia. Mikhailovsky GOK produces blast furnace ore with iron content between 40% and 43%, sintered ore with iron content of 52%, iron ore concentrate with iron content of 65.1%, blast furnace concentrate with iron content of 60% and pellets with iron content of 63%.

Stoilensky GOK. Stoilensky GOK produces iron ore concentrate with iron content of 66.5% and sintering ore with iron content of 52%.

In addition to CIS iron ore producers, Metinvest’s competitors include Ukrainian iron ore companies, such as Yuzhny GOK which operates an open-pit-based iron ore mine and has an annual production capacity of 9.0 million tonnes of iron ore concentrate with iron content of 65% and about 5.0 million tonnes of merchant sinter with iron content of 54% and Poltavskiy GOK which operates four kiln grate units with an annual production capacity of approximately 10.0 million tonnes of pellets with iron content of 62% or 65%.

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Chinese and South East Asian Market

The iron ore industry is closely linked to the steel industry. CRU estimates that in 2008, over 98% of mined iron ore was used as direct feedstock for iron and steel production.

China is the world’s largest consumer of raw materials for steel making. China has domestic iron ore reserves of 62.4 billion tons and despite domestic production of 824 million tonnes of iron ore in 2008 according to the Chinese Government, the ore is of a low grade and CRU estimates contained iron units totalled 171 million tonnes. By comparison China imported 444 million tonnes of ore in 2008 with an estimated 280 million tonnes of contained iron.

China’s iron ore demand is expected to increase by 9.4% in 2010, bringing demand to 585 million tonnes of iron units required from domestic and imported ore, according to CRU. This growth in demand for imported iron ore from China is followed by considerable price increases in iron ore markets and subsequently cost pressures placed on steel companies without their own iron ore assets.

Despite 33% price decrease in the annual benchmark price for iron ore in 2009, the market has since recovered. In April 2010 the market has moved to quarterly pricing based on spot markets and price increases ranging between 90% and 100% have been agreed for the second quarter of 2010, according to CRU.

Production Process

Iron ore in Ukraine is extracted either from open-pit or underground mines. After extraction, the ore is processed further in order to increase its iron concentration. The iron ore is then crushed to a powder-like consistency, and iron-rich particles are separated from the waste rock by magnetic separation to produce iron ore concentrate. The concentrate is then formed into pellets or sinter that is suitable for use as blast furnace feed.

Sinter Production

To produce sinter, iron ore, iron ore concentrate and iron-bearing materials (blast furnace dust, screenings of sinter and pellets, scale, waste and slime), flux (limestone) and coke breeze are weighed and mixed to form sinter burden. This sinter burden is then granulated and laid in two layers in sinter machines. The sinter burden becomes sinter at temperatures of 1,070°C to 1,200°C through the combustion of carbon from the coke breeze, while air is simultaneously drawn through the sinter burden by means of exhausters. After crushing, screening and cooling, the sinter is ready for delivery to blast furnaces.

Pellet Production

In producing iron ore pellets, concentrate is mixed with water and other additives, such as magnetite ore. The resulting slurry is dried, mixed with binding agents and baked at approximately 1,300°C. After the pellets have been screened and undersized material removed, they are prepared for use in blast furnaces.

Coal Mining and Coke Production

Overview

The main types of coal include steam (thermal) coal and coking (metallurgical) coal. Steam coal is used in electricity generation and industrial applications, while coking coal is used to manufacture coke for use in steel-making and other metallurgical and non-metallurgical applications. Coking coal swells and cokes when heated in coking ovens to produce hard coke, whose characteristics are essential in steel-making operations. Approximately 400-500 kilograms of coke is used per tonne of pig iron produced. Coke is sometimes supplemented by the direct injection of PCI to a blast furnace, at rates of 100-200 kilograms per tonne of pig iron. PCI uses less expensive steam and semi-soft coking coal to reduce costs.

In the recent years the global coal industry has been undergoing a consolidation process, partly as a result of oil companies and other non-mining companies exiting the sector. The world’s largest coking coal producers (excluding coal producers located in China) include BMA, Elk Valley, Evraz, Mechel and Xstrata. As a result

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of this concentration, coal suppliers have gained more pricing power. Historically, China, USA, India, Australia, and Russia have been the largest coal-producing countries, according to BP Statistical Review of World Energy, with Ukraine decreasing its share of world production in recent years.

Following the decrease in coal prices as a result of global economic downturn, the prices for coal have been increasing globally and in the CIS since According to CRU, coking coal prices have increased since the beginning of 2010 with spot market Australian fob hard coking coal prices reaching U.S.$250 per tonne in March 2010 compared to U.S.$120 per tonne in March 2009 with an annual average price of U.S.$145 per tonne in 2009. In July 2008 prices reached U.S.$400 per tonne.

The following table sets forth the world coal production against Ukrainian coal production for 2004 through 2008.

2004 2005 2006 2007 2008 –––––––– –––––––– –––––––– –––––––– –––––––– (million tonnes) Ukraine(1) ...... 80.2 78.0 80.3 75.5 77.8 –––––––– –––––––– –––––––– –––––––– –––––––– Total World ...... 4,631 4,934 5,205 5,442 5,845 –––––––– –––––––– –––––––– –––––––– –––––––– Sources: World Coal Institute, September 2009; Coal mining data released by the Ministry of Coal Industry of Ukraine between 2005 and 2008, Energobusiness Magazine, 2004

Notes: (1) Total Ukrainian production amounted to 1.7%, 1.6%, 1.5%, 1.4% and 1.3% of the total world production in 2004, 2005, 2006, 2007 and 2008 respectively.

According to the World Coal Institute, the world top coal net exporters in 2008 were Australia (252 million tonnes), Indonesia (203 million tonnes) and Russian Federation (101 million tonnes) and the world top three coal importers were Japan (186 million tonnes), Korea (100 million tonnes) and Chinese Taipei (66 million tonnes).

Metinvest’s Coal Markets

The CIS countries have the second world’s largest coal reserves after the United States and Ukraine has the world’s sixth largest coal reserves, after the United States, Russia, China, Australia and India. The CIS countries have coal reserves of approximately 222.1 billion tonnes, including Ukraine’s has coal reserves of approximately 34.0 billion tonnes, accounting for 26.0% and 4.0% of the world’s coal reserves, respectively according to BP Statistical Review of World Energy, June 2009. The North America has coal reserves of approximately 246.1 billion tonnes, accounting for 29.8% of the world’s coal reserves, according to BP Statistical Review of World Energy, June 2009.

Coal production in the CIS increased by 5.7% in 2008 compared to 2007 to 251.8 million tonnes, including 26.7 million tonnes of coking coal (5.7% decrease) and 51.1 million tonnes of steam coal (8.3% increase), according to BP Statistical Review of World Energy, June 2009. Coal production in the North America increased by 1.0% in 2008 compared to 2007 to 630.6 million tonnes, according to BP Statistical Review of World Energy, June 2009. Coal production in Ukraine increased by 3.0% in 2008 compared to 2007 to 77.8 million tonnes, including 26.7 million tonnes of coking coal (5.7% decrease) and 51.1 million tonnes of steam coal (8.3% increase), according to IRC. In 2009, Ukraine reduced its coal production to 72.3 million tonnes (or by approximately 7.1% as compared to 2008), according to the State Informational Agency “IRC”. Coking coal production declined by 2.2% to about 26.1 million tonnes, and steam coal production declined by 9.6% to 46.2 million tonnes.

Coal consumption in the CIS increased by 15.5% in 2008 compared to 2007 to 174.2 million tonnes, according to BP Statistical Review of World Energy, June 2009. Coal consumption in the North America decreased by 1.5% in 2008 compared to 2007 to 606.9 million tonnes, according to BP Statistical Review of World Energy, June 2009. Coking coal consumption (in concentrate equivalent) in Ukraine decreased by 2.8% in 2008 compared to 2007 to 26.9 million tonnes, according to Ukrkoks. In 2009, Ukraine reduced its

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coking coal consumption (in concentrate equivalent) to 23.1 million tonnes or by approximately 14.2% as compared to 2008, according to Ukrkoks.

According to the CRU, published annual reports and (with respect to Metinvest) management estimates, the six largest coking coal producers in the CIS are Evraz, which produced approximately 14.5 million tonnes of coking coal in 2009 (including 40% of production by Raspadskaya); Mechel, which produced approximately 10.2 million tonnes of coking coal in 2009; Metinvest, which produced 9.6 million tonnes of coking coal in 2009; Sibuglemet, which produced 7.1 million tonnes of coking coal in 2009; Raspadskaya, which produced approximately 6.3 million tonnes of coking coal in 2009 (excluding 40% of production allocated to Evraz); and, Severstal which produced approximately 6.1 million tonnes of coking coal in 2009.

Import of coking coal concentrate to Ukraine has remained relatively steady in the last few years decreasing slightly from 8.2 million tonnes in 2004 to 7.4 million tonnes in 2009, according to Ukrkoks estimates. Ukraine’s export of coking coal concentrate slightly increased from 118,000 tonnes in 2007 to 453,000 tonnes in 2009, according to Energobusiness.

The following table sets out information on Ukrainian coking coal export and import for 2005 through 2009.

2005 2006 2007 2008 2009 –––––––– –––––––– –––––––– –––––––– –––––––– (thousand tonnes) Import ...... 6,875 8,534 10,079 9,722 7,360 Export ...... 509 530 118 197 453

Sources: Ukrkoks and Energobusiness

The following table sets out information on the largest Ukrainian coking coal producers in 2008 and 2009.

Producer 2008 2009 –––––––– ––––––––––––––––––– ––––––––––––––––––– (share of share of (million Ukrainian (million Ukrainian tonnes) production) tonnes) production) ––––––––– ––––––––– ––––––––– ––––––––– Krasnoarmiyskaya-Zapadnaya mine (Energo) ...... 5.1 19% 5.4 21% Krasnodon Coal (Metinvest) ...... 6.2 23% 5.4 21% Other ...... 15.4 58% 15.2 58% ––––––––– ––––––––– ––––––––– ––––––––– Total...... 26.7 100% 26.0 100% ––––––––– ––––––––– ––––––––– ––––––––– Sources: Ukrkoks report for 2008 and 2009

The following table sets out information on the largest Ukrainian coke producers for the periods indicated.

Producer 2008 2009 –––––––– ––––––––––––––––––– ––––––––––––––––––– (share of share of (million Ukrainian (million Ukrainian tonnes) production)(1) tonnes) production)(1) ––––––––– ––––––––– ––––––––– ––––––––– Metinvest ...... 5.2 31% 4.1 28% IUD ...... 2.9 17% 3.0 20% Other ...... 8.6 52% 7.8 52% ––––––––– ––––––––– ––––––––– ––––––––– Total...... 16.7 100% 14.9 100% ––––––––– ––––––––– ––––––––– ––––––––– Source: Ukrkoks reports for 2008 and 2009

Notes: (1) Share of production is based on metallurgical coke (dry weight) volumes.

Ukrainian reserves of working coking coal mines consist primarily of low grade semi-soft coal (Ukrainian grades “D”, “DG” and “G”) and mid-volatile coal (Ukrainian grade “Zh” and “K”), of which Ukraine has

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reserves of 1,609 million tonnes and 1,169 million tonnes, respectively. Ukraine’s reserves of low-volatile coking coal (Ukrainian grade “OS”) are, however, fairly small at 186 million tonnes according to the Governmental programme “Energy Strategy of Ukraine until 2030”, 2006. While Ukraine is almost self sufficient in the lower quality coals, the domestic production cannot meet domestic demand for higher quality coals. For example, Ukraine’s low-volatile coking coal (“KS” and “OS”) consumption accounted for 2.1 million tonnes in 2009, of which only 0.5 million tonnes were produced domestically, while Ukraine’s mid-volatile coal (“K” and “Zh”) consumption accounted for 14.4 million tonnes in 2009, of which 11.1 million tonnes were produced domestically, according the State Informational Agency “IRC” and Ukrkoks. Accordingly, Ukraine imports a significant amount of coal from Russia where the quality of coal is higher and coal extraction is cheaper than in Ukraine.

Production Process

Ukrainian coal is extracted by underground mining. After mining, depending on the ash content of the coal, the coal is processed in a preparation plant, where it is crushed and washed. All Ukrainian coking coal must be prepared before use in coke making. Coking coal is then transported to coke making plants and integrated steel plants for conversion to coke for use in production of pig iron. Steam coal is shipped to utilities that use it in boilers to generate steam used in producing electricity.

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BUSINESS DESCRIPTION

Overview

Metinvest’s iron ore and coal and coke segments sell a significant portion of their output to Metinvest’s steel segment for the production of steel. In the year ended 31 December 2009, Metinvest’s iron ore segment sold approximately 7.8 million tonnes of its products and derived 28.8% of its revenues from sales to other Metinvest segments, while selling approximately 22.8 million tonnes of its iron ore products externally. The coal and coke segment sold approximately 4.9 million tonnes of its products and derived 45.0% of its revenue from the sales to other Metinvest segments, while selling approximately 5.6 million tonnes of its products externally. In the same period, 98.8% of Metinvest’s steel segment revenue were derived from sales to third parties.

In 2009, Metinvest derived 72.9% of its total revenue from export sales, primarily to South-East Asia, Europe (other than Ukraine and CIS), the CIS, the Middle East and North Africa. Steel products, iron ore products, and coal and coke accounted for 79.0%, 13.0% and 8.0%, respectively, of Metinvest’s export revenue in 2009.

Metinvest is the sixth largest iron ore producer in the world as of 31 December 2009, based on published annual reports and operating results of the largest iron ore producing companies and the largest producer of iron ore in Ukraine in 2009, according to Ukrrudprom. In addition, according to Metal Bulletin, Metinvest is among the ten largest steel plate producers in the world as of 31 December 2009. Metinvest ranked as the second largest producer of crude steel in Ukraine in 2009, according to Metal-Courier, and the largest coke producer in Ukraine in 2009, according to Ukrkoks. • Steel segment. In the year ended 31 December 2009, Metinvest’s external steel segment revenue and the steel segment’s Adjusted EBITDA were U.S.$4.0 billion and U.S.$394 million, respectively. Metinvest’s principal products in this segment include pig iron; semi-finished steel products such as slabs and billets; finished steel products such as flat and long steel products; and pipes. In 2009, finished steel products comprised approximately 56.9% of Metinvest’s total steel sales volumes. Metinvest has eight industrial assets in the steel segment: Azovstal, the second largest Ukrainian steel producer in 2009, according to Metal-Courier; Yenakiieve Steel, a fully integrated steel producer located in Ukraine; Makiivka Steel, a producer of shapes and bars located in Ukraine; Khartsyzsk Pipe, the only producer of large diameter pipes in Ukraine; Ferriera Valsider and Metinvest Trametal, a producer of plates and coils located in Italy; Promet, a producer of shapes and bars located in

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Bulgaria; and Metinvest Trametal and Spartan, producers of plates located in Italy and in the United Kingdom. • Iron ore segment. In the year ended 31 December 2009, Metinvest’s external iron ore segment revenue and the iron ore segment’s Adjusted EBITDA were U.S.$1.3 billion and U.S.$811 million, respectively. Metinvest’s key products in this segment are merchant iron ore concentrate and pellets. Metinvest has three industrial assets in the iron ore segment, which are located in the Kryvyi Rih region of Ukraine: Northern GOK and Ingulets GOK, two of the leading European mining companies and the two largest iron ore mining companies in Ukraine in 2009 by production volume, according to Ukrrudprom, and Central GOK, the sixth largest iron ore mining company in Ukraine by production volume, according to Ukrrudprom. • Coal and coke segment. In the year ended 31 December 2009, Metinvest’s external coal and coke segment revenue and the coal and coke segment’s Adjusted EBITDA were U.S.$0.7 billion and U.S.$244 million, respectively. Metinvest’s key products in this segment are coking and steam coal, coke and chemical products. Metinvest has three industrial assets in the coal and coke segment based in the Donbass region of Ukraine and one industrial asset based in the United States. Avdiivka Coke is one of the leading European (excluding Russia) coke companies and the largest coke and chemical plant in Ukraine in 2009 according to Ukrkoks, and Krasnodon Coal is the second largest coking coal producer in Ukraine, according to the Ministry of Coal industry of Ukraine. In addition, in August 2008, Metinvest acquired a 100.0% stake in Inkor Chemicals, one of the largest manufacturers of chemical products in CIS and Europe and in April 2009, Metinvest acquired a 100.0% stake in United Coal, a US producer of coking and steam coal.

Metinvest’s trading and logistical assets service all three business segments. Metinvest sells steel, iron ore and coke and coal products to non-CIS international markets in Europe, the Middle East and North Africa and South Eastern Asia through Metinvest International S.A.; to the Ukrainian market through Metinvest Ukraine and Metinvest SMC; and to CIS markets (primarily Russia and Belarus) through Metinvest Eurasia. In addition, Skiff-Shipping, a company based in Donetsk, and Danube Shipping and Stevedoring Company, based in Mykolaiv, provide transportation and forwarding services for Metinvest’s cargoes by railway and for their transhipment via sea ports.

The Company is owned by SCM, a holding company registered in Cyprus whose ultimate controlling shareholder is Rinat Akhmetov, and SMART, a group of companies beneficially owned by Vadim Novinsky, according to press reports. SCM and SMART own 75.0% and 25.0% of the share capital of the Company, respectively.

The SCM group of companies is one of Europe’s leading industrial groups with controlling interests in over 100 companies, including Metinvest, as well as companies operating in the energy, finance, telecommunications, oil, clay mining, retail, real estate and media sectors.

SMART is a diversified holding company with holdings in metals and mining, agribusiness, machinery, ship building, infrastructure and financial services. The majority of SMART’s production sites are located in

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south-eastern region of Ukraine and a number of its assets are located in Russia, Moldova and Eastern Europe.

Competitive Strengths • Vertically integrated business. Vertical integration is a key element of Metinvest’s strategy to control access to raw materials for the production of steel, to meet its energy requirements and to lower overall unit production costs. As a vertically-integrated mining and steel producer based predominantly in Ukraine, Metinvest seeks to manage its exposure to high and fluctuating raw material prices through its significant internal sources of raw materials. Metinvest has approximately 1.9 billion tonnes of proved and probable iron ore reserves and approximately 500 million tonnes of proved and probable coal reserves in Ukraine and approximately 151 million tonnes of proved and probable coal reserves in the United States. In 2009, Metinvest was self sufficient in its iron ore, coking coal and coke requirements (having the capacity to produce approximately 270.0%, 105.7% and 135.0% of its requirements respectively), based on its annual capacity (assuming that 100% of coking coal produced by United Coal is sold internally rather than to external customers). Management expects that the acquisition of United Coal, a producer of coking and steam coal located in the United States, will enable Metinvest to source higher quality coking coal internally and to reduce its steel production costs and improve the quality of its products. Metinvest sells the iron ore and coke products it does not consume to third parties, which diversifies its revenue base. In addition, Metinvest sources approximately 19.0% of its coking coal requirements and approximately 68.0% of its electricity requirements from DTEK, which is controlled by the SCM Group. The electricity is supplied pursuant to long-term contracts at competitive rates and represents less than 11.0% of the total cost of Metinvest’s steel production. Metinvest believes that its ability to source raw materials internally or from affiliates provides it with greater stability of operations, better control of end product quality and improved flexibility and planning latitude in the production of steel. In addition, management believes that vertical integration enables Metinvest to achieve economies of scale and reduce per unit costs. • Strong market position and increasing capacity. Metinvest is the sixth largest iron ore producer in the world, based on published annual reports and operating results of the largest iron ore producing companies. In addition, according to Metal Bulletin, Metinvest is among the ten largest steel plate producers in the world as of 31 December 2009. Metinvest is the largest producer of iron ore and the second largest steel producer in Ukraine, having produced 56.0% of all iron ore concentrate in Ukraine according to Ukrrudprom and 24% of all steel manufactured in Ukraine according to Metal- Courier in 2009. In 2009, Metinvest was also the largest coke producer in Ukraine with a 27.5% share of production, according to Ukrkoks. Management believes that Metinvest’s strong market position, combined with strong historical cash flow generation, enables it to continue to capitalise on the expected growth of export and Ukrainian markets for its products. Metinvest has actively sought to strengthen its market position globally and domestically through a number of acquisitions in 2007, 2008 and 2009, which resulted in increases in its iron ore concentrate production capacity by approximately 14.8 million tonnes; its annual flat products production capacity by 0.8 million tonnes; its annual long products capacity by 2.3 million tonnes; and its coking and steam coal production capacities by 5.4 and 3.8 million tonnes, respectively. • Low cost producer. Management believes that Ukraine is one of the lowest cost regions for steel production worldwide, enabling Metinvest to benefit from lower production costs compared to some of its competitors elsewhere in the world. In particular, Metinvest benefits from: • Secure and ready access to raw materials. Metinvest is 270.0% self sufficient in iron ore and 135.0% in coke which could be used by its steel producing assets based on its annual capacity. Metinvest’s iron ore and coke producing assets are located close to its steel producing assets, thus enabling it to benefit from a secure supply of key raw materials and from relatively low raw material transportation costs.

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• Low electricity and natural gas cost. Metinvest’s main production companies, including Azovstal, Northern GOK, Central GOK and Yenakiieve Steel, benefit from low cost electricity supplied by its affiliate DTEK and low cost natural gas supplied by the state owned company Naftogaz of Ukraine, compared to European and American tariffs on electricity and natural gas. • Low transportation and logistics costs with prime location of assets. Metinvest’s production facilities benefit from access to relatively low cost sea and rail transport. Azovstal is located in the port city of Mariupol on the sea of Azov and operates its own port facilities. Both Yenakiieve Steel and Khartsyzsk Pipe are located close to main rail junctions and within 200 kilometres of the Mariupol port. Metinvest controls most of its logistics, including owning and operating a number of railcars. Metinvest’s favourable geographic location allows for the relatively inexpensive shipment of its products to domestic, CIS, European and Asian markets. • Low labour costs. Ukraine currently has relatively low labour costs including lower pension obligations (which are paid by employers in the form of regular payroll-related contributions to the State pension fund), as compared to other steel producing countries, such as the United States, Western Europe, Japan and South Korea. In addition, Metinvest is continuously working to optimise the size of its labour force. • Considerable capital expenditures to maintain cost competitiveness. Metinvest is investing in modern technology in order to reduce production costs and maintain its cost competitiveness. Metinvest commissioned new equipment including new coke batteries and furnaces at Azovstal and Yenakiieve Steel, a new pipe welding plant at Khartsyzsk Pipe and a new rolling stand at Makiivka Steel which contributed to an increase in Metinvest’s annual production capacity, improvements in product quality, a reduction in overall production costs and a reduction in dust and carbon dioxide emissions. See “—Steel Business—Production Facilities” below). • Growing geographical diversification. Management believes that Metinvest is uniquely geographically positioned to benefit from access to the mature markets of Western Europe and North America following its recent acquisitions in the United States and Europe, including the United Kingdom, Bulgaria and Italy. Management expects that the acquisition of United Coal in the United States will enhance its presence in the North American steel market. Metinvest may also pursue selective acquisition opportunities to expand its steel rolling capacity. Management also believes that global diversification allows Metinvest to benefit from global steel industry know-how and access best practice across the world. • Access to high-growth domestic and export markets. Management believes that Metinvest has a leading market position in products with strong expected growth in export and domestic markets, including sales of iron ore, coal and coke for the global and Ukrainian steel producing sectors, as well as bars, rebars and sections supplied to the construction sector and rails for railway infrastructure development. Metinvest believes that it is also well-positioned to capitalise on growth in the Middle Eastern, North African and South-East Asian markets as well as in the EU as a result of favourable logistics and cost competitiveness. • Diversified steel product range. Metinvest produces a diversified range of semi-finished and finished steel products including slabs, billets, hot rolled plates, hot rolled coils, shapes and bars, rails and large diameter pipes. Management believes that Metinvest’s diversified steel product range reduces Metinvest’s exposure to fluctuations in the demand for any particular steel product, and hence its dependence on the performance of any particular steel-consuming industry. • Diversified end customer base. Metinvest exports a substantial portion of its steel products to over 1,000 customers located in more than 75 countries, principally in South East Asia, Europe, the CIS, the Middle East and North Africa. Export sales accounted for 72.9% of Metinvest’s total sales in the 2009 and for 64.5% of Metinvest’s total sales in 2008. Metinvest’s customers operate in a number of industries, including steel-making, construction, engineering, oil and gas and automobile production. Management believes that Metinvest’s diversified customer base contributes to the stability of its revenue base and margins, provides it with additional growth opportunities, in particular in the

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developing markets of the Middle East, South East Asia, the CIS and China and reduces Metinvest’s reliance on the economy of any single market or performance of any particular industry. • Experienced management team. Metinvest’s senior management team combines extensive industry and market experience with financial and management expertise, and its board of directors includes individuals who have been involved in Metinvest’s business for an average of between five and ten years, as well as two internationally experienced independent non-executive directors. At an operational level, Metinvest has developed, and continues to refine, an improved management structure that is focused on enhancing accountability and decision making processes. Equipped with international experience and advanced business qualifications, the management team’s ability to improve the performance of the Company’s assets is evidenced by Metinvest’s increased operating efficiency and maintenance of profitability despite its recent highly volatile operating environment (see “Management—Metinvest’s General Director and Management Team” below). • Strong corporate governance. Metinvest maintains high standards of corporate governance and transparency throughout all of its activities and communications. Metinvest’s Supervisory Board, which is responsible for key decisions related to its activities including approval of Metinvest’s long- term business strategy and annual business plans, currently consists of ten members, two of whom are independent directors. The Supervisory Board is assisted by various committees including Strategy Committee, Audit Committee, Health, Safety & Environment (HSE) Committee and Compensation and Appointment Committee. Management recognises the importance of strong corporate governance and aims to develop Metinvest’s corporate governance structure in accordance with international best practices.

Strategy • Increasing vertical integration. Metinvest seeks to enhance its profitability and security of supply by increasing vertical integration, in particular in respect of iron ore and high quality coking coal. Management believes that the integration of Ingulets GOK following its acquisition in 2007 yielded cost, revenue, procurement and technology synergies. Metinvest also plans to intensify the production of iron ore at Northern GOK through both operational improvements and targeted investments in volume expansion and the removal of bottlenecks in the production process. The acquisition of United Coal improved Metinvest’s self sufficiency in coking coal by approximately 48.4% (based on its annual capacity) and management believes that this acquisition will help it to further secure long-term supplies of high quality coal to its steel making facilities in Ukraine. • Integrating downstream activities and strengthening its position in finished products. Management expects that the planned integration into Metinvest of its additional downstream assets in the EU, including Ferriera Valsider, Metinvest Trametal, Spartan and Promet, will enable Metinvest to benefit from access to the EU market. Metinvest also expects that this integration will strengthen its market position in value-added products by expanding its downstream flat product finishing capacity, which will allow it to increase its production of structural products that yield higher margins and have higher barriers to entry. Metinvest expects that this will allow it to reduce its reliance on sales of lower value, semi-finished steel products such as slabs, and ultimately to cease to be a supplier of semi-finished products, except to the extent needed for internal consumption. In particular, Metinvest intends to reconstruct plate mill No. 3600 at Azovstal, modernise its rolling mill No. 250 atYenakiieve Steel and build a new hot rolled coil mill at Promet. Metinvest expects that these projects will increase its annual long product production capacity by approximately 0.7 million tonnes and its annual flat steel production capacity by approximately 5.5 million tonnes. In the long term, Metinvest plans to increase the output of its finished steel products so that it uses all of its iron ore products internally. • Implementing operational efficiency programmes and human resource programmes to reduce costs. Metinvest plans to maximise the efficiency of its operating facilities and use of resources based on world class know-how, including operating efficiency projects with McKinsey, BCG and other consultants. Metinvest plans to reduce the cost of its steel production by (i) implementing pulverised coal injection (“PCI”) technology at its blast furnaces at Yenakiieve Steel, replacing inefficient open hearth furnaces with more efficient basic oxygen furnaces at Azovstal and discontinuing the use of

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ingot casting processes; (ii) managing employee headcount; and (iii) outsourcing its non-core operations, such as repair and maintenance and other support functions. Metinvest also plans to continue to carry out a series of human resources programmes to train production workers in the use of new technologies, which is expected to improve the skills of line managers, and improve the transparency of personnel performance evaluations and remuneration policy. • Enhancing operating efficiency and increasing productivity through improvements in technology. Metinvest intends to invest in improved technologies for steel and rolled products in accordance with its Long-Term Plan (See “Business Description—Investment Programme”) and the strategy developed in cooperation with technical advisers including Siemens VAI and Corus Consulting. In particular, Metinvest plans to implement PCI technology at the blast furnaces at Yenakiieve Steel, which is expected to nearly eliminate the consumption of natural gas, reduce the consumption of the more expensive coking coals by replacing coke with cheaper PCI coals and assist in maintaining furnace stability and improve the quality of hot steel. Metinvest also plans to construct additional continuous casting machines produced by Danieli, a world leader in the supply of billet continuous casters, at Yenakiieve Steel, which is expected to increase its annual casting capacity, reduce its operating costs and improve output quality and safety and environmental standards due to the use of secondary metallurgical processes which have the advantages of economy, savings on primary energy and utilities and use of low cost charge materials. (See “—Investment Programme— Yenakiieve Steel”). Among other projects aimed at reducing production costs are relining of blast furnace No. 3 and construction of a new basic oxygen furnace No. 3 at Azovstal. (See “—Investment Programme — Azovstal”). • Growing organically based on existing assets. Metinvest intends to leverage its cost competitiveness by maximising the utilisation of its existing capacity (for example, by increasing its production of iron ore concentrate at Northern GOK, which in 2009 had excess capacity of 0.7 million tonnes, and by increasing the output of steel products at Azovstal, which in 2009 had excess capacity of 1.6 million tonnes); investing in existing assets to optimise production (for example, by installing accelerated cooling at Azovstal plate mill, which is expected to result in an increase in its annual production capacity by approximately 20%, a significant reduction in costs and an expansion in its product range); and planning for the future sustainability of production and costs (including investments in logistics such as the planned construction of a general purpose terminal to be operated by Danube Shipping at the port of Mykolaiv with approximately 3.4 million tonnes annual capacity to handle merchant iron ore concentrate and pellets which is expected to be completed in 2011 and decrease costs through a reduction in port handling fees and the removal of existing logistical restrictions due to the proximity of the port of Mykolaiv to Metinvest’s iron ore deposits). • Continue to produce high-quality products. Metinvest produces a wide range of high quality steel products used in major steel consuming industries. In order to achieve higher quality standards, Metinvest has implemented strict quality control procedures at its production facilities with its quality control departments monitoring the production process to control output quality and the types of technology employed. Overall, Metinvest’s products meet high standard requirements recognised world-wide as confirmed by leading global certification organisations including Lloyd’s Register, Germanischer Lloyd, Det Norske Veritas, American Bureau of Shipping, Bureau Veritas, Registro Italiano Navale (RINA), Nippon Kaiji Kyokai (NKK), AMI, TÜV NORD CERT GmbH and many other. See “— Steel business— Quality control” below. Metinvest also intends to continue to improve its product mix by producing high quality iron ore concentrate with higher iron content and reduced silicon content and increasing its production of value-added iron ore pellets. • Building long-term customer relationships and delivering high quality customer service worldwide. Metinvest plans to build long-term relationships with its customers worldwide by entering into long-term framework contracts with key and strategic customers, targeting key industries and markets (including the CIS, Europe and South East Asia), integrating its products with end-users, providing technical support to its customers and strengthening the Metinvest brand by continuing to build a reputation for quality and reliability. Having recently restructured its sales organisation and

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centralised its financial and statistical functions, Metinvest expects its distribution network to become more product oriented, focusing on value-added products, such as long and flat products. • Maintaining transparency of operations and corporate responsibility. Metinvest intends to continue to build and retain an experienced and motivated professional management team and maintain the transparency and efficiency of its management system through high corporate governance standards and setting and retaining key performance indicators. Metinvest also intends to fully implement its health, safety and environmental (HSE) strategy, which has been formulated in line with global best practice, in the next three years. Metinvest’s integrated HSE management system complies with OHSAS 18001 and ISO 14001 standards. Metinvest obtained environmental certificates of compliance with ISO and OHSAS standards for most of its facilities with Azovstal, Yenakiieve Steel, Khartsyzsk Pipe and Krasnodon Coal certified to comply with OHSAS 18001, while Northern GOK, Ingulets GOK, Central GOK and Inkor Chemicals are certified to comply with both ISO 14001 and OHSAS 18001 standards. Ferriera Valsider is certified to comply with ISO 14001. • Pursuing selective acquisition opportunities. Metinvest expects to continue its structured approach to acquisitions to facilitate its strategy of vertical integration and improving its product mix. In its core business areas, Metinvest may consider acquisition opportunities to gain access to additional sources of raw materials or to production facilities for higher margin products if the acquisition costs are more attractive than the costs of constructing a similar production facility. In addition, Metinvest may pursue acquisitions in non-core areas, such as transportation facilities, including railway cars and ports to decrease its reliance on services provided by third parties. • Diversifying coal supplies. Metinvest intends to diversify and secure its supplies of coal by importing high quality, low sulphur coal from countries outside of the CIS, primarily the United States and Australia. Metinvest plans to primarily import PCI coal, which can be used as a source of energy and as a replacement for coke at those of Metinvest’s blast furnaces equipped with PCI technology. Metinvest currently intends to implement PCI technology at the blast furnaces at Yenakiieve Steel. While Metinvest plans to continue to source coal from Ukraine and from Russia, it believes that its decreased reliance on suppliers in these markets will allow it to negotiate more favourable purchase terms, including lower prices.

History

The Issuer was incorporated as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid or B.V.) on 21 May 2001 under the laws of The Netherlands and has its corporate seat (statutaire zetel) in Rotterdam, The Netherlands. Its registered address is Alexanderstraat 23, 2514 JM The Hague, The Netherlands.

In October 2004, as part of a comprehensive reorganisation of the SCM group of companies, the Issuer became the ultimate holding company for the Metinvest group. The main purpose of the restructuring was to streamline various SCM businesses by establishing separate holding companies for each major area of SCM’s activity with the aim of increasing the value of each business and improving transparency and corporate governance across each business. The Issuer was designated as a holding company for the SCM group’s mining and steel business and was wholly-owned by SCM until November 2007. The majority of the entities within the Metinvest group have been controlled by SCM since early 2000s. As a result of the reorganisation, the SCM group transferred to the Issuer direct or indirect control over all of its steel, iron ore, coal and coke production assets, as well as related sales and logistics companies.

In 2007, the Company acquired 82.46% of the share capital of Ingulets GOK.

In 2008, the Issuer, indirectly through its subsidiaries, completed the acquisition from the Malacalza family of the entire equity interest in Metinvest Trametal, located in Italy and its wholly-owned subsidiary Spartan, located in the United Kingdom. These acquisitions were undertaken in order to expand Metinvest’s operations in Western Europe, which previously comprised an Italian rolling mill, Ferriera Valsider. These

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acquisitions increased Metinvest’s annual plate production capacity by 0.8 million tonnes and its Western European annual flat products production capacity reached 1.2 million tonnes.

In 2007, SCM negotiated a transaction with SMART whereby SMART was to acquire veto rights over the management of the Issuer (through the acquisition of one additional share in the share capital of the Issuer) and the right to appoint three members of the Issuer’s board. Metinvest was to acquire control over Makiivka Steel and Promet (and its subsidiary Promet Intertrade). The transfer of shares in Promet and Promet Intertrade was completed in December 2009 following receipt of approvals from competition authorities in various jurisdictions. Metinvest also acquired control over Makiivka Steel through the right to appoint the members of Makiivka Steel ‘s management. The transfer of shares in Makiivka Steel to Metinvest and the transfer of one additional share in the share capital of the Issuer to SMART is expected to be completed by the end of 2010.

In August 2008, Metinvest acquired 100% of the share capital of Inkor Chemicals, the only producer of refined naphthalene, phenols and cresols in Ukraine and one of the largest producers of naphthalene in Europe.

In April 2009, Metinvest acquired 100.0% in the share capital of United Coal, a producer of coking and steam coal located in the United States.

In February 2010, Metinvest transferred its entire interest in the share capital of Kryvyi Rih Central Mining Machines Repairing plant, Kryvyi Rih Central Mining Equipment Plant, Avlita and Marine Industrial Complex to the SCM group.

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Summary of Acquisitions and Disposals” for further information on Metinvest’s acquisitions and disposals.

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Metinvest’s Business Divisions

The chart below shows Metinvest’s business divisions as of the date of this Offering Memorandum.

Metinvest

Coke and Coal Division Iron Ore Division Steel Division

Krasnodon Coal(1) Northern GOK(2) Azovstal

Avdiivka Coke Ingulets GOK Yenakiieve Steel(3)

Inkor Chemicals Central GOK(2) Makiivka Steel(4)

Khartsyzsk Pipe United Coal Danube Shipping

Ferriera Valsider

Metinvest Trametal(5)

Spartan(5)

Promet Steel

Metinvest International acquired by Metinvest in 2008

acquired by Metinvest in 2009 Metinvest Eurasia

Notes: (1) Krasnodon Coal is currently subject to bankruptcy proceedings, as described further Metinvest Ukraine in “Business Description – Legal Proceedings”. (2) 60% plus one share of the share capital of each of Northern GOK and Central GOK have been pledged as security for the obligations of SCM under the SCM Facility. (3) Includes Yenakiieve Iron and Steel Works and Metalen. Metinvest SMC (4) Metinvest controls Makiivka Steel through its right to appoint Makiivka Steel’s management. The transfer of Makiivka Steel’s shares to Metinvest is expected to be completed by the end of 2010. Makiivka Steel is currently subject to bankruptcy Skiff – Shipping proceedings, as described further in “Business Description – Legal Proceedings”. (5) 100% of the shares of each of Metinvest Trametal and Spartan are pledged in favour of the lenders in connection with the acquisition finance facility in respect of the acquisition of Metinvest Trametal.

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Steel Business

Overview

Metinvest conducts its steel business primarily through Azovstal and Yenakiieve Steel metallurgical plants, the Ferriera Valsider plates and coils mill, Metinvest Trametal and Spartan plate mills, Promet Steel and Makiivka Steel shapes and bars mills and Khartsyzsk Pipe pipe production plant and through Metinvest International S.A., Metinvest Ukraine, Metinvest Eurasia and Metinvest SMC, its steel trading and distribution businesses. Metinvest’s steel business also comprises Promet, a scrap metal company. In 2009, Metinvest sold 0.1 million tonnes of pig iron, 3.0 million tonnes of semi-finished steel products, 1.5 million tonnes of flat products, 1.9 million tonnes of long products and 0.7 million tonnes of other products. In 2008, Metinvest sold 0.3 million tonnes of pig iron, 5.0 million tonnes of semi-finished steel products, 2.0 million tonnes of flat products, 1.9 million tonnes of long products, and 0.8 million tonnes of other products. See also “—Products” below.

In 2009, Metinvest exported 88.9% of its steel products by volume, including 32.8% to South East Asia, 26.6% to Europe, 20.3% to Middle East and North Africa, 18.7% to CIS and the remainder 1.6% to other countries as compared to 82.8% of its steel products by volume in 2008, including 40.2% to Europe, 23.2% to Middle East and North Africa, 18.3% to South East Asia, 9.8% to CIS and the remaining 8.5% to Persian Gulf, Far East and other countries.

The following table sets out the product mix of Metinvest’s export sales by volume for the years indicated.

______Year Ended 31 December ______2007 ______2008 ______2009 (share of total export sales by volume) Pig iron ...... 4.0% 4.0% 2.0% Semi finished products: Slabs ...... 35.0% 38.0% 27.0% Billets ...... 34.0% 21.0% 24.0% Flat products: Hot-rolled plates and coils ...... 11.0% 23.0% 25.0% Long products: Shapes, bars and rails ...... 10.0% 10.0% 14.0% Other products: Pipes and other ...... ______6.0% ______4.0% ______8.0% Total ...... ______100.0% ______100.0% ______100.0% Metinvest’s integrated model enables it to benefit from lower production costs compared to some of its competitors elsewhere in the world. In particular, Metinvest is self sufficient in iron ore and coke for its steel operations. Metinvest’s iron ore, coal and coke producing assets are located close to its steel producing assets, thus enabling it to benefit from a secure supply of key raw materials and from relatively low raw material transportation costs. Metinvest controls most of its own logistics, including owning and operating some of its own railcars and benefits from access to relatively low-cost sea and rail transport.

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Products

The table below shows Metinvest’s consolidated sales attributable to its principal steel products for the years indicated:

Year Ended 31 December ______2007 2008 2009 ______Amount Amount Amount Sales of % of Sales of % of Sales of % of volume revenues revenues volume revenues revenues volume revenues revenues ______(million (million (million (million (million (million tonnes) U.S.$) tonnes) U.S.$) tonnes) U.S.$) Pig iron ...... 0.0 14 0.2 0.3 197 2.1 0.1 20 0.5 Semi finished products: Slabs...... 2.5 1,250 21.4 1.9 1,511 16.3 1.6 655 16.4 Billets...... 2.6 1,330 22.8 3.1 2,247 24.3 1.4 536 13.4 Total for semi finished products ...... 5.1 2,580 44.2 5.0 3,758 40.6 3.0 1,191 29.8 ______Flat products: Hot-rolled plates ...... 1.3 1,120 19.2 1.8 2,337 25.2 1.3 950 23.8 Hot rolled coils ...... 0.2 112 1.9 0.2 144 1.6 0.2 114 2.9 Total for flat products .... 1.5 1,232 21.1 2.0 2,481 26.8 1.5 1,064 26.7 ______Long products: Shapes and bars ...... 1.7 1,021 17.5 1.7 1,650 17.8 1.8 867 21.7 Rails ...... 0.4 249 4.3 0.2 159 1.7 0.1 105 2.6 Total for long products .. 2.1 1,270 21.8 1.9 1,809 19.5 1.9 972 24.4 ______Other products: Pipes...... 0.5 622 10.7 0.4 705 7.6 0.5 643 16.1 Grinding balls ...... 0.1 35 0.6 0.0 43 0.5 0.0 27 0.7 Rail fasteners ...... 0.0 2 0.0 0.0 17 0.2 - - - Other ...... 0.1 77 1.3 0.4 253 2.7 0.2 73 1.8 Total for other products ...... 0.7 736 12.6 0.8 1,018 11.0 0.7 743 18.6 ______Total...... 9.4 5,831 100.0 9.9 9,263 100.0 7.2 3,990 100.0 ______Metinvest’s export sales comprise primarily shapes and bars to the construction sector, rolled products generally to the shipbuilding and machine building sectors and pipes for oil and gas production and transportation. In Ukraine, Metinvest sells the majority of its steel products to the construction, railway and pipe manufacturing sectors.

Production Facilities

Metinvest primarily produces slabs, plates, shapes and bars at Azovstal and billets, shapes and bars at Yenakiieve Steel. Metinvest also produces plates and coils at Ferriera Valsider and plates at Metinvest Trametal and Spartan, shapes and bars at Makiivka Steel and at Promet.

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The following table sets forth Metinvest’s production of its principal steel products for the years indicated:

Annual Capacity (as of 31 Year Ended 31 December December ––––––––––––––––––––––––––––– 2009) 2007 2008 2009 ______(million tonnes) Azovstal Crude Steel ...... 6.2 6.3 5.5 4.6 Pig iron ...... 5.7 5.4 4.6 4.0 Slabs...... 4.5 2.8 2.6 2.3 Plates ...... 2.1 1.3 1.3 1.3 Shapes and bars ...... N/A(1) 1.3 0.7 0.7 Billets...... N/A(1) 0.3 0.5 0.2 Yenakiieve Steel Crude Steel ...... 2.7 2.8 2.7 2.4 Pig iron ...... 2.5 2.4 2.6 2.1 Billets...... 2.0 2.3 2.4 2.0 Shapes and bars ...... 0.8 0.5 0.3 0.2 Khartsyzsk Pipe Pipes...... 1.4 0.5 0.4 0.5 Makiivka Steel Shapes and bars ...... 1.6 N/A N/A 0.9(2) Ferreira Heavy plates ...... 0.4 0.4 0.4 0.2 Hot rolled coils ...... 0.2 0.2 0.2 0.2 Metinvest Trametal Heavy plates ...... 0.6 N/A 0.4(3) 0.3 Spartan Heavy plates ...... 0.2 N/A 0.2(3) 0.1 Promet Shapes and bars ...... 0.7 N/A N/A 0.3(4)

Notes: (1) Data not available. Capacity depends on the production programme implemented at the facility from time to time. (2) Production figures for 2009 fully consolidate production figures from Makiivka Steel, which Metinvest controls since 2009. (3) Production figures for 2008 fully consolidate production figures from Metinvest Trametal and Spartan, which was acquired in 2008. (4) Production figures for 2009 fully consolidate production figures from Promet, which was acquired in 2009.

Azovstal

Azovstal was the second largest Ukrainian steel producer in 2009, according to Metal-Courier. It is located in Mariupol, approximately six kilometres from Mariupol port. Azovstal owns and operates a marine transportation facility at Mariupol which provides cabotage transportation of goods from Azovstal to Mariupol port and other Black Sea ports. In 2009, Azovstal produced 65.7% of Metinvest’s total crude steel production.

History

Azovstal was established in 1930 as a state-owned enterprise to supply steel to developing pipe, heavy machinery and shipbuilding industries in the former Soviet Union. Construction of Azovstal’s facilities began in 1930. During the period between 1948 and 1953, a complex of rolling mills for the production of rails, heavy shapes and sections was constructed and as a result, Azovstal became one of the first Ukrainian integrated iron and steel manufacturers. In 1973, a 3600 plate steel mill was commissioned and in 1977 the basic oxygen furnace steelmaking plant came on stream. In 1981, the electric furnace steel-making plant commenced operations. However, production at the electric furnace steel-making plant was discontinued in 1994 due to the lack of sufficient demand for the special purpose alloy steel produced at that plant.

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In October 1996, pursuant to an order of the SPF, Azovstal was transformed into an open joint stock company with the SPF holding 62.1% and Azovstal’s Organisation of Leaseholders (a cooperative comprising its management and employees) holding 37.9% of its shares. In 1997, Azovstal’s Organisation of Leaseholders established Joint Stock Company Trade House “Azovstal” (“THA”) and contributed its entire shareholding in Azovstal to the share capital of THA. Following an increase in Azovstal’s share capital in June 1998, the SPF’s interest decreased to 56.5% and the THA’s interest increased to 43.5% of Azovstal’s share capital.

Pursuant to Azovstal’s privatisation plan that was approved by the SPF on 28 October 1996, SCM acquired 25% in the share capital of Azovstal from the SPF, with the remainder being acquired by Azovstal’s employees and management, and by Server Management Ltd. and Leman Commodities S.A. which was later acquired by SCM.

By January 2003, SCM’s interest in THA increased to a controlling 74.8%. In 2005, Azovstal acquired Open Joint Stock Company Markokhim Coke Plant. Following the reorganisation of the SCM group, Metinvest now owns 95.9% of the shares in Azovstal.

Facilities

The following table shows a breakdown of Azovstal’s main production facilities by unit for the year ended 31 December 2009.

Annual ______Main Facilities ______Capacity ______Production (thousands of tonnes) Coke Plant...... 6 batteries 2,528(7) 1,739(8) Sintering Plant(1) ...... 2 sintering machines 2,110 1,769 Blast Furnaces(2)...... 5 furnaces 5,719 4,018 Basic Oxygen Furnaces(3) ...... 2 furnaces 4,480 3,824 Open Hearth Furnaces(4) ...... 8 furnaces 1,720 819 Continuous Casting(5)...... 4 slab casters 4,480 3,824 Plate Mill(6) ...... Mill 3600 3 stands 2,083 1,276 Rail and Structural Mill ...... Reversing mill stand 1,000 1,490 459 and 3 stand mill 800 Heavy Section Mill ...... Stand 800 and 3 stand mill 650 1,101 297 Rail Fasteners Mill ...... 8 production lines 285 11 Grinding Ball Mill ...... 2 mills 170 108

Notes: (1) Metinvest intends to reconstruct its sintering plant. See “—Investment Programme—Azovstal—Steel production”. (2) Metinvest intends to construct new blast furnaces No. 7 and No. 8, reline blast furnaces No. 3 and No. 4 and close blast furnaces No. 2, No. 5 and No. 6. See “—Investment Programme—Azovstal—Pig iron production” and “—Investment Programme—Azovstal— Steel production”. (3) Metinvest intends to construct basic oxygen furnace No. 3 and upgrade basic oxygen furnaces No. 1 and No. 2. See “—Investment Programme—Azovstal—Steel Production”. (4) Metinvest intends to close the open hearth furnaces. See “—Investment Programme—Azovstal—Steel Production”. (5) Metinvest intends to reconstruct continuous casting machines No. 3, No. 4 and No. 5. See “—Investment Programme—Azovstal— Continuous Casting”. (6) Metinvest intends to reconstruct plate mill No. 3600. See “—Investment Programme—Azovstal—Plate production”. (7) Moist wharf coke, a finished coke product containing 6.0% moisture which was discharged from a coking battery and normalised to shipping temperature (quenched with water and processed with inert gas) and was not screened. (8) Dry coke is produced by destructive distillation of coal in coke ovens and is used primarily in the manufacture of pig iron.

Azovstal operates an integrated steel production plant located on a site of approximately 1,000 hectares. Metinvest has a right of permanent use over 968 hectares and all of its production facilities, except for its chemical-recovery manufacturing platform and filtration station (which are located on leased land), are located on this land. Metinvest leases the remainder of the land. The production plants consist of coke- chemical production facilities, five blast furnaces, steel making facilities (blast oxygen furnaces and open hearth furnaces) and several rolling mills.

Coke production. The coke plant currently consists of six coking batteries with an aggregate annual actual capacity of 2.5 million tonnes of wharf coke with a moisture content of 6.0%. In 2009, due to the global

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economic downturn, total coke production at Azovstal was 1.7 million tonnes of dry coke, compared to 1.9 million tonnes in 2008 and 2.1 million tonnes in 2007. Azovstal’s coke production in 2009 provided Azovstal with approximately 73.0% of its coke requirements. Azovstal also operates coke and chemical production facilities, including plants producing coal-tar pitch, ammonium sulphate, crude benzol and gas sulphur.

In 2003 and 2006, Azovstal commissioned new coke batteries No. 3 and No. 4, respectively, and in 2006 closed the outdated battery No. 8. The new batteries work more efficiently than the other batteries and produce 7.7 tonnes of coke every 12 minutes, compared to 5.5 tonnes produced at batteries No. 5, No. 6 and No. 7. The replacement of battery No. 8 with battery No. 4 has resulted in an increase in Azovstal’s annual wharf coke production capacity by 166,900 tonnes, improvements in coke quality and a reduction in overall production costs as well as a reduction in dust and carbon dioxide emissions into the atmosphere by approximately 180 tonnes per year. The annual capacities of each of battery No. 3 and battery No. 4 are 455,000 tonnes of wharf coke.

Pig iron production. Azovstal operates five blast furnaces with a total operating volume of 8,753 cubic metres. In 2006, Azovstal commissioned a new blast furnace with an operating volume of 1,719 cubic meters.

Azovstal produces conversion pig iron for use in its own steel production. The aggregate annual capacity of the blast furnaces was 5.7 million tonnes of pig iron. In 2009, Azovstal produced 4.0 million tonnes of pig iron. Azovstal’s pig iron production are used by its other production facilities. For example, slag is used to manufacture construction materials and blast furnace gas is used in the rolling mills and coke production.

Azovstal also operates a sintering plant which produces up to 25.0% of the sinter required for the blast furnaces. In 2003, Azovstal reconstructed two sinter machines resulting in an increase of sintering area up to 67.5 square metres for each machine and the introduction of process control automation. The annual capacity of the sintering plant is 2.1 million tonnes. In 2009, Azovstal produced 1.8 million tonnes of sinter.

Steel production. Azovstal produces steel at a basic oxygen furnace plant and an open hearth plant. The basic oxygen furnace plant comprises two top blowing basic oxygen furnaces, a continuous casting plant with four slab casters, three steel refining units, two twin ladle furnaces and a twin vacuum degasser. The annual capacities of the basic oxygen plant and open hearth plant are 4.5 million tonnes and 1.7 million tonnes, respectively. In 2009, Azovstal produced 4.6 million tonnes of crude steel.

Rolling mills. The rolling mills complex comprises a plate mill (with an annual capacity of 2.1 million tonnes), a rail and structural steel mill (with an annual capacity of 1.5 million tonnes), a heavy section mill (with an annual capacity of 1.1 million tonnes), a rail fastener mill (with an annual capacity of 285,000 tonnes) and a grinding ball mill (with an annual capacity of 170,000 tonnes). In 2009, Azovstal produced 2.0 million tonnes of rolled products.

Quality control

Azovstal has a quality management system certified by the API to conform to its standard requirements and to the standards required for manufacturers of steel plates for deep-sea platforms. Azovstal’s quality management system is also certified by the QMI under ISO 9001 (DSTU ISO 9001, GOST R ISO 9001) which covers production of continuous cast slabs, ingots, rolled plates, rolled bars and shapes from carbon, low-alloyed and alloy steel grades and by TÜV Nord CERT GmbH, which covers coke production.

Azovstal’s steel has been certified by Lloyd’s Register, Germanischer Lloyd, Det Norske Veritas, American Bureau of Shipping, Bureau Veritas, Registro Italiano Navale (RINA), Nippon Kaiji Kyokai (NKK), AMI, TÜV NORD CERT GmbH, Shipping Register of Ukraine and the Russian Maritime Register of Shipping.

Azovstal’s product quality control is carried out by its quality control department, which also manages its product certifications and the purchase of raw materials, including scrap metal, coke, ferroalloys and refractories. The quality control department monitors Azovstal’s products throughout the production process to control output quality and the types of technology employed.

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Yenakiieve Steel

Yenakiieve Steel is a fully integrated iron and steel producer consisting of Yenakiieve Iron and Steel Works and Metalen which Yenakiieve Steel jointly operate at a single production site under a common development strategy, common management and unified planning, procurement, logistics and sales functions. Yenakiieve Steel is located in the town of Yenakiieve approximately 186 kilometres from the Mariupol port. Yenakiieve Steel’s facilities are located on a site of approximately 270 hectares, over which it has a right of permanent use.

History

Yenakiieve Iron and Steel Works has been part of Metinvest since 2006. Yenakiieve Iron and Steel Works was founded in 1895 and produced its first pig iron in 1897. In 2002, Yenakiieve Iron and Steel Works commissioned its first ladle furnace unit and a continuous billet casting machine. In 2004, a further ladle furnace and another continuous casting machine came on stream. In 2007, Yenakiieve Iron and Steel Works completed the construction of blast furnace No. 5.

Yenakiieve Iron and Steel Works was privatised pursuant to the amended privatisation plan approved by the SPF on 28 February 1996. In the course of the privatisation, 13.6% of the shares in Yenakiieve Iron and Steel Works were allocated to the employees and management of Yenakiieve Iron and Steel Works, 77.6% of the shares in Yenakiieve Iron and Steel Works were sold at certificate auctions to various purchasers and 8.8% of the shares in Yenakiieve Iron and Steel Works were sold on the Ukrainian Stock Exchange to the highest cash bidder. The SPF approved the privatisation of Yenakiieve Iron and Steel Works on 14 October 1996. Metinvest currently holds a 90.6% interest in Yenakiieve Iron and Steel Works.

Metalen was founded in 1999 as a joint-venture between Yenakiieve Iron and Steel Works and a Swiss-based steel trader Metinvest International S.A. (previously known as Leman Commodities S.A.) which is currently a part of Metinvest’s steel and rolled products sales division. Yenakiieve Iron and Steel Works and Metinvest International S.A. initially held 49.5% and 50.5% in the share capital of Metalen, respectively. In 2008 Yenakiieve Iron and Steel Works sold a 37.04% interest in Metalen to Metinvest. Metinvest currently holds a 100% interest in Metalen.

Facilities

The following table shows a breakdown of Yenakiieve Steel’s main production facilities by unit for the year ended 31 December 2009.

Annual ______Main Facilities ______Capacity ______Production (thousands of tonnes) Sintering Plant(1) ...... 4 sintering machines 2,091 1,970 Blast Furnaces(2)...... 3 furnaces 2,450 2,106 Basic Oxygen Furnaces...... 3 furnaces 2,700 2,385 Continuous Casting(3) 2 ladle furnaces with a 1,997 2,035(4) six-strand billet conticaster each Blooming Mill...... Stands 850/610/550 3,230 —(5) Rolling Mills(6) ...... 4 mills 811 217

Notes: (1) Metinvest intends to construct a new sintering plant at Yenakiieve Steel. See “—Investment Programme—Yenakiieve Steel”. (2) Metinvest intends to reconstruct blast furnaces No. 1, No. 3 and No. 4 and implement the PCI technology. See “—Investment Programme—Yenakiieve Steel—Pig iron production” and “—Investment Programme—Yenakiieve Steel”. (3) Metinvest intends to construct continuous casting machines No. 3 and No. 4. “See—Investment Programme—Yenakiieve Steel”. (4) In 2009, actual production exceeded the annual capacity primarily due to the increase in casting speed and higher quality of refractory materials used. (5) Metinvest closed the blooming mill at Yenakiieve Steel in 2008 in response to global economic downturn. (6) Metinvest intends to modernise rolling mill No. 250. See “—Investment Programme—Yenakiieve Steel—Rolling mills”.

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Pig iron production.Yenakiieve Steel operates three blast furnaces with a total operating volume of 3,932 cubic metres and an annual capacity of approximately 2.5 million tonnes of pig iron. In 2009, Yenakiieve Steel produced 2.1 million tonnes of pig iron. The blast furnaces produce hot iron for the basic oxygen plant and cast pig iron.

Yenakiieve Steel also operates a sintering plant comprising four sintering machines with a sintering area of 62.5 square metres each and an annual aggregate capacity of approximately 2.1 million tonnes of sinter. In 2009, Yenakiieve Steel produced 2.0 million tonnes of sinter.

Steel production.Yenakiieve Steel produces steel at a basic oxygen plant comprising three basic oxygen furnaces with an aggregate annual capacity of 2.7 million tonnes of steel. It also operates two ladle furnaces, each with a six-strand billet conticaster. In 2009, Yenakiieve Steel produced 2.4 million tonnes of steel and 2.0 million tonnes of billets. The basic oxygen plant currently produces low-alloyed, construction and carbon grade steel. The billet conticasters produce billets of various dimensions.

Rolling mills.Yenakiieve Steel operates four rolling mills: a continuous four-strand wire mill No. 250, which was commissioned in 1966 and has an annual capacity of 350,000 tonnes of finished rolled products; a mid- rolling mill No. 360, which was commissioned in 1948 and has an annual capacity of 155,000 tonnes of finished rolled products; a light rolling mill No. 280, which was commissioned in 1955 and has an annual capacity of 150,000 tonnes of finished rolled products; and a heavy rolling mill No. 550, which was commissioned in 1973 and has an annual capacity of 155,500 tonnes of finished rolled products. In 2009, Yenakiieve Steel produced approximately 217,000 tonnes of rolled products. Yenakiieve Steel also operates a cogging plant which comprises a blooming mill and a continuous casting mill for billets.

Quality control

Yenakiieve Steel operates a quality management system which complies with the requirements of ISO 9001:2008 and satisfies the requirements of TÜV-NORD CERT GmbH, Lloyd’s Register, the Russian Maritime Register of Shipping and ABS Europe Ltd for its bulb flat steel to be used in the shipbuilding.

Yenakiieve Steel’s quality management system is also certified by the British certification society CARES under the BS 4449 standard and by the certification society of the Republic of Belarus under classes A400C and A500C of the standard STB 1704-2006 which covers production of cast billets.

Yenakiieve Steel’s product quality control is carried out by its technical control department, which also manages its product certifications. The technical control department monitors Yenakiieve Steel’s products throughout the production process, including by monitoring the quality of the input materials used and the amount of Yenakiieve Steel’s crude output. The quality of the input materials is monitored primarily by analysing the chemical, physical and mechanical composition the materials produced. In 2009, the technical control department comprised on average 321 employees and had a budget of U.S.$1.2 million. Its budget for 2008 was U.S.$1.8 million.

Khartsyzsk Pipe

Khartsyzsk Pipe is the largest CIS producer of single seam large diameter longitudinally welded line pipes used in construction of oil and gas pipelines, according to the UBS Guide. Khartsyzsk Pipe is located in Khartsyzsk, approximately 177 kilometres from the Mariupol port. Khartsyzsk Pipe’s facilities are located on a site of approximately 145 hectares, which Khartsyzsk Pipe owns.

History

Khartsyzsk Pipe was founded in 1898 and its major production facility - pipe welding plant No. 2 - came on stream in 1974. The plant reached its design capacity in 1987. The pipes produced by Khartsyzsk Pipe were used in the construction of, among others, the Blue Stream, Urengoy-Pomary-Uzhgorod, Jamal-Western Siberia and Druzhba pipelines. The corrosion resistant coating department was commissioned in 1982. Since 1983, Khartsyzsk Pipe has been producing high quality steel pipes with a corrosion resistant polyethylene coating to the outer surface. In 2000, a new manufacturing line was commissioned at pipe welding plant No.

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2. In 2003, Khartsyzsk Pipe started the production of pipes with inner coating at pipe welding plant No. 4. In 2007, another manufacturing line was commissioned at pipe welding plant No. 2.

Khartsyzsk Pipe was privatised pursuant to the amended privatisation plan approved by the SPF on 25 April 2001. Pursuant to the privatisation plan, 16.24% of the shares in Khartsyzsk Pipe were allocated to the employees and management of Khartsyzsk Pipe, 6.18% of the shares in Khartsyzsk Pipe were sold at certificate auctions to various purchasers, 1.57% were sold on the Ukrainian Stock Exchange to the highest cash bidder and 76.0% were sold at tender to IUD which was later diluted to 5.3% as a result of share capital increase of Khartsyzsk Pipe. The SPF approved the privatisation of Khartsyzsk Pipe on 12 November 2001. On 3 July 2003, IUD sold its 5.3% shareholding in Khartsyzsk Pipe to Azovstal. Metinvest currently holds 98.0% interest in Khartsyzsk Pipe.

Facilities

The pipe production at Khartsyzsk Pipe comprises three welding plants with a total of 10 supporting shops and two laboratories. Pipe welding plant No. 2 produces longitudinally welded single seam pipes and double seam pipes for water, gas and oil pipelines with the working pressure of up to 10.2 megapascal. At pipe welding plant No. 4, a corrosion resistant coating is applied to the inner and outer surfaces of the pipes. The annual capacity of Khartsyzsk Pipe ‘s welding plants is 1.4 million tonnes, and in 2009 Khartsyzsk Pipe produced 538,728 tonnes of pipes.

Quality control

Khartsyzsk Pipe’s management system was recently certified by the QMI as conforming to the ISO 9001:2000, ISO14001:2004 and OHSAS18001:1999 standards as well as API Spec 5L 2003 and API Spec 2B:2003. Khartsyzsk Pipe also holds AMI and UkrSEPRO certifications. Khartsyzsk Pipe’s product quality control is carried out by its quality control department, which also manages its product certifications. The quality control department monitors Khartsyzsk Pipe’s products throughout the production process, including by monitoring the quality of the input materials used.

Makiivka Steel

Makiivka Steel is a producer of rolled steel products located in Makiivka, approximately 150 kilometres from the Mariupol port. Makiivka Steel ‘s facilities are located on a site of approximately 310 hectares which it leases under a lease expiring in 2055.

History

Makiivka Steel was founded in 2004 and currently produces long products, including debars, angles, wire rods and rebars in coils. Makiivka Steel has been consolidated into Metinvest’s financial statements since 1 January 2009, however, as of the date of this Offering Memorandum Metinvest does not hold any equity interest in Makiivka Steel and does not have legal title to Makiivka Steel’s assets. Metinvest acquired control over Makiivka Steel from SMART mainly through the right to appoint Makiivka Steel’s management. In addition, Makiivka Steel’s business, became mutually dependent on Metinvest’s operations and SMART granted to Metinvest the power to manage Makiivka Steel’s financial and operating policies. Makiivka Steel is currently subject to bankruptcy proceedings. See also “—Legal proceedings”.

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Facilities

The following table shows a breakdown of Makiivka Steel’s main production facilities by unit for the year ended 31 December 2009.

31 December 2009 –––––––––––––––––––––––––––––– Main Annual Facilities Capacity Production ––––––––– ––––––––– ––––––––– (thousands of tonnes) Rolling Mill...... Stand 150 901 671 Stand 390 720 171

Rolling mill. Makiivka Steel operates a rolling mill with two rolling stands. Rolling stand 150 was commissioned in 1994 and has an annual capacity of 0.9 million tonnes. It produces rods, round section steel and reinforcing-bar steel with periodic profile in bundles. Rolling stand 390 was commissioned in June 2009 and has an annual capacity of 0.7 million tonnes. It produces wire rods, bars, hot-rolled round bars, hot-rolled square bars, hot rolled six-sided bars, reinforced steel, equal flange angles and channel bars and round steel. In 2009, Makiivka Steel produced 842,000 tonnes of rolled products.

Quality control

Makiivka Steel operates a quality management system which complies with the requirements of ISO 9001:2008. Metinvest plans to obtain certifications under the DIN 488, ASTM 615, STB 1704, STO ASCHM 7-93 and GOSTR standards for its Makiivka Steel facilities by the end of 2010.

Makiivka Steel’s product quality control is carried out by its quality control department, which also manages its product certifications. The quality control department monitors the products throughout the production process, including by monitoring the quality of the input materials to control output quality and the levels of technology employed.

Ferriera Valsider

Ferriera Valsider is a producer of heavy plates and hot rolled coils from concast slabs. It is located in Vallese di Oppeano in Verona, Italy, approximately 120 kilometres from Marghera port. Ferreira’s facilities are located on a site of approximately 145 hectares, which is owned by Ferriera Valsider.

History

Ferriera Valsider has been part of the steel and rolled products division of Metinvest since 2006. In July 2001, Metinvest acquired 49.0% of the shares in Ferriera Valsider (previously Databook 3 S.r.l.), In 2006, Metinvest purchased a further 21.0% of the shares in Ferriera Valsider from Steel Investments B.V., raising its participation in Ferriera Valsider to 70.0%.

Facilities

The following table shows a breakdown of Ferriera Valsider’s main production facilities by unit for the year ended 31 December 2009.

Main Annual Facilities Capacity Production ––––––––– ––––––––– ––––––––– (thousands of tonnes) Plate rolling mill ...... 1 mill 400(1) 162 Hot rolled coil steckel mill ...... 1 mill 400(1) 234

Note: (1) Capacity depends on the balance between plates and coils within the product mix.

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Ferriera Valsider operates a plate rolling mill and a hot rolled coil steckel mill. The annual capacity of the plate rolling mill and hot rolled coil steckel mill depends on the balance between plates and coils within the product mix and was approximately 400,000 tonnes for each mill as at 31 December 2009. In 2009, Ferriera Valsider produced approximately 161,700 tonnes of heavy plates. The production line of the plate rolling mill is semi-automatic. In 2009, Ferriera Valsider produced approximately 234,300 tonnes of hot rolled coil. The production line of hot rolled coil mill is fully automated.

Quality control

Ferriera Valsider’s quality management system has been certified by Det Norske Veritas under ISO 9001:2000 and Det Norske Veritas has also issued Ferriera Valsider with an Approval of Manufacturer certificate for rolled steel products. Ferriera Valsider also holds a Certificate of Factory Production Control for hot rolled products and a Quality Assurance System certificate, in each case from TÜV.

In 2009, Ferriera Valsider received an Environmental Management System Certificate under ISO 14001:2004 from Det Norske Veritas and an Integrated Environmental Authorisation from the Environment Sector of the Province of Verona.

Ferriera Valsider’s quality control is carried out by its quality control department which carries out inspections and tests on finished goods at the request of Ferriera Valsider’s customers and on raw materials at the request of its sales department. The quality control department does not have a fixed budget.

Metinvest Trametal

Metinvest Trametal is a steel plate manufacturer headquartered in Genoa, Italy with a production site in San Giorgio di Nogaro (Udine), approximately one kilometre from Nogaro port and about 30 kilometres from Monfalcone port. Metinvest Trametal’s facilities are located on a site of approximately 14 hectares, which it owns.

History

Metinvest Trametal was established in 1985 and, following the acquisition of its production plant at San Giorgio from Metallurgica San Giorgio in 1994, began to produce heavy plates in 1995, focusing on the Italian market. Between 1996 and 2000, Metinvest Trametal pursued a strategy of technological modernisation and expansion, including the replacement of its existing descaling machine and hot leveller in 1996, which resulted in an improvement in surface quality; the full overhaul of its reheating push furnace in 1998, which resulted in better control of the re-heating process, an increase in productivity and a reduction in gas and other consumables consumption; the installation of a heat treatment furnace in 1999; and the installation of a new furnace with rolls for heat treatment in 2000, which allowed Metinvest Trametal to normalise plates and therefore expand into the pressure vessel sector and the oil and gas sector and to expand its existing product offerings to the construction sector (particularly to yellow goods producers) and the shipbuilding sector. From 2001 onwards, Metinvest Trametal’s shifted its focus towards other European markets outside of Italy, in particular Germany, Austria and the United Kingdom. In 2003, Metinvest Trametal commissioned a new quarto rolling mill, and in 2008 it completed construction of a new heat treatment furnace. Metinvest acquired Metinvest Trametal in February 2008.

Facilities

Metinvest Trametal’s quarto (reversing) rolling mill has an annual capacity of 600,000 tonnes of heavy plates for use in ship-building, pipe manufacturing and for other industrial purposes. In 2009, Metinvest Trametal produced approximately 322,700 tonnes of heavy plates.

Quality control

Metinvest Trametal’s quality management systems have been certified by Det Norske Veritas under ISO 9001:2000. Metinvest Trametal also holds various other certifications from internationally recognised testing bodies, such as Bureau Veritas, Registro Italiano Navale (RINA), Lloyd’s Register of Shipping,

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Germanischer Lloyd and American Bureau of Shipping (ABS). Metinvest Trametal obtained various European certifications for its products (including plates) under ADW1 / AD2000W1 (TUV), Marking CE (EN10025:2004) and NF-ACIER standards.

Metinvest Trametal’s product quality control is carried out by its quality control department, which also manages its product certifications. The quality control department monitors Metinvest Trametal’s products throughout the production process, including by monitoring the quality of the input materials used. Mechanical tests on product samples and raw materials are carried out at the in-house test laboratory, which is equipped with destructive and non-destructive testing technologies.

Spartan

Spartan is a steel plate producer located in Newcastle, England, approximately 15 kilometres from the port of Tyne, allowing its products to be shipped to all of the main Northern European markets. Spartan’s facilities are located on a site of approximately 2.8 hectares, which it owns.

History

Spartan was established in 2001 and has been part of Metinvest since February 2008. Spartan’s main equipment is its reversing mill, which is a refurbished unit originally manufactured in 1976.

Between 2001 and 2005, Spartan pursued a strategy of technical modernisation and expansion. In 2001, Spartan revamped its existing plant and computerised its production process. In 2002, it added new burners to the main re-heating furnace to increase productivity by 50.0% and reduce specific consumption and gas emissions, installed a modern water-treatment plant to improve the quality of the water and minimise the discharge of polluted water into the river as required by environmental regulations and installed a new double-arm slab oxycutting machine and new motor-driven conveyors in place of chain drive conveyors. In 2003, Spartan upgraded its cranes to improve handling of material inside the plant and fitted crane back-up batteries to improve safety standards. In 2004, Spartan installed a new hot leveller for thin plates to reduce cold levelling rework, installed a new automation system to control the rolling process (including load cells and laser thickness measurement) and relocated the main pulpit.

Facilities

Spartan produces plates in a reversing mill using slabs, 80.0% of which are supplied by Metinvest with the remainder sourced from third parties. Spartan’s annual capacity is approximately 200,000 tonnes of heavy plates. In 2009, Spartan produced approximately 115,900 tonnes of heavy plates.

Quality control

Spartan’s quality management systems have been certified by Vd TÜV under ISO 9001:2008. Spartan also holds various other certifications from internationally recognised testing bodies including TÜV, PED, CPD, TRD100 and AD200.

Spartan’s product quality control is carried out by its quality control department, which also manages its product certifications. The quality control department monitors Spartan’s products throughout the production process. Mechanical tests on samples of the product as well as the raw material are carried out at Spartan’s in-house test laboratory, which is equipped with destructive and non-destructive testing equipment.

Promet

Promet is a long steel products manufacturer located in Bourgas, Bulgaria, approximately 25 kilometres from the Bourgas port. Promet’s facilities are located on a site of 1,000 hectares, which it owns.

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History

Promet was established in 1980 pursuant to an order of the Bulgarian Council of Ministers. Promet’s rolling mill No. 300 and related infrastructure were constructed between 1980 and 1986. Metinvest acquired Promet in 2009.

Facilities

The following table shows Promet’s main production facilities by unit for the year ended 31 December 2009.

Year Ended 31 December 2009 –––––––––––––––––––––––––––––– Main Annual Facilities Capacity Production ––––––––– ––––––––– ––––––––– (thousands of tonnes) Rolling mill No. 300(1)...... 1 mill 700 278 Rebar production...... – N/A(2) 278 Section rolling...... – N/A(2) 8

Notes: (1) Metinvest intends to commission a new hot strip mill at Promet with the total annual production capacity of 5.3 million tonnes. See “—Investment Programme—Promet”. (2) Data not available. Capacity depends on the production programme implemented at the facility from time to time.

The rolling mill No. 300 is a medium section rolling mill that produces hot-rolled long steel products, including rebars, rounds and strips angles. Promet operates a continuous production cycle, with four groups of workers working in three shifts. Promet’s facilities also include a specialised rebar production facility and section rolling facility, two staves and a finished product warehouse. Promet also owns some of rail road tracks, warehouses, water storing facilities and pump houses near its main facilities.

Quality control

Promet’s integrated quality management systems have been certified by SGS-Bulgaria under ISO 9001:2008, ISO 14001 and OHSAS 18001. Promet also holds various other certifications from internationally recognised testing bodies including TÜV, PED, CPD, TRD100 and AD200. Promet also holds product certifications from TÜV Rheinland/Berlin-Brandenburg for hot-rolled structural steel products, KIWA N.V. for reinforcing steel and LGA Bautechnik GmbH, ELOT, SIMPTEST, CARES, Italian Norm D.M., CERTIF/LNEC, UkrSEPRO and class PC52 according to Romanian standard STAS for reinforcing steel bars. Promet also received the product conformity certificates from internationally recognised testing bodies, such as TUV Rheinland Group, LGA Bautechnik GmbH, KIWA Product Certificate / KOMO, SIMPTEST, ELOT, CERTROM, Servizio Tecnico Centrale, CERTIF / LNEC and NISI.

The quality control department, which is supported by Promet’s laboratory, monitors Promet’s products throughout the production process, including by monitoring the quality of input materials used.

Steel Segment Investment Programme

Metinvest has made considerable investments in modernising its facilities. Commissioning new equipment including new coke batteries and furnaces at Azovstal and Yenakiieve Steel, a new pipe welding plant at Khartsyzsk Pipe and a new rolling stand at Makiivka Steel has resulted in an increase in Metinvest’s annual production capacity, improvements in product quality, a reduction in overall production costs and a reduction in dust and carbon dioxide emissions (see “Business Description—Steel Business—Production Facilities”). The aggregate cost of implementing investment programmes between 2005 and 2009 was U.S.$2.4 billion.

Metinvest’s ongoing and planned investment programmes for Azovstal, Yenakiieve Steel, Makiivka Steel and Promet involve the construction and modernisation of various elements of the steel production process and aim to increase the production capacity, reduce operating costs and improve output quality.

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The actual timing and cost of implementation of Metinvest’s investment programme may vary significantly from its estimates and depend on a variety of factors, including market conditions, levels of demand for Metinvest’s products, the availability of funding, operating cash flow and other factors fully or partially outside Metinvest’s control. See also “Risk Factors—Risks Relating to Metinvest—Metinvest’s substantial capital investment programme may not be implemented on schedule or within budget”.

Metinvest’s long-term plan (the “Long-Term Plan”) is to increase its annual production capacity to 8.0 million tonnes of flat products and 4.0 million tonnes of long products by 2021. Metinvest intends to achieve this primarily by: • increasing the annual crude steel production capacity to a total of 12.0 million tonnes through the reconstruction of existing steel-making facilities and the construction of new steel-making facilities at Azovstal and Yenakiieve Steel; • realigning its two main Ukrainian steel assets, so that Azovstal will produce exclusively flat products and that Yenakiieve Steel will produce exclusively long products; • expanding its flat steel production capacity through the construction of a new hot strip mill at Promet with an annual capacity of 5.3 million tonnes of flat products and the reconstruction of an existing plate mill No. 3600 at Azovstal with an annual capacity of 2.0 million tonnes; and • expanding its long steel production capacity through the reconstruction of rolling mill No. 250 with annual production capacity of 700,000 tonnes at Yenakiieve Steel.

Metinvest also intends to undertake an operational improvement programme aimed at reducing operating costs and improving output quality. Metinvest intends to achieve this primarily by: • implementing PCI technology at Yenakiieve Steel; • constructing an iron desulphurisation plant at Azovstal; and • modernising its facilities, by replacing inefficient technologies such as open hearth furnaces with more efficient technologies such as basic oxygen furnaces.

Metinvest estimates that the aggregate cost of implementing various elements of the Long-Term Plan and the operational improvement programme will be as follows (excluding maintenance costs): • U.S.$5.3 billion for capital expenditures at Azovstal between 2010 and 2021 (the total capital expenditure at Azovstal between 2004 and 2009 was U.S.$211.5 million); • U.S.$3.2 billion for capital expenditures at Yenakiieve Steel between 2010 and 2021 (the total capital expenditure at Yenakiieve Steel between 2006 and 2009 was U.S.$157.9 million); and • EUR 830 million for capital expenditures at Promet between 2011 and 2016. The principal components of this investment programme are set out below.

Azovstal

Pig iron production. Metinvest plans to construct blast furnace No. 7 and close blast furnace No. 5 at Azovstal, which Metinvest expects will increase Azovstal’s annual pig iron production capacity to 5.8 million tonnes. Metinvest expects these projects to be completed in 2014 at an estimated cost of EUR 450.0 million.

Steel production. Metinvest plans to reconstruct Azovstal’s sintering plant, which Metinvest expects will increase the plant’s annual sinter production capacity to 4.5 million tonnes. Metinvest expects the project to be completed in 2014 at an estimated cost of EUR 375.0 million.

Metinvest also plans to construct an iron desulphurisation plant at Azovstal, which will comprise technology facilitating the injection of a lime and magnesium mixture into iron before it is poured into the basic oxygen

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converters. Metinvest expects the implementation of this project to begin in 2011 and to be completed in 2016 at an estimated cost of EUR 60.0 million. Metinvest expects that the iron desulphurisation plant will significantly improve the quality of the steel produced at Azovstal and thereby increase the competitiveness of Metinvest’s steel products.

Metinvest developed a two-phased project that is aimed at increasing Metinvest’s basic oxygen furnace steel production. During the first phase of this project, Metinvest intends to construct a new blast furnace No. 8, reline blast furnace No. 4, close blast furnace No. 6, construct basic oxygen furnace No. 3 and close the open hearth plant at Azovstal, which Metinvest expects will increase Azovstal’s basic oxygen furnace steel production capacity from 4.5 million tonnes to 6.2 million tonnes, reduce its annual operating costs and improve safety and environmental standards as Metinvest stops using open hearth technology, which is characterised by high levels of contaminants emissions and low standards of industrial safety. Metinvest expects the first phase of this project to be completed in 2017 at an estimated cost of EUR 955 million. During the second phase of this project, Metinvest intends to reline blast furnace No. 3, close blast furnace No. 2 and upgrade basic oxygen furnaces No. 1 and No. 2 at Azovstal, which Metinvest expects will further increase Azovstal’s annual basic oxygen furnace steel production capacity from 6.2 million tonnes to 8.0 million tonnes. The relining of blast furnace No. 3 and the closing of blast furnace No. 2 are also expected to reduce Azovstal’s annual operating costs by approximately 5%. Metinvest expects the second phase of this project to be completed in 2020 at an estimated cost of EUR 261 million.

Metinvest plans to construct, in successive stages, a new exit gas purification system and then to reconstruct casting machines No. 3, No. 4 and No. 5 at Azovstal, which it expects will increase Azovstal’s annual continuous casting capacity to 2.5 million tonnes and improve output quality by introducing new continuous casting technologies. Metinvest expects this project to be completed in 2018 at an estimated cost of EUR 627.0 million.

Plate production. Metinvest also plans to reconstruct the plate mill No. 3600 and to install an accelerated cooling unit at Azovstal, which Metinvest expects will increase the mill’s annual plate production capacity to 2.0 million tonnes and lower its operating costs. Metinvest expects to complete this project in 2015 at an estimated cost of EUR 307.0 million (of which approximately EUR 10.0 million has been spent to date).

Yenakiieve Steel

Pig iron production. Metinvest intends to reconstruct blast furnaces No. 1, No. 3 and No. 4 at Yenakiieve Steel. Metinvest expects that Yenakiieve Steel’s annual pig iron production capacity will increase by 1.4 million tonnes and that its annual operating costs will be lowered and its safety and environmental standards will be raised due to introduction of new improved technologies which will allow Metinvest to reach the European standards of environmental control and industrial safety. Metinvest expects this project to be completed by 2015. Metinvest estimates that the cost of the reconstruction and modernisation will be approximately EUR 585.0 million (of which EUR 75.0 million has been spent to date).

Steel production. Metinvest intends to implement the PCI technology at Yenakiieve Steel in order to reduce the consumption of natural gas by Yenakiieve Steel’s blast furnaces when producing iron. Metinvest expects the project to be completed through the sequential reconstruction and modernisation of the blast furnaces at Yenakiieve Steel. Metinvest expects implementation of the project to begin in 2010 and to be completed in 2013 at an estimated cost of EUR 138.0 million (of which EUR 0.5 million has been spent to date).

Metinvest also intends to construct a sintering plant at Yenakiieve Steel with an annual sintering capacity of 4.5 million tonnes. Metinvest expects to complete this project in 2013 at an estimated cost of EUR 375.0 million.

Continuous casting. Metinvest plans to construct continuous casting machines No. 3 and 4 at Yenakiieve Steel, which it expects will increase Yenakiieve Steel’s annual casting capacity to 1.5 million tonnes, reduce its operating costs and improve output quality and safety and environmental standards. The construction of continuous casting machines is the part of a broader programme which will entail the closure of open hearth production at Azovstal (see “—Azovstal” above). Metinvest expects this project to be completed in 2015 at an estimated cost of EUR 403.0 million.

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Rolled products production. Metinvest plans to modernise the rolling mill No. 250 at Yenakiieve Steel, which Metinvest expects will increase its annual rebar production capacity by 700,000 tonnes, reduce its operating costs and improve output quality, safety and environmental standards due to introduction of new improved technologies. Metinvest expects to complete this project in 2016 at an estimated cost of EUR 154.0 million.

Promet

Metinvest intends to commission a new hot strip mill at Promet with an annual production capacity of 5.3 million tonnes, which Metinvest plans to complete in two stages. The first stage is expected to be completed by the end of 2014 at an estimated cost of EUR 730 million (of which EUR 0.25 million has been spent to date) and is expected to increase Promet’s production capacity to 3.6 million tonnes. The second stage is expected to be completed by the end of 2016 at an estimated cost of EUR 100 million and is expected to increase Promet’s production capacity to 5.3 million tonnes.

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Liquidity and Capital Resources-Capital Resources”.

Iron Ore Business

Overview

Metinvest conducts its iron ore extraction and processing business primarily through Northern GOK, Ingulets GOK and Central GOK. In 2009, Metinvest sold 30.6 million tonnes of merchant iron ore concentrate and pellets, of which 25.5% were used internally for the production of steel products and 74.5% were sold to third parties. In 2008, Metinvest sold 34.5 million tonnes of merchant iron ore concentrate and pellets, of which 40.0% were used internally for the production of steel products and 60.0% were sold to third parties. Metinvest was the sixth largest iron ore producer in the world based on published annual reports and operating results of the largest iron ore producing companies and the largest iron ore concentrate producer in Ukraine, producing 56.0% of all iron ore concentrate in Ukraine in 2009, according to Ukrrudprom.

In 2009, Metinvest’s external iron ore segment revenue and the iron ore segment’s adjusted EBITDA were U.S.$1.3 billion and U.S.$811 million, respectively. In the year ended 31 December 2008, Metinvest’s external iron ore segment revenue and the iron ore segment’s adjusted EBITDA were U.S.$2.6 billion and U.S.$2.2 billion, respectively.

Products

Merchant iron ore concentrate and pellets are generally commodity products and most customers make purchases on the basis of price, including transportation costs. Metinvest processes iron ore into merchant iron ore concentrate and pellets prior to sale. Metinvest’s iron ore business is an important part of Metinvest’s vertical integration; in 2009, 28.8% of its sales (by revenue) were to other Metinvest segments. The remaining 71.2% of its sales (by revenues) were sold to third parties in Ukraine, China, Turkey, Slovakia, Czech Republic and Poland. Metinvest’s main external customers for iron ore include MMK Illycha, Zaporozhstal, Industrial Union of Donbass, Arcelor Mittal and U.S. Steel. Metinvest intends to increase its production of pellets, which tend to generate a higher profit margin compared to merchant iron ore concentrate (see “—Investment Programme” below).

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The table below shows production by Metinvest of its principal iron ore products for the years indicated:

Year Ended 31 December –––––––––––––––––––––––––––––– 2007 2008 2009(2) ––––––––– ––––––––– ––––––––– (million tonnes) Merchant iron ore concentrate ...... 18.9(1) 18.6 17.6 Pellets ...... 13.3 11.4 11.6 ––––––––– ––––––––– ––––––––– Total: ...... 32.2 30.0 29.2 ––––––––– ––––––––– –––––––––

Notes: (1) Production figures for 2007 fully consolidate production figures from Ingulets GOK, which was acquired in 2007. (2) Iron ore production figures do not include re-sale of flux and dolomite products.

Production Facilities

The following table sets forth Metinvest’s production of iron ore for the years indicated.

Iron Content(1) (as at 31 Year Ended 31 December December –––––––––––––––––––––––––––––– 2009) 2007 2008 2009 ––––––––– ––––––––– ––––––––– ––––––––– (%) (million tonnes)(2) Northern GOK Iron ore concentrate...... 66.6 13.4 12.6 13.8 Pellets...... 62.4 11.1 9.4 9.4 Merchant iron ore concentrate...... 66.8 1.6 2.3 3.6 Ingulets GOK Iron ore concentrate (magnetic separation)...... 63.5 14.0 13.0 11.9 Merchant iron ore concentrate (magnetic separation)...... 64.4 10.6 9.9 8.3 Merchant iron ore concentrate (flotation) ...... 66.9 3.1 2.7 3.0 Central GOK Iron ore concentrate...... 67.7 5.9 5.7 5.0 Pellets...... 64.0 2.2 2.0 2.2 Merchant iron ore concentrate...... 67.2 3.6 3.7 2.7

Notes: (1) Average iron content achieved in the twelve months ended 31 December 2009. (2) Iron ore production figures do not reflect the resales of flux and dolomite products.

Northern GOK

Northern GOK is one of the largest iron ore mining enterprises in Europe, according to Ukrrudprom. It produces merchant concentrate with iron ore content of over 66.0% and pellets with iron ore content of 60.5% to 63.5%. It has an annual iron ore concentrate production capacity of 14.5 million tonnes including an annual pellet production capacity of 11.8 million tonnes. It is located in Kryvyi Rih in the Dnipropetrovsk Oblast, approximately 462 kilometres from Azovstal and approximately 540 kilometres from Yenakiieve Steel.

Northern GOK extracts and processes iron ore to produce pellets and merchant iron ore concentrate. Northern GOK currently mines iron ore from two open pit quartzite fields through a process of drilling and blasting and by removal of overburden to external dumps. The iron ore is then transported by rail to, and further processed at, on-site crushing, beneficiation and pelletisation plants.

In February 2008, Metinvest completed the installation of the fifth stage of magnetic separation at Northern GOK’s beneficiation plant No. 1 at a cost of U.S.$4.6 million which resulted in improved output quality of the iron ore concentrate by increasing its iron content by 0.6%.

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In 2009, Northern GOK’s produced 3.6 million tonnes of merchant concentrate and 9.4 million tonnes of pellets, 33.6% of which was consumed internally by Metinvest’s steel production facilities, while the remainder was sold to external customers.

In 2006, Northern GOK commissioned a new cyclical-and-continuous crushing plant, enabling it to transport iron ore from the Pervomaysky pit to the processing units using cyclical conveyer technology. Implementation of this technology resulted in reduced transportation costs and an increase in the production capacity of the pit.

Northern GOK was privatised in several stages. On 3 August 1999, the SPF approved the amended privatisation plan for the sale of 35.74% of the shares in Northern GOK at tender, while a 50.0% plus 1 share stake was retained in state ownership. In November 2003, LLC Artanic, a company controlled by SCM, acquired 35.74% of the shares in Northern GOK from unrelated third party LLC firm Nezalezhnist. In July 2004, the SPF sold its remaining 50.0% plus 1 shareholding in Northern GOK to LLC Artanic. The SPF approved the completion of privatisation of Northern GOK on 13 September 2004. Metinvest currently holds 63.3% interest in Northern GOK.

Ingulets GOK

Ingulets GOK is one of the largest iron ore mining enterprises in Ukraine, according to Ukrrudprom. It produces merchant concentrate with iron ore content of 63.5% to 67.0%. Ingulets GOK sells its merchant concentrate primarily to non-integrated steel mills outside of the Metinvest group of companies, but also supplies merchant iron ore concentrate to Azovstal. It is located in Kryvyi Rih in the Dnipropetrovsk Oblast, approximately 600 kilometres from Azovstal. Ingulets GOK was established in 1965 and was acquired by Metinvest in November 2007 from SMART.

Ingulets GOK extracts and processes iron ore to produce pellets and merchant iron ore concentrate. It has an annual iron ore concentrate production capacity of 14.8 million tonnes. It currently mines iron ore from its one open pit quartzite field through a process of drilling and blasting and by removal of overburden to external dumps. The iron ore is then transported by rail to, and refined at, Ingulets GOK’s beneficiation and flotation facilities. In 2009, Ingulets GOK’s output was 11.3 million tonnes of merchant concentrate, approximately 17.0% of which was consumed internally by Metinvest’s steel production facilities, while the remainder was sold to external customers.

Central GOK

Central GOK is the sixth largest iron ore mining company in Ukraine by production volume, according to Ukrrudprom. It is located in Kryvyi Rih in the Dnipropetrovsk Oblast, approximately 460 kilometres from Azovstal and approximately 540 kilometres from Yenakiieve Steel. It sells iron ore primarily to Azovstal and Yenakiieve Steel and sells the vast majority of its pellets to Azovstal.

Central GOK extracts and processes iron ore and produces merchant iron ore concentrate and pellets. It produces merchant concentrate with average iron ore content of 65.0% to 68.2% and pellets with average iron ore content of 63.9%. It has an annual iron ore concentrate production capacity of 6.0 million tonnes including an annual pellet production capacity of 2.2 million tonnes. Central GOK currently mines iron ore from its three open pit quartzite fields and one underground mine through a process of drilling and blasting and by removal of overburden to external dumps. The iron ore is then transported by rail to, and subsequently refined at, its beneficiation facilities and then further processed at its crushing, concentration and pelletisation plants.

In 2009, Central GOK’s output was 2.2 million tonnes of pellets and 2.7 million tonnes of merchant iron ore concentrate, approximately 47.0% of which was consumed internally by Metinvest’s steel production facilities, while the remainder was sold to external customers located predominantly outside of Ukraine.

Central GOK was privatised pursuant to the amended privatisation plan approved by the SPF on 29 October 1999. Pursuant to the privatisation plan, 0.6% of the shares in Central GOK were allocated to the employees and management of Central GOK, 11.97% were sold at certificate auctions to various purchasers, 25.0% plus

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one share were sold to Detroit Cold Rolling Company L.C. on 31 January 2001 and 12.43% of the shares were sold on the stock exchange to the highest bidder, while a 50.0% plus one share stake was retained in the state ownership. On 20 January 2003 Detroit Cold Rolling Company L.C. sold its 25.0% plus one share shareholding to SCM and on 16 July 2004, the SPF sold 50.0% plus one share in Central GOK to SCM. The SPF approved the completion of the privatisation of Central GOK on 17 May 2001. Metinvest currently holds 75.96% interest in Central GOK.

Quality control

Metinvest has a quality management system certified by Bureau Veritas and the Ukrainian state enterprise Krivbasstandartmetrologia to conform to its standard requirements and to the standards required for producers of merchant iron ore concentrate and pellets. Metinvest’s quality management system is also certified under ISO 9001 standard.

Metinvest is involved in various programmes aimed at improving the quality of its products. For example, Metinvest achieved premium quality of its iron ore concentrate at Northern GOK and Ingulets GOK by increasing the content of iron. In 2009, Metinvest produced 1.4 million tonnes of premium quality iron ore concentrate with 67.2% content of iron at Ingulets GOK and 0.5 million tonnes of premium quality iron ore concentrate with 68.4% content of iron at Northern GOK. Metinvest also produces high quality pellets with basicity between 0.12 and 1.0.

In 2007, in order to improve the quality of its iron ore products at Central GOK, Metinvest pioneered ore refuse tailings recycling technology which involves filtering up to 0.4 million cubic meters of the sludge pit a year in order to produce iron concentrate from the ore refuse. In the same year, Central GOK commenced production of iron ore concentrate with iron content of 65.0% made from recycled ore refuse tailings.

Iron Ore Segment Investment Programme

Metinvest is currently undertaking or planning to undertake investment programmes with respect to Northern GOK and Ingulets GOK. These investment programmes involve the construction and modernisation of various elements of the iron ore production process and aim to increase the production capacity of the pellet production facilities, improve output quality and improve the safety and environmental standards of the facilities. Metinvest has budgeted U.S.$520.7 million for capital expenditures at Northern GOK between 2007 and 2012 (of which U.S.$118.6 million has been spent to date) and U.S.$105.1 million for capital expenditures at Ingulets GOK between 2007 and 2012 (of which approximately U.S.$17.6 million has been spent to date). These capital expenditures budgets do not include capital expenditures on maintenance. The principal components of these investment programmes are set out below.

Pellet production

Metinvest intends to construct a new pellet plant Lurgi 278-B at Northern GOK, which is expected to increase Northern GOK’s annual pellet production capacity by 2.1 million tonnes. Metinvest also intends to modernise Northern GOK’s existing pellet plant OK 306-1 which is expected to result in improved safety and environmental standards for the plant through a significant decrease in air pollution levels and an increased annual pellet production capacity of 400,000 tonnes (of which an increased annual pellet production capacity of 200,000 tonnes has been achieved to date). Metinvest expects to complete these projects by the end of 2012, subject to demand and market conditions. Metinvest estimates that the total cost of the two projects will be U.S.$128.3 million (of which approximately U.S.$34.8 million has been spent to date).

Beneficiation and flotation

Metinvest intends to construct new beneficiation facilities at Northern GOK, which are expected to increase its annual beneficiation capacity by 1.5 million tonnes of iron ore concentrate.

The first phase of the construction, which involved the construction of two beneficiation sections, was completed in 2008 at a cost of U.S.$24 million which resulted in an increase in Northern GOK’s annual beneficiation capacity by 0.8 million tonnes. The second phase of the project, which involves the

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construction of two further beneficiation sections and installation of principal mining equipment to support the increased capacities, is expected to be completed by end of 2011, subject to demand and market conditions, at an estimated cost of U.S.$72.2 million (of which approximately U.S.$44.1 million has been spent to date).

Metinvest also intends to implement two flotation modules at Ingulets GOK, which is expected to result in improved output quality. Metinvest plans to complete the implementation of the first flotation module at Ingulets GOK by early 2012 at an estimated cost of U.S.$39.2 million (of which U.S.$19.6 million has been spent as to date).

See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources—Capital Resources”.

Coal Mining and Coke Production

Overview

Metinvest conducts its coal and coke business principally through Krasnodon Coal, United Coal and Avdiivka Coke. Coking coal produced by Krasnodon Coal is mostly sold internally to Avdiivka Coke and Azovstal for the production of coke while coking coal produced by United Coal is primarily sold to external customers. This is due to United Coal’s pre-existing contractual obligations to supply coal to third parties which expire at the end of 2010, following which Metinvest expects to secure long-term supplies of high quality coal from United Coal. In 2009, Metinvest’s Ukrainian operations accounted for 20.7% of Ukraine’s total production of coking coal and 27.5% of Ukraine’s total production of coke, in each according to the Ukrkoks. In 2009, United Coal accounted for 4.1% of total coking coal production in the U.S., according to CRU. In 2009, Metinvest produced 9.6 million tonnes of coking coal (after full consolidation of United Coal production volumes in 2009), 2.8 million tonnes of steam coal and 4.1 million tonnes of coke. In 2008, Metinvest produced 6.2 million tonnes of coking coal and 5.2 million tonnes of coke. As at 31 December 2009, Metinvest was the largest coke producer in Ukraine with a market share of 27.5%, according to Ukrkoks.

In the year ended 31 December 2009, Metinvest’s external coal and coke segment revenue and the coal and coke segment’s adjusted EBITDA were U.S.$0.7 billion and U.S.$244 million, respectively. In the year ended 31 December 2008, Metinvest’s external coal and coke segment revenue and the coal and coke segment’s adjusted EBITDA were U.S.$1.3 billion and U.S.$651 million, respectively.

Products

The table below shows production by Metinvest of coal, coke and chemical products for the years indicated:

Year Ended 31 December –––––––––––––––––––––––––––––– 2007 2008 2009 ––––––––– ––––––––– ––––––––– (million tonnes)(2) Coking coal...... 5.7 6.2 9.6(1) Steam coal...... – – 2.8(1) Coke(3) ...... 5.1 5.2 4.1 Chemical products ...... – 0.07(4) 0.04 ––––––––– ––––––––– ––––––––– Total: ...... 10.8 11.5 16.5 ––––––––– ––––––––– –––––––––

Notes: (1) Production figures for 2009 fully consolidate production figures from United Coal, which was acquired in 2009. (2) Coal production figures include raw coal but does not include coal concentrate or other coal products. (3) In 2007, 2008 and 2009, Azovstal produced 2.1, 1.9 and 1.7 million tonnes of coke, respectively, all of which was used by Azovstal for its own steel production. (4) Production figures for 2008 fully consolidate production figures from Inkor Chemicals, which was acquired in 2008.

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Production facilities

The table below shows production by Metinvest of its principal coal and coke products for the years indicated:

Annual Capacity as of 31 Year Ended 31 December December –––––––––––––––––––––––––––––– 2009 2007 2008 2009 ––––––––– ––––––––– ––––––––– ––––––––– (million tonnes) (2) Krasnodon Coal Coking coal ...... 6.4 5.7 6.2 5.4 United Coal(1) Coking coal(3) ...... 5.4 — — 4.2 Steam coal(4) ...... 3.8 — — 2.8 Avdiivka Coke Coke...... 4.0(6) 3.0 3.3 2.4 Inkor Chemicals(5) Napthalene ...... 0.06 — 0.04 0.03 Phenols and cresols ...... 0.03 — 0.009 0.005 Other chemical products ...... — — 0.021 0.005

Notes: (1) Production figures for 2009 fully consolidate production figures from United Coal, which was acquired in 2009. (2) Coal production figures include raw coal but does not include coal concentrate or other coal products. (3) Includes coking coal and coals used for PCI. (4) Coal suitable for use in producing steam, for example in steam boilers. (5) Production figures for 2008 fully consolidate production figures from Inkor Chemicals, which was acquired in 2008. (6) Moist wharf coke, a finished coke product containing 6.0% moisture which was discharged from a coking battery and normalized to shipping temperature (quenched with water and processed with inert gas) and was not screened.

Krasnodon Coal

Krasnodon Coal is a coking coal mining facility located in Krasnodon in the Lugansk Region of Ukraine. It sells coking coal primarily to Avdiivka Coke and Azovstal. Krasnodon Coal currently produces coking coal from its seven underground mines, which it then processes at its on-site washing plants. In 2009 and 2008, Krasnodon Coal’s total coking coal output was 5.4 million tonnes and 6.2 million tonnes, respectively.

Krasnodon Coal was privatised pursuant to the privatisation plan approved by the SPF on 26 August 2004, as amended on 23 December 2004. Pursuant to the privatisation plan, 0.09% of the shares in Krasnodon Coal was allocated to employees and management of Krasnodon Coal, 60.0% of the shares in Krasnodon Coal was sold at tender to Avdiivka Coke and a further 39.91% of the shares in Krasnodon Coal was sold on the Ukrainian Stock Exchange to Avdiivka Coke, as the highest cash bidder, giving Avdiivka Coke a total shareholding of 99.9% in Krasnodon Coal. The SPF approved the privatisation of Krasnodon Coal on 8 December 2005. Krasnodon Coal is currently subject to bankruptcy proceedings. See also “—Legal proceedings”.

United Coal

United Coal is a producer of coking and steam coal located in the central Appalachian region of the United States. United Coal was founded in 2004 and acquired by Metinvest in April 2009. Through its subsidiaries, United Coal mines coking and steam coal using both underground and surface mining techniques in the states of West Virginia, Virginia, and Kentucky. In 2009, United Coal’s output of coking coal and steam coal was 4.2 million tonnes and 2.8 million tonnes, respectively. Metinvest uses 3.8% of the coal produced by United Coal while the remaining 96.2% is sold to third parties due to United Coal’s pre-existing contractual obligations which expire at the end of 2010, following which Metinvest expects to secure long-term supplies of high quality coal from United Coal.

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Avdiivka Coke

Avdiivka Coke is located in the Donetsk region and is the largest coke and chemical plant in Europe (excluding Russia), according to CRU 2009. It sells coke to Azovstal and Yenakiieve Steel as well as to customers outside of the Metinvest group of companies such as MMK Illycha and Arcelor Mittal Kryvyi Rih. Avdiivka Coke currently produces coke from its eight coke batteries. In 2009 and 2008, Avdiivka Coke’s total coke output was 2.4 million tonnes and 3.3 million tonnes, respectively. In 2009, Avdiivka Coke sold approximately 74.5% of its metallurgical coke production internally and the remainder 24.8% externally, primarily to MMK Illycha.

Avdiivka Coke was privatised pursuant to the amended privatisation plan approved by the SPF on 12 March 1997. Pursuant to the privatisation plan, 9.59% of the shares in Avdiivka Coke were allocated to the employees and management of Avdiivka Coke, 51.65% of the shares in Avdiivka Coke were sold at tender to various purchasers, 31.61% of the shares in Avdiivka Coke were sold at certificate auction to various purchasers and 7.15% of the shares in Avdiivka Coke were sold on the Ukrainian Stock Exchange to the highest bidder. Metinvest currently holds 90.99% interest in Avdiivka Coke.

Inkor Chemicals

In August 2008, Metinvest acquired 100.0% in the share capital of Inkor Chemicals. Located in Dzerzhynsk in the Donetsk region of Ukraine, Inkor Chemicals is the only producer of refined naphthalene and phenol and cresol products in Ukraine and is one of the largest producers of naphthalene in Europe. Inkor Chemical’s installed annual capacity is 60,000 tonnes of naphthalene and 30,000 tonnes of phenols and cresols. Inkor Chemicals, together with Avdiivka Coke, controls the full production cycle starting from the processing of coal-tar to obtaining naphthalene fraction and phenol oil at Avdiivka Coke and finishing with the production of naphthalene at Inkor Chemicals. In 2008, Metinvest installed a new tray packaging line at Inkor Chemicals. In 2009, Inkor Chemicals produced approximately 30,000 tonnes of naphthalenes and 5,000 tonnes of phenols and cresols.

Coal and Coke Segment Investment Programme

Currently, Metinvest is not planning any significant investments for Avdiivka Coke. Metinvest expects the maintenance costs for Avdiivka Coke in 2010 to be U.S.$12.4 million. The aggregate maintenance costs for 2008 and 2009 were U.S.$17.3 million.

Metinvest is intending to implement an investment programme for Krasnodon Coal aimed at maintaining annual coal production capacity at its current levels, primarily by repairing or replacing existing coal extraction equipment. The programme will be conducted on an ongoing basis and Metinvest expects the total costs for Krasnodon Coal in 2010 to be U.S.$55.7 million, which includes U.S.$5.4 million for routine maintenance. To date, U.S.$2.4 has been spent on this project.

Metinvest plans to construct at United Coal a new Affinity mining complex, which is expected to include an underground mine and a coal preparation plant. Metinvest plans to implement the main part of the programme between 2010 and 2012 at an overall cost of over U.S.$100.0 million. Metinvest expects costs for United Coal in 2010 to be U.S.$59.9 million comprising U.S.$56.8 for mine development, including U.S.$33.6 million for the Affinity project and U.S.$2.5 million for non-mining expenses including construction of the coal preparation plant. In 2009, Metinvest spent U.S.$13.2 million on projects related to United Coal.

Reserves

All of Metinvest’s iron ore reserves have been evaluated according to international and Ukrainian methodologies.

International reporting methodologies classify a deposit as either a mineral resource or an ore reserve. Mineral resources are further divided into three categories: an inferred mineral resource (whose geological characteristics can be estimated with a low level of confidence), an indicated mineral resource (whose

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geological characteristics can be estimated with a reasonable level of confidence) and a measured mineral resource (whose geological characteristics can be estimated with a high level of confidence). Ore reserves are divided into probable ore reserves, which is the economically mineable part of an indicated and, in some circumstances, measured mineral resource and proved ore reserves, which is the economically mineable part of a measured mineral resource. The application of “modifying factors” is required for a mineral resource to become an ore reserve. See “Appendix II: Classification of Reserves and Resources”.

Ukrainian reporting methodologies classify deposit as either “explored”, “evaluated” or “probable”. Explored and evaluated deposits are further classified into four classes: Category A reserves (explored deposits that meet certain criteria with a relatively high level of certainty); Category B reserves (explored deposits whose boundaries have been determined with less accuracy than Category A reserves); Category C1 reserves (explored deposits characterised by a lower degree of accuracy than Category B reserves); and Category C2 reserves (evaluated deposits characterised by a lower degree of accuracy than Category C1 reserves).

Deposits that do not meet the standards for classification as A, B, C1 or C2 reserves may be classified as probable deposits in categories P1, P2 or P3.

Category A and Category B Ukrainian reserves roughly correlate to proved reserves, and C1 Ukrainian reserves roughly correlate to probable reserves. See “Appendix II: Classification of Reserves and Resources”.

Metinvest has consulted with SRK, an international consulting firm, in relation to its ore reserves and mineral resources located in Ukraine. In relation to Central GOK and Northern GOK’s iron ore reserves and resources Metinvest established computerized three dimensional geological and mining optimisation models which confirm the current ore reserve and mineral resource statements reported as at 1 January 2010. The mineral resource and ore reserve statements for Central GOK and Northern GOK are derived by depletion of the latest (2008) available estimates to reflect the position as at 1 January 2010. In relation to Ingulets GOK the mineral resource and ore reserve statements are derived from translation of the latest available Ukrainian state approved reserve classification system into the mineral resource and ore reserve statements reported as at 1 January 2010, without recourse to similar processes as established for Central GOK and Northern GOK. Furthermore for the mineral resource and ore reserve statements as presented for Northern GOK, and Ingulets GOK, the following apply: • measured and indicated mineral resources are inclusive of those mineral resources modified to produce ore reserves; • where necessary mineral resources and ore reserves assume that licences will be extended for a minimum time period required to deplete and process the ore reserves. In addition, significant amounts of waste rock must be mined and stored to fully deplete the stated ore reserves as reported herein. Currently in the immediate areas surrounding the mining assets land ownership is an issue and in certain instances as at 1 January 2010 Metinvest does not have access to sufficient land nor the legal right to dispose of the total quantum of waste rock planned to be mined. Management believes that this issue is unlikely to impact operations in the short term (albeit at increased operating expenditures); however, the land issue is significant and warrants continued attention by Metinvest; • for Central GOK and Northern GOK open-pitable mineral resources are reported within an optimised shell assuming a long term price of USc200/dmtu; • ore reserves are reported assuming Metinvest’s long term price assumptions ranging between USc140/dmtu and USc150/dmtu; • the modifying factors assumed in deriving the ore reserves as reported include the following: – For Central GOK: dilution (3% to 6%), dilutant (Fe 3% to 6%), ore losses (3% to 6%) and MAG yield (34%),

– For Northern GOK: dilution (1%), dilutant (Fe 0%), ore losses (1%) and yield (42%), and MAG

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– For Inguletsk GOK: dilution (4%), dilutant (Fe 10%), ore losses (1%) and yield (36%); MAG • the economic viability of the ore reserves is informed by the assumed long term prices, the modifying factors and the historical operating expenditure for calendar 2009 as noted below:

– For Central GOK: U.S.$14/tmilled (USc45/dmtu),

– For Northern GOK: U.S.$16/tmilled (USc35/dmtu), and

– For Inguletsk GOK: U.S.$12/tmilled (USc35/dmtu); and • the economic viability of the ore reserves are contingent upon the Metinvest’s assumed expansions at the various iron ore assets which are in turn supported by the assumed capital expenditure programmes. See ‘‘– Investment programme’’.

SRK has reviewed the supporting data and methologies used by Metinvest to derive the mineral resource and ore reserve estimates as presented herein and reported in accordance with the terms and definitions of the JORC Code.

Metinvest undertook a similar consultation process with respect to its coal reserves located in the United States. The MM&A audit was conducted expressly to provide the necessary documentation and independent verification for filings with the SEC. Accordingly, the reserve audit focused on those portions of the coal deposits that qualify as demonstrated (proven and probable) coal reserves, as defined in SEC Industry Guide 7. Additionally, Metinvest controls coal tonnes that were classified as resources or “non-reserve coal deposits” under SEC guidelines. Metinvest also presents Ukrainian estimates in relation to its coal reserves.

Metinvest believes that the resource estimates, on which it based its estimates of the ore reserves, are reasonable. Estimates of ore reserves are based only on that portion of the deposit that meets accepted international industry standard guidelines for classification as proved and probable reserves.

Metinvest’s reserves are based on drilling and geological data, and represent the part of the mineral resources that could be legally and economically extracted or produced at the time of the reserve determination.

Iron Ore Reserves and Resources

The following tables set out Metinvest’s iron ore reserves and mineral resources according to JORC methodologies as at 1 January 2010.

JORC Reserves (by type)

Tonnage Fe Grade —————— —————————— (million tones) (magnetite) (total) —————— ————— ————— Proved Reserves Central GOK ...... 452 21.35% 31.83% Northern GOK ...... 508 24.23% 31.73% Ingulets GOK ...... 63 24.46% 33.65% Total Proved Reserves ...... 1,022 22.97% 31.89% Probable Reserves Central GOK ...... 258 21.77% 31.95% Northern GOK ...... 205 27.10% 34.25% Ingulets GOK ...... 381 25.23% 34.11% Total Probable Reserves ...... 844 24.63% 33.48% Total Ore Reserves Central GOK ...... 709 21.50% 31.88% Northern GOK ...... 713 25.06% 32.45% Ingulets GOK ...... 444 25.12% 34.04% Total Probable Reserves ...... 1,867 23.72% 32.61%

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JORC Resources (by type)

Tonnage Fe Grade —————— —————————— (million tones) (magnetite) (total) —————— ————— ————— Measured Resources Central GOK ...... 879 22.46% 33.11% Northern GOK ...... 1,053 25.47% 32.69% Ingulets GOK ...... 61 25.17% 34.63% Total Measured Resources...... 1,993 24.14% 32.94% Indicated Central GOK ...... 1,248 23.78% 33.42% Northern GOK ...... 1,442 26.54% 34.66% Ingulets GOK ...... 864 25.62% 34.63% Total Indicated Resources ...... 3,554 25.34% 34.22% Measured and Indicated Resources Central GOK ...... 2,127 23.23% 33.29% Northern GOK ...... 2,495 26.09% 33.83% Ingulets GOK ...... 926 25.59% 34.63% Total Measured and Indicated Resources...... 5,547 24.91% 33.76% Inferred Resources Central GOK ...... 562 23.76% 33.33% Northern GOK ...... 1,312 27.49% 35.82% Ingulets GOK ...... 12 19.85% 31.48% Total Inferred Resources ...... 1,855 26.34% 35.05% Total Mineral Resources Central GOK ...... 2,689 23.35% 33.30% Northern GOK ...... 3,807 26.57% 34.52% Ingulets GOK ...... 937 25.52% 34.59% —————— ————— ————— Total ...... 7,432 25.27% 34.09% —————— ————— ————— The economic viability of the ore reserves is dependent on the assumed long term prices. According to the Reserve Report prepared by SRK, Metinvest's ore reserves as stated above are based on Metinvest’s long term price assumptions ranging between approximately USc140 and USc150 for a dry metric tonne unit (% Fe). In January 2010 the consensus market forecasts as expressed by the median of analysts’ forecasts for December 2011 was approximately USc105 for a dry metric tonne unit (% Fe) for Australian lump ore and approximately USc85 for a dry metric tonne unit (% Fe) for Australian concentrate fines. As of 25 January 2010 the spot price was approximately USc112 for a dry metric tonne unit (% Fe) for Australian Iron lump ore (based on Japanese contract price) and approximately USc97 for a dry metric tonne unit (% Fe) for Australian concentrate fines (based on Japanese contract price), according to the Reserve Report prepared by SRK.

According to the Reserve Report prepared by SRK, the ore reserve sensitivity to price is dependent on the general limits of stripping ratio at increased commodity prices and for lower commodity prices where ore reserves are reduced to 1.3 billion tonnes at USc100 for a dry metric tonne unit (% Fe) and 0.5 billion tonnes at USc75 for a dry metric tonne unit (% Fe).

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Coal Reserves

The following table sets out Metinvest’s coal reserves according to the Ukrainian methodology as at 1 January 2010.

Total A, A B C1 B and C1 C2 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– (thousand tonnes) Molodogvardeyskaya ...... 14,653 32,124 31,376 78,153 0 50-Letya SSSR ...... 1,125 15,305 13,480 29,910 307 Blok Talovsky...... 0 2,989 6,522 9,511 0 Duvannaya ...... 0 11,085 12,245 23,330 0 Barakova...... 41 8,156 16,564 25,761 0 Sukhodolskaya-Vostochnaya ...... 0 25,651 149,283 174,934 1,239 Blok Severniy ...... 695 4,278 255 5,228 2,758 Samsonovskaya-Zapadnaya ...... 4,947 60,813 71,612 137,372 0 Orekhovskaya ...... 69 2,611 12,374 15,054 881 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– Total: ...... 21,530 163,012 313,711 498,253 5,185 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– The following table sets out United Coal’s coal reserves audited by MM&A, according to SEC methodology as at 31 December 2009.

11112222341111211112United Coal Reserves Estimate % United Coal’s subsidiaries United Coal MM&A Difference ––––––––– ––––––––– ––––––––– (moist, recoverable thousand tonnes) Carter Roag Coal Company ...... 41,137 41,127 (0.02%) Pocahontas Coal Company ...... 63,206 63,009 (0.31%) Sapphire Coal Company ...... 12,030 11,658 (3.10%) Wellmore Coal Company ...... 34,581 35,222 1.85 ––––––––– ––––––––– ––––––––– Total (proven and probable) ...... 150,955 151,016 0.04% ––––––––– ––––––––– ––––––––– United Coal’s coal reserves were estimated based on industry-accepted guidelines for total coal/seam thickness, coal quality, coal recoverability, product yield, and other practical permitting and mining limitations. MM&A independently audited 100% of the United Coal reserve area focusing on those portions of United Coal’s coal deposits that qualify as demonstrated (proven and probable) reserves, as defined in SEC Industry Guide 7. United Coal also controls coal tonnes that are classified as resources or “non-reserve coal deposits” under SEC guidelines which have not been included here.

Licences

Metinvest must obtain licences from governmental authorities to explore and extract iron ore and coal from its deposits in Ukraine according to Ukrainian legislation governing mining activities (the Code of Ukraine “On Subsurface” as amended from time to time dated 27 July 1994 (the “Subsurface Code”), and the Mining Law of Ukraine dated 6 October 1999 as amended from time to time). Metinvest is subject to other requirements associated with licences including payments for subsurface use, obtaining relevant insurance, payments of environmental and other duties.

A licence holder has the right to develop and sell iron ore and coal extracted from the licence area. The Ukrainian state, however, retains ownership of all subsoil resources at all times, while under Ukrainian legislation and the terms of its licences, Metinvest only has rights to iron ore and coal when extracted.

Metinvest must obtain an exploration licence to develop an unexplored deposit, whose resources have not been estimated and approved by the Ukrainian State Commission on Mineral Reserves (the “CMR”). In Ukraine exploration licences are currently granted by the Ministry of Environmental Protection of Ukraine (the “Environmental Ministry”) for an initial period of five years, which may be extended for a further five

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year period. The exploration licence is subject to various conditions and may be suspended or revoked in specified circumstances. Exploration works must begin within two years from the date of issue of the exploration licence.

Upon the completion of geological survey of the deposit, all discovered mineral reserves are subject to state review in order to certify the sufficiency and completeness of their geological survey, which is carried out by CMR. Once mineral reserves are estimated and approved as geologically surveyed, the reserves are registered in the State Balance of Mineral Deposits and Metinvest can begin their industrial development including extraction and production of iron ore and coal.

Metinvest must obtain and maintain mining licences to mine iron ore and coal. In Ukraine mining licences are currently granted by the Environmental Ministry for an initial period of up to twenty years which can be extended provided certain conditions are satisfied. A mining licence may be conditional to the use of specified mining technology, application of certain environmental protection measures, scope of work or provisions for termination of mining activities. Mining activities must begin within two years from the date of issue of the mining licence.

Metinvest must also apply for a mining allotment which evidences a right to use a particular subsoil area for industrial mineral development from the Ukrainian Committee for Industrial Safety, Labor Protection and Mining Supervision (“Committee for Industrial Safety”), according to the CMU Regulation No. 59 “On Approval of Regulation on Procedure for Issue of Mining Allotments” dated 27 January 1995.

In order to obtain the mining allotment Metinvest has to have a mining licence and a duly approved production program. If a subsurface area is of national importance, an application should be filed with the Committee for Industrial Safety, or, with respect to mining of local reserves, to the relevant local council.

Exploration and mining licences may be suspended by the Environmental Ministry in certain circumstances including due to the breach of conditions of subsurface use, when the activities of the permit holder impose a threat to health or life of individuals, when the permit holder conducts mining works without a geological and surveyor’s supervision, due to a non-payment of a fee for subsurface use or a delay in payment for exploration work for over six months, due to violation of environmental protection legislation, due to performing mining works not prescribed by the licence, or without a licence for particular type of mining works.

Exploration and mining licences may be revoked in certain circumstances, including if there is no necessity for further subsurface use, if the information submitted by the licence holder is later found to be untrue, if the methods of subsurface use negatively affect the condition of subsurface, pollute the environment or create any other damage, or if the permit holder fails to commence mining activities within two years from the date of the exploration licence.

Business Activity Licences

Metinvest must obtain a business activity licence to extract mineral resources from deposits of national importance which are included within the State Fund of Mineral Deposits, according to the Ukrainian law “On Licencing of Certain Types of Economic Activities” dated 1 June 2000 (the “Licencing Law”).

Ukrainian legislation does not clearly define “deposits of national importance”. According to a joint Order No. 107/370 of the State Committee of Regulatory Policy and Entrepreneurship and Ministry of Environmental Protection of Ukraine “On Approval of Licencing Conditions for Performing Business Activity on Extraction of Mineral Resources from Deposits of National Importance, which are Included into the State Balance of Mineral Deposits”, dated 31 July 2007, the term “mineral resources of national importance” is generally applied for the purposes of the Licencing Law. The list of mineral resources which are considered to be of national importance is defined by Resolution No. 827 of the Cabinet of Ministers of Ukraine “On Adoption of Lists of Mineral Resources of National and Local Importance”, dated 12 December 1994, and includes minerals mined by Metinvest.

In Ukraine business activity licences for the extraction of mineral resources from deposits of national importance are issued by the State Geological Service of Ukraine (the “Licencing Authority”) for a period

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of 5 years. Business activity licences are generally not renewable. However, Metinvest can apply for a new business activity licence once the previous licence expired. Failure to obtain such a licence may result in the imposition of administrative fines on the management of the defaulting entity between UAH340 and UAH680 (approximately equivalent to U.S.$42.3 and U.S.$86.0, respectively) and can also result in an order for the confiscation of any mined product. See “Risk factors–Metinvest’s business depends on exploration and mining licences issued by the Government of Ukraine and such licences may be withheld, revoked or not renewed”.

Business activity licences may be revoked under certain circumstances, including where the licence holder so requests, if the information, submitted by the licence holder is later found to be untrue, if the licence holder violates the licencing conditions or the licence holder fails to rectify violations of licencing conditions.

Metinvest’s Iron Ore Licences

Metinvest conducts its exploration and production activities under a number of licences and mining allotments held by its operating subsidiaries.

Central GOK

Central GOK operates under several mining licences granted in relation to mines in Dnipropetrovsk and Kirovograd oblasts containing iron quartzite. Most licenses are valid for a period of 10 years and will expire at various dates between 2011 and 2014, save for a licence related to Ordzhonikidze deposit which is valid for 16 years and will expire on 23 November 2017.

Central GOK holds a number of mining allotments granted in relation to iron ore deposits in Dnipropetrovsk oblast, which were issued for a period of eight years, thirteen years and for an unlimited period of time.

Central GOK operates under a business activity licence relating to the extraction of iron ore from Velyka Gleuvatka, Artemivske, Petrivske, Gigant-Glyboka and Ordzhonikidze deposits which was issued by the Licencing Authority on 2 November 2007. The licence is valid for a period of five years and will expire on 1 November 2012.

Ingulets GOK

Ingulets GOK operates under a mining licence granted in relation to mines in Dnipropetrovsk oblast containing iron quartzite. The licence is valid for a period of 18 years and will expire in 2017.

Ingulets GOK holds a mining allotment granted in relation to Ingulets deposit. The mining allotment was granted on 20 April 2000 and is valid for an unlimited period of time.

Ingulets GOK operates under a business activity licence relating to the extraction of iron ore from state deposits which was issued on 24 January 2008. The licence is valid for a period of 5 years and will expire on 2 January 2013.

Northern GOK

Northern GOK operates under several mining licences granted in relation to mines in Dnipropetrovsk oblast containing iron and iron quartzite. The licences are valid for a period of 20 years and will expire at various dates between 2017 and 2026.

Northern GOK holds a number of mining allotments granted in relation to Gannivske and Pervomaiske deposits on 16 September 2002 and 18 July 2001 respectively. The mining allotment for Gannivske is valid for a period of 15 years and will expire in 2017. The mining allotment for Pervomaiske deposit is valid for an unlimited period of time.

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Northern GOK operates under a business activity licence relating to the extraction of iron ore from Gannivske, Pervomaiske and Pershotravneve deposits which was issued on 2 November 2007. The licence is valid for a period of 5 years and will expire on 1 November 2012.

Metinvest’s Coal Licences

Krasnodon Coal

Krasnodon Coal operates under several exploration and mining licences granted in relation to mines in Lugansk oblast containing coal, germanium and methane. The licences are valid for a period between 11 and 20 years and will expire at various dates between 2016 and 2027.

Krasnodon Coal holds a number of mining allotments granted in relation to coal deposits in Krasnodon region. The mining allotments are valid for a period between 11 and 20 years and will expire at various dates between 2016 and 2027.

Krasnodon Coal operates under a business activity licence relating to the extraction of inflammable minerals, coal, gas (methane) from state deposits which was issued on 10 October 2008. The licence is valid for a period of 5 years and will expire on 1 October 2013.

United Coal

United Coal operates coal mining operations under numerous exploration and mining permits granted in relation to mines in the states of West Virginia, Virginia and Kentucky. The permits are valid for a period of five years but are normally renewed for additional five year periods until mining and reclamation are complete. The permits are in the names of United Coal’s subsidiaries.

United Coal holds a number of mineral and surface leases granted in relation to coal deposits in the states of West Virginia, Virginia and Kentucky. The mining leases are valid for a period between one year up to the exhaustion of all mineable coal. Most leases contain provisions that allow the leassee to renew the lease for additional terms as long as all provisions of the lease are being complied with at the time of renewal. The leases are held in the names of United Coal’s subsidiaries.

Metinvest’s licences and mining allotments (unless indefinite) must be renewed before their expiration date. Extension may be refused if Metinvest does not satisfy the conditions of the licence or mining allotment, as the case may be, including as to the payment of exploration and mining fees, the commencement of work within the period stipulated in the licence, compliance with mining, environmental, health and safety regulations and compliance with the terms of the special permit. There can be no assurance that Metinvest will be able to comply with all applicable licence conditions and regulations at all times.

In addition, Metinvest’s business outside of Ukraine also depends on the continuing validity of licences, the issuance of new licences and compliance with the terms of such licences, which may involve uncertainties and additional costs to Metinvest.

Any or all of these factors may affect Metinvest’s ability to obtain, maintain or renew necessary licences. If Metinvest is unable to obtain, maintain or renew necessary licences and special permits or is only able to obtain or renew them with newly introduced material restrictions, it may be unable to benefit fully from its reserves and implement its long-term expansion plans, which may materially adversely affect Metinvest’s business, results of operations and financial condition.

As Metinvest currently plans to extend its licences at their scheduled termination and believes that it will be entitled to do so, its reserves are stated based on the maximum projected useful lives of the relevant fields. However, there can be no assurance that Metinvest will be able to extend its licences, or that its licences will not be withdrawn prior to their scheduled expiration. See “Risk Factors—Risks Relating to Metinvest— Metinvest’s business depends on exploration and mining licences issued by the Government of Ukraine and such licences may be withheld, revoked or not renewed”.

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Marketing and Distribution

Metinvest sells its steel and iron ore products to export markets (excluding the CIS) through Metinvest International S.A., based in Geneva. Metinvest Ukraine located in Donetsk sells Metinvest’s steel products in the Ukrainian market and Metinvest Eurasia sells Metinvest’s steel products to the CIS market. Metinvest sells its coke and coal directly through its Ukrainian and U.S. subsidiaries.

The table below shows Metinvest’s consolidated sales by region and product segment for the years indicated.

111121111122007 11112111112 2008 11112111112 2009 Sales Amount of Sales Amount of Sales Amount of 11112volume 11112 revenues 11112 volume 11112 revenues 11112 volume 11112 revenues (million (million (million (million (million (million tonnes) U.S.$) tonnes) U.S.$) tonnes) U.S.$) Ukraine, of which:...... 11.4 2,425 21.5 4,694 17.8 1,632 Steel...... 2.1 1,284 1.7 1,542 0.8 536 Iron ore(1) ...... 4.1 394 15.2 1,931 14.1 719 Coke and coal(2) ...... 5.2 747 4.6 1,221 2.9 377 Europe, of which: ...... 5.4 1,793 6.8 3,559 4.1 1,126 Steel...... 2.7 1,573 3.3 3,133 1.7 963 Iron ore(1) ...... 2.4 169 3.3 370 2.3 150 Coke and coal(2) ...... 0.3 51 0.2 56 0.1 13 Middle East and North Africa, of which:...... 2.4 1,150 2.0 1,450 2.1 617 Steel...... 2.0 1,119 1.9 1,416 1.3 543 Iron ore(1) ...... 0.4 30 0.1 26 0.6 43 Coke and coal(2) ...... 0.0 1 0.0 8 0.2 31 CIS, of which: ...... 1.1 951 1.0 1,116 1.3 936 Steel...... 1.0 924 0.8 1,073 1.2 908 Iron ore(1) ...... 0.0 1 0.1 17 0.0 0 Coke and coal(2) ...... 0.1 26 0.1 26 0.1 28 South-East Asia, of which: .... 2.0 819 3.3 1,657 7.9 1,384 Steel...... 1.3 720 1.5 1,405 2.1 994 Iron ore(1) ...... 0.8 99 1.8 249 5.8 387 Coke and coal(2) ...... — — 0.0 3 0.0 3 Other countries, of which: .... 0.8 287 0.9 737 2.4 331 Steel...... 0.3 211 0.7 694 0.1 46 Iron ore(1) ...... 0.4 65 0.2 41 0.0 0 Coke and coal(2) ...... 11112 0.0 11112 11 11112 0.0 11112 2 11112 2.3 11112 285 Total ...... 23.1 7,425 35.5 13,213 35.6 6,026 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112

Notes: (1) Iron ore sales volumes include resales of flux and dolomite products. (2) Coke and coal sales volumes include raw coal as well as coal concentrate and other coal products.

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The table below shows Metinvest’s external sales and internal sales between its business segments by product segment for the years indicated.

111121111122221111211111211112111112Year Ended 31 December 111121111122007 11112111112 2008 11112111112 2009 Sales Amount of Sales Amount of Sales Amount of 11112volume 11112 revenues 11112 volume 11112 revenues 11112 volume 11112 revenues (million (million (million (million (million (million tonnes) U.S.$) tonnes) U.S.$) tonnes) U.S.$) External sales: Steel...... 9.4 5,831 9.9 9,263 7.2 3,990 Iron ore(1) ...... 8.1 758 20.7 2,634 22.8 1,299 Coke and coal(2) ...... 11112 5.6 11112 836 11112 4.9 11112 1,316 11112 5.6 11112 737 Total for external sales ...... 1111223.1 11112 7,425 11112 35.5 11112 13,213 11112 35.6 11112 6,026 Sales to other segments: Steel...... 0.1 64 0.1 80 0.1 49 Iron ore(1) ...... 16.4 1,165 13.8 1,614 7.8 526 Coke and coal(2) ...... 11112 5.4 11112 955 11112 4.8 11112 1,250 11112 4.9 11112 602 Total for sales to other segments ...... 21.8 2,184 18.7 2,944 12.8 1,177 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112 aaaas11112

Notes: (1) Iron ore sales volumes include resales of flux and dolomite products. (2) Coke and coal sales volumes include raw coal as well as coal concentrate and other coal products.

Steel

In 2009, approximately 45.0% of Metinvest’s steel sales were paid for by way of letter of credit. The remaining 55.0% of sales were made on open payment terms under which customers were allowed up to 180 days to make payments. The payments were secured by insurance, prepayments and the release of the goods on a documentary collection basis.

The delivery terms and conditions are based on Incoterms 2000 as defined by the International Chamber of Commerce. Delivery terms for Metinvest’s Ukrainian steel sales are “free carrier” (FCA) to railway stations located near its steel production facilities or “carriage paid to” (CPT) a nominated destination. Metinvest’s steel sales to Russia and the CIS region are delivered on an “at frontier basis” (DAF) to the Ukrainian border or “carriage paid to” (CPT) to a nominated destination. Metinvest’s steel sales to its customers outside the CIS region are delivered on the basis of “free on board” (FOB), “cost and freight” (CFR) or on an “at frontier” (DAF) basis to a nominated Ukrainian port. Metinvest generally bears all transportation costs in relation to deliveries to its customers located in China.

Iron ore

Delivery terms for Metinvest’s Ukrainian iron ore sales are “free carrier” (FCA) to railway stations located near its steel production facilities. Metinvest’s sales of iron ore to Western Europe, the Czech Republic, Slovakia and Poland are delivered on an “at frontier” basis (DAF). Metinvest’s iron ore sales requiring sea transport are delivered to the ports (Mykolaiv, Yuzhny, Odessa and Illiychevsk ports) on a “free on board” (FOB) or on a “cost and freight” (CFR) basis. Metinvest generally bears all transportation costs in relation to deliveries to its customers located in China.

In 2009, approximately 37.0% of Metinvest’s iron ore sales were paid for within three to ten days after shipment, 29.0% were paid for within 15 to 30 days of shipment and approximately 34.0% were paid for by way of letter of credit.

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Coke and coal

Delivery terms for Metinvest’s Ukrainian sales of metallurgical coke, coke nut and coke breeze are “free carrier” (FCA) to railway stations located near its coke production facilities. Metinvest’s export sales of coke nut, coke breeze and chemicals are on “delivered at frontier” (DAF) basis where the products are transported by rail and on a “free on board” (FOB) basis where the products are shipped by sea

Most of Metinvest’s Ukrainian sales of metallurgical coke and coke nut require payment within five days of delivery. Export sales of coke nut and coke breeze require payment in advance as do sales of coal and most sales of chemicals within Ukraine. Coke breeze supplied to MMK Illycha is paid for in the month of shipment (generally within 15 days from the date of delivery).

United Coal enters into most of its contracts on a “free on board” (FOB) delivery basis to ports in Newport and Baltimore in the United States.

Metinvest sells most of its coal and coke produced in Ukraine domestically. United Coal sells 94.0% of its coal and coke to the customers in the United States and the remaining 6.0% to various European countries. Metinvest sells all of its metallurgical coke to steel works, all of its coke nut to ferroalloy plants, all of its coke breeze to steel works and mining and dressing plants and all of its coking coal to coke processing plants.

Customers and Pricing

Steel

In 2009, the top ten external steel customers represented, in aggregate, approximately 38% of Metinvest’s total volume of steel products sold. In 2009, approximately 68% of Metinvest’s steel production (by volume) was sold on the spot market and the rest sold under contract. Metinvest sells almost all of its billets and approximately 15% of its slabs by volume on the spot market. Metinvest sells the remaining 85% of its slabs by volume under quarterly contracts.

In 2009, Metinvest’s top three external customers for steel products were Eurasian Pipeline Consortium, Gunung Raja Paksi and Dongkuk, together accounting for approximately 24% of total volume of steel products sold. Sales to Eurasian Pipeline Consortium accounted for 14% of Metinvest’s consolidated revenue in 2009.

See “Management’s Discussion and Analysis—Results of Operations for the Years Ended 31 December 2008 and 2009” for information in relation to the sale prices of Metinvest’s steel products.

Iron ore

In 2009, the top ten external customers of Metinvest’s iron ore segment represented, in aggregate, approximately 85% of the total volume of merchant iron ore concentrate and pellets sold. Sales of merchant iron ore concentrate and pellets to Metinvest’s customers located in China accounted for approximately 25% of total volume sold in 2009. Metinvest’s top three customers (excluding customers located in China) were Ukraine-based JSC “Alchevsk Iron and Steel Works”, MMK Illycha and Zaporizhstal, which together accounted for approximately 37% of total volume of merchant iron ore concentrate and pellets sold in 2009.

In 2009, approximately 78% of Metinvest’s external merchant iron ore concentrate and pellets sales were made under contracts generally entered into for a period of three years with an annual adjustment mechanism. Metinvest sold the remaining 22% on the spot market.

See “Management’s Discussion and Analysis—Results of Operations for the Years Ended 31 December 2008 and 2009” for information in relation to the sale prices of Metinvest’s merchant iron ore concentrate and pellets.

Coal and coke

In 2009, the top ten external customers of Metinvest’s coal and coke segment represented, in aggregate, approximately 54% of total volume of coal and coke sold in that period.

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In 2009, Metinvest’s largest external customer for coke was MMK Illycha, which accounted for approximately 11% of Metinvest’s total volume of coal and coke sold in that period.

Metinvest’s top three external customers for coking coal were Zaporozhskiy By-product Coke Plant, Indiana Harbour and Haverhill, which purchased 0.8 million tonnes of coking coal from United Coal and accounted for approximately 14% of Metinvest’s total volume of coal and coke sold in 2009.

Metinvest’s top three external customers for steam coal were American Electric Power, Virginia Power and Detroit Edison, which purchased 1.07 million tonnes of steam coal from United Coal and accounted for approximately 19% of Metinvest’s total volume of coal and coke sold in 2009.

See “Management’s Discussion and Analysis—Results of Operations for the Years Ended 31 December 2008 and 2009” for information in relation to the average weighted sale prices of Metinvest’s coke and coal.

Raw Materials and Energy

The principal raw materials used by Metinvest in the production of steel include merchant iron ore concentrate, pellets, metallurgical coke, scrap metal, dolomite, ferroalloys and refractory materials. Metinvest is self sufficient in most of the raw materials needed for steel production.

The table below sets forth Metinvest’s usage of its primary raw materials, as well as the average cost per tonnes of these materials in the three years ended 31 December 2009.

1111222231111211112Year Ended 31 December 111122007 11112 2008 11112 2009 Usage (thousand tonnes): Iron ore(1) ...... 4,832 4,834 2,979 Pellets ...... 7,928 6,510 6,458 Coke ...... 4,360 4,079 3,832 Scrap metal ...... 951 971 917 Dolomite ...... 228 194 109 Ferroalloys ...... 152 143 121 Refractory materials ...... 134 123 128 Average cost per tonne (UAH): Iron ore(1) ...... 326 566 429 Pellets ...... 459 715 626 Coke ...... 979 1,760 1,303 Scrap metal ...... 1,386 2,076 1,443 Dolomite ...... 251 362 371 Ferroalloys ...... 9,580 16,754 17,751 Refractory materials ...... 2,129 2,938 4,208 Average cost per tonne (U.S.$): Iron ore(1) ...... 65 107 55 Pellets ...... 91 136 80 Coke ...... 194 334 167 Scrap metal ...... 274 394 185 Dolomite ...... 50 69 48 Ferroalloys ...... 1,897 3,180 2,278 Refractory materials ...... 422 558 540

Note: (1) Includes sinter purchased from third parties, iron ore concentrate and sintering ore.

Iron ore

Metinvest is approximately 270.0% self-sufficient in iron ore that it needs for steel production based on its annual capacity as at 31 December 2009. Excess iron ore products are sold in the market. In 2009, 61.8% of excess merchant iron ore products in volumes were sold domestically in Ukraine and the remainder exported.

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Coal and coke

Following its acquisition of United Coal, Metinvest became 105.7% self sufficient in coking coal, based on its annual capacity (assuming that 100% of coking coal produced by United Coal is sold internally rather than to external customers). However, currently only 42.9% of the consumed coking coal is produced internally. Metinvest purchases approximately 57.1% of its coal requirements from third party suppliers in Ukraine including 19.0% from DTEK, a member of the SCM group, 16.2% from Group Energo, a company based in Donetsk and the remaining 21.8% from other third party suppliers. This is due to United Coal’s pre- existing contractual obligations to supply coal to third parties which expire at the end of 2010.

Prior to its acquisition of United Coal, Metinvest was approximately 57.3% self-sufficient in its coking coal requirements based on its annual capacity. The acquisition of United Coal improved Metinvest’s coking coal self sufficiency by approximately 48.4%.

Coal produced by United Coal is generally of higher quality compared to coal produced in Ukraine. The acquisition of United Coal is expected to further secure long-term supplies of high quality coal to Metinvest.

Delivery terms for Metinvest’s coal sales are “free carrier” (FCA) to railway stations located near its production facilities.

Metinvest is approximately 135.0% self-sufficient in coke that it needs for steel production based on its annual capacity as at 31 December 2009. Excess coke is sold in the market. See “—Marketing and Distribution”.

Ferroalloys, fluxes and refractory materials

Metinvest sources fluxes from related entities, Dokuchayevsk Flux and Dolomite Plant and Novotroitsk Ore Mining which are members of the SCM group of companies. Metinvest purchases ferroalloys and refractory materials from various external sources including Nikopol Ferroalloy Plant, Zaporozhskiy Ferroalloy Plant, Stakhanovskiy Ferroalloy Plant, Dalmond Trade House Ltd, Calderys and Panteleymonovsky Refractory Plant. All ferroalloys and refractory materials are supplied on one-year contacts.

Scrap metal

A significant proportion of the scrap metal used by Metinvest is sourced externally, via its subsidiary, scrap metal trading company Promet. Metinvest also has its own scrap processing facilities at Azovstal and Yenakiieve Steel that allow it to utilise a wide range of sizes of iron scrap. These facilities include special cutting and packaging lines for processing scrap so that it is ready for use in the smelting process. Metinvest sources approximately 45.0% of its scrap metal requirements internally. Metinvest purchases scrap on the basis of annual contracts, although prices are set on a monthly basis to reflect changes in market prices. Metinvest expects its consumption of scrap metal to decrease as Metinvest replaces the open hearth furnaces at Azovstal with new basic oxygen furnaces, which consume approximately half as much scrap as the open hearth furnaces. See also “Risk Factors—Risks Relating to Metinvest—Metinvest may receive contaminated scrap metal”

Electricity

Metinvest’s manufacturing facilities consume large amounts of electricity, requiring on average approximately 666 million kilowatt hours per month. Metinvest’s primary use of electricity is at its Azovstal and Yenakiieve Steel facilities, including thermal power plant, converter plant, plate mill, smelter facilities and rolling mills. DTEK, a company affiliated with Metinvest supplies approximately 5.4 billion kilowatt a year to Metinvest which is approximately 68.0% of Metinvest’s electricity requirements. DTEK supplies electricity on the basis of an agreement with Metinvest which is renewed on an annual basis. Electricity tariffs are subject to regulation by the National Energy Regulation Commission of Ukraine (“NERC”), which sets minimum tariffs for both industrial and household customers. Payments for electricity are calculated and paid every month based on the amount consumed each month and the prevailing wholesale electricity price in Ukraine. In 2009 the total electricity consumption by Metinvest facilities was

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approximately 8.0 billion kilowatt at the average cost of approximately U.S.$0.06 per kilowatt which represents less than 11.0% of the total cost of Metinvest’s steel production.

Natural gas

Metinvest’s primary use of natural gas is at its blast furnaces, open-hearth furnaces and rolling mills. Metinvest currently obtains natural gas for its Ukrainian facilities from the state-owned company Naftogaz of Ukraine, which sources gas from Russia, Turkmenistan and Uzbekistan. Metinvest’s contracts with Naftogaz of Ukraine provide for unrestricted supplies of gas to cover Metinvest’s requirements. Prices for natural gas sales in Ukraine are subject to regulation by the Cabinet of Ministers of Ukraine, which sets maximum threshold prices for natural gas sold domestically to industrial customers. Natural gas prices are dependent to a large extent on prices charged by Russia and Turkmenistan for gas supplied to Ukraine. There is no clear formula to determine natural gas prices to customers and price levels are subject to extensive negotiations involving Naftogaz, the country’s largest natural gas consumers and the NERC. Natural gas transportation tariffs are set by the NERC and payable to Ukrtransgaz, the state-owned gas pipeline operator. Metinvest has not experienced any problems with supplies of natural gas in the last five years. In 2009 the total gas consumption by Metinvest facilities was 1.3 billion cubic metres at the average cost of U.S.$264.0 per thousand cubic metres.

Transportation

Overview

Metinvest manages the transportation of its raw materials and finished products in Ukraine through its centralised logistics directorate. The logistics directorate handles transportation for each of Metinvest’s Ukrainian production facilities and is also responsible for the development of Metinvest’s transport infrastructure.

Transportation costs influence Metinvest’s operations indirectly, as a component of raw material costs, as well as affecting the prices Metinvest can charge customers for its products and, consequently, the competitiveness of its products with those of other producers. Costs associated with the transportation of raw materials have increased in recent years mainly due to increases in railway tariffs. See also “—Rail Transport” below and “Risk Factors—Risks Relating to Metinvest—Increases in transportation costs or delays in transport could adversely affect Metinvest’s business and results of operations”.

In Ukraine, Metinvest’s steel production facilities benefit from access to relatively low-cost sea and rail transport. Azovstal is located in the port city of Mariupol on the sea of Azov and operates its own port facilities. Both Yenakiieve Steel and Khartsyzsk Pipe are located close to mainline railway junctions and are within less than 200 kilometres from the Mariupol port. In addition, Metinvest controls most of its own logistics, including owning and operating its own fleet of 582 general purpose railcars, 643 specialised railcars (such as hoppers and flatcars) and 529 cisterns for chemical products. In 2009, these railcars carried approximately 3.4 million tonnes of cargo or 8.8% of Metinvest’s aggregate annual cargo transportation. Metinvest’s favourable geographic location allows for the relatively inexpensive shipment of products to the CIS, Middle Eastern, European and Asian markets.

Rail transport

All of Metinvest’s external rail transportation is provided by the state-owned national railway company, Ukrzaliznitsya, which owns most of the railway infrastructure and railcars used for cargo transportation in Ukraine. Metinvest also maintains its own rail transport infrastructure, which includes 483 locomotives (77 of which can be used on Ukrainian state railways) and 5,678 railcars (1,754 of which can be used on Ukrainian state railways). Approximately 97.0% of Metinvest’s Ukrainian freight is delivered by rail and the remaining 3.0% is delivered by road and by sea transport (cabotage transportation).

Rail tariffs in Ukraine are regulated by the state and are set by the Cabinet of Ministers of Ukraine generally upon the application of the Ministry of Transportation and Communications which oversees Ukrzaliznitsya. Between 2003 and 2007 railway tariffs grew by 50.1% in Hryvnia terms. In 2007, rail tariffs for iron ore

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cargo increased by 20.6% on the previous year followed by a further increase of 93.4% on the 2007 tariffs between January and August 2008. The tariffs remained unchanged until May 2009.

In May 2009 the Ukrainian Ministry of Transportation and Communications introduced new railway transportation tariffs which created beneficial conditions for the transportation of steel products for distances not exceeding 200 kilometres, while increasing long distance railway tariffs by 10.0%. For example, transportation costs of slabs from Azovstal to Avlita (the distance of approximately 850 kilometers) increased from UAH 102.8 per tonne in 2008 and UAH 147.7 per tonne in 2009 to UAH 161.8 per tonne in 2010, while transportation costs of slabs from Azovstal to Mariupol (the distance of approximately 20 kilometers) decreased from UAH 26.1 per tonne in 2008 and UAH 37.6 per tonne in 2009 to UAH 20.3 per tonne in 2010.

The tariffs for transportation of iron ore between plants increased by approximately 15.0% while the tariffs for transportation between plants and sea ports decreased by approximately 5.0%. For example, in 2010 transportation costs of iron ore from Ingulets GOK to Port Yuzhniy were UAH 53.1 per tonne which is approximately a 5.0% decrease compared to UAH 56.2 per tonne in 2009, while transportation costs of iron ore from Ingulets GOK to Azovstal increased by approximately 15.0% from UAH 2461 per tonne in 2009 to UAH 53.1 per tonne in 2010.

The tariffs for transportation of coal between plants increased slightly, with transportation costs for coal from Krasnodon Coal to Avdiivka Coke amounting to UAH 25.0 per tonne in 2010 compared to UAH 25.7 per tonne in 2009 and UAH 19.2 per tonne in 2008.

Sea transport

Metinvest transports part of its products by sea from ports in Ukraine to, among others, the ports of Taranto and Monfalcone in Italy, Jakarta in Indonesia, Bourgas in Bulgaria, Alexandria and Damietta in Egypt, Maptaphut in Thailand, Pohang in Korea, Sohar in Oman, Abu Dhabi in the United Arab Emirates, and Beilun, Zhangjiangang and Zhoushan in China.

Metinvest uses Panamax vessels to import coking coal produced by United Coal. In 2009 Metinvest freighted ships from Eastern American ports Newport News and Baltimore to deliver coking coal produced by United Coal to the TransInvestService terminal near Odessa.

The following table shows the volumes of Metinvest’s products transported by sea for the years indicated:

Year Ended 31 December –––––––––––––––––––––––––––––– 2007 2008 2009 ––––––––– ––––––––– ––––––––– Volumes (million tonnes) ...... 7.2 9.5 10.9

Azovstal has its own port on the Sea of Azov, which serves as an alternative to railway transportation to deep- sea ports outside Ukraine and for the export of some of Metinvest’s slag. Metinvest is currently repairing and dredging the port to increase the depth of wharves which will, in turn, increase the vessels capacity. The dredging works carried out in 2008 increased the channel’s depth to four meters, enabling pilot vessels with a carrying capacity of up to 5,000 tonnes to access the port.

The port is equipped with specialised loading equipment and storage facilities for handling metal cargoes (including cast slabs, hot rolled steel plates, rails, billets and bars) and bulk cargoes (including blast furnace, open-hearth and granulated slag). Cargo is loaded at the plate wharf or one of the two slag wharves. The plate wharf is used for loading metal cargoes and has a capacity of up to 700,000 tonnes of metal per year. The plate wharf is equipped with two portal cranes with a hoisting capacity of 32 tonnes each, two approach lines and an open storage platform. The plate wharf, which is more than four meters deep, is capable of handling vessels with a load carrying capacity of up to 6,000 tonnes and operates round-the-clock. Two slag wharves are used for loading bulk cargoes. The wharves are equipped with a specialised pier which enables cargoes to be off-loaded directly from trucks. The slag wharves have a combined annual capacity of up to 1.5 million tonnes of bulk cargo. The wharves, which are four meters deep, are capable of handling vessels with a load carrying capacity of up to 5,000 tonnes. There are also two wharves used for off-loading sinter, which are

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more than four meters deep and capable of handling vessels with a load carrying capacity of up to 6,000 tonnes. The berths at these wharves are equipped with two grab loaders with a hoisting capacity of 32 tonnes each. There is also an open storehouse for metal cargoes of 4,800 square metres at the port. See also “Risk Factors—Risks Relating to Metinvest—Increases in transportation costs or delays in transport could adversely affect Metinvest’s business and results of operations”.

The table below sets forth details of the volume of cargo loaded at the Azovstal port for the years indicated.

Year Ended 31 December –––––––––––––––––––––––––––––– 2007 2008 2009 ––––––––– ––––––––– ––––––––– (thousand tonnes) Bulk Slag ...... 91 2 3 Metal cargoes including ...... 494 335 396 Slabs ...... 386 220 288 Billets ...... 56 18 0 Plates...... 52 97 83 Rails ...... 0 0 25 Angles ...... 000 ––––––––– ––––––––– ––––––––– Total ...... 585 347 399 ––––––––– ––––––––– ––––––––– The SCM group also operates the Avlita port in the Sevastopol Bay in Crimea, which Metinvest uses to serve its customers in Indonesia, South Korea, India, Oman, Saudi Arabia, the United States, Thailand, Turkey. Iran, Tunisia, Spain, Kenya, Bangladesh, Egypt, United Arab Emirates, Lebanon and other countries. The port is equipped with specialised loading equipment and storage facilities for handling metal cargoes (including slabs, axels, steel, billets and pipes. The port has two berths for ships of up to 240 metres and 260 metres in length, respectively, with a load capacity of up to 60,000 tonnes. Avlita’s loading and unloading facilities include two portal cranes with lifting capacities of 80 tonnes and three portal cranes with lifting capacities of 104 tonnes. The port has a loading capacity of up to 500 tonnes of metal per hour and operates round-the-clock. Metinvest leases the land on which the port is located.

Metinvest plans to construct a general purpose terminal to be operated by Danube Shipping, a Metinvest subsidiary headquartered in Kyiv which is involved in the development of Metinvest’s logistics. The new general purpose terminal is to be constructed at the port of Nikolaev with annual capacity of approximately 3.4 million tonnes of merchant iron ore concentrate and pellets. The Terminal is expected to be completed in 2011 and result in decreased costs due to reduction in port handling fees and removal of existing logistical restrictions due to the proximity of the port of Nikolaev to Metinvest’s iron ore deposits.

Road transport

Metinvest also transports a part of its products and raw materials by road. However, road transport does not account for a significant part of Metinvest’s total transportation expenses. In 2009 Metinvest spent U.S.$2.1 million on road transportation which accounted for less than 1.0% of Metinvest’s total expenditure on transportation during that year.

Health and Safety

Ukraine

Most of Metinvest’s facilities are located in Ukraine. Ukrainian health and safety legislation imposes stringent standards and regulations on industrial companies. The State Committee of Industrial Safety, Labour Protection and Mining Supervision inspects working conditions, safety standards and equipment at Metinvest’s Ukrainian facilities every year. Metinvest is required under Ukrainian labour safety legislation to dedicate 0.5% of its revenue to labour protection and safety. In 2009, Metinvest spent U.S.$64.2 million on labour protection and safety, representing approximately 1.0% of its revenues for that year. Each Metinvest company has a fully staffed health and safety department that consults the line organisation on safety issues, ensures compliance with laws and regulations and submits annual reports with incident and

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injury statistics to the state supervisory authorities. Metinvest believes that it is in compliance in all material respects with applicable health and safety legislation in Ukraine.

The main health and safety risks at Metinvest’s production facilities include potential industrial accidents, equipment outage (due to equipment failure, the need for unplanned maintenance or otherwise), unusual or unexpected geological conditions, environmental hazards, labour disputes, changes in the regulatory environment, extreme weather conditions and other natural phenomena. The number of the lost time injuries at Metinvest’s Ukrainian facilities was 528, 400 and 313 in 2007, 2008 and 2009, respectively, while the number of work-related fatalities in the same year were 19, 15 and 13. While the overall number of work- related fatalities and accidents remains high, Metinvest achieved a 13.0% decrease in work-related fatalities in 2009 compared to 2008 and a 21.0% decrease in fatalities in 2008 compared to 2007. Several Metinvest companies have also demonstrated significant improvement in safety performance, for example Khartsyzsk Pipe achieved a 50.0% reduction in lost time injuries in 2009 compared to 2008, and Krasnodon Coal achieved a 56.0% reduction in fatalities in 2009 compared to 2008 and a 28.0% reduction in lost time injuries in the same period. See also “Risk Factors-Risks Related to Metinvest-Metinvest’s mining and steel manufacturing operations are subject to a number of risks and hazards, including the significant risk of disruption or damage to persons and property”.

Metinvest’s health, safety and environmental (“HSE”) strategy sets out a number of safety improvement actions relating to Metinvest’s people, processes, systems and facilities. Metinvest plans to significantly reduce the number of fatalities, occupational injuries and process accidents through effective implementation of priority health and safety initiatives. Metinvest has introduced new improved methods of monitoring health and safety compliance and investigating health and safety incidents in the workplace. Metinvest management makes regular visits to its production facilities to inspect safety compliance and ensure that an adequate level of commitment to health and safety is maintained by local management teams. In 2008, Metinvest introduced an “immediate incident notification process” involving, among others, Metinvest’s Chief Executive Officer being informed of any work-related fatality within two hours and of any lost time injury within 24 hours. Metinvest also introduced a “root cause analysis” procedure which is aimed at identifying an initiating cause of a causal chain which led to each incident in order to ensure a thorough investigation and as a prevention measure.

Metinvest is committed to using the best available health and safety training programmes offered by training and consulting companies and is constantly seeking to improve its in-house HSE training capability. Overall, more than 4,000 managers and supervisors have been trained in effective safety management techniques, of which 617 have been trained by DuPont Safety Resources (“DSR”), a model for safe work training practices developed by a leading safety consultancy. Metinvest intends to continue the in-house HSE courses and provide refresher training. Metinvest plans to train over 5,000 managers and supervisors in 2010. The in- house courses are provided in addition to mandatory health and safety training required by the relevant Ukrainian legislation.

Several Metinvest companies including Azovstal, Yenakiieve Steel, Khartsyzsk Pipe, Northern GOK, Central GOK, Ingulets GOK, Krasnodon Coal and Inkor Chemicals are currently certified under International Health and Safety Management System – OHSAS 18001. Metinvest plans to obtain OHSAS 18001 certificates for all Metinvest companies.

Metinvest’s facilities located in Europe are subject to stringent EU legislation on labour safety as well as applicable national legislation drafted in accordance with EU standards. In particular, in Italy, Decree 81/08, obliges Italian companies including Metinvest Trametal and Ferreira continuously to improve and upgrade the levels of safety at their of production sites, plants and equipment, and also their safety management.

During the last three years Ferreira has made investments into labour safety and employees health care improvement, following the standards imposed by applicable legislation. The total amount of financial resources invested by Ferreira in labour and industrial safety projects were EUR 44,000 in 2008 and EUR 91,000 in 2009. The implemented measures resulted in 20% reduction in the number of injuries, 75%

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reduction in injuries gravity, and 70% reduction in work time losses in 2009. In three last years there were no grave impact incidents, disputes or enforcement proceedings in relation to industrial safety.

Metinvest Trametal has never been the object of actions or penalties in relation to breaches of legislation on health and safety. Its HSE Department ensures compliance with current legislation and develops internal best practices in relation to staff training, procedures and measures to improve security levels. It also collects statistical data on accidents, occupational diseases, missed injuries, incidents and produces monthly reports.

United States

Metinvest’s facilities located in the United States are subject to stringent standards and regulations on coal mining operations imposed by the Federal Mine Safety & Health Administration and the State government. In particular, United Coal’s underground mining operation is inspected on a quarterly basis, in addition to periodical spot inspections by their relevant state agencies and the Federal Mine Safety & Health Administration. Surface operations and preparation plants are inspected biannually by both agencies. The state and federal agencies conduct inspections of the working conditions and equipment and compliance with safety standards. United Coal has a designated health and safety department that consults the line organization on safety issues, ensures compliance with laws, regulations and company policy and submits monthly/quarterly reports with incident, injury and man-hour statistics to the State and Federal regulatory agencies.

Environmental Matters

Ukraine

As part of its operations, Metinvest discharges waste-water into bodies of water, discharges pollutants into the air and disposes of waste products. These activities are regulated by various Ukrainian environmental laws and regulations which set standards for health and environmental quality, provide for penalties and other liabilities for the violation of such standards, and establish, in certain circumstances, obligations to compensate for environmental damage and to restore environmental conditions. The Ministry for Environmental Protection of Ukraine sets limits for the emission and disposal of pollutants as well as for waste disposal. Each Metinvest company has individual limits set by the Ukrainian authorities, depending on the type and scale of environmental impact. All Metinvest entities hold the necessary permits specifying the statutory pollution limits which they must not exceed. The Ukrainian authorities carry out periodic site inspections to ensure these limits are observed.

In compliance with applicable Ukrainian legislation, Metinvest makes regular environmental payments to the Ukrainian state budget to compensate for pollution generated by its operations. In 2009, these payments amounted to U.S.$13.0 million, as compared to U.S.$15.2 million in 2008 and U.S.$11.1 million in 2007. The amount of these payments was set by the environmental authorities pursuant to regulations adopted in 1999 and the payments are adjusted each year based on a rate established by the Cabinet of Ministers of Ukraine. Metinvest’s annual payments are based on expected emission levels, and they increase significantly if the actual levels are higher than these expected levels. The level of payments has been increasing, partly due to increases in environmental tariffs and partly due to increasing production.

A significant number of Metinvest’s operating facilities were commissioned before current environmental standards came into force. In order to reduce the environmental impact of its operations, Metinvest is currently undertaking an engineering programme to improve environmental standards at all of its facilities. Metinvest invested U.S.$113.5 million in 2007, U.S.$186.8 million in 2008 and U.S.$196.4 million in 2009 into environmental technology for its businesses. Six of Metinvest’s plants, including Northern GOK, Ingulets GOK, Central GOK, Khartsyzsk Pipe, Ferriera Valsider and Inkor Chemicals, have already been certified compliant with the ISO:14000 environmental standards, whilst the other plants are currently taking steps to obtain certifications. Metinvest expects that all of its facilities will be certified as ISO:14000 compliant within the next several years.

The Ukrainian environmental authorities carry out environmental audits of Metinvest’s industrial assets at least five times a year. If, as a result of such audit, Metinvest is found to be in breach of the relevant

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environmental regulation, it will be issued with a compliance order specifying the breach, necessary rectifying measures and the time period during which Metinvest is required to rectify the breach. The time periods for remedying any breaches are usually negotiable and can be extended if necessary.

Other than routine requests from the environmental authorities in relation to non-material breaches, Metinvest has not incurred any material environmental liabilities and has not been subject to material environmental investigations in the past. However, there can be no assurance that there are no undiscovered potential liabilities or that future uses or conditions will not result in the imposition of environmental liability upon Metinvest or expose it to third-party actions or that environmental regulations will not become more stringent in the future. See “Risk Factors—Risks Relating to Metinvest—Metinvest’s mining operations create difficult and costly environmental challenges, and future changes in environmental laws, or unanticipated environmental impacts from Metinvest’s operations, could require Metinvest to incur increased costs”.

In accordance with its HSE strategy, Metinvest undertakes projects aimed at improving its environmental standards. For example, Metinvest worked with Royal Haskoning, a consultancy, to undertake the strategic environmental assessments and devise environmental improvement plans for main Metinvest production companies.

Ukraine is a signatory to the Kyoto Protocol and Metinvest intends to use mechanisms under the Kyoto Protocol, in particular, a mechanism under Article 6 (Joint Implementation), to obtain approximately EUR 50.0 million in funding, which it intends to use to reduce negative environmental impact of some of its coal mines, including by improving coal mining safety, increasing degassing efficiency, applying new mine drilling technologies, utilising ventilation air methane and installing cogeneration plants. Metinvest is also considering obtaining funding using Kyoto Protocol mechanisms in order to improve the efficiency of coke gas utilisation at Avdiivka Coke and to make it more electric energy efficient.

Metinvest subsidiaries located in Europe are also required to comply with applicable European environmental legislation which ensures a high level of environmental protection and defines the main obligations of the companies in relation to environment protection including environment impact assessment; obtaining necessary authorisations and permissions for emissions in water, soils and atmosphere; and prescribes limits and technical parameters for emissions. In particular, Metinvest Trametal holds an integrated environmental authorisation in accordance with EU legislation. Ferreira obtained all necessary authorisations and approvals to cover the surface and underground water pollution, atmosphere pollution, acoustic impact and solid and liquid industrial wastes and brought its emissions and pollutions within the normative limits and parameters.

United States

Metinvest’s subsidiaries located in the United States are required to comply with various federal and state environmental laws, applicable to coal mining operations, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Endangered Species Act.

Insurance

Metinvest spent U.S.$20.6 million on insurance premiums in Ukraine in 2009. In the last three years Metinvest has not had any material incidents and has not made any material insurance claims. In 2009 Metinvest was able to negotiate a discount to the insurance premiums.

Metinvest maintains mandatory insurance policies against certain types of risks in accordance with Ukrainian legislation including life and health insurance, third party liability insurance on hazardous industrial assets and in respect of cargo water and motor vehicles, as well as voluntary insurance cover for most of its production facilities in respect of cargo water and motor vehicles; the “All Risk” insurance policy to cover property damage and provide business interruption coverage (other than deep-pit mining) and “inter- dependency” coverage for its key production facilities including Azovstal, Yenakiieve Steel, Northern GOK,

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Central GOK, Ingulets GOK and Avdiivka Coke, covering both physical damage and loss of profit; life and health insurance; and product liability insurance in respect of Metinvest’s products sold to the markets outside the CIS region.

Metinvest does not maintain machinery breakdown cover primarily because the insurance premiums for such cover are higher than its current maintenance costs. Metinvest does not maintain cover for damage to mineral resources as such risks are not generally insurable.

See also “Risk Factors—Risks Relating to Metinvest—Metinvest’s mining and steel manufacturing operations are subject to a number of risks and hazards, including the significant risk of disruption or damage to persons and property”

Management believes that Metinvest’s insurance is at a minimum in line with typical insurance coverage for other large industrial enterprises in Ukraine.

Legal Proceedings

Krasnodon Coal and Makiivka Steel are currently subject to bankruptcy proceedings. The bankruptcy proceedings in respect of Makiivka Steel were initiated on 7 December 2009 by Metalen. The bankruptcy proceedings in respect of Krasnodon Coal were initiated on 30 May 2006 by Limited Liability Company automobile enterprise “Shlyakh”. Metinvest directly and indirectly holds majority position in creditors’ committee in Krasnodon Coal. Management believes that the creditors of Makiivka Steel and Krasnodon Coal will not pursue the liquidation of these entities. Both Krasnodon Coal and Makiivka Steel benefited from the statutory moratorium on the satisfaction of creditors’ claims, which mandatorily follows the commencement of the bankruptcy proceedings. Such moratorium enabled Krasnodon Coal and Makiivka Steel to conduct discussions with third party creditors regarding the lifting or restructuring of their relevant claims. In the case of Krasnodon Coal the aggregate creditors’ claims compiled, but not yet registered, by the court did not exceed UAH1,110 million (approximately U.S.$139 million) as of April 2010. In the case of Makiivka, the creditor’s claim is for an amount of UAH9 million (approximately U.S.$1 million). The bankruptcy proceedings in respect of Makiivka Steel are at the preliminary stage and the creditors have not yet filed their claims with the court. Management expects that the bankruptcy proceedings will terminate without proceeding to liquidation stage the end of 2011 in respect of Makiivka Steel, and the end of 2012 in respect of Krasnodon Coal.

Other than as described below, Metinvest has not been involved in any governmental, legal or arbitration proceedings which may have or have had during the 12 months prior to the date of this Offering Memorandum a significant effect on the financial position or profitability of Metinvest, nor, so far as management is aware are any such proceedings pending or threatened by or against Metinvest.

Research and Development and Intellectual Property

Metinvest maintains specialist departments to carry out basic research and applied technology development activities, primarily focusing on the improvement of existing technologies and products in accordance with Metinvest’s end customers’ requirements, new product and equipment development and increasing production efficiency by reducing costs through changes in working practices and operational methods. Approximately 320 of Metinvest’s employees are involved in research and development work. Metinvest also engages third-party consultants from the metallurgical industry to conduct reviews of its operations and carry out feasibility studies. Metinvest has also developed a working culture in which its employees are encouraged to contribute ideas concerning the development of Metinvest’s products or production processes. As a result of these programmes and policies, for the period between 31 December 2007 and 31 December 2009, Metinvest introduced 66 modifications to its production processes and obtained 24 patents including a patent in relation to coke gas final refrigeration process and a method of obtaining electrode peck. See also “Business Description Steel Business Investment Programme, “—Iron Ore Business—Investment Programme” and “—Coking Coal Mining and Coke Production—Investment Programme” for further discussion of technical improvements being implemented.

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Metinvest has registered three patents with the Ukrainian patents office for inventions and technical processes relating to refinement of naphthalene, phenol and cresol products as well as refinement of liquid substances in order to remove extraneous materials.

Metinvest obtained rights to use its principal equipment and technology upon purchase. Management does not consider the registered patents to be material to its business.

Information Technology

Responsibility for information technology within Metinvest lies with Metinvest Holding LLC, the managing company of Metinvest, which supports 13,000 users.

Whereas the focus has been on high standards of service and serving assets at an operational level. Metinvest has adopted a new strategy to integrate and centralise several IT services to meet the challenges of a changing business environment and to enable the realisation of Metinvest’s business strategy.

Metinvest’s new information technology strategy includes: • the implementation of a single corporate IT network in order to connect all Metinvest companies via Metinvest Holding LLC. Such corporate IT network was successfully implemented in 2007 by Metinvest based on the equipment provided by Cisco Systems Inc. (“Cisco”); • the implementation of a full-scale enterprise resource planning (“ERP”) system. As of the date of this Offering Memorandum the ERP system has been successfully implemented by Metinvest’s major subsidiaries including Azovstal, Avdiivka Coke, Khartsyzsk Pipe, Ingulets GOK, Northern GOK and Central GOK; • the introduction of an integrated financial reporting system based on the statistical analysis system (“SAS”), a software product provided by SAS Institute Inc. SAS financial reporting system allows simultaneous reporting in both local GAAP and IFRS, simplifying the transition while ensuring regulatory compliance. Metinvest successfully implemented the SAS financial reporting system as well as the SAP master data management (“MDM”), a regulatory and reference information database system.

Metinvest expects its information technology strategy to be completed by 2013. Metinvest’s total budget for this project is approximately U.S.$95 million.

Most of Metinvest’s companies have back-up systems including HP Enterprise Virtual Array, IBM System Storage and Hitachi TagmaStore. Additionally, Metinvest has implemented arrangements for storing reserves information electronically including HP Data Protector, Veritas Backup Exec and IBM Tivoli Storage Manager based on Microsoft Cluster Service, Veritas Cluster Service and other services. Metinvest’s reliance on more than one server allows for better protection of its systems in case of server failure.

Metinvest obtained rights to use its principal equipment and technology upon purchase. Management does not consider the registered patents to be material to its business.

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Employees

The table below sets out the average number of Metinvest’s full time employees in 2007, 2008 and 2009 and the number of employees as at 31 December 2009, by segment:

Average number of employees –––––––––––––––––––––––––––––– 2007 2008 2009 ––––––––– ––––––––– ––––––––– Segment Steel ...... 36,721 33,343 30,834 Iron ore mining ...... 27,711 30,453 20,821 Coal mining and coke production...... 34,182 24,755 26,934 Logistics ...... 192 195 228 Headquarters ...... 305 428 469 ––––––––– ––––––––– ––––––––– Total: ...... 99,111 89,174 79.286 ––––––––– ––––––––– ––––––––– Most of Metinvest’s employees are based at its facilities in Ukraine, less than 2.0% of Metinvest employees are based in Europe and 1.3% of Metinvest employees are based in the United States. Metinvest generally does not have individual contracts with its employees in Ukraine and the United States other than with its senior managers and general directors. Metinvest has employment contracts with its employees located in Europe. In 2009 the total number of employees decreased by 30.8% due to overall optimisation of payroll expenses in response to global economic downturn. Most of Metinvest’s employees in Ukraine working in the iron ore and steel divisions are members of the Trade Union of Metallurgists and Miners of Ukraine. Most of Metinvest’s employees in Ukraine working in the coal and coke division are members of the Executive Bureau of Independent Ukrainian Miners’ Trade Union of the Mine named after Barakov, the Trade Union of Workers of the Coal Industry or the Local Division of the Independent Ukrainian Miners’ Trade Union. Metinvest’s employees in the Unites States are not currently members of any trade union. Metinvest’s employees located in Europe are generally members of trade unions including Italian Federation of Metal-Mechanical employees, Italian Federation of Metallurgic Workers and Unite the Union.

The table below sets out the number of Metinvest’s full-time employees by function as at 31 December 2009:

No Metinvest facility has experienced any significant strikes or other cases of industrial action or labour disputes over the last five years.

Salary levels for Ukrainian employees are set with reference to the statutory minimum wage. As from April 2010, workers with the lowest qualifications are entitled to the minimum wage of UAH884 per month. Salary levels are higher for persons working in strenuous working conditions and employees with higher qualifications. Additional compensation is paid for overtime work and shift work and workers may receive a bonus based upon production levels.

Metinvest makes mandatory contributions, equal to 37.5% of total payroll in 2009, to the Ukrainian state retirement fund and other mandatory state funds as part of its statutory employer’s contribution to social security taxes on behalf of its employees. Metinvest also makes contributions to the state with respect to the pensions of its Ukrainian employees. Pensions are then paid directly by the state to the employees. Metinvest also provides other post-employment benefits to its Ukrainian employees in accordance with collective bargaining agreements. See also “Management’s Discussion and Analysis—Contractual obligations and commercial commitments” for further discussion of Metinvest’s pensions arrangements.

There is no automatic retirement age for workers in Ukraine, although the statutory retirement age is 60 for men and 55 for women. Employees working in hazardous conditions may retire earlier, at age 50 or 55, depending on their type of employment. The average age of employees at Metinvest’s mines is 43 years.

Industry Associations

In October 2007, Metinvest became a member of the WSA. The WSA is a non-profit research organisation which aims to serve as a world forum for the international steel industry. Founded in 1967, the WSA

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currently has a membership from more than 50 countries, comprising approximately 180 steel producing companies, including substantially all of the worlds’ major steel producers, national and regional steel federations and steel research organisations.

Metinvest is also a member of various Ukrainian associations including the Ukrainian Chamber of Commerce and Industry, a non-government non-profit self-governing organisation incorporating approximately 9,000 enterprises, companies, business associations, banks and other bodies, the main objectives of which is to create favourable conditions for Ukrainian businesses, protect interests of Ukrainian business community and deepen relations with international business partners. Other Metinvest’s industry association memberships include (but not limited to) Ukrtruboprom, a Ukrainian association of tube and pipe plants and Ukrainian Association for Quality, a public organisation involved in improving public opinion and policies in the field of quality.

Social Programmes

Metinvest provides a number of benefits to its workers, including financial assistance, health improvement programmes and medical insurance, bonus payments, payments towards important events (marriages, births), improvement of living conditions, employee training, educational grants and many others. Metinvest also provides its workers with various additional benefits. For example, Azovstal provides a sanatorium, a recreation centre, a children’s health centre, a polyclinic and several sports centres.

Metinvest supports various social programmes in the local communities in which it operates. For example, Azovstal supports municipal construction, healthcare and educational institutions in the city of Mariupol. In 2008, Metinvest spent approximately U.S.$5.0 million on social infrastructure facilities including a reconstruction project that was successfully implemented in the Damansky district in the town of Kryvyi Rih. The project resulted in overall improvement of the city’s road system, including the construction of additional bus stops; two large children’s playgrounds, including football fields and basketball courts; the reconstruction of the street lighting system; setting up a town cultural centre and the establishment of green areas within the city. Together with the Shakhtar Football Club, Yenakiieve Steel and Azovstal set up football coaching classes for children at the local Football Academy. New state-of-the-art synthetic turf pitch was constructed for this purpose. Over 600 children from the nearest cities and villages can now benefit from attending the Football Academy.

In 2009, Metinvest spent U.S.$28.0 million on social infrastructure. Metinvest pays competitive salaries and believes that its social infrastructure costs are low compared with other large Ukrainian industrial enterprises.

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Subsidiaries

The following table shows the Issuer’s principal subsidiaries as at the date of this Offering Memorandum.

Beneficial ownership(1) –––––––––– Segment/Entity Steel Azovstal...... 95.9% Yenakiieve Iron and Steel Works ...... 90.6% Metalen ...... 100.0% Khartsyzsk Pipe...... 98.0% Ferriera Valsider ...... 70.0% Metinvest Trametal ...... 100.0% Spartan...... 100.0% Promet Steel ...... 95.0% Makiivka Steel(2) ...... 0% Metinvest International ...... 100.0% Metinvest SMC ...... 100.0% Metinvest Ukraine ...... 100.0% Metinvest Eurasia ...... 99.0% Skiff-Shipping ...... 100.0% Iron ore extraction and processing Ingulets GOK ...... 82.5% Northern GOK...... 63.3% Central GOK ...... 76.0% Coking coal mining and coke production Avdiivka Coke...... 91.0% Krasnodon Coal...... 90.9% United Coal ...... 100.0%

Notes: (1) “Beneficial ownership” represents the percentage of ownership interests of the relevant entity that are beneficially owned by the Issuer, directly or indirectly, based on the Issuer's proportionate ownership of the relevant entity through its consolidated subsidiaries as at the date of this Offering Memorandum. (2) Metinvest controls Makiivka Steel through its right to appoint Makiivka Steel’s management. The transfer of Makiivka Steel’s shares to Metinvest is expected to be completed by the end of 2010. Makiivka Steel is currently subject to bankruptcy proceedings as described further in “Business Description—Legal Proceedings”.

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MANAGEMENT

Corporate Governance Structure of the Issuer

Metinvest B.V.’s corporate governance structure consists of a general meeting of shareholders (the “General Meeting of Shareholders”) and the Board.

General Meeting of Shareholders

Under the Dutch law and the Articles of Association, the General Meeting of Shareholders of Metinvest B.V. is authorized to resolve, among others, the following matters: • to issue shares; • to exclude or limit pre-emptive rights; • subject to a statutory opposition period, to reduce the share capital of the Issuer; • to appoint, suspend or dismiss members of the Board; • to determine the remuneration of the Directors; • to approve the annual accounts; • to distribute or reserve profits; and • to amend the Articles of Association of the Issuer, to dissolve the Issuer and to merge and demerge the Issuer.

Board

The Board consists of A, B and C Directors. The number of Directors and the letter indication of each Director is determined by the Issuer’s General Meeting of Shareholders. The General Meeting of Shareholders of the Issuer has not appointed a Director C.

Under the Articles of Association of the Issuer, the Board is responsible for the management and administration of the Issuer. The Issuer may only be represented by the entire Board or two Directors acting together, and the signature of Director A is always required. In meetings of the Board, each member is entitled to cast one vote. The Board may adopt resolutions by an absolute majority of the total number of votes to be cast by all the Directors. In performing their duties, the Directors must act in the best interests of the Issuer and its business. Pursuant to the terms of the Issuer’s Articles of Association, the term of office of members of the Board is indefinite.

ITPS (Netherlands) B.V. has been appointed Director A of the Issuer on 22 July 2004. ITPS (Netherlands) B.V. is a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid or B.V.) incorporated under the laws of The Netherlands with its registered office at Alexanderstraat 23, 2514 JM The Hague, The Netherlands, registered with the Trade Register of the Chamber of Commerce for The Hague, The Netherlands under number 27168222. ITPS (Netherlands) B.V. is an international tax advice office. The directors of ITPS (Netherlands) B.V. are Mr John Willekes Macdonald, residing at Vliegenvangerlaan 11, 2566 RM The Hague, The Netherlands, born in The Hague, The Netherlands, on 11 September 1966, holder of a valid Dutch passport No. NK3142283, and Mr Jacob Broers, residing at Brugweg 125E, 2741 L Waddinxveen, The Netherlands, born in Nieuwer-Amstel, The Netherlands, on 21 November 1962, holder of a valid Dutch passport No. NG0113277. According to the Articles of Association of ITPS (Netherlands) B.V., each director has the power to solely represent ITPS (Netherlands) B.V. in each and every respect without limitation.

Mr Igor Syry has been appointed Director B of the Issuer on 28 November 2006.

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Metinvest’s Management Team

General Director

Igor Syry has been General Director and Chief Executive Officer of Metinvest since 2006. Prior to that, he was a senior manager with CJSC “System Capital Management” from 2002 to 2006 and a senior consultant with PricewaterhouseCoopers from 1997 to 2002. From 1996 to 1997, Mr Syry served as a credit manager of Western NIS Enterprise Fund and from 1994 to 1995, as a deputy investments manager of investment company “Agroprominvest”. Mr Syry graduated with Honours from Kharkov State Agrarian University with a diploma in agricultural management in 1995. He obtained his MBA from Cornell University in 1999. Mr Syry is a Certified Financial Analyst (CFA) and a member of the Association of Chartered Certified Accountants (ACCA).

Management Team

The key members of Metinvest’s management team are:

Name Age Position –––––––––––––––––––– –––––– –––––––––––––––––––––––––––––––––––––––––––––––––––––––– Sergiy Novikov 39 Chief Financial Officer Jack MacLachlan 51 Director of Steel and Rolled Products Division Vladmir Gusak 35 Director of Coal and Coke Division Nikolay Ischenko 45 Acting Director of Iron Ore Division Igor Kirilyuk 50 Corporate Communications Director Igor Golchenko 40 Chief Legal Officer Vladimir Bantush 52 Director of Business Security Sergey Ryabov 40 Director of Corporate Health, Safety and Environment

Sergei Novikov has been Chief Financial Officer of Metinvest since 2006. Prior to that, he was the Chief Financial Officer of Azovstal Iron and Steel Works from 2004 to 2006. Mr Novikov held the position of Financial Director of Bunge Ukraine from 2003 to 2004 and of Japan Tobacco International from 2001 to 2003. He served as a Financial Controller of Cereol (France) from 1998 to 2001, Budgeting and Reporting Manager of Philip Morris (USA) from 1997 to 1998 and as a Senior Analyst of Fidelity Investments (USA) from 1995 to 1996. Mr Novikov graduated from Kharkov State University in 1993 with a diploma of Master of Arts in Foreign Languages (English, Spanish). He obtained his MBA from the University of Cincinnati in 1995. Mr Novikov is a Certified Financial Analyst (CFA) and a member of the Association of Chartered Certified Accountants (ACCA).

Jack MacLachlan has been Director of Steel and Rolled Products Division of Metinvest from 2009. Prior to that, he was the Chief Operating Officer of Steel and Rolled Products Division of Metinvest from 2007 to 2008. Mr MacLachlan held the position of the managing director of Corus Group Plc from 2004 to 2007 and of Corus Strip Products Division from 2000 to 2004. He served as a vice president of Tuscaloosa Steel Corporation from 1999 to 2000, as a works manager of British Steel Plc from 1989 to 1999 and as an operations manager of British Steel Corporation from 1980 to 1989. Mr MacLachlan graduated from Strathclyde University in 1980 and received a Bachelor of Science degree in electrical and electronic engineering with first class Honours. He obtained his MBA with distinction from University of Warwick in 1996 and completed an International Leadership Program at Wharton Business School in 2003. Mr MacLachlan is a Chartered Engineer and a Fellow of the Institution of Engineering and Technology.

Vladimir Gusak has been Director of Coal and Coke Division of Metinvest since 2006. Prior to that, he was a manager with CJSC SCM from 2002 to 2005 and served as a financial analyst and deputy head of restructuring of Deloitte Touche Tohmatsu from 2000 to 2002. In 1999, Mr Gusak worked as an accountant with the Centre for Economic Reforms and Privatisation and, in 1998, as a project administrator for the consulting company Chenomics in the USA. From 1994 to 1996, he was an advisor to Soros-Aslund Economic Advisory Group for the Ukrainian Government. Mr Gusak graduated from Kiev Shevchenko National University in 1996 with a diploma of Master of Arts in Foreign Languages (English, German). He received his MS in Economics from Texas A&M University (USA) in 1998.

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Nikolay Ischenko has been acting director of Iron Ore Division of Metinvest Holding since March 22, 2010. He was the general director of OJSC “InGOK from July 2009 to March 2010. He worked as deputy director of Iron ore division of Metinvest from July 2007 to July 2009. Mr Ischenko held the position of the Chairman of the Management Board, and CEO of industrial-production enterprise “Krivbassvzryvprom” from September 2000 to July 2007. He worked as economist, deputy head of planning-and-economic department, and deputy director Marketing & Economics of “Krivbassvzryvprom” from 1987 to 2000. Nikolay Ischenko has two degrees: in 1985, he graduated from the Kiev Institute of National Economy with an economics degree; in 1992, he graduated from the Kryvyi Rih Mining Institute with a diploma in mining engineering. Mr Ischenko has a Ph.D. in Economics.

Igor Kirilyuk has been Corporate Communications Director of Metinvest since 2007. Prior to that, he was the corporate communications director of the Willard Group Moscow public relations agency (affiliate of Burson-Marsteller) from 2004 to 2007 and the director of public affairs and communications of Coca-Cola Company in Ukraine from 1996 to 2003. Mr Kirilyuck worked as an assistant to the Minister of Foreign Economic Relations of Belarus from 1991 to 1994. He graduated from the Minsk State Pedagogical Institute of Foreign Languages in1986 with a diploma in English and German translation. He obtained his Master of Science degree in Management from New York University in 1995.

Igor Golchenko, has been Chief Legal Officer / Head of Legal Function of Metinvest since 2006. Prior to that, he was the head of legal department and deputy director of Leman Commodities S.A. from 1999 to 2006 and served as the head of legal department of Azovstal from 1990 to 1999. Mr Golchenko graduated from Chernigov Law College with a diploma of lawyer in 1988 and obtained a Juris Doctor degree from Donetsk State University in 1995 and a Master of Law (LLM) Degree from Suffolk University Law School (Boston, MA) in 2010. He is admitted to Ukrainian Bar Association and a Certified Trustee, Crisis Manager and Liquidator.

Vladimir Bantush, has been Director of Business Security of Metinvest since 2006. Prior to that, he served as the head of security department and subsequently as the director for business security of Northern GOK from 2004 to 2006. Mr Bantush held the position of a deputy general director for business security with Kramatorsk Heavy Machine-Tool Plant from 2003 to 2004. From 1981 to 2003, he held various positions with the Ukrainian internal affairs authorities. Mr Bantush graduated from Donetsk State University with a diploma in law in 1994 and obtained a Master of Law degree from International Scientific and Technical University in 2004.

Sergey Ryabov, has been Corporate Health, Safety and Environment Director of Metinvest since June 2008. Prior to that, he served as a consultant, Project Manager and subsequently as an Operations Manager of DuPont Safety Resources-CIS from 1998 to 2004. Mr Ryabov held the position of a Manager and later of the Director of Health, Safety and Environment of the gas business of TNK-BP in Moscow from 2005 to 2008. He graduated from Vladimir State University with a diploma in mechanical engineering in 1996.

Remuneration of Management

The aggregate amount of remuneration paid by Metinvest as a group to its management team (including Mr Syry) during the year ended 31 December 2009 was U.S.$7.8 million (in 2008 U.S.$8.3 million) in salary and bonuses.

The contracts with the members of Metinvest’s senior management do not provide for any pension or other benefits upon termination of respective contracts.

Share Options

As of the date of this Offering Memorandum, none of the Issuer or Metinvest has a share option plan and no share options have been granted to the members of the Board of the Issuer, Metinvest’s management or employees.

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Litigation Statement about Directors and Management

As of the date of this Offering Memorandum, no member of the Board or of Metinvest’s senior management for at least the previous five years: • has any convictions in relation to fraudulent offences; • has performed an executive function as a senior manager or a member of the administrative, management or supervisory bodies of any company at the time of or preceding such company’s bankruptcy, receivership or liquidation; or • has been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) or has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conducting the affairs of a company.

Conflicts of Interests

Except as discussed immediately above, there is no actual or potential conflict of interests between the duties of any of the members of the Board and Metinvest’s management team and their respective private interests.

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SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Shareholders

The table below sets forth certain information regarding ownership of ordinary shares of the Issuer as of the date of this Offering Memorandum.

Percentage Number of Share of Shares Capital ––––––––– ––––––––– Shareholder SCM ...... 6,750 75.0% SMART ...... 2,250 25.0% ––––––––– ––––––––– Total ...... 9,000 100% ––––––––– ––––––––– SCM owns 75.0% of the Issuer. Adeona Holdings Limited, Energees Investments Limited, Majorone Trading Limited and Celebron Investments Limited, all part of the SMART group of companies, together own 25.0% of the Issuer.

Mr. Akhmetov is the ultimate beneficial owner of a 100% interest in SCM.

To the best of the Issuer’s knowledge, there are no arrangements in place which could result in a change of control. Save as disclosed above, there are no other persons who could, directly or indirectly, exercise control over the Issuer.

Save as disclosed in this “Shareholders and Related Party Transactions” section, none of the members of the Board or members of Metinvest’s management team had or has any interests in any transactions which are or which were unusual in their nature or conditions or significant top Metinvest’s business and which were effected by Metinvest during the current financial year or during the years ended 31 December 2007, 2008 and 2009, or during any previous financial year and which remain outstanding or unperformed.

None of the Issuer’s shareholders has voting rights different from any other holders of the Issuer’s shares.

Shareholders’ Agreement

On 1 July 2007, SCM and SMART entered into a shareholders’ agreement (the “Shareholders’ Agreement”) pursuant to which they agreed to create a joint venture combining the mining and smelting subsidiaries or each of them. The Shareholders’ Agreement provided that SCM was to transfer such assets the Issuer no later than 30 August 2008 and SMART was to transfer such assets following receipt of relevant permissions from regulatory authorities. The parties agreed to use best efforts to transfer all such assets by 31 December 2008. As of the date of this Offering Memorandum, each of SCM and SMART had transferred all assets required to be transferred by it under the Shareholders’ Agreement, except that SMART has not yet transferred its interest in Makiivka Steel. On 1 January 2009, however, Metinvest B.V. acquired control over Makiivka Steel through the right to appoint members of Makiivka Steel’s management and accordingly, it is consolidated for purposes of preparing the Group’s financial statements.

The Shareholders’ Agreement provided that 75% of the share capital of the Issuer would be held by SCM and 25% would be held by SMART. Upon the completion of the transfer of its interest in Makiivka, SMART will receive one additional share in the share capital of the Issuer, which will entitle it to veto certain decisions with respect to the management of the Issuer. The transfer of the interest in Makiivka Steel to Metinvest, the transfer of one additional share in the share capital of the Issuer to SMART and the determination of the precise scope of SMART’s veto rights are expected to be completed by the end of 2010.

The Shareholders’ Agreement provides that each of SCM and SMART have a right of first refusal in the event that either of them elect to sell shares in the Issuer. In addition, if either of them disposes of its shares

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in the Issuer, the other party is entitled to join in the offer and has the right to sell its shares. The Shareholders’ Agreement provides that neither SCM nor SMART may compete with Metinvest B.V.

Decisions at shareholders’ meetings are taken by unanimous vote of the shareholders. In the case of a deadlock, each shareholder is entitled to exit the joint venture and sell its shares in the Issuer to another party.

Related Party Transactions

In the normal course of its business, Metinvest enters into transactions with related parties. For purposes of Metinvest’s Financial Statements, parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial and operational decisions. In considering each potential related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Other than the transactions with related parties described herein, Metinvest did not engage in any transactions with members of Metinvest’s management team or members of the Issuer’s Board during the period under review.

Metinvest seeks to conduct all transactions with related parties on market terms and in accordance with applicable legislation. The terms and conditions of sales to related parties are determined based on arrangements specific to each contract or transaction taking into account existing pricing arrangements for similar types of transactions with unrelated parties. However, there can be no assurance that any or all of these transactions have been or will be conducted on market terms.

Significant outstanding balances as at 31 December 2009, 2008 and 2007 and transactions with related parties for the respective periods are set out below.

In February 2010, Metinvest transferred its entire interest in the share capitals of Kryvyi Rih Central Mining Machines Repairing plant, Kryvyi Rih Central Mining Equipment Plant, Avlita and Marine Industrial Complex to the SCM for a consideration of U.S.$536 million.

Metinvest has had no other significant related party transactions from 31 December 2009 to the date of this Offering Memorandum other than continuations of the trading relationships described below.

Sales to related parties

Metinvest sells its products, mainly comprising coal and steel products to related parties. Total sales to related parties including SMART in the years ended 31 December 2007, 2008 and 2009 amounted to U.S.$278 million, U.S.$1,405 million and U.S.$149 million, respectively.

Metinvest sells coke and coking coal in the ordinary course of business to its associates and SMART including JSC Donetskoks, JSC Zaporozhkoks, Dokuchayevsk Flux and Dolomite Plant, Novotroitsk Ore Mining and JSC Kryvyi Rig Iron Ore Plants. In the years ended 31 December 2007, 2008 and 2009 these sales amounted to U.S.$180 million U.S.$557 million and U.S.$120 million, respectively.

Metinvest sold steel products to related parties including SMART and DTEK in the years ended 31 December 2007, 2008 and 2009 for a total amount of U.S.$92 million, U.S.$580 million and U.S.$15 million, respectively. These transactions include sales of semi finished goods between Metinvest, Makiivka Steel and Promet and resale of Makiivka Steel’s products before Makiivka Steel and Promet were consolidated into Metinvest’s financial statements.

The sales of other products including sales of semi finished goods to related parties including Makiivka Steel and Promet in the years ended 31 December 2007, 2008 and 2009 amounted to U.S.$6 million, U.S.$268 million and U.S.$14 million, respectively.

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Sponsorship and charitable payments

In 2008, Metinvest’s aggregate sponsorship and charitable payments to related parties were U.S.$92 million. In 2009, Metinvest’s aggregate sponsorship and other charitable payments were U.S.$197 million, of which U.S.$186 million was paid to related parties (in the form of non-refundable financial assistance), including U.S.$53 million through SCM, U.S.$15 million through SMART and U.S.$118 million to other related parties, including a television broadcasting company, Joint Stock Company “Ukraine” and a football club Joint Stock Company “FC “Shakhtar” (Donetsk)”. In addition, Metinvest made contributions to various charities operated by its related parties, including charitable funds implementing, among other things, social programmes in the fields of education, health services and culture as well as providing targeted assistance to disadvantaged members of society.

Purchases from related parties

Metinvest purchases from related parties electricity, spare parts and materials, raw materials for use in its operations, primarily coke and coking coal, and other services. Total purchases of products and services from related parties in the years ended 31 December 2007, 2008 and 2009 amounted to U.S.$556 million, U.S.$2,085 million and U.S.$622 million, respectively.

In the years ended 31 December 2007, 2008 and 2009, Metinvest purchased electricity from joint stock company Service-Invest and joint stock company Donetskoblenergo for a total amount of U.S.$203 million, U.S.$354 million and U.S.$305 million, respectively.

The purchases of spare parts and materials from Dokuchayevsk Flux and Dolomite Plant, Novotroitsk Ore Mining and joint stock company Kryvyi Rig Iron Ore Plant in the years ended 31 December 2007, 2008 and 2009 totalled U.S.$101 million, U.S.$227 million and U.S.$126 million, respectively.

In the years ended 31 December 2007, 2008 and 2009 Metinvest purchased coke and coking coal from related parties including joint stock company Donetskoks, joint stock company Zaporozhkoks and DTEK for a total amount of U.S.$176 million, U.S.$321 million and U.S.$111 million, respectively.

Metinvest purchases drilling, blasting and other services from related parties. In the years ended 31 December 2007, 2008 and 2009, payments for such services to related parties including joint stock company Krivbassvzryvprom amounted to U.S.$63 million, U.S.$75 million and U.S.$44 million, respectively.

In 2008, Metinvest purchased from SMART steel products for an aggregate amount of U.S.$1,079 million. In 2008, cost of goods for resale in Metinvest’s steel segment included the cost of Promet’s and Makiivka Steel ‘s products. Purchases of steel products from related parties decreased sharply in 2009 as compared to 2008 due to consolidation of Promet and Makiivka Steel into Metinvest’s financial statements in 2009.

Trade and other receivables and payables

As at 31 December 2009, Metinvest had an outstanding balance of U.S.$689 million of trade and other receivables and other receivables from related parties primarily related to supplies of steel and coal products to JSC Donetskoks, JSC Zaporozhkoks, Dokuchayevsk Flux and Dolomite Plant, Novotroitsk Ore Mining and JSC Kryvyi Rig Iron Ore Plant and sales of financial instruments to SCM, Dongorbank and TRK Ukraine. The trade and other receivables balances were U.S.$1,061 million and U.S.$355 million as at 31 December 2008 and 2007, respectively.

As at 31 December 2009, Metinvest had an outstanding balance of U.S.$597 million of trade and other payables comprising: • U.S.$174 million to SCM (compared to U.S.$146 million in 2008); • U.S.$233 million to its associates including U.S.$136 million to Dokuchaevsk Flux and Dolomite, U.S.$38 million to Novotroitskoe Rudoupravlenie, U.S.$19 million to Kryvbassvzryvprom, U.S.$35 million to Donetskcoke in relation to export sales and purchase of coke (compared to U.S.$170 million in 2008 and U.S.$87 million in 2007);

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• U.S.$122 million to other related parties including U.S.$33 million due to Krivoy Rih Iron Ore Plant, U.S.$16 million due to Zars, U.S.$21 million due to DTEK LLC, U.S.$23 million due to Pavlogradcoal in relation to export sales and purchase of coke and coal, (compared to U.S.$43 million in 2008 and U.S.$152 million in 2007); and • U.S.$68 million to SMART in relation to dividends accrued and acquisition of financial instruments. (compared to U.S.$181 million in 2008 in relation to purchase of steel products for resale).

As at 31 December 2009, Metinvest had an outstanding balance of U.S.$214 million of short-term dividends payables comprising U.S.$173 million due to SCM (compared to U.S.$146 million in 2008) and U.S.$41 million due to SMART. As at 31 December 2009, Metinvest had U.S.$25 million long-term dividends payable to related parties comprising U.S.$14 million due to SCM and U.S.$11 million due to SMART.

Borrowings from related parties

As at 31 December 2009, Metinvest had outstanding borrowings of U.S.$3 million from Metinvest Holdings N.V. at a rate of 6.8%. As at 31 December 2008, Metinvest had outstanding borrowings of U.S.$3 million from related parties including U.S.$2 million from SCM at a rate of 10.0% and U.S.$1 million from ASKA at a rate of 2%. As at 31 December 2007, Metinvest’s non-bank borrowings amounted to U.S.$24 million comprising U.S.$2 million from SCM at a rate of 10.0% and U.S.$22 million from related parties including U.S.$20 million from Metinvest Holdings N.V. at a rate of 1.3% above LIBOR and U.S.$2 million from Leman Steel at a rate of 0.3% above LIBOR.

Pledges

60.0% plus one share of the share capital of each of Northern GOK and Central GOK have been pledged as security for the obligations of SCM under the U.S.$545 million SCM Facility entered into by SCM and BNP Paribas (Suisse) SA in February 2007 (as subsequently amended and restated in August 2007). As at 31 December 2009, U.S.$237 million was outstanding under the SCM Facility. See “Risk Factors—Risks Relating to the Notes—The shares of Central GOK and Northern GOK have been pledged in favour of the lenders under the SCM Facility and the enforcement of these pledges would be an Event of Default under the Notes. A breach of the SCM Facility by the SCM Group, which is outside of the Company’s control, could cause the Company to cross default under its debt obligations”.

Loans to related parties

As at 31 December 2009, Metinvest had an outstanding balance of U.S.$204 million of other non-current assets from related parties primarily related to a loan issued to SCM (compared to.U.S.$221 million as at 31 December 2008 and U.S.$389 million as at 31 December 2007).

As at 31 December 2009, Metinvest had a balance of U.S.$195 million of long-term loans granted to SCM and associates. These loans comprised the following: • USD-denominated loans of U.S.$46 million to SCM bearing interest at a rate of 3.0% above LIBOR and maturing in 2011 (which amounted to U.S.$46 million as at 31 December 2008 and U.S.$57 million as at 31 December 2007); and • USD-denominated loans of U.S.$145 million to SCM bearing interest at a rate of 7.0% and maturing in 2011 (which amounted to U.S.$151 million as at 31 December 2008).

As at 31 December 2007 Metinvest had a balance of U.S.$21 million in relation to a UAH-denominated repayable financial assistance to joint stock company Sarmat, an entity under common control which was repaid in July 2008.

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Acquisition and disposal of subsidiaries

Metinvest made a number of acquisitions and disposals of interests in the group companies between 2007 and 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Summary of Acquisitions and Disposals”.

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TERMS AND CONDITIONS OF THE NOTES

The following is the text of the terms and conditions of the notes which, subject to amendment, will be endorsed on each Individual Certificate (as defined below) and will be attached and (subject to the provisions thereof) apply to the Global Note Certificates.

The issue of the U.S.$500,000,000 10.25 per cent. Guaranteed Notes due 2015 (the “Notes”, which expression shall include any further Notes issued pursuant to Condition 15 and consolidated and forming a single series therewith) was authorised by a resolution of the Board of Directors of Metinvest B.V. (the “Issuer”) on 17 May 2010. The Notes are constituted and secured by a trust deed (the “Trust Deed”) dated 20 May 2010 (the “Issue Date”) between the Issuer, the Guarantors (as defined in Condition 19) and BNY Corporate Trustee Services Limited (the “Trustee”, which expression shall include all Persons (as defined in Condition 19) for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Notes and are the subject of a paying and transfer agency agreement dated 20 May 2010 (the “Agency Agreement”) between the Issuer, The Bank of New York Mellon (Luxembourg) S.A. as registrar (the “Registrar”, which expression includes any successor registrar appointed from time to time in connection with the Notes), The Bank of New York Mellon as principal paying and transfer agent (the “Principal Paying and Transfer Agent”, which expression includes any successor principal paying and transfer agent appointed from time to time in connection with the Notes), and The Bank of New York Mellon, New York Branch as U.S. paying and transfer agent (the “U.S. Paying and Transfer Agent” and, together with the Principal Paying and Transfer Agent, the “Paying and Transfer Agents”, which expression includes any successor or additional paying and transfer agents appointed from time to time in connection with the Notes) and the Trustee. The Notes are unconditionally, irrevocably and jointly and severally guaranteed by the Guarantors under the Surety Agreement (as defined in Condition 2).

References herein to the “Agents” are to the Registrar, the Principal Paying and Transfer Agent and the Paying and Transfer Agents and any reference to an “Agent” is to any one of them. Unless a contrary indication appears, any reference in these Conditions to the “Issuer”, the “Guarantors”, the “Trustee” and any “Agent” shall be construed so as to include its successors in title, permitted assigns and permitted transferees.

Copies of the Trust Deed, the Agency Agreement and the Surety Agreement (as defined in Condition 2) are available for inspection during usual business hours at the principal office of the Trustee (presently at One Canada Square, London E14 5AL) and at the Specified Offices (as defined in the Agency Agreement) of each of the Agents, the initial Specified Offices of which are set out below.

The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Surety Agreement and are deemed to have notice of those provisions of the Agency Agreement applicable to them.

1 Form, Denomination, Register, Title and Transfer

(a) Form and denomination

The Notes are in registered form, without interest coupons attached, in the denomination of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof, without individual coupons attached. An individual certificate (each, an “Individual Certificate”) will be issued to each Noteholder in respect of its registered holding of Notes. Each Note and each Individual Certificate will have an identifying number which will be recorded on the relevant Individual Certificate and in the Register (as defined in Condition 1(b)).

Individual Certificates issued with respect to Rule 144A Notes (“Rule 144A Individual Certificates”) will bear the Rule 144A Legend (as defined in the Trust Deed), unless determined otherwise in accordance with the provisions of the Agency Agreement by reference to applicable law. Individual Certificates issued with respect to the Regulation S Notes (“Regulation S Individual Certificates”) will not bear the Rule 144A Legend.

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Upon issue, the Rule 144A Notes will be represented by a restricted note certificate (the “Rule 144A Global Note Certificate”) and the Regulation S Notes will be represented by the unrestricted global certificate (the “Regulation S Global Note Certificate” and, together with the Rule 144A Global Note Certificate, the “Global Note Certificates”). The Rule 144A Global Note Certificate will be deposited with a custodian for, and registered in the name of Cede & Co., as nominee of the Depository Trust Company (“DTC”) and the Regulation S Global Note Certificate will be deposited with The Bank of New York Mellon, London Branch as Common Depositary, and registered in the name of The Bank of New York Depository (Nominees) Limited as nominee of the common depositary for Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”).

The Conditions are modified by certain provisions contained in the Global Note Certificates. See “Summary of Provisions Relating to the Notes While in Global Form”.

Except in the limited circumstances described in the Global Note Certificates, owners of interests in Notes represented by the Global Note Certificates will not be entitled to receive physical Individual Certificates in definitive form in respect of their individual holdings of Notes. The Notes are not issuable in bearer form.

(b) Register

The Registrar will maintain outside the United Kingdom a register (the “Register”) in respect of the Notes in accordance with the provisions of the Agency Agreement. In these Conditions, the “Holder” of a Note means the Person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and “Noteholder” shall be construed accordingly.

Title to the Notes passes only by transfer and registration in the Register (as defined in Condition 1(b)). The Holder of each Note shall (except as otherwise required by a court of competent jurisdiction or applicable law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Individual Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Individual Certificate) and no Person shall be liable for so treating such Holder.

(d) Transfers

Subject to the terms of the Agency Agreement and Condition 1(g) and Condition 1(h), a Note may be transferred by delivering the Individual Certificate in respect of it, with the endorsed form of transfer duly completed and signed, at the Specified Office of the Registrar or any Paying and Transfer Agent. No transfer of a Note will be valid unless and until entered on the Register.

Transfers of interests in the Notes evidenced by the Global Note Certificates will be effected in accordance with the rules of the relevant clearing system.

Upon the transfer, exchange or replacement of a Rule 144A Note, a Transfer Agent will only deliver Individual Certificates with respect to Rule 144A Notes that bear the Rule 144A Legend if there is delivered to such Paying and Transfer Agent such satisfactory evidence as may be reasonably required by the Issuer, that neither the Rule 144A Legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the U.S. Securities Act of 1933 (the “Securities Act”).

An interest in Notes represented by the Regulation S Global Note Certificate may be transferred to a person within the United States subject to any applicable transfer restrictions under the Securities Act.

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Interests in Notes represented by the Rule 144A Global Note Certificate may be transferred to a person who wishes to take delivery of any such interest in the form of an interest in Notes represented by the Regulation S Global Note Certificate only if a Transfer Agent receives a written certificate that the transferor (in the form provided in the Agency Agreement) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S.

Transfers of Notes are also subject to the restrictions described under “Selling and Transfer Restrictions”.

(e) Registration and delivery of Individual Certificates

Within five business days of the surrender of an Individual Certificate in accordance with Condition 1(d), the Registrar will register the transfer in question and deliver a new Individual Certificate of a like principal amount to the Notes transferred to each relevant Holder at its Specified Office or (as the case may be) the Specified Office of any Paying and Transfer Agent or (at the request and risk of any such relevant Holder) by uninsured first-class mail (airmail if overseas) to the address specified for the purpose by such relevant Holder.

In this paragraph, “business day” means a day on which banks are open for general business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its Specified Office.

Except in the limited circumstances described in “Summary of Provisions Relating to the Notes While in Global Form”, owners of interests in Notes represented by the Global Note Certificates will not be entitled to receive physical delivery of Individual Certificates. Issues of Individual Certificates upon transfers of Notes are subject to compliance by the transferor and transferee with the certification procedures described above and in the Agency Agreement and, in the case of the Rule 144A Notes, compliance with the Rule 144A Legend.

(f) No charge

The transfer of a Note will be effected without charge by or on behalf of the Issuer, the Registrar or any Paying and Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Paying and Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer.

(g) Closed periods

Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes or after any Note has been put for redemption pursuant to Condition 5.3.

(h) Regulations concerning transfers and registration

All transfers of Notes and entries on the Register are subject to the detailed regulations concerning the transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar and/or any Paying and Transfer Agent to any Noteholder who requests in writing a copy of such regulations.

2 Guarantee and Status

(a) Guarantee

The Initial Guarantors (as defined in Condition 19) have, jointly and severally, unconditionally and irrevocably guaranteed to the maximum extent permitted by law the payment of moneys payable under the Trust Deed. Their obligations in that respect (the “Guarantees”) are contained in a surety

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agreement dated 20 May 2010 between the Issuer, the Initial Guarantors and the Trustee (the “Surety Agreement”) as amended and/or supplemented from time to time. The Surety Agreement constitutes a suretyship for the purposes of Ukrainian law.

(b) Addition of Guarantors

The Issuer will, in accordance with Condition 3.15 and on the relevant dates set forth therein, cause each of its Subsidiaries referred to in paragraph (a) of Condition 3.15 to become an Additional Guarantor.

The Issuer shall give not less than 30 days’ notice to the Trustee and the Noteholders in accordance with Condition 16 of the accession of each Additional Guarantor to the Surety Agreement. The accession of the Additional Guarantors pursuant to this Condition 2(b) shall be conditional upon receipt by the Trustee of (x) an Opinion of Counsel as to the enforceability of the Guarantee from such Additional Guarantors and (y) such other documents or certificates as the Trustee may reasonably require. The Trustee shall be entitled to accept and rely on the Opinion of Counsel referred to in sub- paragraph (x) above without further enquiry or liability to any Person as sufficient evidence of the matters certified therein.

The Notes constitute direct, unsecured, unsubordinated and unconditional obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves, with all outstanding unsecured and unsubordinated obligations of the Issuer, present and future. Each Guarantee constitutes or will constitute a senior, unsubordinated and unsecured obligation of the relevant Guarantor.

3 Covenants

3.1 Limitation on Liens

The Issuer will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, Incur, assume or suffer to exist any Lien, other than a Permitted Lien, on any of its assets, now owned or hereafter acquired, or any income or profits there from, securing any Indebtedness unless, at the same time or prior thereto, the Notes or the relevant Guarantee, as the case may be, (a) is secured equally and rateably therewith or (b) has the benefit of other security or other arrangement, in each case for so long as such other Indebtedness is so secured and to the satisfaction of the Trustee.

3.2 Incurrence of Indebtedness

(a) The Issuer will not, and will not permit any of its Subsidiaries to, Incur, directly or indirectly, any Indebtedness except that if (i) no Potential Event of Default nor Event of Default shall have occurred and be continuing at the time, or would occur as a consequence, of the Incurrence of such Indebtedness and (ii) on the date of such Incurrence and after giving effect thereto on a pro forma basis, the Consolidated Leverage Ratio would be 3.00 to 1.00 or lower:

(i) the Issuer and the Guarantors may Incur Indebtedness;

(ii) any Non-Guarantor Subsidiary may incur Indebtedness if the Aggregate Subsidiary Indebtedness does not exceed 20% per cent. of Total Assets; and

(iii) a Subsidiary may Incur Indebtedness if, within 90 days after such Incurrence, such Subsidiary delivers to the Trustee a deed of accession to the Surety Agreement pursuant to which such Subsidiary unconditionally and irrevocably guarantees to the maximum extent permitted by law the payment of all moneys payable under the Trust Deed.

(b) Notwithstanding the foregoing paragraph (a), the Issuer and its Subsidiaries will be entitled to Incur any or all of the following Indebtedness:

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(i) Indebtedness owed to and held by the Issuer or any of its Subsidiaries; provided, however, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Subsidiary ceasing to be a Subsidiary or any subsequent transfer of such Indebtedness (other than to the Issuer or another Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) if the Issuer is the obligor on such Indebtedness and the creditor in respect of such Indebtedness is not a Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes and (C) if a Guarantor is the obligor on such Indebtedness and the creditor in respect of such indebtedness is not the Issuer or another Guarantor, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations of such Guarantor with respect to its Guarantee;

(ii) the Notes (issued on the Issue Date) and the Guarantees;

(iii) Indebtedness outstanding on the Issue Date;

(iv) Indebtedness of a Subsidiary Incurred and outstanding on or prior to the date on which such Subsidiary was acquired by the Issuer (other than Indebtedness Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Issuer); provided, however, that on the date of such acquisition and after giving pro forma effect thereto, the Issuer would have been entitled to Incur at least U.S.$1.00 of additional Indebtedness pursuant to paragraph (a) of this covenant;

(v) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to paragraph (ii), (iii) or (iv) or this paragraph (v);

(vi) Hedging Obligations consisting of Interest Rate Agreements; provided they are entered into in the ordinary course of business and not for speculative purposes;

(vii) obligations in respect of performance, bid and surety bonds, completion guarantees, reclamation bonds or similar obligations provided by the Issuer or any Subsidiary in the ordinary course of business;

(viii) Indebtedness arising from the honouring by a bank or other financial institution of a cheque, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of its Incurrence;

(ix) Indebtedness Incurred in respect of workers’ compensation claims, self-insurance obligations, performance, surety and similar bonds and completion guarantees provided by the Issuer or a Subsidiary in the ordinary course of business;

(x) Indebtedness arising from agreements of the Issuer or a Subsidiary providing for indemnification, adjustment of purchase price of similar obligations, in each case, Incurred or assumed in connection with the disposition of any business, assets or Capital Stock of a Subsidiary, providing that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Issuer or its Subsidiary in connection with such disposal, and any such indemnification, purchase price or other similar adjustments will be in an amount that is not determinable at the time of such disposal; and

(xi) Indebtedness of the Issuer or a Subsidiary in an aggregate principal amount which, when taken together with all other Indebtedness of the Issuer and its Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (b)(i) to (x) above or paragraph (a)) does not exceed U.S.$100 million, provided that the amount of

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Indebtedness that may be Incurred by Non-Guarantor Subsidiaries under this paragraph (b)(xi) shall not exceed U.S.$50 million.

(c) For purposes of determining compliance with any U.S. dollar denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a different currency, the amount of such Indebtedness will be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness; provided, however, that if any such Indebtedness denominated in a different currency is subject to a Currency Agreement with respect to U.S. dollars covering all principal, premium, if any, and interest payable on such Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurred in the same currency as the Indebtedness being Refinanced will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (1) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness will be determined in accordance with the preceding sentence, and (2) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess will be determined on the date such Refinancing Indebtedness is Incurred. Notwithstanding any other provision of this Condition 3.2, the maximum amount that the Issuer or a Subsidiary may Incur pursuant to this Condition 3.2 shall not be deemed to be exceeded with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies.

3.3 Limitation on Restricted Payments

(a) The Issuer will not, and will not permit any Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Issuer or such Subsidiary makes such Restricted Payment:

(i) a Potential Event of Default or an Event of Default shall have occurred and be continuing (or would result therefrom);

(ii) the Issuer is not entitled to Incur an additional U.S.$1.00 of Indebtedness pursuant to Condition 3.2(a); or

(iii) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of (without duplication):

(a) 50 per cent. of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the semi-annual period during which the Issue Date occurs to the end of the most recent semi-annual period for which financial statements have been provided under Condition 3.16 prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100 per cent. of such deficit); plus

(b) 100 per cent. of the aggregate Net Cash Proceeds received by the Issuer from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Issuer and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Issuer or any of its Subsidiaries for the benefit of their employees) and 100 per cent. of any cash capital contribution received by the Issuer from its shareholders subsequent to the Issue Date; plus

(c) the amount by which Indebtedness of the Issuer is reduced on the Issuer’s balance sheet upon the conversion or exchange subsequent to the Issue Date of any Indebtedness of the Issuer convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Issuer (less the amount of any cash, or the fair value of any other property, distributed by the Issuer upon such conversion or exchange); provided, however, that the foregoing amount shall not exceed the Net

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Cash Proceeds received by the Issuer or any Subsidiary from the sale of such Indebtedness (excluding Net Cash Proceeds from sales to a Subsidiary of the Issuer or to an employee stock ownership plan or a trust established by the Issuer or any of its Subsidiaries for the benefit of their employees).

(b) The preceding provisions will not prohibit:

(i) any Restricted Payment made out of the Net Cash Proceeds of the substantially concurrent sale of, or made by exchange for, Capital Stock of the Issuer (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Issuer or an employee stock ownership plan or to a trust established by the Issuer or any of its Subsidiaries for the benefit of their employees) or a substantially concurrent cash capital contribution received by the Issuer from its shareholders; provided, however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale or such cash capital contribution (to the extent so used for such Restricted Payment) shall be excluded from the calculation of amounts under paragraph (a)(iii)(b) above;

(ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of the Issuer or a Guarantor made by exchange for, or out of the proceeds of the substantially concurrent Incurrence of, Indebtedness of such Person which is permitted to be Incurred pursuant to Condition 3.2; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments;

(iii) the declaration or payment of dividends in respect of the Issuer’s financial years ended 31 December 2008 and 31 December 2009 in an amount not to exceed 25 per cent. of Consolidated Net Income for each of those years; provided, however, that at the time of declaration or payment of such dividend, no Potential Event of Default or Event of Default shall have occurred and be continuing (or would result therefrom) and the Issuer is entitled to Incur an additional U.S.$1.00 of Indebtedness pursuant to Condition 3.2(a); provided further, however, that such dividends shall be excluded in the calculation of the amount of Restricted Payments;

(iv) dividends paid after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that at the time of payment of such dividend, no other Potential Event of Default or Event of Default shall have occurred and be continuing (or result therefrom) and the Issuer is entitled to Incur an additional U.S.$1.00 of Indebtedness pursuant to Condition 3.2(a); provided further, however, that such dividend shall be included in the calculation of the amount of Restricted Payments;

(v) so long as no Potential Event of Default or Event of Default has occurred and is continuing, (A) the purchase, redemption or other acquisition of shares of Capital Stock of the Issuer or any of its Subsidiaries from employees, former employees, directors or former directors of the Issuer or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such Capital Stock; provided, however, that the aggregate amount of such Restricted Payments (excluding amounts representing cancellation of Indebtedness) shall not exceed U.S.$50 million in any calendar year; provided further, however, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments; and (B) loans and advances to employees and directors of the Issuer or any Subsidiary the proceeds of which are used to purchase Capital Stock of the Issuer, in an aggregate amount not to exceed U.S.$50

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million at any one time outstanding; provided further, however, that the amount of such loans and advances will be included in the calculation of the amount of Restricted Payments;

(vi) the declaration and payments of dividends on Disqualified Stock issued pursuant to Condition 3.2; provided, however, that, at the time of payment of such dividend, no Potential Event of Default or an Event of Default shall have occurred and be continuing (or result therefrom); provided further, however, that such dividends shall be excluded in the calculation of the amount of Restricted Payments;

(vii) repurchases of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options; provided, however, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments;

(viii) cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of the Issuer; provided, however, that any such cash payment shall not be for the purpose of evading the limitation of the covenant described under this subheading (as determined in good faith by the Board of Directors); provided further, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments;

(ix) in the event of a Change of Control (as defined in Condition 5.3), and if no Potential Event of Default or Event of Default shall have occurred and be continuing, the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of the Issuer or any Guarantor, in each case, at a purchase price not greater than 101 per cent. of the principal amount of such Subordinated Obligations, plus any accrued and unpaid interest thereon; provided, however, that prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, the Issuer (or a third party to the extent permitted by the Indenture) has made a Change of Control Offer with respect to the Notes as a result of such Change of Control and has repurchased the Notes to the extent validly tendered and not withdrawn in connection with such Change of Control Offer; provided further, however, that such payments, purchases, redemptions, defeasances or other acquisitions or retirements shall be included in the calculation of the amount of Restricted Payments; and

(x) payments of intercompany subordinated Indebtedness, the Incurrence of which was permitted under Condition 3.2(b)(i); provided, however, that no Potential Event of Default or Event of Default has occurred and is continuing or would otherwise result therefrom; provided further, however, that such payments shall be excluded in the calculation of the amount of Restricted Payments.

3.4 Transactions with Affiliates

The Issuer will not, and will not permit any Subsidiary to, enter into or permit to exist any transaction or a series of related transactions (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of the Issuer (an “Affiliate Transaction”) unless:

(a) the terms of the Affiliate Transaction are no less favourable to the Issuer or such Subsidiary than those that could be obtained at the time of the Affiliate Transaction in arm’s-length dealings with a Person who is not an Affiliate; and

(b) with respect to any transaction or series of related transactions involving an aggregate value in excess of U.S.$50 million or its U.S. Dollar Equivalent, such transaction or series of related transactions has been approved by the Board of Directors of the Issuer or the relevant Subsidiary.

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provided, however, that this provision shall not apply to:

(i) any Restricted Payment permitted to be made pursuant to Condition 3.3;

(ii) any employment agreement, collective bargaining agreement or employee benefit arrangements with any officer or director of the Issuer or any of its Subsidiaries, including under any stock option or stock incentive plans, entered into in the ordinary course of business;

(iii) payment of reasonable fees and compensation to employees, officers, directors, consultants or agents in the ordinary course of business;

(iv) transactions between the Issuer and any of its Subsidiaries or between its Subsidiaries;

(v) transactions with customers, clients, suppliers, purchasers or sellers of goods or services (including raw materials), in each case, in the ordinary course of business and otherwise in compliance with the terms of the Trust Deed which are on terms at least as favourable to the Issuer or the relevant Subsidiary as might reasonably be obtained at such time from an unrelated third party;

(vi) sponsorship payments made by the Issuer or any of its Subsidiaries in accordance with past practice and as approved by the Board of Directors;

(vii) sales of Capital Stock (other than Disqualified Stock) of the Issuer; and

(viii) loans or advances to officers, directors and employees in the ordinary course of business in accordance with past practices of the Issuer or the relevant Subsidiary, but in any event not to exceed U.S.$10 million.

3.5 Asset Sales

The Issuer will not, and will not permit any Subsidiary to, directly or indirectly, consummate any Asset Sale, unless the proceeds received by the Issuer or the relevant Subsidiary of the Issuer, as the case may be, are at least equal to the Fair Market Value of the assets subject to such Asset Sale and an amount equal to the Disposal Proceeds is:

(a) applied to repay permanently any Indebtedness of the Group (other than Disqualified Stock and Subordinated Obligations);

(b) invested in assets of a nature or type that is used or usable in the ordinary course of a Core or Related Business of the Issuer or any of its Subsidiaries;

(d) applied to finance an acquisition of the Capital Stock of a Person that becomes a Subsidiary as a result of the acquisition of such Capital Stock by the Issuer or another Subsidiary; provided that such Subsidiary is primarily engaged in a Core or Related Business,

in each case within 365 days of the date when such Disposal Proceeds are received (it being understood that receipt by the Issuer or any Subsidiary of the Issuer of Capital Stock of any Person who, following the consummation of such Asset Sale is to become a Subsidiary of the Issuer and is primarily engaged in a Core or Related Business, as consideration for such Asset Sale shall be deemed to satisfy the financing of the acquisition of Capital Stock requirement set out above), provided that if the Disposal Proceeds are applied pursuant to paragraph (c) above, the Issuer or the relevant Subsidiary, as the case may be, shall apply or invest the Disposal Proceeds on or prior to the date falling 540 days after the date when such proceeds are received pursuant to paragraphs (a), (b) or (d) above.

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3.6 Limitations on Restrictions on Distributions from Subsidiaries

The Issuer will not, and will not permit any Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (A) pay dividends or make any other distributions on its Capital Stock to the Issuer or a Subsidiary or pay any Indebtedness owed to the Issuer, (B) make any loans or advances to the Issuer or (C) transfer any of its property or assets to the Issuer, except:

(a) with respect to paragraphs (A), (B) and (C) above:

(i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date;

(ii) any encumbrance or restriction with respect to a Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Subsidiary on or prior to the date on which such Subsidiary was acquired by the Issuer (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilised to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by the Issuer) and outstanding on such date;

(iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in paragraph (i) or (ii) above or this paragraph (iii) or contained in any amendment to an agreement referred to in paragraph (i) or (ii) above or this paragraph (iii); provided, however, that the encumbrances and restrictions with respect to such Subsidiary contained in any such refinancing agreement or amendment are no less favourable to the Noteholders in any material respect than encumbrances and restrictions with respect to such Subsidiary contained in such predecessor agreements;

(iv) any encumbrance or restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition;

(v) restrictions on cash or other deposits or net worth imposed by leases or other agreements entered into in the ordinary course of business;

(vi) existing under or by reason of applicable law, rule, regulation, decree or order of any governmental, local or regulatory authority;

(vii) customary limitations on the distribution of assets or property in joint venture agreements entered into in the ordinary course of business and in good faith; provided that (x) the encumbrance or restriction is not materially more disadvantageous to Noteholders than is customary in comparable agreements; and (y) such encumbrance or restriction will not materially affect the ability of the Issuer or any Guarantor to make any anticipated principal or interest payments on the Notes and any other Indebtedness for borrowed money; and

(b) with, respect to paragraph (C) above only:

(i) any encumbrance or restriction consisting of customary nonassignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; and

(ii) any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Subsidiary to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages.

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3.7 Mergers and Similar Transactions

(a) The Issuer will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, directly or indirectly, all or substantially all its assets to, any Person, unless:

(i) either (A) the Issuer will be the continuing corporation or (ii) the resulting, surviving or transferee Person, if not the Issuer (the ”Successor Company”), shall be a Person organised and existing under the laws of Ukraine or any state which is a member of the European Union, Canada, the United States, any state thereof or the District of Columbia and the Successor Company (if not the Issuer) shall expressly assume, by a trust deed supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Issuer under the Notes and the Trust Deed;

(ii) immediately after giving pro forma effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Potential Event of Default or Event of Default shall have occurred and be continuing;

(iii) immediately after giving pro forma effect to such transaction, the Successor Company would be able to Incur an additional U.S.$1.00 of Indebtedness pursuant to Condition 3.2(a);

(iv) the Issuer shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, lease or transfer and such supplemental trust deed (if any) comply with the Trust Deed; and

(v) the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Noteholders will not recognise income, gain or loss for U.S. Federal, Netherlands or Ukraine income tax purposes as a result of such transaction and will be subject to U.S. Federal, Netherlands and Ukraine income tax on the same amounts, in the same manner and at the same times as would have been the case if such transaction had not occurred,

provided, however, that paragraph (iii) will not be applicable to (A) a Subsidiary consolidating with, merging into or transferring all or part of its properties and assets to the Issuer (so long as no Capital Stock of the Issuer is distributed to any Person) or (B) the Issuer merging with an Affiliate of the Issuer solely for the purpose and with the sole effect of reincorporating the Issuer in another jurisdiction.

The Successor Company will be the successor to the Issuer and shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under the Trust Deed, and the predecessor Issuer, except in the case of a lease (in which case such predecessor Issuer shall become a Guarantor pursuant to Condition 2(b)), shall be released from the obligation to pay the principal of and interest on the Notes.

(b) The Issuer will not permit any Guarantor to, consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless:

(i) the resulting, surviving or transferee Person (if not such Guarantor) shall be a Person organised and existing under the laws of the jurisdiction under which such Person was organised or under the laws of Ukraine, any state which is a member of the European Union, Canada, the United States, any state thereof or the District of Columbia, and such Person (if not such Guarantor) shall expressly assume, by a deed of accession to the Surety Agreement, in a form satisfactory to the Trustee, all the obligations of such Person, if any, under its Guarantee;

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(ii) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Potential Event of Default or Event of Default shall have occurred and be continuing; and

(iii) the Issuer delivers to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, lease or transfer and such deed of accession to the Surety Agreement, if any, complies with the Trust Deed.

For purposes of this covenant, the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Issuer or a Guarantor, which properties and assets, if held by the Issuer or such Guarantor instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Issuer or such Guarantor on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Issuer or such Guarantor.

3.8 Claims Pari Passu

The Issuer shall ensure (and shall procure that each Guarantor shall ensure) that at all times the claims of the Noteholders and the Trustee against it under the Trust Deed and the Guarantors under the Surety Agreement rank at least pari passu with the claims of all its other present and future unsubordinated unsecured creditors, save for those claims that are preferred by any bankruptcy, insolvency, liquidation or similar laws of general application or any other mandatory provisions of applicable law.

3.9 Maintenance of Authorisations

(a) the Issuer will, and will cause each Material Subsidiary to, take all necessary action to obtain and do or cause to be done all things necessary to ensure the continuance of its corporate existence, its business and intellectual property relating to its business; and

(b) the Issuer will, and will cause each Material Subsidiary to, obtain or make, and procure the continuance or maintenance of, all registrations, recordings, filings, consents, licences, approvals and authorisations, which may at any time be required to be obtained or made in any relevant jurisdiction for the purposes of the execution, delivery or performance of the Notes, the Trust Deed and the Surety Agreement and for the validity and enforceability thereof;

provided that, in any case, if the Issuer or the relevant Material Subsidiary remedies any failure to comply with (a) and (b) above within 90 days of such failure or of the occurrence of such event, then this covenant shall be deemed not to have been breached.

3.10 Maintenance of Property

The Issuer will, and will cause each Material Subsidiary to, cause all property used in the conduct of its or their business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements and improvements thereof, all as may be reasonably necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that if the Issuer or the relevant Material Subsidiary remedies any failure to comply with the above within 90 days or any failure relates to property with a value not exceeding U.S.$250 million (or its U.S. Dollar Equivalent), this covenant shall be deemed not to have been breached.

3.11 Payment of Taxes and Other Claims

The Issuer will, and will cause each Material Subsidiary to, pay or discharge, or cause to be paid and discharged, before the same shall become overdue and without incurring penalties, (a) all Taxes levied or imposed upon, or upon the income, profits or property of the Issuer or the Material Subsidiaries

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and (b) all lawful claims for labour, materials and supplies which, if unpaid, might by law become a Lien (other than a Permitted Lien) upon the property of any of the Issuer or the Material Subsidiaries; provided that none of the Issuer or the Material Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such Tax (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with Accounting Standards as consistently applied or other appropriate provisions have been made or (ii) whose amount, together with all such other unpaid or undischarged taxes, assessments, charges and claims of the Group, not so contested and for which adequate reserves, if necessary, in accordance with Accounting Standards as consistently applied or other appropriate provisions have been or will be made does not in the aggregate exceed U.S.$100 million (or its U.S. Dollar Equivalent).

3.12 Maintenance of Insurance

The Issuer will, and will cause each Material Subsidiary to, obtain and maintain insurance with an insurer or insurers of sufficient standing (in the reasonable judgment of the Issuer or the relevant Material Subsidiary) against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged in the jurisdiction(s) where it operates; provided that if the Issuer or the relevant Material Subsidiary remedies any failure to comply with the above within 365 days or if such potential losses or risks (which may be assessed by reference to the actual risks and losses borne by the Issuer or the relevant Material Subsidiary over the preceding 3 years) do not exceed U.S.$250 million (or its U.S. Dollar Equivalent), this covenant shall be deemed not to have been breached.

3.13 Environmental Compliance

The Issuer will, and will cause each Material Subsidiary to, comply with all Environmental Laws and obtain and maintain any Environmental Licences and take all reasonable steps in anticipation of known or expected future changes to or obligations under the same, except where failure to do so does not and will not have a Material Adverse Effect.

3.14 Change of Business

The Issuer shall not, and shall cause the Material Subsidiaries not to, make any material change to the Core or Related Business.

3.15 Additional Guarantees

(a) The Issuer will cause (A) each of Central GOK and Northern GOK, as soon as practicable (but in any event no later than 60 days) after the earlier of (x) the date on which all amounts outstanding under the SCM Facility have been repaid in full; and (y) 31 March 2011; and (B) each of Azovstal, Yenakiieve Iron and Steel Works and Metalen, as soon as practicable (but in any event no later than 60 days) after the earlier of (x) the date on which all amounts outstanding under the GRF Facility have been repaid in full; and (y) 31 July 2012, to (i) execute and deliver to the Trustee a deed of accession to the Surety Agreement pursuant to which each such Subsidiary will unconditionally and irrevocably guarantee to the maximum extent permitted by law the payment of all moneys payable under the Trust Deed and will become vested with all the duties and obligations of a Guarantor as if originally named a Guarantor and (ii) to the maximum extent permitted by law, waive and not in any manner whatsoever claim or take the benefit or advantage of any rights of reimbursement, indemnity or subrogation or any other rights against the Issuer or another Subsidiary as a result of any payment by such Subsidiary under its Guarantee.

(b) The Issuer may from time to time appoint any Subsidiary as an Additional Guarantor and will have such Subsidiary (i) execute and deliver to the Trustee a deed of accession to the Surety Agreement pursuant to which it will unconditionally and irrevocably guarantee to the maximum extent permitted by law the payment of all moneys payable under the Trust Deed and

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will become vested with all the duties and obligations of a Guarantor as if originally named a Guarantor and (ii) to the maximum extent permitted by law, waive and not in any manner whatsoever claim or take the benefit or advantage of any rights of reimbursement, indemnity or subrogation or any other rights against the Issuer or another Subsidiary as a result of any payment by such Subsidiary under its Guarantee.

(c) A Guarantor will be automatically and unconditionally released and discharged from its Guarantee: (i) upon any sale, exchange or transfer to any Person which is not an Affiliate of the Issuer of all or substantially all of the Capital Stock of the Guarantor held the by Issuer and other Subsidiaries of the Issuer (which sale, exchange or transfer is not prohibited by these Conditions) or (ii) upon the reorganisation (whether by way of merger or accession) of the relevant Guarantor pursuant to which such Guarantor accedes to or is merged into the Issuer.

(d) The Issuer will give notice to the Trustee in accordance with the Trust Deed of any Guarantor becoming or ceasing to be a Guarantor and, so long as the Notes are listed on the Irish Stock Exchange and/or any other stock exchange on which the Notes may be listed or quoted from time to time, shall comply with applicable rules of the Irish Stock Exchange and/or such other exchange (including preparation of a supplemental offering circular) in relation to any Guarantor becoming or ceasing to be a Guarantor.

3.16 Financial Information

(a) The Issuer shall deliver to the Trustee and publish, in a manner permitted by the rules of the Irish Stock Exchange, as they become available, but in any event within 180 days after the end of each of its financial years, copies of the Issuer’s consolidated financial statements for such financial year, in each case audited by the Auditors and prepared in accordance with Accounting Standards consistently applied with the corresponding financial statements for the preceding period prepared in accordance with Accounting Standards.

(b) The Issuer shall as soon as the same become available, but in any event within 150 days after the end of the first half of each of its financial years, deliver to the Noteholders and the Trustee and publish, in a manner permitted by the rules of the Irish Stock Exchange, the Issuer’s unaudited consolidated financial statements for such period.

(c) Subject to any restrictions regarding insider dealing or market abuse under applicable law, the Issuer hereby undertakes that it will deliver to the Trustee, without undue delay, such additional information regarding the financial position or the business of the Issuer, the Guarantors and the Material Subsidiaries (or, so far as permitted by applicable law, any information, and in such form, as it requires for the purposes of the discharge of the duties and discretions vested in it under the Trust Deed or by operation of law) as the Trustee may reasonably request.

(d) The Issuer shall deliver to the Trustee at the time of delivery of any financial statements pursuant to Condition 3.16(a) and within 14 days of any request by the Trustee, an Officers’ Certificate certifying which subsidiaries are Material Subsidiaries, upon which the Trustee may rely absolutely without liability to any person for so doing.

(e) The Issuer shall ensure that each set of consolidated financial statements delivered by it pursuant to this Condition 3.16 is in the case of the statements provided pursuant to Condition 3.16(a), accompanied by a report thereon of the Auditors referred to in Condition 3.16(a) (including opinions of such Auditors with accompanying notes and annexes).

(f) The Issuer undertakes to furnish to the Trustee such information as the Irish Stock Exchange (or any other or further stock exchange or stock exchanges or any relevant authority or authorities on which the Notes may, from time to time, be listed or admitted to trading) may require as necessary in connection with the listing or admission to trading on such stock exchange or relevant authority of such instruments at the same time as such information is provided to the Irish Stock Exchange.

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4 Interest

The Notes bear interest from the Issue Date at the rate of 10.25 per cent. per annum, payable semi-annually in arrear on 20 November and 20 May in each year (each an “Interest Payment Date”) beginning on 20 November 2010. Each Note will cease to bear interest from the due date for redemption, unless, upon due presentation, payment of principal is improperly withheld or refused. In such event, it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Holder and (b) the day seven days after the Trustee or the Principal Paying and Transfer Agent has notified the Noteholders of receipt of all sums due in respect of all the Notes up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions).

If interest is required to be calculated for a period of less than a complete Interest Period (as defined below), the relevant day-count fraction will be determined on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed. The period beginning on (and including) 20 May 2010 and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is called an “Interest Period”.

5 Redemption and Purchase

5.1 Redemption at Maturity

(a) Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on 20 May 2015.

(b) Other than as specified below, the Notes are not optionally redeemable prior to 20 May 2015.

5.2 Redemption for Taxation Reasons

The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable), at their principal amount (together with interest accrued but unpaid to (but excluding) the date fixed for redemption) if the Issuer satisfies the Trustee immediately prior to the giving of such notice that (i) it (or, if the Guarantees were called, one or more of the Guarantors) has or will become obliged to pay Additional Amounts (as defined in Condition 7) as a result of any change in, or amendment to, the laws or regulations of The Netherlands (in the case a payment by the Issuer) or Ukraine (in the case of a payment by the relevant Guarantor) or, in each case, any political or governmental subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 20 May 2010, and (ii) such obligation cannot be avoided by the Issuer (or the relevant Guarantor(s), as the case may be) taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer (or the relevant Guarantor(s), as the case may be) would be obliged to pay Additional Amounts were a payment in respect of the Notes (or the Guarantees, as the case may be) then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee (A) an opinion of independent legal counsel of recognised standing that the requirement in (i) above will apply on the next Interest Payment Date and (B) a certificate signed by two Directors of the Issuer (or the relevant Guarantor(s), as the case may be) stating that the obligation referred to in (i) above cannot be avoided by the Issuer (or the relevant Guarantor(s), as the case may be) taking reasonable measures available to it and the Trustee shall be entitled to accept such opinion and certificate as sufficient evidence of the satisfaction of the conditions precedent set out in (i) and (ii) above, in which event it shall be conclusive and binding on the Noteholders.

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5.3 Redemption at the Option of the Holders Upon a Change of Control

(a) Upon the occurrence of any of the following events (each a “Change of Control”), each Noteholder shall have the right to require that the Issuer repurchase such Noteholder’s Notes at a purchase price in cash equal to 101 per cent. of the principal amount thereof on the date of purchase plus accrued and unpaid interest, if any, to (but excluding) the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date)

(i) prior to the earlier to occur of (A) the first public offering of common stock of the Parent or (B) the first public offering of common stock of the Issuer (the “Relevant Date”), the Permitted Holders cease to be the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Issuer, whether as a result of issuance of securities of the Parent or the Issuer, any merger, consolidation, liquidation or dissolution of the Parent or the Issuer, or any direct or indirect transfer of securities by the Parent or otherwise (for purposes of this paragraph (i) and paragraph (ii) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a Person (the “specified person”) held by any other Person (the “parent entity”) so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent entity);

(ii) on or after the Relevant Date, any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in paragraph (i) above, except that for purposes of this paragraph (ii) such person shall be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40 per cent. of the total voting power of the Voting Stock of the Issuer; provided, however, that the Permitted Holders beneficially own (as defined in paragraph (i) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Issuer than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this paragraph (ii), such other person shall be deemed to beneficially own any Voting Stock of a specified person held by a parent entity, if such other person is the beneficial owner (as defined in this paragraph (ii)), directly or indirectly, of more than 40 per cent. of the voting power of the Voting Stock of such parent entity and the Permitted Holders beneficially own (as defined in paragraph (i) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent entity and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent entity);

(iv) the adoption of a plan relating to the liquidation or dissolution of the Issuer; or

(v) the merger or consolidation of the Issuer with or into another Person or the merger of another Person with or into the Issuer, or the sale of all or substantially all the assets of the Issuer (determined on a consolidated basis) to another Person other than (i) a transaction in which the survivor or transferee is a Person that is controlled by the Permitted Holders or (ii) a transaction following which (A) in the case of a merger or consolidation transaction, holders of securities that represented 100 per cent. of the Voting Stock of the Issuer immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before the transaction and (B) in

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the case of a sale of assets transaction, each transferee becomes an obligor in respect of the Notes and a Subsidiary of the transferor of such assets.

(b) Within 30 days following any Change of Control, the Issuer will give notice in accordance with Condition 16 to each Noteholder with a copy to the Trustee (the “Change of Control Offer”) stating:

(i) that a Change of Control has occurred and that such Noteholder has the right to require the Issuer to purchase such Noteholder’s Notes at a purchase price in cash equal to 101 per cent. of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Noteholders of record on the relevant record date to receive interest on the relevant interest payment date);

(ii) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalisation, in each case after giving effect to such Change of Control);

(iii) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and

(iv) the instructions, as determined by the Issuer, consistent with the covenant described hereunder, that a Noteholder must follow in order to have its Notes purchased.

(c) The Issuer will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Trust Deed applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

(d) The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the covenant described hereunder by virtue of its compliance with such securities laws or regulations.

5.4 Purchases

The Issuer, the Guarantors or any of their respective Subsidiaries may at any time purchase Notes in any manner and at any price. The Notes so purchased, while held by or on behalf of any of them, shall not entitle them to vote at any meetings of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Conditions 8, 11(a) and 13.

5.5 Cancellations

All Notes which are (a) redeemed or (b) purchased by or on behalf of the Issuer, the Guarantors or any of their respective Subsidiaries will forthwith be cancelled and accordingly may not be held, reissued or resold.

6 Payments

(a) Method of Payment

Payments of principal, premium and interest shall be made by U.S. dollar cheque drawn on, or, upon application by a Holder of a Note to the Specified Office of the Principal Paying and Transfer Agent

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not later than the fifteenth day before the due date for any such payment, by transfer to a U.S. dollar account (or any account to which U.S. dollars may be credited or transferred) maintained by the payee with, a bank in New York City and, in the case of payments of principal and premium in respect of the Notes and accrued interest payable on a redemption of the Notes otherwise than on an Interest Payment Date, shall only be made upon surrender (or, in the case of part payment only, endorsement) of the relevant Individual Certificates at the Specified Office of any Paying and Transfer Agent.

(b) Payments subject to laws

All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 7. No commissions or expenses shall be charged to the Noteholders in respect of such payments.

Where payment is to be made by transfer to a U.S. dollar account, payment instructions (for value the due date, or, if the due date is not a business day, for value the next succeeding business day) will be initiated and, where payment is to be made by U.S. dollar cheque, the cheque will be mailed (i) (in the case of payments of principal, premium and interest payable on redemption or, as the case may be, purchase pursuant to Condition 5.5) on the later of the due date for payment and the day on which the relevant Individual Certificate is surrendered (or, in the case of part payment only, endorsed) at the Specified Office of the Principal Paying and Transfer Agent or the U.S. Paying Agent and (ii) (in the case of payments of interest payable other than on redemption or, as the case may be, purchase pursuant to Condition 5.5) on the due date for payment. A Holder of a Note shall not be entitled to any interest or other payment in respect of any delay in payment resulting from (A) the due date for a payment not being a business day or (B) a cheque mailed in accordance with this Condition 6 arriving after the due date for payment or being lost in the mail. In this paragraph, “business day” means any day on which banks are open for general business (including dealings in foreign currencies) in London and New York City and, in the case of surrender (or, in the case of part payment only, endorsement) of an Individual Certificate, in the place in which the Individual Certificate is surrendered (or, as the case may be, endorsed).

(d) Partial payments

If a Paying and Transfer Agent makes a partial payment in respect of any Note, the Issuer shall procure that the amount and date of such payment are noted on the Register and, in the case of partial payment upon presentation of a Note Certificate, that a statement indicating the amount and the date of such payment is endorsed on the relevant Individual Certificate.

(e) Record date

Each payment in respect of a Note will be made to the Person shown as the Holder in the Register at the opening of business in the place of the Registrar’s Specified Office on the fifteenth day before the due date for such payment (the “Record Date”). Where payment in respect of a Note is to be made by cheque, the cheque will be mailed to the address shown as the address of the Holder in the Register at the opening of business on the relevant Record Date.

(f) Agents

The initial Agents and their initial specified offices are listed below. The Issuer and the Guarantors reserve the right at any time with the approval of the Trustee to vary or terminate the appointment of any Agent and appoint additional or other Agents, provided that they will maintain (i) a Principal Paying and Transfer Agent, (ii) a Registrar, (iii) Paying and Transfer Agents having specified offices in at least two major European cities approved by the Trustee and (iv) a Paying and Transfer Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any law implementing European Council Directive 2003/48/EC or any other

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Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000. In addition, the Issuer and the Guarantors shall forthwith appoint a Paying and Transfer Agent in New York City and shall after such circumstances arise maintain such a Paying and Transfer Agent.

Notice of any change in the Agents or their specified offices will promptly be given to the Noteholders.

7 Taxation

All payments of principal, premium and interest by or on behalf of the Issuer or the Guarantors in respect of the Notes or under the Guarantees shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within The Netherlands or Ukraine or any authority therein or thereof, or any other jurisdiction or political subdivision or authority thereof having power to tax (“Taxes”), unless such withholding or deduction is required by law. In that event and in the event that any payment under the Guarantees is subject to any such Taxes, the Issuer (or, as the case may be, the Guarantors) shall pay such additional amounts as will result in receipt by the Noteholders of such amounts as would have been received by them had no such withholding or deduction been required (“Additional Amounts”), except that no Additional Amounts shall be payable in respect of any Note presented for payment:

(a) Other connection: by or on behalf of a Holder who is liable to such Taxes in respect of such Note by reason of his having some connection with The Netherlands other than the mere holding of the Note; or

(b) Presentation more than 30 days after the Relevant Date: more than 30 days after the Relevant Date, except to the extent that the Holder of it would have been entitled to Additional Amounts on presenting such Note for payment on the last day of such period of 30 days; or

(c) Payment to individuals: where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26 27 November 2000; or

(d) Payment by another Paying and Transfer Agent: by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying and Transfer Agent in a member state of the European Union.

“Relevant Date” means whichever is the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received by the Principal Paying and Transfer Agent or the Trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Noteholders. Any reference in these Conditions to principal, premium and/or interest shall be deemed to include, without duplication, any Additional Amounts in respect of principal, premium or interest (as the case may be) which may be payable under this Condition 7 or any undertaking given in addition to or substitution for it under the Trust Deed.

8 Events of Default

If any of the following events (an “Event of Default”) occurs and is continuing, the Trustee at its discretion may, and if so requested by holders of at least one-fifth in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution (as defined in the Trust Deed) shall, subject in each case to being indemnified and/or secured and/or prefunded to its satisfaction, give written notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their principal amount, together with accrued interest, if:

(a) Non-Payment: default is made in the payment of principal, premium or interest on any of the Notes when due and, in the case of interest, such failure continues for a period of 10 days; or

(b) Breach of Other Obligations: the Issuer or any of the Guarantors does not perform or comply with any one or more of its other obligations under the Notes or the Trust Deed, which default is incapable

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of remedy or, if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied within 30 days after written notice of such default shall have been given to the Issuer or the relevant Guarantor(s) by the Trustee; or

(c) Cross-Payment and Cross-Acceleration: (i) any other present or future Indebtedness of the Issuer or any Guarantor or any of their respective Subsidiaries becomes due and payable prior to its stated maturity by reason of any actual or potential default, event of default or the like (howsoever described), or (ii) any such Indebtedness is not paid when due or, as the case may be, within any applicable grace period, or (iii) the Issuer or any Guarantor or any of their respective Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any Indebtedness provided that the aggregate amount of the relevant Indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this paragraph (c) have occurred equals or exceeds U.S.$50 million or its equivalent in any other currency or currencies (on the basis of the middle spot rate for the relevant currency against the U.S. dollar as quoted by any leading bank on the day on which this paragraph operates); or

(d) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied, enforced or sued out on or against any, in the opinion of the Trustee, material part of the property, assets or revenues of the Issuer or any Guarantor or any of their Material Subsidiaries and is not discharged or stayed within 60 days; or

(e) Security Enforced: any expropriation, attachment, sequestration, execution or distress is levied against, or an encumbrancer takes possession of or sells, the whole or any material part of, the property, undertaking, revenues or assets of the Issuer or any of its Material Subsidiaries; or

(f) Judgment Default: any one or more judgments or orders is made against the Issuer or any Guarantor or any of their respective Subsidiaries involving an aggregate liability not paid or fully covered by insurance in respect of a matter (or a series of related matters) greater than U.S.$50 million or its equivalent in any other currency or currencies (on the basis of the middle spot rate for the relevant currency against the U.S. dollar as quoted by any leading bank on the day on which this paragraph operates), unless all those judgments and orders (i) are vacated or discharged within 60 days of their being made or (ii) are being appealed in good faith and the Issuer or the relevant Guarantor or Subsidiary, as the case may be, is maintaining adequate reserves for the amount of such judgment or order; or

(g) Insolvency

(i) (A) the Issuer, the Guarantors or any Material Subsidiary seeking, consenting or acquiescing in the introduction of proceedings for its liquidation or bankruptcy or the appointment to it of a liquidation commission or a similar officer; (B) the presentation or filing of a petition in respect of the Issuer, the Guarantors or any Material Subsidiary in any court, arbitration court or before any agency for its bankruptcy, insolvency, dissolution or liquidation which, in the case of a petition presented or filed by a Person other than the Issuer, the Guarantors or such Material Subsidiary, as the case may be, is not dismissed within 60 days; (C) the institution of supervision, external management or bankruptcy management to the Issuer, the Guarantors or any Material Subsidiary; (D) the convening of a meeting of creditors generally of the Issuer, the Guarantors or any Material Subsidiary for the purposes of considering an amicable settlement with its creditors generally; and/or (E) any extra-judicial liquidation or analogous act in respect of the Issuer, the Guarantors or any Material Subsidiary by any governmental agency in or of The Netherlands or Ukraine, in each case other than the bankruptcy proceedings initiated in Ukraine in relation to Makiivka Steel and Krasnodon Coal; or

(ii) the Issuer, the Guarantors or any Material Subsidiary: (A) fails or is unable to pay its debts generally as they become due; (B) consents by answer or otherwise to the commencement against it of an involuntary case in bankruptcy or to the appointment of a custodian of it or of a substantial part of its property; or (C) a court of competent jurisdiction enters an order for relief or a decree in an involuntary case in bankruptcy or for the appointment of a custodian in

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respect of the Issuer, the Guarantors or any Material Subsidiary or any part of their respective property and such order or decree remains undischarged for a period of 60 days; or

(iii) the shareholders of the Issuer approve any plan for the liquidation or dissolution of the Issuer; or

(h) Winding-up: an order is made or an effective resolution passed for the winding-up or dissolution of the Issuer or any Guarantor or any of their respective Material Subsidiaries, or the Issuer or any of the Guarantors or any of their respective Material Subsidiaries ceases or threatens to cease to carry on all or, in the opinion of the Trustee, substantially all of its business or operations, except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation (i) on terms approved by the Trustee or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders, or (ii) in the case of a Material Subsidiary of the Issuer or of any Guarantor, whereby the undertaking and assets of the relevant Material Subsidiary are transferred to or otherwise vested in the Issuer, any Guarantors (as the case may be) or any of their respective Subsidiaries; or

(i) Nationalisation: all or, in the opinion of the Trustee, a material part of the assets of the Issuer or the Guarantors or all or, in the opinion of the Trustee, a material part of the Group’s assets held by any of the respective Subsidiaries of the Issuer or the Guarantors are expropriated, seized or nationalised by any person; or

(j) Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable the Issuer and the Guarantors lawfully to enter into, exercise their respective rights and perform and comply with their respective obligations under the Notes, the Guarantees, the Surety Agreement and the Trust Deed, (ii) to ensure that those obligations are legally binding and enforceable and (iii) to make the Notes, the Guarantees, the Surety Agreement and the Trust Deed admissible in evidence in the courts of Ukraine, the Netherlands or England is not taken, fulfilled or done; or

(k) Illegality: it is or will become unlawful for (i) the Issuer or any of the Guarantors to perform or comply with any one or more of its obligations under any of the Notes, the Guarantees, the Surety Agreement or the Trust Deed, as applicable; or

(l) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of the foregoing paragraphs; or

(m) Guarantees: the Guarantees are not (or are claimed by any Guarantor not to be) in full force and effect.

9 Prescription

Claims in respect of principal, premium and interest will become void, unless presentation for payment is made as required by Condition 6 within a period of 10 years, in the case of principal and premium, and five years, in the case of interest, from the appropriate Relevant Date (as defined in Condition 7).

10 Replacement of Individual Certificates

If any Individual Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Registrar, the Principal Paying and Transfer Agent or the U.S. Paying and Transfer Agent, subject to all applicable laws and stock exchange requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Individual Certificates must be surrendered before replacements will be issued.

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11 Meetings of Noteholders; Modification, Waiver and Substitution

(a) Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of Noteholders to consider matters affecting their interests, including the sanctioning by Extraordinary Resolution (as defined in the Trust Deed) of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by Noteholders holding not less than 10 per cent. in principal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more Persons holding or representing a clear majority in principal amount of the Notes for the time being outstanding, or at any adjourned meeting two or more Persons being or representing Noteholders whatever the principal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to change the maturity of the Notes or the due date for any payment in respect of the Notes, (ii) to modify or cancel the Guarantees, (iii) to reduce or cancel the principal amount of, any premium payable on redemption of, or interest on, the Notes, (iv) to change the currency of payment of the Notes, (v) to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution or sign a resolution in writing, (vi) or (vii) to change the governing law of the Notes, in which case the necessary quorum will be two or more Persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolution was passed). The Trust Deed provides that a resolution in writing signed by or on behalf of holders of not less than 90 per cent. of the aggregate principal amount of Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held.

(b) Modification and Waiver

The Trustee may agree, without the consent of the Noteholders, to (i) any modification of any of the provisions of the Trust Deed or the Surety Agreement which is in its opinion of a formal, minor or technical nature or is made to correct a manifest error and (ii) any other modification (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Trust Deed or the Surety Agreement, which is in the opinion of the Trustee not materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or waiver shall be binding on the Noteholders and, if the Trustee so requires, such modification shall be notified to the Noteholders as soon as practicable.

Subject to the terms of the Trust Deed, the Trustee may, without the consent of the Noteholders, agree to the substitution of the Issuer’s successor in business or any Subsidiary of the Issuer (or its successor in business) or any of the Guarantors (or its/their successor(s) in business or any of the subsidiaries of the Guarantors (or its/their successor(s) in business) in place of the Issuer (or of any previous substitute under this Condition 11(c)) as the principal debtor under the Trust Deed or the Notes and the Trustee may, without the consent of the Noteholders, agree to the substitution of any Guarantor’s successor in business or any Subsidiary of the Issuer or any Subsidiary of the Guarantors or any of their respective successors in business in place of such Guarantor (or any previous substitute under this Condition 11(c)) as a Guarantor under the Trust Deed, the Surety Agreement, the Notes and the Guarantees.

(d) Entitlement of the Trustee

In connection with the exercise of its functions (including but not limited to those referred to in this Condition), the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders and the Trustee shall not

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be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer or any of the Guarantors any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders.

12 Trustee Reliance

The Issuer has undertaken in the Trust Deed to deliver to the Trustee annually a certificate of the Issuer as to (i) there not having occurred an Event of Default or Potential Event of Default since the date of the last such certificate or, if such event has occurred, as to the details of such event, (ii) that, as at the date of the reports provided pursuant to Clause 6.4.1 and 6.4.2 of the Trust Deed, the Consolidated Leverage Ratio had not exceeded 3.00 to 1.00 or, to the extent the Consolidated Leverage Ratio exceeded 3.00 to 1.00, setting out the Consolidated Leverage Ratio and (iii) containing information specified in Clause 6.6 of the Trust Deed. The Trustee shall be entitled to rely on any such certificate and shall not be obliged to monitor independently compliance by the Issuer or the Guarantors with the covenants set forth in Condition 3, nor shall it be liable to any person for not so doing and the Trustee need not enquire further as regards to circumstances existing on the date of such certificate.

13 Enforcement

At any time after the Notes become due and payable, the Trustee may, at its discretion and without further notice, institute such steps, actions or proceedings against the Issuer or the Guarantors as it may think fit to enforce the terms of the Trust Deed, the Surety Agreement, the Guarantees and the Notes, but it need not take any such steps, actions or proceedings, unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-fifth in principal amount of the Notes outstanding and (b) it shall have been indemnified and/or secured and/or prefunded to its satisfaction. No Noteholder may proceed directly against the Issuer or the Guarantors unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

14 Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee is entitled to enter into business transactions with the Issuer, the Guarantors and any entity related to the Issuer or the Guarantors without accounting for any profit.

The Trustee shall be entitled to rely on reports, certificates and opinions of the auditors of the Issuer and the Guarantors notwithstanding that the auditors’ liability in respect thereof may be limited by reference to monetary cap or otherwise.

15 Further Issues

The Issuer may from time to time without the consent of the Noteholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such terms as the Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further securities forming a single series with the outstanding securities of any series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other securities may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides.

16 Notices

Notices to the Noteholders will be sent to them by first-class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed

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to have been given on the fourth day after the date of mailing. In addition, notices to Noteholders will (so long as the Notes are admitted to trading on the Global Exchange Market of the Irish Stock Exchange be published either on the website of the Irish Stock Exchange or in a leading newspaper having general circulation in Dublin. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made.

So long as the Notes are represented by the Global Note Certificates and the Global Note Certificates are held on behalf of DTC, Euroclear or Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to DTC, Euroclear or Clearstream, Luxembourg for communication by it to entitled accountholders in substitution for notification as required by the Conditions.

17 Contracts (Rights of Third Parties) Act 1999

No Person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

18 Governing Law

(a) Governing Law

The Trust Deed, the Notes, the Surety Agreement and the Guarantees, and any non-contractual obligations arising out of or in connection with them, are governed by, and shall be construed in accordance with, English law.

(b) Arbitration

Subject to Condition 18(c), any dispute arising out of or in connection with the Trust Deed, the Notes, the Surety Agreement or the Guarantees shall be referred to and finally resolved by arbitration under the LCIA Arbitration Rules. The arbitral tribunal shall consist of three arbitrators. The seat of arbitration shall be London, England and the language of the arbitration shall be English.

Before and at any time up to 60 days following the nomination of an arbitrator pursuant to Condition 18(b), the Trustee may, by notice in writing to the Issuer, require that any dispute or disputes be heard by a court of law. If the Trustee give such notice, the courts of England shall have non-exclusive jurisdiction in respect of all such disputes. Each of the Issuer and the Guarantors has in the Trust Deed or the Surety Agreement, as applicable, irrevocably submitted to the jurisdiction of such courts and waives any objections to proceedings in such courts on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum. These submissions are for the benefit of the Trustee and the Noteholders and shall not limit the right of any of them to take proceedings in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdictions (whether concurrently or not).

(d) Agent for Service of Process

Each of the Issuer and the Guarantors has irrevocably appointed an agent in England to receive service of process in any Proceedings in England based on any of the Trust Deed, the Notes, the Surety Agreement or the Guarantees.

19 Definitions

In these Conditions, the following terms have the meanings given to them in this Condition 19.

“Accounting Standards” means IFRS or any other internationally recognised set of accounting standards deemed equivalent to IFRS by the Committee of European Securities Regulators from time to time; provided

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however, that where such term is used with respect to the financial statements of the Subsidiaries of the Issuer, it shall, where financial statements prepared in accordance with IFRS are not available, be deemed to include U.S. GAAP, Ukrainian GAAP or any other generally accepted accounting standards of the jurisdiction of incorporation of the relevant Subsidiary from time to time.

“Additional Amounts” has the meaning given to it in Condition 7.

“Additional Guarantees” means guarantees by way of the deeds of accession to the Surety Agreement substantially in the form set out in the Schedule to the Surety Agreement executed by the Additional Guarantors as a result of the application of the requirements of Condition 3.15.

“Additional Guarantors” means Persons who become guarantors pursuant to Condition 3.15.

“Affiliate” of any specified Person means any other Person, directly or indirectly controlling, controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, provided that ownership of 20 per cent. of the voting securities of any Person shall be deemed to be control.

“Agency” means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not).

“Aggregate Subsidiary Indebtedness” means the aggregate amount of all Indebtedness of Non-Guarantor Subsidiaries (without duplication (and, without limiting the generality of the foregoing, calculating as one item of Indebtedness any Indebtedness in respect of which more than one Non-Guarantor Subsidiary is an obligor) and excluding (i) Indebtedness of any Non-Guarantor Subsidiary incurred pursuant to Condition 3.2(a)(iii), (ii) any guarantee by a Non-Guarantor Subsidiary of the Indebtedness of any other Non-Guarantor Subsidiary and (iii) Indebtedness of a Non-Guarantor Subsidiary owed solely to the Issuer or a Subsidiary, in each case after giving effect on a pro forma basis to the Incurrence of Indebtedness of a Non-Guarantor Subsidiary the permissibility of which is then being measured and the receipt and application of the proceeds therefrom.

“Approved Jurisdiction” means the United States of America, Ukraine, Russia and any member nation of the European Union as constituted on the Issue Date.

“Asset Acquisition” means (i) an investment by the Issuer or any Subsidiary of the Issuer in any other Person pursuant to which such Person shall become a Subsidiary of the Issuer or shall be consolidated or merged with the Issuer or any Subsidiary of the Issuer or (ii) the acquisition by the Issuer or any Subsidiary of the Issuer of assets of any Person which constitute all or substantially all of the assets of such Person or which comprise a division or line of business of such Person.

“Asset Sale” means any direct or indirect lease, sale, sale and lease-back, transfer or other disposition either in one transaction or in a series of related transactions, by the Issuer or any of its Subsidiaries to a Person that is not part of the Group, including any disposition by means of a merger, consolidation or similar transaction, of any of its assets (including any shares of Capital Stock of a Subsidiary of the Issuer (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Issuer or a Subsidiary of the Issuer)) or properties the value of which exceeds 10 per cent. of Total Production Assets in any 12-month period, other than: (a) a disposition of all or substantially all the assets of the Issuer in accordance with Condition 3.7; (b) the creation of a Lien (but not the sale or other disposition of the property subject to such Lien) in compliance with Condition 3.1; (c) the licensing or sublicensing of rights to intellectual property or other intangibles in the ordinary course of business;

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(d) the sale, lease or other disposition of obsolete, worn out, negligible, surplus or outdated equipment or machinery or raw materials or inventory, in each case which is no longer used or usable, in the ordinary course of business;

(e) the lease, assignment or sublease of any property in the ordinary course of business;

(f) sales or other dispositions of assets or property received by the Issuer or any Subsidiary upon the foreclosure on a Lien granted in favour of the Issuer or any Subsidiary or any other transfer of title with respect to any ordinary course secured investment in default;

(g) the surrender or waiver of contract rights or the settlement, release, or surrender of contract, tort or other claims, in the ordinary course of business;

(h) sales and other dispositions of inventory in the ordinary course of business; and

(i) sales and dispositions of cash and Cash Equivalents in the ordinary course of business.

“Auditors” means PricewaterhouseCoopers Accountants N.V.

“Azovstal” means Open Joint Stock Company Azovstal Iron and Steel Works.

“Board of Directors” means, as to any Person, the board of directors or other equivalent executive body of such Person or any duly authorised committee thereof.

“Business Day” means a day which is a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in Kyiv, Amsterdam, London and New York City.

“Capital Stock” means, with respect to any Person, any and all shares, interests (including partnership interests), rights to purchase, warrants, options, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s equity, including any Preferred Stock of such Person, whether now outstanding or issued after the Issue Date, including without limitation, all series and classes of such Capital Stock but excluding any debt securities convertible into or exchangeable for such Capital Stock.

“Cash Equivalents” means:

(a) any evidence of Indebtedness with a maturity of one year or less issued or directly and fully guaranteed or insured by a corporation organised under the laws of an Approved Jurisdiction or any Agency or instrumentality thereof; provided that the full faith and credit of an Approved Jurisdiction (or similar concept under the laws of the relevant Approved Jurisdiction) is pledged in support thereof;

(b) commercial paper with a maturity of one year or less issued by a corporation organised under the laws of an Approved Jurisdiction and rated at all times at least the same rating as that of the unsecured, unsubordinated debt obligations of the Issuer by Standard & Poor’s Ratings Services, a division of McGraw-Hill Companies, Inc., Moody’s Investors Service Limited or Fitch Ratings Ltd. to the extent that the aggregate amount of Cash Equivalents (as defined in this paragraph (b)) invested by application of Disposal Proceeds do not exceed at any time U.S.$50 million or its U.S. Dollar Equivalent;

(c) commercial paper with a maturity of one year or less, issued by a corporation organised under the laws of an Approved Jurisdiction, and at all times listed or traded on the London Inter-bank Currency Exchange to the extent that the aggregate amount of Cash Equivalents (as defined in this paragraph (c)) invested by application of Disposal Proceeds do not exceed at any time U.S.$50 million or its U.S. Dollar Equivalent;

(d) current account balances, deposits, certificates of deposit, promissory notes, acceptances or money market deposits with a maturity of one year or less of (i) any institution organised in an Approved Jurisdiction having combined, consolidated, capital and surplus and undivided

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profits (or any similar concept) of not less than U.S.$250 million (or the equivalent in another currency) determined in conformity with Accounting Standards and as set forth in the most recent publicly available financial reports published by such institution or (ii) the Ukrainian branch or Subsidiary of an institution referred to in (i);

(e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of an Approved Jurisdiction, which obligations mature within 30 days from the date of acquisition; and/or

(f) interests in any money market funds at least 95 per cent. of the assets of which consist of Cash Equivalents of the type referred to in paragraphs (a) to (e) above.

“Central GOK” means Joint Stock Company Central Mining-Dressing Integrated Works.

“Consolidated Depreciation and Amortisation” means, in respect of any period, the consolidated depreciation and amortisation expense of the Group as shown on the financial statements of the Group prepared in accordance with Accounting Standards.

“Consolidated EBITDA” for any period means the sum of Consolidated Net Income, adjusted to the extent included in calculating such Consolidated Net Income by excluding from Consolidated Net Income, without duplication:

(a) gains or losses in respect of dispositions of assets other than in the ordinary course of business;

(b) any net foreign exchange gain or loss;

(d) the cumulative effect of a change in accounting principles; and

(e) any items treated as exceptional or extraordinary including, without limitation, any loss or gain on impairment of fixed assets;

plus the following to the extent deducted in calculating such Consolidated Net Income:

(a) Consolidated Interest Expense;

(b) Consolidated Income Tax Expense;

plus or minus any non-cash items decreasing or increasing Consolidated Net Income, in each case for such period.

“Consolidated Income Tax Expense” means, in respect of any period, the consolidated expenses of the Group in respect of income taxes as shown on the financial statements of the Group prepared in accordance with Accounting Standards.

“Consolidated Indebtedness” means at any date of determination (and without duplication) all consolidated Indebtedness of the Group calculated by reference to the most recently published consolidated financial statements of the Group prepared in accordance with Accounting Standards.

“Consolidated Interest Expense” means, for any period, the consolidated interest expense of the Group as shown on the financial statements of the Group prepared in accordance with Accounting Standards.

“Consolidated Leverage Ratio” as of any date of determination means the ratio of (x) the Consolidated Indebtedness of the Issuer as of such date of determination to (y) Consolidated EBITDA for the most recent two fiscal six-month consecutive periods for which financial statements exist or have been delivered pursuant to Condition 3.16 (the “Reference Period”) after giving effect on a pro forma basis to:

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(a) the Incurrence of any Indebtedness the permissibility of which is then being measured, the incurrence or repayment of any other Indebtedness on or after the first day of the Reference Period relevant for such calculation and, in each case, the receipt and application of the proceeds therefrom; and

(b) the exclusion of Consolidated EBITDA associated with any Asset Sale or the inclusion of Consolidated EBITDA associated with any Asset Acquisition (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of the incurrence or assumption of Indebtedness) on or after the first day of the Reference Period;

provided, however, that any such pro forma Consolidated EBITDA in respect of an Asset Acquisition may only be so included if such pro forma Consolidated EBITDA shall have been derived from (i) financial statements of, or relating to or including, such acquired entity, that have been prepared in accordance with Accounting Standards or (ii) such other financial statements or financial reports of the acquired entity that the chief financial officer of the Issuer believes in good faith to present fairly the financial position and results of operations of the acquired entity so as to permit such a pro forma Consolidated EBITDA to be prepared on the basis of reasonable assumptions and estimates.

“Consolidated Net Income” means, for any period, the consolidated net profit/(loss) of the Group as shown on its financial statements prepared in accordance with Accounting Standards, in each case, for such period.

“Consolidated Revenue” means, in respect of any period, the consolidated revenue of the Group as shown on the financial statements of the Group prepared in accordance with Accounting Standards.

“Core or Related Business” means any and all principal and ancillary activities of the Group in the metals and mining industry, including, but not limited to, all areas of business in which the Issuer and its Subsidiaries are engaged on the Issue Date and the following activities: (a) iron ore mining and processing; (b) full cycle pig iron and steel production, including semi-finished and finished steel products; (c) the production of ferroalloys; (d) scrap iron collection and processing; (e) transportation and shipping services; (f) mining of fluxes and other minerals necessary for metals production; (g) coal mining and processing; and (h) any and all ancillary and support activities.

“Currency Agreement” means any foreign exchange contract, currency swap agreement or other similar agreement with respect to currency values.

“Disposal Proceeds” from an Asset Sale means the proceeds thereof in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Issuer or any Subsidiary) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of:

(a) brokerage commissions and other fees and expenses (including fees and expenses of accounting and/or legal advisers and/or investment bankers), title and recording tax expenses, commissions and other fees and expenses relating to such Asset Sale;

(b) provision for all taxes required to be paid or payable, or required to be accrued as a liability determined in conformity with Accounting Standards as a result of such Asset Sale;

(c) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either is secured by a Lien on the property or assets sold, or is required to be paid as a result of such sale;

(d) all distribution and other payments required to be made to minority interest holders in Subsidiaries as a result of such Asset Sale;

(e) any portion of the purchase price from an Asset Sale placed in escrow, whether as a reserve for adjustment of the purchase price, for satisfaction of indemnities in respect of such Asset Sale or otherwise in connection with that Asset Sale; provided, however, that upon the termination

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of that escrow, Net Cash Proceeds will be increased by any portion of funds in the escrow that are released to the Issuer or any Subsidiary; and

(f) appropriate amounts to be provided by the Issuer or any of its Subsidiaries as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligation associated with such Asset Sale, all as determined in conformity with Accounting Standards.

“Disqualified Stock” means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event:

(a) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise;

(b) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or

(c) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part;

in each case on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control” occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if (i) the “change of control” provisions applicable to such Capital Stock are not more favourable to the holders of such Capital Stock than the terms applicable to the Notes and set forth in Condition 5.3, (ii) the “asset sale” provisions are not inconsistent with the provisions of Condition 3.5 and (iii) any such requirement only becomes operative after compliance with such terms applicable to the Notes.

The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined pursuant to the Trust Deed; provided, however, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person.

“Environment” means living organisms including the ecological systems of which they form part and the following media:

(a) air (including air within natural or man-made structures, whether above or below ground);

(b) water (including territorial, coastal and inland waters, water under or within land and water in drains and sewers); and/or

“Environmental Laws” means all laws and regulations of any relevant jurisdiction which:

(a) have as a purpose or effect the protection of, and/or prevention of harm or damage to, the Environment;

(b) provide remedies or compensation for harm or damage to the Environment; and

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“Environmental Licences” means any authorisation, consent, approval, resolution, licence, exemption, filing or registration required at any time under Environmental Law.

“Event of Default” has the meaning set forth in Condition 8.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Fair Market Value” means the price that would be paid in an arm’s length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the competent management body of the Issuer or the relevant Subsidiary whose determination shall be conclusive if evidenced by a resolution of such relevant competent management body, or, with respect to any transaction or series of related transactions involving an aggregate value in excess of U.S.$100 million (or its U.S. Dollar Equivalent), the price as determined by an Independent Appraiser, or, where the subject matter of the relevant transaction is securities that are publicly traded on a market of adequate liquidity (as determined by the Issuer acting in good faith), the Issuer may determine the Fair Market Value of such securities by reference to the weighted average price of such securities as quoted on a relevant stock or commodities exchange or other multilateral trading facility (an “MTF”) for a period of not less than 30 and not more than 60 consecutive dealing days on the MTF immediately preceding the purchase or sale.

“GRF Facility” means the facility agreement relating to a pre-export revolving and term loan facility of U.S.$1,500,000,000 dated 11 July 2007 among the Issuer, Azovstal, Yenakiieve Iron and Steel Works, METAL UKR Holding Limited and BNP Paribas (Suisse) SA.

“Group” means the Issuer and its consolidated Subsidiaries.

“Guarantees” means the guarantees of the Guarantors under the Surety Agreement.

“Guarantors” means the Initial Guarantors together with the Additional Guarantors and “Guarantor” means any of them.

“Hedging Obligations” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement.

“IFRS” means International Financial Reporting Standards.

“Incur” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, Guarantee or otherwise become liable in respect of such Indebtedness or other obligation of such Person (and “Incurrence,” “Incurred” and “Incurring” shall have meanings correlative to the preceding). Indebtedness of any acquired Person or any of its Subsidiaries existing at the time such acquired Person becomes a Subsidiary (or is merged into or consolidated with the Issuer or any Subsidiary), whether or not such Indebtedness was Incurred in connection with, as a result of, or in contemplation of, such acquired Person becoming a Subsidiary (or being merged into or consolidated with the Issuer or any Subsidiary), shall be deemed Incurred at the time any such acquired Person becomes a Subsidiary (or merges into or consolidates with the Issuer or any Subsidiary) provided that the following will not be deemed to be an Incurrence:

(a) the accrual of interest or the accretion of original issue discount;

(b) the amortisation of debt discount or the accretion of principal with respect to a non-interest bearing or other discount security;

(c) the payment of regularly scheduled interest in the form of additional Indebtedness of the same instrument or the payment of regularly scheduled dividends on Capital Stock in the form of additional Capital Stock of the same class and with the same terms; and

(d) the obligation to pay a premium in respect of Indebtedness arising in connection with the issuance of the notice of redemption or the making of a mandatory offer to purchase such Indebtedness.

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“Indebtedness” means, with respect to any Person at any date of determination (without duplication): (a) indebtedness for, or in respect of, moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility; (c) any amount raised pursuant to any note purchase facility or issue of bonds, notes, debentures, loan stock or other similar instruments, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (d) any amounts raised pursuant to any issue of shares which are expressed to be redeemable, including any Disqualified Stock; (e) any liability in respect of any lease or hire purchase contract which would, in accordance with IFRS, be treated as a finance lease; (f) the amount of any liability in respect of any advance or deferred purchase agreement if one of the primary reasons for entering into such agreement is to raise finance; (g) all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement, if one of the primary reasons for entering into such obligations is to raise finance (but excluding any accounts payable or other liability to trade creditors arising in the ordinary course of business); (h) all obligations of such Person in respect of letters of credit or similar instruments (other than obligations with respect to letters of credit securing obligations (other than obligations described in paragraphs (a) through (g) above and (i) through (l) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the 30 days following payment on the letter of credit); (i) all obligations of the type referred to in paragraphs (a) through (h) and (j) through (l) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such outstanding obligation being deemed to be the lesser of the fair market value of such property or assets and the amount of the obligation so secured; (j) to the extent not otherwise included in this definition, Hedging Obligations of such Person; (k) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; and (l) the amount of any liability in respect of any guarantee, suretyship or indemnity for any of the items referred to in paragraphs (a) to (k) above (other than the Guarantees). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations as described above, the maximum liability upon the occurrence of the contingency giving rise to the obligation.

“Independent Appraiser” means any of PricewaterhouseCoopers LLC, KPMG LLC, Deloitte & Touche LLP, Ernst & Young LLP or such investment banking, accountancy or appraisal firm of international standing selected by the competent management body of the Issuer or the relevant Subsidiary (with the prior written consent of the Trustee), provided it is not an Affiliate of the Issuer, or any Subsidiary.

“Initial Guarantors” means Open Joint Stock Company “Avdeevskiy Coke-Processing Works”, Open Joint Stock Company “Ingulets’kyi Ore Mining and Processing Enterprise” and Public Joint Stock Company “Khartsyszk Tube Works”.

“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement with respect to exposure to interest rates.

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“Issue Date” means 20 May 2010.

“Issuer” means the party named as such above until a successor replaces it in accordance with Condition 3.7 and thereafter means such successor.

“Krasnodon Coal“ means Open Joint Stock Company Krasnodonvugillya.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest) securing any obligation of any Person.

“Makiivka Steel” means Joint Stock Company “Makiivka Steel Works”.

“Material Adverse Effect” means a material adverse effect on:

(a) the business, results of operations, property, assets, condition (financial or otherwise) or prospects of the Issuer or any of its Material Subsidiaries; or

(b) the Issuer’s ability to perform its obligations under the Trust Deed; or

(d) the validity, legality or enforceability of the Trust Deed or the rights or remedies of the Noteholders or the Trustee under the Trust Deed or the validity, legality or enforceability of the Surety Agreement or the rights or remedies of the Noteholders or the Trustee under the Surety Agreement.

“Material Subsidiary” means at any relevant time a Subsidiary of the Issuer:

(a) whose total consolidated assets (excluding intercompany loans, intercompany payables, intercompany receivables and intercompany unrealised gains and losses in inventories) represent not less than 10 per cent. of the total consolidated assets of the Issuer or whose gross consolidated revenues (excluding intercompany revenues) or operating income represent not less than 10 per cent. of the gross consolidated revenues or operating income of the Issuer (determined by reference to the most recent publicly available annual or interim financial statements of the Issuer prepared in accordance with Accounting Standards and the latest financial statements of the Subsidiary determined in accordance with Accounting Standards); or

(b) to which is transferred all or substantially all the assets and undertakings of a Subsidiary which immediately prior to such transfer is a Material Subsidiary,

save that each Guarantor shall at all times be deemed to be a Material Subsidiary.

“Metalen” means Ukraine – Switzerland Joint Venture Limited Liability Company Metalen.

“Moody’s” means Moody’s Investors Service, Inc. and any successor to its rating agency business.

“Net Cash Proceeds”, with respect to any issuance or sale of Capital Stock or Indebtedness, means the cash proceeds of such issuance or sale net of legal fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.

“Non-Guarantor Subsidiary” means any Subsidiary that is not a Guarantor.

“Noteholder” means the person in whose name the Note is registered in the register of the noteholders (or in the case of joint holders, the first named holder thereof).

“Northern GOK” means Joint Stock Company Severniy GOK”.

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“Notes” means the U.S.$500,000,000 10.25 per cent. notes due 2015 proposed to be issued by the Issuer pursuant to the Trust Deed.

“Officer” means, with respect to a Person, the Chairman of the Board of Directors, the General Director, the Chief Executive Officer, the Chairman of the Management Board, the President, the Chief Financial Officer, the Controller, the Treasurer or the General Counsel of such Person.

“Officers’ Certificate” means a certificate signed by such number of managing directors (bestuurders) who are authorised to represent the Issuer.

“Opinion of Counsel” means a written opinion from legal counsel of international standing who is acceptable to the Trustee.

“Parent” means Closed Joint Stock Company System Capital Management.

“Permitted Holders” means any and all of (i) SCM; (ii) SMART; (iii) any direct or indirect beneficial owner of the Capital Stock of SCM or SMART at the Issue Date; (iii) the legal representatives of any of the foregoing and the trustees of bona fide trusts of which the foregoing are the only beneficiaries; or (iv) any Subsidiary of any of the foregoing parties.

“Permitted Liens” means:

(a) Liens granted by: (i) a Subsidiary of the Issuer (including any Guarantor) in favour of the Issuer or any Guarantor, or (ii) a Subsidiary of the Issuer other than a Guarantor in favour of another Subsidiary of the Issuer, or (iii) by the Issuer in favour of a Guarantor, in each case with respect to the property or assets, or any income or profits therefrom, of the Issuer or such Subsidiary of the Issuer, as the case may be;

(b) any Lien existing on the Issue Date;

(c) any Lien in respect of working capital facilities and pre-export financings so long as the related Indebtedness is permitted to be Incurred under the terms of the Trust Deed;

(d) Liens imposed by law, including but without limitation, Liens of landlords and carriers, warehousemen, mechanics, suppliers, material men, repairmen or other similar Liens arising in the ordinary course of business;

(e) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of the Issuer or any of its Subsidiary; provided, however, that the Liens may not extend to any other property owned by the Issuer or any of its Subsidiaries (other than assets and property affixed or appurtenant thereto);

(f) Liens on property at the time the Issuer or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into the Issuer or such Subsidiary; provided, however, that the Liens may not extend to any other property owned by the Issuer or any of its Subsidiaries (other than assets and property affixed or appurtenant thereto);

(g) any Lien securing the Notes and any Guarantee;

(h) any Lien incurred, or pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security benefits and other obligations of like nature in the ordinary course of business;

(i) any deposits to secure the performance of bids, trade contacts, government contracts, leases, statutory obligations, customs duties, surety and appeal bonds, performance or return-of- money bonds or liabilities to insurance carriers under insurance or self-insurance arrangements and other obligations of like nature, in each case so long as, such Liens do not secure obligations constituting Indebtedness for borrowed money and are incurred in the ordinary course of business;

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(j) minor easements, rights of way, restrictions (including zoning restrictions), reservations, permits, servitudes, defects or irregularities in title and other similar charges and encumbrances, and Liens arising under leases or subleases granted to others, in each case not interfering in any material respect with the business of the Issuer or any of its Subsidiaries and existing, arising or incurred in the ordinary course of business incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;

(k) any Lien securing reimbursement obligations of the Issuer or any of its Subsidiaries with respect to letters of credit encumbering only documents and other property relating to such letters of credit and other property relating to such letters of credit and the products or proceeds thereof in the ordinary course of business; provided that such letters of credit do not constitute Indebtedness;

(l) any Lien upon any steel, iron ore, coal or coke export contracts (including contracts for sale, transportation or exchange), and any related inventory and products, and proceeds thereof which contracts are entered into in the ordinary course of business of the Issuer and its Subsidiaries in a form that is customary in the steel, iron ore mining, coal mining and coke production industry, as applicable;

(m) any Lien securing Purchase Money Indebtedness; provided, however, that the Lien may not extend to any other property owned by such Person or any of its Subsidiaries at the time the Lien comes into existence (other than assets and property affixed or appurtenant thereto), and the Indebtedness (other than any interest thereon) secured by the Lien may not be Incurred more than 180 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien;

(n) any Lien in respect of obligations arising under hedging agreements so long as the related Indebtedness is permitted to be incurred under the terms of the Trust Deed and any such hedging agreement is not speculative;

(o) a right of set-off, right to combine accounts or any analogous right which any bank or other financial institution may have relating to any credit balance of any member of the Group; provided, however, that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Issuer or any of its Subsidiaries and (ii) such deposit account is not intended by the Issuer or any Subsidiary to provide collateral to the depository institution;

(p) any Lien for ad valorem, income or property taxes or assessments, customs charges and similar charges, including VAT, which either are not delinquent or are being contested in good faith by appropriate proceedings for which the Issuer or relevant Subsidiary has set aside in its accounts reserves to the extent required by Accounting Standards; and

(q) Liens incurred with respect to Indebtedness in an aggregate principal amount not exceeding 20 per cent. of Total Assets. For the avoidance of doubt, this paragraph (q) does not include any Lien created in accordance with paragraphs (a) through (p) above.

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organisation or government or any Agency or political subdivision thereof.

“Potential Event of Default” means any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination and/or request and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute an Event of Default.

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“Preferred Stock”, as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

“Purchase Money Indebtedness” means Indebtedness:

(a) Incurred to finance the acquisition, construction, improvement or lease of such property, or other assets (including Capital Stock in any Person), thereto; and

(b) where the aggregate principal amount of such Indebtedness does not exceed the lesser of Fair Market Value of such property or other assets as at the date of the Incurrence thereof or such purchase price or cost, including any Refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the date of Refinancing,

provided, however, that such Indebtedness is incurred within 180 days after the acquisition, construction, improvement or lease of such property or other assets by the Issuer or a Subsidiary.

“Refinance” means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. “Refinanced” and “Refinancing” shall have correlative meanings.

“Refinancing Indebtedness” means Indebtedness of the Issuer or any Guarantor that Refinances any Indebtedness of the Issuer or any Subsidiary existing on the Issue Date or Incurred in compliance with the Trust Deed, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that:

(a) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced ;

(b) such Refinancing Indebtedness has a Weighted Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Weighted Average Life of the Indebtedness being Refinanced;

(c) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding (plus accrued interest, fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; and

(d) if the Indebtedness being Refinanced is subordinated in right of payment to the Notes or any Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes and such Guarantee at least to the same extent as the Indebtedness being Refinanced.

“Regulation S” means Regulation S under the U.S. Securities Act of 1933.

“Regulation S Notes” mean the Notes offered and sold outside the United States pursuant to Regulation S.

“Relevant Date” has the meaning given to it in Condition 5.3.

“Repayment Date” means 20 May 2015, or if such day is not a Business Day, the next succeeding Business Day.

“Restricted Payment” with respect to any Person means:

(a) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than

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Disqualified Stock) or in options, warrants or other rights to purchase such stock, (B) dividends or distributions payable solely to the Issuer or a Subsidiary and (C) pro rata dividends or other distributions made by a Subsidiary that is not a wholly-owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity- other than a corporation));

(b) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Capital Stock of the Issuer held by any Person (other than by a Subsidiary) or of any Capital Stock of a Subsidiary held by any Affiliate of the Issuer (other than by a Subsidiary), including in connection with any merger or consolidation and including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Issuer that is not Disqualified Stock); or

(c) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations of the Issuer or any Guarantor (other than (A) from the Issuer or a Subsidiary or (B) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal instalment or final maturity, in each case due within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or retirement).

“Rule 144A” means Rule 144A under the U.S. Securities Act of 1933.

“Rule 144A Notes” means the Notes offered and sold to persons who are “qualified institutional buyers” (as defined in Rule 144A) in reliance on Rule 144A.

“SCM” means Closed Joint Stock Company System Capital Management.

“SCM Facility” means the facility agreement relating to a structured credit financing facility of U.S.$545,000,000 among Northern GOK, Central GOK and BNP Paribas (Suisse) SA dated 9 February 2007, as amended on 2 August 2007.

“SMART” means the group of companies controlled directly or indirectly by Mr Vadim Novinskiy as at the Issue Date.

“Standard & Poor’s” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.

“Stated Maturity” means:

(a) with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final instalment of principal of such Indebtedness is due and payable; and

(b) with respect to any scheduled instalment of principal of or interest on any Indebtedness, the date specified in such Indebtedness as the fixed date on which such instalment is due and payable.

“Subordinated Obligation” means, with respect to a Person, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes or a Guarantee, pursuant to a written agreement to that effect.

“Subsidiary” of any Person means (a) any corporation more than 50 per cent. of the outstanding voting power of the Capital Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, (b) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, (c) any other Person in which such Person, or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries, directly or indirectly, has more than 50 per cent. of the outstanding partnership or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies,

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management and affairs thereof or (d) any Person whose financial statements are required by Accounting Standards to be consolidated into the consolidated financial statements of the Issuer.

“Surety Agreement” means the surety agreement, substantially in the form set out in the Schedule hereto, containing the Guarantees.

“Taxes” has the meaning set out in Condition 7.

“Total Assets” means the consolidated assets of the Group as shown on the latest available annual or semi- annual consolidated balance sheet of the Group prepared in accordance with Accounting Standards.

“Total Production Assets” means property, plant and equipment of the Group determined in accordance with Accounting Standards;

“Trust Deed” means the trust deed to constitute the Notes for the equal and rateable benefit of the Noteholders to be dated the Issue Date between the Issuer, in its capacity as issuer, and the Trustee as amended, varied or supplemented from time to time.

“Trustee” means BNY Corporate Trustee Services Limited, as trustee under the Trust Deed and any successor thereto as provided thereunder.

“Ukrainian GAAP” means generally accepted accounting principles, standards and practices in Ukraine.

“U.S. Dollar Equivalent” means with respect to any amount denominated in a currency other than U.S. Dollars, at any time for the determination thereof, the amount of U.S. Dollars obtained by converting such other currency involved into U.S. Dollars at the spot rate for the purchase of U.S. Dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 am (New York time) on the date not more than two Business Days prior to the date of determination.

“U.S. GAAP” means generally accepted accounting principles, standards and practices in the United States of America.

“Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(a) the sum of the products obtained by multiplying:

(i) the amount of each then remaining instalment, sinking fund, serial maturity or other required payment of principal or liquidation preference, as the case may be, including payment at final maturity, in respect thereof, by

(ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment, by

(b) the then outstanding aggregate principal amount or liquidation preference, as the case may be, or such Indebtedness.

“Yenakiieve Iron and Steel Works” means Open Joint Stock Company Enakievo Metallurgical Works.

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BOOK-ENTRY, DELIVERY AND FORM

The Global Note Certificates

The Regulation S Notes will be evidenced on issue by the Regulation S Global Note Certificate registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg. Beneficial interests in the Regulation S Global Note Certificate may be held only through Euroclear or Clearstream, Luxembourg at any time. See “—Book-entry Procedures for the Global Note Certificates”. By acquisition of a beneficial interest in the Regulation S Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is located outside the United States.

The Rule 144A Notes will be evidenced on issue by the Rule 144A Global Note Certificate deposited with a custodian for, and registered in the name of a nominee of, DTC. Beneficial interests in the Rule 144A Global Note Certificate may only be held through DTC at any time. See “—Book-entry Procedures for the Global Note Certificates”. By acquisition of a beneficial interest in the Rule 144A Global Note Certificate, the purchaser thereof will be deemed to represent, among other things, that it is a QIB and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Trust Deed. See “Selling and Transfer Restrictions”.

Beneficial interests in Global Note Certificates will be subject to certain restrictions on transfer set forth therein and in the Trust Deed, and the Global Note Certificates will bear the applicable legends regarding the restrictions set forth under “Selling and Transfer Restrictions”. A beneficial interest in the Regulation S Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate only in denominations greater than or equal to the minimum denominations applicable to interests in the Rule 144A Global Note Certificate and only upon receipt by the Registrar of a written certification (in the form provided in an Agency Agreement relating to the Notes (the “Agency Agreement”)) to the effect that the transferor reasonably believes that the transferee is a QIB and that such transaction is in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in the Rule 144A Global Note Certificate may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate only upon receipt by the Registrar of a written certification (in the form provided in the Agency Agreement) from the transferor to the effect that the transfer is being made in an offshore transaction in accordance with Regulation S.

Any beneficial interest in the Regulation S Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note Certificate will, upon transfer, cease to be an interest in the Regulation S Global Note Certificate and become an interest in the Rule 144A Global Note Certificate, and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Rule 144A Global Note Certificate for as long as it remains such an interest. Any beneficial interest in the Rule 144A Global Note Certificate that is transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate will, upon transfer, cease to be an interest in the Rule 144A Global Note Certificate and become an interest in the Regulation S Global Note Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in the Regulation S Global Note Certificate for so long as it remains such an interest. No service charge will be made for any registration of transfer or exchange of Notes, but the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Except in the limited circumstances described below, owners of beneficial interests in Global Note Certificates will not be entitled to receive physical delivery of Definitive Certificates. The Notes are not issuable in bearer form.

In addition, each Global Note Certificate will contain a provision which modifies the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Note Certificate. The following is a summary of this provision:

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Exchange and Registration of Title

Owners of interests in the Notes in respect of which the Global Note Certificate is issued will only be entitled to have title to the Notes registered in their names and to receive individual definitive Notes if a Global Note Certificate is held by or on behalf of (A) DTC, and DTC notifies the Issuer that it is no longer willing or able to discharge properly its responsibilities as depositary with respect to the Global Note Certificate or ceases to be a “clearing agency” registered under the Exchange Act or if at any time it is no longer eligible to act as such, and the Issuer is unable to locate a qualified successor within 90 days of receiving notice or becoming aware of such ineligibility on the part of DTC or (B) Euroclear or Clearstream, Luxembourg (or any other clearing system as shall have been designated by the Issuer and approved by the Trustee on behalf of which the Notes evidenced by this Global Note Certificate may be held), as the case may be, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so.

In such circumstances, the Issuer will cause sufficient individual definitive Notes to be executed and delivered to the Registrar for completion, authentication and despatch to the relevant Noteholders. A person with an interest in the Notes in respect of which the Global Note Certificate is issued must provide the Registrar with a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such individual definitive Notes.

If only one of the Global Note Certificates (the “Exchanged Global Note Certificate”) becomes exchangeable for Definitive Certificates in accordance with the above paragraphs, transfers of Notes may not take place between, on the one hand, persons holding Definitive Certificates issued in exchange for beneficial interests in the Exchanged Global Note Certificate and, on the other hand, persons wishing to purchase beneficial interests in the other Global Note Certificate.

Legends

The holder of a Definitive Certificate may transfer the Notes evidenced thereby in whole or in part in the applicable minimum denomination by surrendering it at the specified office of the Registrar or any Transfer Agent, together with the completed form of transfer thereon. Upon the transfer, exchange or replacement of a Rule 144A Definitive Certificate bearing the legend referred to under “Selling and Transfer Restrictions”, or upon specific request for removal of the legend on a Rule 144A Definitive Certificate, the Issuer will deliver only Rule 144A Definitive Certificates that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act.

Book-entry Procedures for the Global Note Certificates

Euroclear, Clearstream, Luxembourg and DTC

Custodial and depositary links have been established between Euroclear, Clearstream, Luxembourg and DTC to facilitate the initial issue of the Notes and cross-market transfers of the Notes associated with secondary market trading. See “— Book-entry Ownership — Settlement and Transfer of Notes”.

Euroclear and Clearstream, Luxembourg

Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depositary and custodial relationships. Euroclear and Clearstream, Luxembourg have established an

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electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Investors may hold their interests in such Global Note Certificates directly through Euroclear or Clearstream, Luxembourg if they are accountholders (“Direct Participants”) or indirectly (“Indirect Participants” and, together with Direct Participants, “Participants”) through organisations which are accountholders therein.

DTC

DTC has advised the Issuer as follows: DTC is a limited-purpose trust company organised under the laws of the State of New York, a “banking organisation” under the laws of the State of New York, a member of the U.S. Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants (“DTC Participants”) and facilitate the clearance and settlement of securities transactions between DTC Participants through electronic computerised book-entry changes in accounts of its DTC Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organisations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly.

Investors may hold their interests in the Rule 144A Global Note Certificate directly through DTC if they are DTC Participants in the DTC system, or indirectly through organisations which are DTC Participants in such system.

DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more DTC Participants and only in respect of such portion of the aggregate principal amount of the relevant Rule 144A Global Note Certificates as to which such DTC Participant or DTC Participants has or have given such direction. However, in the circumstances described under “Exchange for Definitive Notes”, DTC will surrender the relevant Rule 144A Global Note Certificates for exchange for individual Rule 144A Definitive Certificates (which will bear the legend applicable to transfers pursuant to Rule 144A).

Book-entry Ownership

Euroclear and Clearstream, Luxembourg

The Regulation S Global Note Certificate will have an ISIN and a Common Code and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg.

The address of Euroclear is 1 Boulevard du Roi Albert 11, B-1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, L-1855, Luxembourg.

DTC

The Rule 144A Global Note Certificate will have a CUSIP number and will be deposited with a custodian (the “Custodian”) for, and registered in the name of a nominee of, DTC. The Custodian and DTC will electronically record the principal amount of the Notes held within the DTC system. The address of DTC is 55 Water Street, New York, New York 10041, United States of America.

Relationship of Participants with Clearing Systems

Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder of a Note evidenced by a Global Note Certificate must look solely to Euroclear, Clearstream, Luxembourg or DTC (as the case may be) for his share of each payment made by the Issuer to the holder of such Global Note Certificate and in relation to all other rights arising under the Global Note Certificate, subject to and in

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accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or DTC (as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note Certificate, the common depositary by whom such Note is held, or nominee in whose name it is registered, will immediately credit the relevant participants’ or accountholders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Global Note Certificate as shown on the records of the relevant clearing system or its nominee. The Issuer also expects that payments by Direct Participants or DTC Participants, as the case may be, in any clearing system to owners of beneficial interests in any Global Note Certificate held through such Direct Participants or DTC Participants, as the case may be, in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Note Certificate and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of such Global Note Certificate in respect of each amount so paid. None of the Issuer, the Trustee or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Note Certificate or for maintaining, supervising or reviewing any records relating to such ownership interests.

Settlement and Transfer of Notes

Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants or DTC Participants, as the case may be, which will receive a credit for such Notes on the clearing system’s records. The ownership interest of each actual purchaser of each such Note (the “Beneficial Owner”) will in turn be recorded on the Direct Participants’ or DTC Participants’, as the case may be, records. Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct Participant or DTC Participants, as the case may be, through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be affected by entries made on the books of Direct Participants or DTC Participants, as the case may be, acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Note Certificate held within a clearing system are exchanged for Definitive Certificates.

No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the Direct Participants or DTC Participants, as the case may be, to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct Participants or DTC Participants, as the case may be, will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants or DTC Participants, as the case may be; by Direct Participants to Indirect Participants, and by Direct Participants, Indirect Participants or DTC Participants, as the case may be, to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Global Note Certificate to such persons may be limited. Because DTC can only act on behalf of DTC Participants, the ability of a person having an interest in the Rule 144A Global Note Certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.

Trading between Euroclear and/or Clearstream, Luxembourg Participants

Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear

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and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional Eurobonds.

Trading between DTC Participants

Secondary market sales of book-entry interests in the Notes between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled using the procedures applicable to U.S. corporate debt obligations in DTC’s Same-Day Funds Settlement (“SDFS”) system in same-day funds, if payment is effected in U.S. dollars or, free of payment, if payment is not effected in U.S. dollars. Where payment is not effected in U.S. dollars, separate payment arrangements outside DTC are required to be made between DTC Participants.

Trading between DTC Seller and Euroclear/Clearstream, Luxembourg Purchaser

When book-entry interests in Notes are to be transferred from the account of a DTC Participant holding a beneficial interest in the Rule 144A Global Note Certificate to the account of a Euroclear or Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in the Regulation S Global Note Certificate (subject to the certification procedures provided in the Agency Agreement), the DTC Participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12:00 pm, New York time, on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg Participant. On the settlement date, the custodian of the Rule 144A Global Note Certificate will instruct the Registrar to (i) decrease the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate of the relevant class and (ii) increase the amount of Notes registered in the name of the nominee of the common depositary for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate. Book-entry interests will be delivered free of payment to Euroclear or Clearstream, Luxembourg, as the case may be, for credit to the relevant accountholder on the first business day following the settlement date.

Trading between Euroclear/Clearstream, Luxembourg Seller and DTC Purchaser

When book-entry interests in the Notes are to be transferred from the account of a Euroclear or Clearstream, Luxembourg accountholder to the account of a DTC Participant wishing to purchase a beneficial interest in the Rule 144A Global Note Certificate (subject to the certification procedures provided in the Agency Agreement), the Euroclear or Clearstream, Luxembourg Participant must send to Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7:45 pm, Brussels or Luxembourg time, one business day prior to the settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will in turn transmit appropriate instructions to the common depositary for Euroclear and Clearstream, Luxembourg and the Registrar to arrange delivery to the DTC Participant on the settlement date. Separate payment arrangements are required to be made between the DTC Participant and the relevant Euroclear or Clearstream, Luxembourg accountholder, as the case may be. On the settlement date, the common depositary for Euroclear and Clearstream, Luxembourg will (a) transmit appropriate instructions to the custodian of the Rule 144A Global Note Certificate who will in turn deliver such book-entry interests in the Notes free of payment to the relevant account of the DTC Participant and (b) instruct the Registrar to (i) decrease the amount of Notes registered in the name of the nominee of the common depositary for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate; and (ii) increase the amount of Notes registered in the name of Cede & Co. and evidenced by the Rule 144A Global Note Certificate.

Although Euroclear, Clearstream, Luxembourg and DTC have agreed to the foregoing procedures in order to facilitate transfers of beneficial interest in Global Note Certificates among participants and accountholders of Euroclear, Clearstream, Luxembourg and DTC, they are under no obligation to perform or continue to perform such procedure, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or any Agent will have the responsibility for the performance by Euroclear, Clearstream, Luxembourg or DTC or their respective Direct Participants, Indirect Participants or DTC Participants, as the case may be, of their respective obligations under the rules and procedures governing their operations.

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Pre-issue Trades Settlement

It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which is expected to be on or around the fourth business day following the date of pricing (such settlement being referred to as “T+4”). Under Rule 15c6-1 under the Exchange Act, trades in the United States secondary market generally are required to settle in three business days (T+3), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes in the United States on the date of pricing or the next succeeding business day will be required, by virtue of the fact the Notes will initially settle in T+4, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries may vary and purchasers of Notes may be affected by such local settlement practices. Purchasers of Notes who wish to trade the Notes on the date of pricing or the next succeeding business day should consult their own adviser.

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SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM

The Global Note Certificates contain provisions which apply to the Notes in respect of which the Global Note Certificates are issued, some of which modify the effect of the Terms and Conditions of the Notes set out in this Offering Memorandum. Terms defined in the Terms and Conditions of the Notes have the same meaning in the paragraphs below. The following is a summary of those provisions:

Meetings

The registered holder of each Global Note Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders and, at any such meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Notes for which the Global Note Certificates are issued. The Trustee may allow a person with an interest in Notes in respect of which the Global Note Certificates have been issued to attend and speak (but not vote) at a meeting of Noteholders on appropriate proof of his identity and interest.

Cancellation

Cancellation of any Note by the Issuer following its redemption or purchase by the Issuer, the Guarantors or any of their respective subsidiaries will be effected by a reduction in the principal amount of the Notes in the Register.

Trustee’s Powers

In considering the interests of Noteholders while the Global Note Certificates are registered in the name of a nominee for a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, (a) have regard to any information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Notes and (b) consider such interests on the basis that such accountholders were the holders of the Notes in respect of which the Global Note Certificates are issued.

Payment

Payments of principal, interest and premium (if any) in respect of Notes represented by the Global Note Certificates will be made without presentation or if no further payment is to be made in respect of the Notes, against presentation and surrender of the Global Note Certificates to or to the order of the Principal Paying Agent and Transfer Agent or such other Paying Agent and Transfer Agent as shall have been notified to the Noteholders for such purpose.

Notices

So long as the Notes are traded on the Global Exchange Market of the Irish Stock Exchange and are represented by the Global Note Certificate and the Global Note Certificate is held on behalf of Euroclear or Clearstream, Luxembourg or any alternative clearing system, notices to Noteholders may be given by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg, or such alternative clearing system, for communication by it to entitled accountholders in substitution for notification as required by the Terms and Conditions of the Notes.

Enforcement

For the purposes of enforcement of the provisions of the Trust Deed against the Trustee, the persons named in a certificate of the holder of the Notes in respect of which the Global Note Certificates are issued shall be recognised as the beneficiaries of the trust set out in the Trust Deed, to the extent of the principal amount of their interest in the Notes set out in the certificate of the holder, as if they were themselves the holders of Notes in such principal amounts.

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Prescription

Claims in respect of principal, premium and interest on the Notes while the Notes are represented by the Global Note Certificates will become void, unless presentation for payment is made as required by Condition 6 (Payments) within a period of 10 years, in the case of principal and premium, and five years, in the case of interest, from the appropriate Relevant Date (as defined in Condition 7 (Taxation)).

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TAXATION

The following summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of the Notes and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities and commodities) may be subject to special rules.

Prospective purchasers of the Notes are advised to consult their own tax advisers as to the tax consequences, under the tax laws of The Netherlands and Ukraine and each country of which they are residents, of a purchase of Notes including, without limitation, the consequences of receipt of interest and sale or redemption of the Notes or any interest therein.

United States

TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS OFFERING MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY INVESTORS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON INVESTORS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

The following is a general summary of certain material US federal income tax consequences of the acquisition, ownership and retirement or other disposition of Notes by a holder thereof. This summary is not a complete analysis or description of all potential US federal income tax consequences to holders, and does not address state, local, foreign, or other tax laws. This summary does not address aspects of US federal income taxation that may be applicable to holders that are subject to special tax rules, such as US expatriates, “dual resident” companies, banks, thrifts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations or investors, dealers or traders in securities, commodities or currencies, or holders who own (directly, indirectly or by attribution) 10% or more of the Issuer’s voting stock, or to holders that will hold a Note as part of a position in a “straddle” or as part of a “synthetic security” or as part of a “hedging”, “conversion”, “integrated” or constructive sale transaction for US federal income tax purposes or that have a “functional currency” other than the US dollar, or holders otherwise subject to special tax rules. Moreover, this summary does not address the US federal estate and gift or alternative minimum tax consequences of the acquisition, ownership, retiring or other disposition of Notes and does not address the US federal income tax treatment of holders that do not acquire Notes as part of the initial distribution at the initial issue price(defined below). Each prospective purchaser should consult its tax advisor with respect to the US federal, state, local and foreign tax consequences of acquiring, holding, retiring or other disposition of Notes.

Prospective purchasers of the Notes are urged to consult their own tax advisors concerning the US federal state, local and foreign tax consequences of the acquiring, holding, retiring or other disposition of Notes.

This summary is based on the US Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and existing and proposed US Treasury Regulations, in each case, as available and in effect on the date hereof. All of the foregoing are subject to change or differing interpretation, which could apply retroactively and affect the tax consequences described herein.

For purposes of this summary, a “US Holder” is a beneficial owner of Notes that (a) purchases Notes in the offering at the initial issue price; (b) holds Notes as capital assets; and (c) is, for US federal income tax purposes:

(i) a citizen or individual resident of the United States;

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(ii) a corporation (or other entity taxable as a corporation for US federal income tax purposes) organised in or under the laws of the United States or any state thereof (including the District of Columbia);

(iii) an estate the income of which is subject to US federal income taxation regardless of its source; or

(iv) a trust (1) that validly elects to be treated as a United States person within the meaning of section 7701(a)(30) of the Code for US federal income tax purposes or (2) (a) over the administration of which a US court can exercise primary supervision and (b) all of the substantial decisions of which one or more United States persons have the authority to control.

If a partnership (or any other entity treated as a partnership for US federal income tax purposes) holds Notes, the US federal income tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its own tax advisor as to the US federal income tax consequences of acquiring, holding, retiring or other disposition of Notes.

A “Non-US Holder” is a beneficial owner of Notes other than a US Holder.

The “initial issue price” of a Note will equal the initial offering price to the public (not including bond houses, brokers or similar persons or organisations acting in the capacity of underwriters, placement agents or wholesalers) at which a substantial amount of the notes is sold for money.

THE SUMMARY OF US FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCE TO THEM OF OWNING THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

Payments of Interest

Interest paid on a Note will be included in a US Holder’s gross income as ordinary interest income at the time it is received or accrued in accordance with the US Holder’s usual method of tax accounting. Interest on the notes will be treated as foreign source income for US federal income tax purposes, including US foreign tax credit limitation purposes. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to specific “baskets” of income. Interest on the notes should generally constitute “passive category income”, or in the case of certain US holders, “general category income”. As an alternative to the tax credit, a US holder may elect to deduct such taxes (the election would then apply to all foreign income taxes such US holder paid in that taxable year). The rules relating to foreign tax credits and the timing thereof are complex and US holders should consult their own tax advisors regarding the availability of a foreign tax credit and the application of the foreign tax credit limitations to their particular situation.

Subject to the discussion below under the caption “US Backup Withholding Tax and Information Reporting”, payments of interest on a Note to a Non-US Holder generally will not be subject to US federal income tax unless such income is effectively connected with the conduct by such Non-US Holder of a trade or business in the United States.

Sale, Exchange or Retirement

Upon the sale, exchange, retirement or other disposition of a Note, a US Holder will generally recognise taxable gain or loss equal to the difference, if any, between the amount realised on the sale, exchange or retirement (other than amounts attributable to accrued but unpaid interest, which will be taxable as such) and the US Holder’s adjusted tax basis in such Note. A US Holder’s adjusted tax basis in a Note generally will equal the US dollar cost of such Note to the US Holder less any principal payments received on the Note. Any such gain or loss will be capital gain or loss and will be long-term capital gain or loss if such US Holder’s holding period for such Notes exceeds one year. Certain US Holders (including individuals) are eligible for preferential rates of US federal income tax in respect of long-term capital gain. Any gain or loss realised on the sale, exchange, retirement or other disposition by a US Holder of a Note generally will be

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treated as US source gain or loss, as the case may be. The deductibility of capital losses is subject to substantial limitations.

Subject to the discussion below under “—US Backup Withholding Tax and Information Reporting,” any gain realised by a Non-US Holder upon the sale, exchange, retirement or other disposition of a Note generally will not be subject to US federal income tax, unless (i) such gain is effectively connected with the conduct by such Non-US Holder of a trade or business in the United States or (ii) in the case of any gain realised by an individual Non-US Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange, retirement or other disposition, and certain other conditions are met.

US Backup Withholding Tax and Information Reporting

A backup withholding tax and information reporting requirements apply to certain payments of principal of, and interest on, an obligation and to proceeds of the sale or redemption of an obligation, to certain non corporate holders of the notes that are US persons. The payor will be required to withhold back withholding tax on payments made within the United States, or by a US payor or US middleman, on a note to a holder of a note that is a US person, other than an exempt recipient, such as a corporation, if the holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding requirements. Payments within the United States, or by a US payor or US middleman, of principal, interest and proceeds of sale to a holder of a note that is not a US person will not be subject to backup withholding tax and information reporting requirements if an appropriate certification is provided by the holder to the payor and the payor does not have actual knowledge or a reason to know that the certificate is incorrect. The backup withholding rate is 28% for taxable years through 2010.

Backup withholding tax is not an additional tax. A holder generally will be entitled to credit any amounts withheld under the backup withholding rules against such holder’s US federal income tax liability provided the required information is furnished to the IRS in a timely manner.

Effective for taxable years beginning after March 18, 2010, individuals and, to the extent provided by the US Secretary of Treasury in regulations or other guidance, certain domestic entities that hold an interest in a “specified foreign financial asset” will be required to attach certain information regarding such assets to their income tax return for any year in which the aggregate value of all such assets exceeds US $50,000. A “specified foreign financial asset” includes any depository or custodial accounts at foreign financial institutions, non-publicly traded debt or equity interests in a foreign financial institution, and to the extent not held in an account at a financial institution, (i) stocks or securities issued by non-US persons; (ii) any financial instrument or contract held for investment that has an issuer or counterparty which is not a US person; and (iii) any interest in a non-US entity. Penalties may be imposed for the failure to disclose such information regarding specified foreign financial assets. US Holders are advised to consult their tax advisors regarding the potential reporting requirements that may be imposed on them by this new legislation with respect to their ownership of the Notes.

The above description is not intended to constitute a complete analysis of all US tax consequences relating to the ownership of the Notes. Prospective purchasers of the Notes should consult their own tax advisors concerning the tax consequences of their particular situations.

United Kingdom

The following paragraphs are intended as a general guide to current UK tax law and H.M. Revenue & Customs (“HMRC”) practice (both of which are subject to change at any time, possibly with retrospective effect) in respect of the taxation of interest paid by the Issuer on the Notes, the taxation of chargeable gains on the disposal of the Notes, stamp duty and stamp duty reserve tax. They relate only to persons who are the beneficial owners of the Notes. These paragraphs may not relate to certain classes of Holders (such as persons who are connected with the Issuer, insurance companies, charities, collective investment schemes, investment trusts, venture capital trusts, pension providers or persons who hold the Notes otherwise than as an investment). These paragraphs do not describe the circumstances in which Holders may benefit from an exemption or relief from taxation. These paragraphs assume that there will be no substitution of the Issuer or any Note Guarantor and do not consider the tax consequences of any such substitution. All Holders are

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recommended to obtain their own professional taxation advice. In particular, non UK resident Holders are advised to consider the potential impact of any relevant double tax agreements.

Taxation of Interest

Withholding tax

Interest on the Notes will be payable without deduction for or on account of income tax in the UK.

UK residents: individual Holders

Interest on the Notes paid to an individual Holder who is resident in the UK may, irrespective of whether he or she is ordinarily resident or domiciled in the UK, be chargeable to income tax. An individual who is resident in the UK but is not ordinarily resident in the UK or is not domiciled in the UK to whom the remittance basis in Sections 809B, 809D or 809E of the Income Tax (“ITA”) 2007 applies may only be subject to income tax in respect of interest paid to the Holder if and to the extent that the interest is treated as remitted to the UK. In certain circumstances, interest that is not received in the UK may be treated as though it is remitted to the UK.

UK residents and permanent establishments: corporate Holders

A corporate Holder which is resident in the UK or which carries on a trade in the UK through a permanent establishment in the UK in connection with which the interest is received or to which the Notes are attributable will generally be treated for corporation tax purposes as realising profits or gains in respect of the Notes on a basis which is broadly in line with their statutory accounting treatment so long as the accounting treatment is in accordance with generally accepted accounting practice as that term is defined for tax purposes.

Non UK residents: individual Holders

Interest on the Notes paid to an individual Holder who is not resident in the UK will not be chargeable to income tax unless the Holder carries on a trade, profession or vocation in the UK through a branch or agency and the Notes are used by, or held by or for, that branch or agency.

Non UK residents: corporate Holders

Interest on the Notes paid to a corporate Holder which is not resident in the UK will not be chargeable to corporation tax unless the Holder carries on a trade in the UK through a permanent establishment in the UK and the Notes are used by, or held by or for, that permanent establishment.

Taxation of Gains

UK residents: individual Holders

A disposal of Notes by an individual Holder who is resident or ordinarily resident and domiciled in the UK may give rise to a chargeable gain or an allowable loss for the purposes of capital gains tax. An individual Holder who ceases to be resident or ordinarily resident in the UK for a period of less than five years and who disposes of the Notes during that period of temporary non residence may be liable to capital gains tax on his or her return to the UK. A disposal of Notes by an individual Holder who is resident or ordinarily resident in the UK but not domiciled in the UK and to whom the remittance basis in Sections 809B, 809D or 809E of the ITA 2007 applies may only give rise to a chargeable gain for the purposes of capital gains tax if and to the extent that amounts in respect of that chargeable gain are treated as remitted to the UK.

On a transfer of Notes by a Holder who is within the charge to UK income tax (as described above), the transferor may be deemed to receive an amount of income equal to any interest which has accrued since the last interest payment date (or where no interest has been paid, since the issue of the Notes) under the rules of the accrued income scheme as set out in Part 12 of the Income Tax Act 2007. Any such deemed income

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should be taken into account and excluded in determining the amount of any chargeable gain or allowable loss arising on a disposal (including a redemption) of the Notes.

UK residents and permanent establishments: corporate Holders

A corporate Holder which is resident in the UK or which carries on a trade in the UK through a permanent establishment in the UK to which the Notes are used by, or held by or for such permanent establishment will generally be treated for corporation tax purposes as realising profits, gains or losses (including exchange gains and losses) in respect of the Notes on a basis which is broadly in line with their statutory accounting treatment so long as the accounting treatment is in accordance with generally accepted accounting practice as that term is defined for tax purposes. Such profits, gains and losses will be taken into account in computing taxable income for corporation tax purposes.

Non UK residents: individual Holders

An individual Holder who is not resident or ordinarily resident in the UK will not be chargeable to capital gains tax on chargeable gains realised on the disposal of his or her Notes.

Non UK residents: corporate Holders

A corporate Holder which is not resident in the UK will not be chargeable to corporation tax on gains realised on the disposal of the Notes unless it carries on a trade in the UK through a permanent establishment in the UK and the Notes were acquired for use by or for the purposes of the permanent establishment or used in or for the purposes of the trade carried on by the Holder through that permanent establishment.

Stamp Duty and Stamp Duty Reserve Tax

No UK stamp duty will be payable on the issue of the Notes or on a transfer of the Notes provided that any transfer documents are executed and retained outside the UK and do not relate to any property situate, or any matter or thing done or to be done, in the UK.

No UK stamp duty reserve tax will be payable on the issue of the Notes or on a transfer of the Notes provided that no register of the Notes is or will be kept in the UK.

Disclosure of Information

Any person in the UK by or through whom interest is paid to, or by whom interest is received on behalf of, an individual Holder (whether resident in the UK or elsewhere) may be required to provide information in relation to the payment (including the amount of the interest) and the Holder concerned (including name and address) to HMRC on being so required by a notice given to it by HMRC. In certain circumstances, HMRC may communicate this information to the tax authorities of certain other jurisdictions

EU Savings Tax Directive

The EU has adopted a directive regarding the taxation of savings income (the “Tax Directive”). The Tax Directive requires each member state of the EU to provide to the tax authorities of other member states details of payments of interest and other similar income paid by a person within its jurisdiction to an individual resident, or certain other entities established, in another member state of the EU, except that Austria and Luxembourg will instead impose a withholding system for a transitional period (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries) unless during such period they elect otherwise. Belgium has replaced this withholding system with a regime of exchange of information to the Member State of residence as from 1 January 2010.

A number of non-EU countries and certain dependent or associated territories of certain Member States, have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident

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or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories.

On 13 November 2008 the European Commission published a proposal for amendments to the Directive, which included a number of suggested changes which, if implemented, would broaden the scope of the requirements described above. The European Parliament approved an amended version of this proposal on 24 April 2009. Investors who are in any doubt as to their position should consult their professional advisers.

The Netherlands

The comments below are of a general nature based on taxation law and practice in The Netherlands as of the date of this Offering Memorandum and are subject to any changes therein. They relate only to the position of persons who are absolute beneficial owners of the Notes. The following is a general description of certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes and so should be treated with appropriate caution. In particular, it does not take into consideration any tax implications that may arise on a substitution of the Issuer, or if a holder owns an equity interest in the Issuer of 5% or more. Prospective investors should consult their own professional advisors concerning the possible tax consequences of purchasing, holding and/or selling Notes and receiving payments of interest, principal and/or other amounts under the Notes under the applicable laws of their country of citizenship, residence or domicile.

Under the existing laws of The Netherlands:

(a) all payments of interest and principal by the Issuer under the Notes can be made free of withholding or deduction for, or on account of, any taxes of whatsoever nature imposed, levied, withheld, or assessed by The Netherlands or any political subdivision or taxing authority thereof or therein;

(b) a holder of a Note who derives income from a Note or who realises a gain on the disposal or redemption of a Note will not be subject to Dutch taxation on such income or capital gain, unless:

(i) the holder is, or is deemed to be, resident in The Netherlands or, where the holder is an individual, such holder has elected to be treated as a resident of The Netherlands; or

(ii) such income or gain is attributable to an enterprise or part thereof which is either effectively managed in The Netherlands or carried on through a permanent establishment (“vasteinrichting”) or a permanent representative (“vaste vertegenwoordiger”) in The Netherlands; or

(iii) the holder is an individual and such income or gain qualifies as income from activities that exceed normal active portfolio management (“normaal vermogensbeheer”) or as benefits from other activities (“resultaat uit overige werkzaamheden”) in The Netherlands;

(c) Dutch gift, estate or inheritance taxes will not be levied on the occasion of the transfer of a Note by way of gift by, or on the death of, a holder unless:

(i) the holder is, or is deemed to be, resident in The Netherlands for the purpose of the relevant provisions; or

(ii) the transfer is construed as an inheritance or as a gift made by or on behalf of a person who, at the time of the gift or death, is, or is deemed to be, resident in The Netherlands for the purpose of the relevant provisions; or

(iii) such Note is attributable to an enterprise or part thereof which is either effectively managed in The Netherlands or carried on through a permanent establishment or a permanent representative in The Netherlands;

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(d) there is no Dutch registration tax, stamp duty or any other similar tax or duty payable in The Netherlands, other than court fees, in respect of or in connection with the execution, delivery and/or enforcement by legal proceedings (including any foreign judgement in the courts of The Netherlands) of the Notes or the performance of the Issuer’s obligations under the Notes;

(e) there is no Dutch value added tax payable in respect of payments in consideration for the issue of the Notes or in respect of the payment of interest or principal under the Notes or the transfer of a Note, provided that Dutch value added tax may, however, be payable in respect of fees charged for certain services rendered to the Issuer, if for Dutch value added tax purposes such services are rendered, or are deemed to be rendered, in The Netherlands and an exemption from Dutch value added tax does not apply with respect to such services; and

(f) a holder of a Note will not be treated as a resident of The Netherlands by reason only of the holding of a Note or the execution, performance, delivery and/or enforcement of the Notes.

Ukraine

General

The following summary is included for general information only. Potential investors in and holders of the Notes should consult their own tax adviser as to the tax consequences under the laws of Ukraine of the acquisition, ownership and disposition of the Notes. This summary is based upon the Ukrainian tax laws and regulations as in effect on the date of this Offering Memorandum. Such laws and regulations are subject to change or varying interpretations, possibly with retroactive effect. As with other areas of Ukrainian legislation, tax law and practice in Ukraine is not as clearly established as that of more developed jurisdictions. It is possible, therefore, that the current interpretation of the law or understanding of the practice may change or that the law may be amended with retroactive effect. Accordingly, it is possible that payments to be made to the holders of the Notes could become subject to taxation or that rates currently in effect with respect to such payments could be increased in ways that cannot be anticipated as at the date of this Offering Memorandum.

Payment under the Surety Agreement

If the Guarantor makes any payments in respect of interest on the Notes (or other amounts due in respect of the Notes), such payments could be viewed as Ukrainian source income of the recipient of such payments and, thereby, may be subject to 15 per cent. withholding tax.

Article 13.1 of the Law of Ukraine “On Taxation of Profits of Enterprises”, dated 28 December 1994, as amended (the “CIT Law”) does not specifically list payments made under the Surety Agreement as Ukrainian source income of the beneficiary of such payments. However, Article 13.1 of the CIT Law contains a catch-all clause, which considers any other income of a foreign resident received from carrying out business in Ukraine as Ukrainian source income.

At the same, a position may be taken that guarantee payments made by a Ukrainian guarantor to a foreign beneficiary should be regarded as payments received in respect of services rendered by the foreign beneficiary. In this eventuality, such payments, as payments for services rendered, will be exempt from withholding tax by virtue of the operation of the CIT Law, but may be treated as being subject to VAT at 20%. In this case this transaction may also be subject to additional formalities. That notwithstanding, it is unlikely that payments by the Guarantor in respect of interest on the Notes (and, possibly, other amounts) will be viewed as payments for services rendered by a foreign resident beneficiary.

Even if the payments under the Surety Agreement are viewed to be Ukrainian source income and, thereby, subject to 15 per cent. withholding tax, the foreign beneficiary of such payments may, nevertheless, be exempt from withholding tax in Ukraine, provided such beneficiary is (i) a tax resident of a jurisdiction, which has a tax treaty with Ukraine, (ii) entitled to the benefits of such tax treaty and (iii) deemed not to carry on business in Ukraine through its permanent establishment. In order to benefit from the tax treaty

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exemption, confirmation of the current tax residency status of the foreign beneficiary must be available on or prior to the date of payment of Ukrainian source income.

Gross-up provisions

If any payments (including payments of premium and interest) under the Surety Agreement are subject to any withholding tax, the Guarantor may, in certain circumstances specified in the Surety Agreement and subject to certain exceptions become obliged to pay such additional amounts as may be necessary so that the net payments received by the Noteholders or the Trustee, as the case may be, will not be less than the amount the Noteholders or the Trustee, as the case may be, would have received in the absence of such withholding. Notwithstanding the foregoing, the CIT Law prohibits contractual provisions under which residents undertake to pay taxes for non-residents on their income received from sources in Ukraine. If interpreted broadly, such restriction would also apply to gross-up provisions of the Surety Agreement and obligations of the Guarantors to pay additional amounts thereunder. As a result, the gross-up provisions could be found null and void and, therefore, unenforceable in Ukraine.

Tax on Issue of and Principal, Premium and Interest Payments under the Notes

No Ukrainian withholding tax will be applicable to the issue of the Notes or principal, premium or interest payments on the Notes because the Notes will not be issued from Ukraine and principal, premium and interest payments on the Notes will not be made from Ukraine.

Tax on Redemption of Notes

Principal payments on redemption of the Notes will not be subject to Ukrainian tax because such payments will not be made by a Ukrainian borrower.

Ukrainian Holders

A Ukrainian resident Noteholder, i.e., a qualifying physical person or a legal person organised under Ukrainian law, is subject to all applicable Ukrainian taxes.

Transfers of Notes by Non-Ukrainian Investors to Ukrainian Investors

Ukrainian source profits of non-resident legal entity derived from trading securities are generally subject to 15 per cent. withholding tax (while Ukrainian source income of non-resident individuals is, subject to certain exceptions, subject to 30 per cent. personal income tax), as may be reduced by an applicable treaty on the avoidance of double taxation.

Non-resident Noteholders are, therefore, likely to be subject to Ukrainian withholding tax on any gain (or the gross amount of the proceeds if the gain cannot be quantified) on the disposal of Notes where the proceeds of such disposal are received from a source within Ukraine.

Ukrainian Stamp Duty

No Ukrainian stamp duty, transfer or similar tax will be payable by a Noteholder in respect of the subscription, issue, delivery or transfer of the Notes.

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CERTAIN ERISA AND OTHER CONSIDERATIONS

The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on “employee benefit plans” (as defined in Section 3(3) of ERISA) subject to Part 4 of Subtitle B of Title I of ERISA, including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, “ERISA Plans”) and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing the ERISA Plan.

Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, “Plans”)) and certain persons (referred to as “parties in interest” under ERISA or “disqualified persons” under the Code) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code.

Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if any Notes are acquired by a Plan with respect to which the Joint Lead Mangers or any of their affiliates are a party in interest or a disqualified person. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may be applicable, however, depending in part on the type of Plan fiduciary making the decision to acquire Notes and the circumstances under which such decision is made. There can be no assurance that any exemption will be available with respect to any particular transaction involving the Notes, or that, if an exemption is available, it will cover all aspects of any particular transaction. By its purchase and holding of any Notes, the purchaser thereof will be deemed to have represented and agreed either that: (i) it is not and for so long as it holds Notes will not be (and is not acquiring the Notes directly or indirectly with the assets of a person who is or while the Notes are held will be) an ERISA Plan or other Plan, an entity whose underlying assets include the assets of any such ERISA Plan or other Plan, or a governmental or church plan or non-U.S. employee benefit plan which is subject to any U.S. federal, state or local law, or foreign law, that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, or (ii) its purchase and holding of the Notes will not result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of such a governmental or church plan or non-U.S. employee benefit plan, any such substantially similar U.S. federal, state or local law, or foreign law). Similarly, each transferee of any Notes, by virtue of the transfer of such Notes to such transferee, will be deemed to have represented and agreed either that: (i) it is not and for so long as it holds Notes will not be (and is not acquiring the Notes directly or indirectly with the assets of a person who is or while the Notes are held will be) an ERISA Plan or other Plan, an entity whose underlying assets include the assets of any such ERISA Plan or other Plan, or a governmental or church plan or non- U.S. employee benefit plan which is subject to any U.S. federal, state or local law, or foreign law, that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, or (ii) its purchase and holding of the Notes will not result in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of such a governmental or church plan or non-U.S. employee benefit plan, any such substantially similar federal, state or local law, or foreign law).

Governmental plans, certain church plans and non-U.S. plans, while not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to U.S. federal, state or local laws, or foreign laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before purchasing any Notes.

The foregoing discussion is general in nature and not intended to be all inclusive. Any Plan fiduciary who proposes to cause a Plan to purchase any Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to

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such an investment, and to confirm that such investment will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA.

The sale of Notes to a Plan is in no respect a representation by the Joint Lead Managers that such an investment meets all relevant requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for Plans generally or any particular Plan.

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SELLING AND TRANSFER RESTRICTIONS

The Notes and the Guarantees have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

The Notes and the Guarantees are being offered and sold outside of the United States in reliance on Regulation S. The Subscription Agreement provides that the Managers may directly or through their respective U.S. broker-dealer affiliates arrange for the offer and resale of Notes and the Guarantees within the United States only to qualified institutional buyers in reliance on Rule 144A.

In addition, until 40 days after the commencement of the offering of the Notes and the Guarantees, an offer or sale of Notes and the Guarantees within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.

Rule 144A Notes

Each purchaser of Rule 144A Notes within the United States, by accepting delivery of this Offering Memorandum and the Notes, will be deemed to have represented, agreed and acknowledged that:

(1) It is (a) a QIB, (b) acquiring such Notes for its own account, or for the account of one or more QIBs, and (c) aware, and each beneficial owner of such Notes has been advised, that the sale of such Notes to it is being made in reliance on Rule 144A.

(2) It understands that the Rule 144A Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of one or more QIBs each of which is purchasing not less than U.S.$100,000 principal amount of Notes, (b) outside the United States in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act or (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), and in each case in accordance with any applicable securities laws of any state of the United States.

(3) It understands that the Rule 144A Notes, unless otherwise agreed between the Issuer and the Trustee in accordance with applicable law, will bear a legend to the following effect:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A “QIB”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, AND IN AN AMOUNT NOT LESS THAN U.S.$100,000 PRINCIPAL AMOUNT OF NOTES OR (2) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”), OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE.

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(4) The Issuer, the Registrar, the Managers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements. If it is acquiring any Notes for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.

(5) It understands that the Rule 144A Notes will be evidenced by the Rule 144A Global Note Certificate. Before any interest in the Rule 144A Global Note Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws.

Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S Notes

Each purchaser of Regulation S Notes outside the United States will be deemed to have represented, agreed and acknowledged that:

(1) It understands that the Notes and Guarantees have not been and will not be registered under the Securities Act, and such Notes and Guarantees are being offered and sold in accordance with Regulation S.

(2) It or any person on whose behalf it is acting is, or at the time the Notes and Guarantees are purchased will be, the beneficial owner of such Notes and Guarantees and (i) it is purchasing the Notes and Guarantees in an offshore transaction (within the meaning of Regulation S and (ii) it is not an affiliate of the Issuer or a person acting on behalf of such an affiliate.

(3) It will not offer, sell, pledge or otherwise transfer Notes, except in accordance with the Securities Act and any applicable securities laws of any states of the United States.

(4) The Issuer, the Registrar, the Joint Lead Managers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.

ERISA

Each purchaser of Notes, and each subsequent transferee of any Notes by virtue of the transfer of such Notes to such transferee, by accepting delivery of this Offering Memorandum and the Notes, will be deemed to have represented, agreed and acknowledged that either:

(5) It is not (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, (b) a “plan” subject to Section 4975 of the Code, (c) an entity whose underlying assets include “plan assets” (within the meaning of ERISA) or (d) a governmental or church plan or non- U.S. employee benefit plan which is subject to any U.S. federal, state or local law, or foreign law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code; or

(6) Its purchase and holding of any note or Notes will not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental or church plan or non-U.S. employee benefit plan, a violation of any substantially similar federal, state or local law, or foreign law).

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SUBSCRIPTION AND SALE

BNP Paribas, Credit Suisse Securities (Europe) Limited, ING Bank N.V., London Branch, The Royal Bank of Scotland plc, VTB Capital plc, SBERBANK (Savings Bank of the Russian Federation) and TD Investments Limited (the “Managers”) expect, pursuant to a subscription agreement to be dated on or about 18 May 2010 (the “Subscription Agreement”), severally and not jointly to agree with the Issuer and the Guarantors, subject to the satisfaction of certain conditions, to subscribe the Notes in the following amounts:

Manager Principal Amount of Notes ––––––––––––––––––––––––––––––––––––––––––––– –––––––––––––––––––––––––– BNP Paribas $99,960,000 Credit Suisse Securities (Europe) Limited $99,960,000 ING Bank N.V., London Branch $99,960,000 The Royal Bank of Scotland plc $99,960,000 VTB Capital plc $99,960,000 SBERBANK (Savings Bank of the Russian Federation) $100,000 TD Investments Limited $100,000 –––––––––––– Total $500,000,000 ––––––––––––

The Managers will make offers and sales into the United States through their U.S. registered broker dealer affiliates.

The Managers and their respective affiliates have performed and expected to perform in the future various financial advisory, investment banking and commercial banking services for, and may arrange loans and other non-public market financing for, and enter into derivative transactions with, the Issuer and its affiliates (including its shareholders). Some of the Managers have purchased collectively a substantial principal amount of the Notes for their own accounts.

United States

The Notes and the Guarantees have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act.

The Subscription Agreement provides that the Managers may offer and sell the Notes within the United States to QIBs in reliance on Rule 144A under the Securities Act. Any offers and sales by the Managers in the United States will be conducted by broker-dealers registered with the SEC.

In addition, until 40 days after the commencement of the offering, an offer or sale of Notes and Guarantees within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

European Economic Area

In each Member State of the European Economic Area (“EEA”) which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to the public of any Notes may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Notes which has been approved by the competent authority in that Relevant Member State or where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any Notes may be made at any time under the following exemptions under the Prospectus Directive, if the Prospectus Directive has been implemented in that Relevant Member State:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

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(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR43,000,000; and (3) an annual net turnover of more than EUR50,000,000, as shown in its last annual or consolidated accounts;

(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Managers for any such offer; or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of Notes shall result in a requirement for the publication by the Issuer, any Guarantor or the initial purchasers of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Notes to be offered so as to enable an investor to decide to purchase any Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “ Prospectus Directive “ means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom

Each of the Managers represents, warrants and agrees that:

1. it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer or the Guarantors; and

2. it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

Ukraine

Each of the Managers has represented, warranted and agreed that the Notes shall not be offered for circulation, distribution, placement, sale, purchase or other transfer in the territory of Ukraine.

Accordingly, nothing in this Offering Memorandum or any other documents, information or communications related to the Notes shall be interpreted as containing any offer or invitation to, or solicitation of, any such circulation, distribution, placement, sale, purchase or other transfer in the territory of the Ukraine.

Republic of Italy

The offering of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa (“CONSOB”) pursuant to Italian securities legislation and, accordingly, each Manager has represented and agreed that it has not offered, sold or distributed, and will not offer, sell or distribute any Notes or any copy of this Offering Memorandum or any other offer document in the Republic of Italy (“Italy”) in an offer to the public of financial products under the meaning of Article 1, paragraph 1, letter t) of Legislative Decree no. 58 of 24 February 1998 (the “Consolidated Financial Services Act”), unless an exemption applies. Accordingly, the Notes shall only be offered, sold or delivered in Italy:

(a) to qualified investors (investitori qualificati), pursuant to Article 100 of the Consolidated Financial Services Act and the implementing CONSOB regulation, as amended and restated from time to time; or

(b) in any other circumstances where an express exemption from compliance with the restrictions on offers to the public applies, as provided under the Consolidated Financial Services Act or CONSOB Regulation No. 11971 of 14 May 1999, as amended.

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Moreover, and subject to the foregoing, any offer, sale or delivery of the Notes or distribution of copies of this Offering Memorandum or any other document relating to the Notes in Italy under (a) or (b) above must be:

(i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Consolidated Financial Services Act, Legislative Decree No. 385 of 1 September 1993 (the “Banking Act”), CONSOB Regulation No. 16190 of 29 October 2007, all as amended;

(ii) in compliance with Article 129 of the Banking Act and the implementing guidelines, pursuant to which the Bank of Italy may request information on the offering or issue of securities in Italy; and

(iii) in compliance with any other applicable laws and regulations, including any limitation or requirement which may be imposed from time to time, inter alia, by CONSOB or the Bank of Italy.

Any investor purchasing the Notes in this offering is solely responsible for ensuring that any offer or resale of the Notes it purchases in this offering occurs in compliance with applicable laws and regulations.

This Offering Memorandum and the information contained herein are intended only for the use of its recipient and are not to be distributed to any third-party resident or located in Italy for any reason. No person resident or located in Italy other than the original recipients of this document may rely on it or its contents.

Philippines

The Notes have not been and will not be registered with the Securities and Exchange Commission of the Philippines and hence cannot be sold or offered for sale or distribution to the public in the Philippines.

Each of the Managers has represented, warranted and agreed that it has not and will not sell or offer for sale or distribution any Notes in the Philippines except to primary institutional lenders as defined in the Securities Regulation Code. Prospective investors should take note of the transfer restrictions set out in Rule 9.2 (2) B of the Securities Regulation Code.

France

Each of the Managers has represented and agreed that it has not offered or sold and will not offer or sell, directly or indirectly, the Notes to the public in France and it has not distributed or caused to be distributed and will not distribute or cause to be distributed to the public in France, the or any other offering material relating to the Notes and such offers, sales and distributions have been and will be made in France only to (a) persons providing investment services relating to portfolio management for the account of third parties, and/or (b) qualified investors (investisseurs qualifiés), as defined in, and in accordance with, Articles L.411- 1, L.411-2 and D.411-1 to D.41103 of the French Code monétaire et financier.

Switzerland

The Notes may not be publicly offered, sold or advertised, directly or indirectly, in or from Switzerland. Neither this Offering Memorandum nor any other offering or marketing material relating to the Notes constitutes a prospectus as such term is understood pursuant to article 652a or article 1156 of the Swiss Federal Code of Obligations or a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange Ltd., and neither this Offering Memorandum nor any other offering or marketing material relating to the Notes may be publicly distributed or otherwise made publicly available in Switzerland.

Russian Federation

Each of the Managers has agreed that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian Law.

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General

No action has been or will be taken in any jurisdiction by any Manager, the Issuer or the Guarantors that would permit a public offering of the Notes, or possession or distribution of the Offering Memorandum (in preliminary, proof or final form) or any other offering or publicity material relating to the Notes, in any country or jurisdiction where action for that purpose is required. Each Manager will comply to the best of its knowledge and belief with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or distributes the Offering Memorandum (in preliminary, proof or final form) or any such other material, in all cases at its own expense. No Manager is authorised to make any representation or use any information in connection with the issue, subscription and sale of the Notes other than as contained in the Offering Memorandum (in final form) or any amendment or supplement to it.

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LISTING AND GENERAL INFORMATION

1 The Issuer was incorporated as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid or B.V.) under the laws of The Netherlands on 21 May 2001 for an unlimited duration. The Issuer is registered with the Trade Register of the Chamber of Commerce for The Hague, The Netherlands, under number 24321697. The Issuer has been established as a special purpose vehicle for the purpose of, among others, incorporating, participating in and financing companies and enterprises; collaborating with, managing and providing advisory and other services to companies or other enterprises; lending and borrowing funds; providing collateral for the debts and other obligations of the Issuer or affiliated companies and enterprises or those of third parties; acquiring, exploiting and disposing of property; acquiring, exploiting and disposing of industrial and intellectual property rights; as well as performing all that is incidental to the above or which could be conductive thereto, in the broadest sense of the words. The address of the Issuer’s board of directors and senior management is the same as the address of the Issuer’s registered office.

2 Application has been made for the Notes to be admitted to the Official List of the Irish Stock Exchange and admitted to trading on its Global Exchange Market in accordance with the rules of that exchange. This Offering Memorandum constitutes listing particulars for the purposes of such application. Notification of any optional redemption, change of control or any change in the rate of interest payable on the Notes will be provided by the Issuer to the Irish Stock Exchange.

3 The admission of the Notes to the Global Exchange Market of the Irish Stock Exchange is expected to be granted on or about 20 May 2010.

4 Paper copies of the following documents (or copies thereof, translated into English, where relevant) will be available for physical inspection while the Notes remain outstanding and listed on the Global Exchange Market of the Irish Stock Exchange at the registered office of the Issuer and the registered office of the listing agent during normal business hours on any weekday: • the organisational documents of the Issuer; • Reserves Reports prepared by SRK and MM&A; • Financial Statements; and • the audited statutory financial statements published by the Issuer for the years ended 31 December, 2008 and 2009.

5 The Issuer will maintain a listing agent in Ireland for as long as any of the Senior Notes are listed on the Irish Stock Exchange. The Issuer reserves the right to vary such appointment and it will provide notice of such change of appointment to holders of the Notes and the Irish Stock Exchange.

6 The Irish Listing Agent is The Bank of New York Mellon (Ireland) Limited and the address of its registered office is Hanover Building, Windmill Lane, Dublin 2 Ireland.

7 The estimated amount of total expenses related to the admission of the Notes to the Global Exchange Market of the Irish Stock Exchange is approximately EUR 4,440.

8 SCM (System Capital Management) Limited, incorporated under the laws of Cyprus, owns 75% of the Issuer. Adeona Holdings Limited, Energees Investments Limited, Majorone Trading Limited and Celebron Investments Limited, all directly or indirectly owned by the beneficial owner of SMART and incorporated under the laws of Cyprus, together own 25% of the Issuer.

9 The Issuer’s subsidiaries are listed in “Business Description—Subsidiaries”.

10 The registered office of the Issuer is at Alexanderstraat 23, 2514 JM, The Hague The Netherlands, and its telephone number is +31 70 363 5800.

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11 The Issuer and each of the Guarantors has obtained all necessary consents, approvals and authorisations in The Netherlands and Ukraine in connection with the issue and performance of the Notes. The issue of the Notes was duly authorised by a resolution of the Board on 17 May 2010 and the entry into the Surety Agreement by the Guarantors on 27 April 2010, 28 April 2010 and 30 April 2010.

12 SRK and MM&A accept responsibility for, and have given and not withdrawn their respective written consent to the inclusion of, certain information contained in their respective Reserves Reports into this Offering Memorandum, and, to the best knowledge and belief of SRK and MM&A, having taken reasonable care to ensure that such is the case, such information is in accordance with the facts and does not omit anything likely to affect the import of such information.

13 There has been no significant change in the financial or trading position of the Issuer, the Guarantors or Metinvest since 31 December 2009 and no material adverse change in the financial position or prospects of the Issuer, the Guarantors or Metinvest since 31 December 2009.

14 Neither the Issuer, the Guarantors nor any member of Metinvest has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer, the Guarantors or any member of Metinvest is aware) during the 12 months preceding the date of this Offering Memorandum which may have or have had in the recent past a material adverse effect on the financial position or profitability of the Issuer, the Guarantors or Metinvest.

15 The Notes have been accepted for clearance through Euroclear, Clearstream, Luxembourg and DTC. The Common Code and ISIN numbers for the Regulation S Notes are 051137906 and XS0511379066, respectively. The ISIN and CUSIP numbers of the Rule 144A Notes are US591555AA54 and 591555AA5, respectively.

16 For so long as any Note is outstanding, copies (and English translations where the documents in question are not in English) of the following documents will be available, during usual business hours on any weekday (Saturdays and public holidays excepted), for inspection at the office of the Paying and Transfer Agents:

(a) the Trust Deed (which includes the form of the Global Note Certificate and the definitive Notes);

(b) the Surety Agreement;

(d) the Memoranda and Articles of Association of the Issuer and each of the Guarantors;

(e) the latest published annual report, audited consolidated accounts of the Issuer and unaudited semi-annual interim consolidated financial statements of the Issuer; and

(f) a copy of the Subscription Agreement for the Notes.

17 Except as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Subscription and Sale”, there is no other material contract, other than entered into in the ordinary course of business, to which the Issuer is a party, for the two years immediately preceding publication of the Offering Memorandum, or any other contracts, other than contract entered into in the ordinary course of business, entered into by the Issuer which contain any provisions under which the issuer has any obligation or entitlement material to it at the date of this Offering Memorandum.

18 The audited consolidated accounts of Metinvest for the years ended 31 December 2007, 31 December 2008 and 31 December 2009 were prepared in accordance with IFRS and audited by PricewaterhouseCoopers Accountants N.V., a member of the Koninklijk Nederlands Instituut voor Registeraccountants (“NIVRA”). Although certain non-consolidated information of the Issuer is

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included in these consolidated financial statements, the non-consolidated information does not provide significant additional information as compared with the consolidated accounts. The audited consolidated accounts of Metinvest for the year ended 31 December 2009 and the audited consolidated accounts of Metinvest for the years ended 31 December 2007 and 31 December 2008 are included in this Offering Memorandum. 19 Information Relating to the Initial Guarantors

Information concerning the incorporation, status and directors of each Guarantor is listed directly below.

Open Joint Stock Company Avdeevskiy Coke Processing Works (“Avdiivka Coke”) Incorporation and Status Avdiivka Coke was incorporated as an open joint stock company under the Companies law of Ukraine 1991 on 30 December 1993. The registration number of Avdiivka Coke is 00191075 and its registered address is 86065 Donetska oblast, Advdeevka, driveway Industrialnyi, 1, Ukraine. Avdiivka Coke’s principal activity is production of coke. The Issuer holds an 85.9% interest in Avdiivka Coke.

Director Gennadiy Olexandrovych Vlasov is the current director of Avdiivka Coke. Avdiivka Coke does not have a management board. The sole member of supervisory board of Avdiivka Coke is Metinvest Holding LLC, a wholly owned subsidiary of the Issuer incorporated in Ukraine. Avdiivka Coke does not have a secretary.

Open Joint Stock Company Ingulets Ore Mining and Processing Enterprise (“Ingulets GOK”) Incorporation and Status Ingulets GOK was incorporated as an open joint stock company under the Companies law of Ukraine 1991 on 17 January 1997. The registration number of Ingulets GOK is 00190905 and its registered address is 50064 Dnipropetrovsk oblast, Kryvyi Rig, Inguletsk region, Rudna str., 47, Ukraine. Ingulets GOK’s principal activity is production of iron ore The Issuer holds an 82.5% interest in Ingulets GOK.

Director Evgen Grygorovych Udod is the current acting director of Ingulets GOK. Ingulets GOK does not have a management board. The members of supervisory board of Ingulets GOK are Koshelenko Oleg Fedorovych, Kryvosheev Oleksandr Vasylyovych and Nusinov Volodymyr Yakovych. Ingulets GOK does not have a secretary.

Open Joint Stock Company Khartsyzsk Tube Works (“Khartsyzsk Pipe”) Incorporation and Status Khartsyzsk Pipe was incorporated as an open joint stock company under the Companies law of Ukraine 1991 on 7 December 1994. The registration number of Khartsyzsk Pipe is 001911135 and its registered address is 86703 Donetska oblast, Khartsyzsk, Patona Str., 9, Ukraine. Khartsyzsk Pipe’s principal activity is production of rolled products. The Issuer indirectly holds a 98.0% interest in Khartsyzsk Pipe.

Director

Dmytro Arnoldovych Livshyts is the current director of Khartsyzsk Pipe. Khartsyzsk Pipe does not have a management board. The sole member of supervisory board of Khartsyzsk Pipe is Metinvest Holding LLC, a wholly owned subsidiary of the Issuer incorporated in Ukraine. Khartsyzsk Pipe does not have a secretary.

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APPENDIX I: GLOSSARY OF SELECTED TERMS

Alloy steel Steel alloyed with other elements, usually molybdenum, manganese, chromium, vanadium, silicon, boron or nickel, in amounts greater than 10% by weight.

Angle Angle shaped section used in construction.

Basic oxygen furnace A pear-shaped furnace lined with refractory brocks that refines molten iron from the blast furnace and scrap into steel.

Bars Long steel products that are rolled from billets.

Batteries Coke ovens are constructed in batteries of 10 to 100 ovens.

Beneficiation A series of unit operations to liberate and then separate ore minerals from gangue minerals. The products of beneficiation are referred to as: concentrates (enriched in ore minerals), tailings (depleted of ore minerals) and slimes (fines rejected by washing).

Billet A semi-finished steel product with a square cross section of up to 150 millimetres x 150 millimetres. This product is either rolled or continuously cast and is further processed by rolling to produce finished long products.

Blast furnace A towering cylinder lined with heat-resistant (refractory) bricks, used by integrated steel mills to smelt iron from ore. It name comes from the “blast” of hot air and gases forced up through the iron ore, coke and limestone that load the furnace.

Blast furnace gas A by-product of blast furnaces that is generated when the iron ore is reduced with coke to metallic iron. It consists primarily of nitrogen, oxygen and monoxide. It is commonly used as a fuel within steel works.

Bloom A semi-finished steel product with a square cross section greater than 150 millimetres x 150 millimetres. This product is either rolled or continuously cast and is further processed by rolling to produce finished long products.

Bulb flat Bulb flats and tailor-made for plate stiffening application.

Carbon steel Steel in which the only main alloying constituent is carbon; the other elements present are in quantities too small to affect the properties.

Channel U shaped section used in construction.

Charge A given weight of metal introduced into the furnace.

Coil Steckel mill A reversing steel sheet reduction mill with heated coil boxes at each end. Steel sheet or plate is sent through the rolls of the reversing mill and coiled at the end of the mill, reheated in the coil box, and sent back through the Steckel stands and recoiled. By reheating the steel prior to each pass, the rolls can squeeze the steel thinner per pass and impart a better surface finish.

Coils Steel sheets that have been wound. A slab, once rolled in a hot-strip mill, can be more than one mile long; coils are the most efficient way to store and transport sheet steel.

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Coke The basic fuel consumed in blast furnaces in the smelting of iron. Coke is a processed form of coal. About 450 kilogrammes of coke are needed to process a tonne of hot metal, an amount which constitutes more than 50% of an integrated steel mill’s total energy use. Coke is used because coking coal burns sporadically and reduces into a sticky mass. Processed coke, however, burns steadily inside and out, and is not crushed by the weight of the iron ore in the blast furnace. It is produced inside the narrow confines of a coke oven, in which coal is heated without oxygen for 18 hours to drive off gases and impurities.

Coke oven A set of ovens that process coal into coke.

Coking coal Bituminous coal used in the production of steel in basic oxygen furnaces, generally low in sulphur and phosphorous.

Concentrate Material which has been processed to increase the percentage of the valuable mineral to facilitate transportation and downstream processing.

Continuous casting A method of pouring steel directly from a ladle through a tundish into a mould, shaped to form billets or slabs. Continuous casting avoids the need for large mills for rolling ingots into slabs. Continuous cast slabs also solidify into a few minutes, versus several hours for an ingot. Because of this, the chemical composition and mechanical properties are more uniform.

Dolomite A sedimentary carbonate rock consisting mainly of the mineral dolomite

Electric arc furnace A furnace which refines molten pig iron from the blast furnace and scrap into steel. In this process, the proportion of scrape used can be increased to 100% of the metal charge. Once the furnace is charged and covered, graphite electrodes are lowered through holes in the roof. The electric arc travelling between the electrodes and the metallic charge creates intense heat which melts the charge. Alloying elements can be added during the process.

Ferroalloy A metal product commonly used as a raw material feed in steelmaking, usually containing iron and other metals that improve the physical and chemical properties of the final steel product.

Flat product A product that is produced by rolls with smooth surfaces and ranges of dimension, varying in thickness and width. Flat products are used in the automotive and white goods industries, for production of large welded pipes, ship building, construction, major works and boilers. They include heavy plates and coils.

Flotation A process in which a prepared mixture of minerals is conditioned with reagents and subjected to agitation and aeration to cause those minerals rendered hydrophobic to float and the other minerals to sink.

Flux Limestone, dolomite or other substances used in iron and steelmaking, which react with undesirable impurities.

Grinding balls Grinding balls for the mining and cement industries.

H-beam H shaped section for construction.

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Heavy plate Steel sheet with a width up to five metres and a thickness of at least five millimetres. It is mainly used for construction, heavy machinery, shipbuilding or large diameter pipes.

Hot rolled Product that is sold in its “as produced” state off the hot rolling mill with no further reduction or processing steps, aside from being pickled and oiled (if specified).

Hot rolling mill A rolling mill that reduces hot slab into a coil of specified thickness; the whole processing is done at a relatively high temperature (when the steel is still red).

Ingots A form of semi-finished type of metal. Liquid metal is teemed (poured) into moulds, where it slowly solidifies. Once the metal is solid, the mould is stripped, and the 25- to 30-ton ingots are then ready for subsequent rolling or forging.

Iron ore Mineral containing enough iron to be a commercially viable source of the element for use in steelmaking.

Iron ore concentrate Iron ore containing the valuable minerals of an ore from which most the waste material has been removed by undergoing treatment.

JORC Code The 2004 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.

Ladle furnace A furnace used for refining hot metal between the basic oxygen furnaces or electric arc furnaces and casting.

Limestone A sedimentary rock composed largely of the mineral calcite (calcium carbonate or CaCO3). It is used in the blast furnace to form slags, which are then used in construction and other applications.

Long products Classification of steel products that includes bars, rods and structural products that are “long” rather than “flat” and that are produced from blooms or billets.

Low-alloyed steel Steel alloyed with other elements, usually molybdenum, manganese, chromium, vanadium, silicon, boron or nickel, in amounts of up to 10% by weight to improve the hardenability of thick sections.

Merchant concentrate Iron ore concentrate sold as a finished product.

Mineral A natural, inorganic, homogenous material that can be expressed by a chemical formula.

Megapascal One megapascal, which is equal to 1,000,000 pascals. Pascal is the SI derived unit for pressure and one pascal is equivalent to one newton per square meter.

Open hearth furnace A broad, shallow hearth used to refine pig iron and scrap into steel. Heat is supplied from a large flame over the surface and the refining takes seven to nine hours.

OHSAS Management system standards, developed in order to facilitate the integration of quality and occupational health and safety management systems by organisations.

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Open pit Surface mining in which the ore is extracted from a pit or quarry.

PCI technology Pulverised coal injection (PCI) technology involves injecting pulverised coal directly into a blast furnace through tuyeres (instead of using cokes) which reduces the consumption of coke and increases furnace productivity.

Pellet plant A processing facility that takes as its input iron concentrate and produces iron ore pellets.

Pellets An enriched form of iron ore shaped into small balls or pellets. Pellets are used as raw material in the steel making process.

Pig iron Crude iron obtained directly from the blast furnace and cast in moulds.

Rails A steel bar laid on the ground, forming a railway track.

Rail fasteners Metal devices used to link rails on railway lines.

Raw steel Steel in primary form of hot molten metal.

Rebar/Debar (reinforcing A commodity grade steel used to strengthen concrete in highway bar/deformed bar) and building construction. Refining A stage in the process of making crude steel, during which most residual impurities are removed from the cured steel and additions of other metals may be made before it is cast (see also “Ladle furnace”).

Rolled steel (products) Steel produced to a desired thickness by being passed through a set of rollers.

Sections Blooms or billets that are hot-rolled in a rolling mill to form, among other shapes, “L”, “U”, “T” or “I” shapes. Sections can also be produced by welding together pieces of flat products. Sections can be used for a wide variety of purposes in the construction, machinery and transport industries.

Semi-finished products A product category that includes slabs, blooms and billets. Slabs, blooms and billets are the first solid forms in the steel making process. These usable shapes are further processed to become more finished products rebars and shapes, structural steel and wire rod.

Shapes Steel shapes in a variety of shapes such as beams, longs, bars, etc.

Sinter An aggregate which is normally produced from relatively coarse fine iron ore and other metallurgical return wastes used as an input/raw material in blast furnaces.

Slab The most common type of semi-finished steel. Traditional slabs measure 18 to 25 centimetres thick, 75 to 225 centimetres wide and are usually about 6 to 12 metres long, while the output of recently developed “thin slab” casters is approximately five centimetres thick. Subsequent to casting, slabs are sent to the hot strip mill to be rolled into coiled sheet and plate products.

Slag Slag is a by-product generated when nonferrous substances in iron ore, limestone and coke are separated from the hot metal. Slag is

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used in cement and fertiliser production as well as for base course material in road construction.

Slimes Fine particulate material that can interfere with flotation due to excessive reagent consumption, excessive frothing, or slimes coating. Frequently, the fine gangue material is removed from iron ore by washing and size classification.

Strand casting The process in which molten steel is transferred from a ladle into a reservoir, called a tundish and from there, the steel flows into moulds of a continuous casting machine. As the metal is water cooled, it solidifies into one long strand and then is cut to length by torches.

Tailings Waste material produced from ore after economically recoverable metals or minerals have been extracted. Changes in metal prices and improvements in technology can sometimes make the tailings economic to process at a later date.

Top blowing converter A basic oxygen furnace with a closed bottom and an open upper cone through which a water-cooled oxygen lance can be raised and lowered.

Wharf coke Moist wharf coke, a finished coke product containing 6.0% moisture which was discharged from a coking battery and normalized to shipping temperature (quenched with water and processed with inert gas) and was not screened.

Wire A broad range of products produced by cold and hot reducing, or drawing, wire rod through a series of dies to reduce the diameter, improve surface finish, dimensional accuracy, and physical properties. Typical applications include nets, screws, rivets, upholstery springs, furniture wire, concrete wire, electrical conductors, rope wire and structural cables.

Wire rod Formed from billets, wire rod in coils is an intermediate product of uniform round cross section dimension.

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APPENDIX II: CLASSIFICATION OF RESERVES AND RESOURCES

International Reporting Methodologies

Several codes exist for reporting reserves in the international mining industry. The technical differences between these codes are minor, and results are generally comparable regardless of which methodology is employed in assessing a particular deposit. The principal reporting codes in current use are: United States Securities and Exchange Commission Industry Guide 7 (“SEC”) (United States); Canadian National Instrument 43-101 (Canada); Australasian Joint Ore Reserves Committee (“JORC”) Code (Australia); Institute of Materials, Minerals and Mining (“IMMM”) Reporting Code (United Kingdom and Ireland); and South African Institute of Mining and Metallurgy (“SAIMM”) Reporting Code (South Africa).

Each of these codes recognises the difference between mineral resources and ore reserves. Conversion from a mineral resource to an ore reserve requires the application of “modifying factors”, including mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. A “resource” is geologically defined; it becomes a “reserve” when the modifying factors, especially technical and economic factors, are taken into account. Each of these codes also includes strict guidelines for data quality and reporting in mining commodities.

Mineral resources

A mineral resource is a concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust (a “deposit”) in such a form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral resources are subdivided, in order of increasing geological confidence, into inferred, indicated and measured categories. Portions of a deposit that do not have reasonable prospects for eventual economic extraction are not included as mineral resources.

Inferred mineral resource

An inferred mineral resource is that part of a mineral resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity, and based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which is limited or of uncertain quality and/or reliability.

Indicated mineral resource

An indicated mineral resource is that part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes. The locations are too widely or inappropriately spaced to confirm geological continuity and/or grade continuity but are spaced closely enough for continuity to be assumed.

Measured mineral resource

A measured mineral resource is that part of a mineral resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings, and drill holes. The locations are spaced closely enough to confirm geological and/or grade continuity.

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Ore reserves

All data relating to Metinvest’s iron ore reserves and resources were prepared in accordance with JORC and based on the Reserves Report prepared by SRK.

Ore reserves are the economically mineable parts of an indicated or measured mineral resource. Ore reserves take account of diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out on the deposit and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments establish that at the time of reporting extraction is reasonably justified.

Proved ore reserve

A proved ore reserve is the economically mineable part of a measured mineral resource.

Probable ore reserve

A probable ore reserve is the economically mineable part of an indicated and, in some circumstances, a measured mineral resource.

Coal reserves

All data relating to Metinvest’s coal reserves and resources located on the United States were prepared in accordance with SEC Industry Guide 7 and based on the Reserves Report prepared by MM&A.

Coal reserves are estimated based on industry-accepted guidelines for total coal/seam thickness, coal quality, coal recoverability, product yield, and other practical permitting and mining limitations. The industry- standard methology providing reasonable assurance that the coal reserves are recoverable considering geologic, technical, economic and legal limitations at the time of the reserve evaluation has been used.

Proved coal reserve

A proved coal reserve is a reserve for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings, or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspections, sampling, and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral are well established. Proved coal reserves lie within one fourth of a mile arc around a coal measurement site.

Probable coal reserve

A probable coal reserve is a reserve for which quantity and grade and/or quality are computed from information similar to that used for proved reserves, but the sites for inspection, sampling, and measurement are farther apart or are less adequately spaced. The degree of assurance, although lower than that for proved reserves, is high enough to assume continuity between points of observation. Probable reserves lie within more than one fourths of a mile, but less that three fourth of a mile from a coal measurement site.

Ukrainian Reporting Methodologies

All data relating to Metinvest’s coal reserves and resources located in Ukraine is presented in accordance with Ukrainian standards.

Ukraine has a long-established system of reserve and resource reporting, set forth by the State Commission of Ukraine on Mineral Resource. The primary difference between Ukrainian and international methodologies is that Ukrainian methodologies rely on “geometrical” methods to determine reserves, as compared to international methodologies, which utilise sampling and extrapolation techniques. Deposits are classified into one of four classes, based on the complexity of their geological structure. This classification may take into account quantitative results measuring the inconsistencies in the basic features of mineralisation. This

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initial classification is intended to identify those resources warranting further study. Depending on the extent of further exploration, mineral resources are subsequently divided into “explored” and “evaluated” deposits. Explored deposits have been sufficiently explored to proceed with a feasibility study relating to commercial development, and evaluated deposits have been explored to the extent necessary to determine whether continued exploration is warranted. Resources that do not meet the standards for explored or evaluated deposits are classified as projected resources. Explored and evaluated deposits are further classified based on the type, quantity and quality of the measurements taken to evaluate the reserves.

Category A reserves

Category A reserves include only explored deposits, and must meet the following criteria:

1. the sizes, forms and bedding conditions of the mineral body have been determined; the nature and regularities in their morphology and internal fabric have been studied; the barren and offgrade segments within the mineral bodies have been detected and mapped; and the locations and fault amplitudes of dislocations with a break have been identified;

2. the natural varieties of the minerals within the body have been determined; its categories and grades have been identified and mapped; its compositions and properties have been verified; and the quality of all categories and grades of the identified minerals have been characterised in terms of all parameters stipulated by industrial regulations;

3. the distribution and forms of those valuable and noxious components found in the mineral body and products of its processing have been investigated; and

4. the mineral reserves have been mapped based on test wells, mine workings and detailed trial runs.

Category B reserves

Category B reserves include only explored deposits. Category B reserves have been subject to a high level of investigation, though their boundaries have been determined with less accuracy than Category A reserves.

Category B reserves meet the criteria established for Category A reserves, except that Category B reserves may contain a limited extrapolation zone that is substantiated on the basis of geological criteria and geophysical and geochemical research.

Category C1 reserves

Category C1 reserves are characterised by a lower level of accuracy than the determination of Category B reserves. Most explored deposits are Category C1 reserves.

Category C1 reserves meet the criteria established for Category B, except that additional extrapolation is permitted in mapping the mineral deposit.

Category C2 reserves

Category C2 reserves consist of evaluated deposits. Category C2 reserves must meet the criteria established for Category C1, except that:

1. the sizes, forms, internal fabric and bedding conditions of the mineral body are confirmed by means of only a limited number of test wells and core samples; and

2. the boundaries of the deposit (including core samples and outcroppings) are mapped based on data gathered from only a limited number of test wells, and a geologically substantiated extrapolation of deposit parameters is permitted.

Resources that do not meet the standards for classification as A, B, C1 or C2 reserves may be classified as probable resources, in categories P1, P2 or P3. Such deposits have undergone some exploration, but require further geological work in order to be upgraded to A, B, C1 or C2 reserves.

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Comparison of international and Ukrainian reporting methodologies

While a direct comparison between international and Ukrainian reporting methodologies is difficult because each is founded on different principles, it is often the case that category A and B Ukrainian reserves correlate to proved reserves, and C1 Ukrainian reserves to probable reserves. However, these relationships may vary among deposits, and at different times for the same deposits.

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INDEX TO FINANCIAL INFORMATION

IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009

Consolidated Balance Sheet...... F-4

Consolidated Income Statement ...... F-5

Consolidated Statement of Cash Flows ...... F-6

Consolidated Statement of Changes in Equity ...... F-7

Notes to the IFRS Consolidated Financial Statements ...... F-8

INDEPENDENT AUDITOR’S REPORT ...... F-60

IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008

Consolidated Balance Sheet...... F-64

Consolidated Income Statement ...... F-65

Consolidated Statement of Cash Flows ...... F-66

Consolidated Statement of Changes in Equity ...... F-68

Notes to the IFRS Consolidated Financial Statements ...... F-69

INDEPENDENT AUDITOR'S REPORT ...... F-119

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Metinvest B.V.

IFRS Consolidated Financial Statements

31 December 2009

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Contents

IFRS CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet ...... F-4 Consolidated Income Statement ...... F-5 Consolidated Statement of Comprehensive Income ...... F-5 Consolidated Statement of Cash Flows...... F-6 Consolidated Statement of Changes in Equity ...... F-7 Notes to the IFRS consolidated financial statements

1 Metinvest B.V. and its operations ...... F-8 2 Operating environment of the Group...... F-9 3 Basis of preparation and significant accounting policies ...... F-10 4 Critical accounting estimates and judgments in applying accounting policies ...... F-20 5 Adoption of new or revised standards and interpretations ...... F-22 6 Business combinations ...... F-24 7 Segment information ...... F-27 8 Goodwill...... F-30 9 Other intangible assets ...... F-31 10 Property, plant and equipment ...... F-32 11 Investments in associates ...... F-33 12 Available-for-sale investments...... F-34 13 Other non-current assets ...... F-35 14 Inventories ...... F-35 15 Trade and other receivables ...... F-36 16 Cash and cash equivalents ...... F-38 17 Share capital ...... F-38 18 Other reserves...... F-39 19 Loans and borrowings...... F-40 20 Seller’s notes ...... F-41 21 Deferred income ...... F-41 22 Retirement benefit obligations...... F-42 23 Other non-current liabilities ...... F-43 24 Trade and other payables ...... F-44 25 Expenses by nature...... F-44 26 Other operating (expenses)/income, net...... F-45 27 Finance income ...... F-45 28 Finance costs ...... F-45 29 Income tax...... F-46 30 Balances and transactions with related parties ...... F-49 31 Contingencies, commitments and operating risks ...... F-52 32 Financial risk management ...... F-54 33 Capital risk management ...... F-56 34 Fair values of financial instruments...... F-57 35 Reconciliation of classes of financial instruments with measurement categories ...... F-58 36 Events after the balance sheet date ...... F-58

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Metinvest B.V. Consolidated Balance Sheet All amounts in millions of US dollars

Note 31 December 2009 31 December 2008

ASSETS

Non-current assets Goodwill 8 1,855 1,662 Other intangible assets 9 1,167 712 Property, plant and equipment 10 5,649 4,462 Investments in associates 11 144 123 Available-for-sale investments 12 18 10 Deferred tax asset 29 88 22 Other non-current assets 13 213 631 Total non-current assets 9,134 7,622

Current assets Inventories 14 898 1,044 Trade and other receivables 15 1,979 2,429 Cash and cash equivalents 16 159 261 Total current assets 3,036 3,734

TOTAL ASSETS 12,170 11,356

EQUITY

Share capital 17 - - Share premium 17 4,172 4,172 Other reserves 18 (4,119) (4,339) Retained earnings 5,592 5,105 Equity attributable to the owners of the Company 5,645 4,938 Non controlling interest 1,327 1,348 TOTAL EQUITY 6,972 6,286

LIABILITIES

Non-current liabilities Loans and borrowings 19 929 1,319 Seller’s notes 20 330 - Deferred income 21 8 17 Retirement benefit obligations 22 343 287 Deferred tax liability 29 913 699 Other non-current liabilities 23 101 45 Total non-current liabilities 2,624 2,367

Current liabilities Loans and borrowings 19 1,014 1,366 Seller’s notes 20 161 - Trade and other payables 24 1,399 1,326 Liabilities under moratorium - 11 Total current liabilities 2,574 2,703 TOTAL LIABILITIES 5,198 5,070

TOTAL LIABILITIES AND EQUITY 12,170 11,356

Signed and authorized for release on behalf of Metinvest B.V. on 7 April 2010:

______

Igor Syry John W. Macdonald

TheThe accompanying accompanying notes notes on on pages pages F-8 17 to F-5967 form form an anintegral integral part part of these of these financial financial statements statements 13

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Metinvest B.V. Consolidated Income Statement All amounts in millions of US dollars

Note Year ended Year ended 31 December 2009 31 December 2008

Revenue 7 6,026 13,213 Cost of sales 25 (4,365) (8,375) Gross profit 1,661 4,838

Distribution costs 25 (696) (969) General and administrative expenses 25 (267) (326) Other operating (expenses)/income, net 26 (94) 418 Operating profit 604 3,961

Finance income 27 43 53 Finance costs 28 (167) (477) Share of result of associates 11 (5) 21 Profit before income tax 475 3,558 Income tax expense 29 (141) (755) Profit for the year 334 2,803

Profit is attributable to: Owners of the Company 384 1,931 Non controlling interests (50) 872

Profit for the year 334 2,803

Consolidated Statement of Comprehensive Income All amounts in millions of US dollars

Year ended Year ended Note 31 December 2009 31 December 2008

Profit for the year 334 2,803 Other comprehensive income Revaluation of available-for-sale investments 12 8 (132) Revaluation of property plant and equipment 10 1,091 449 Currency translation differences (192) (3,354) Share in equity reserves of associates 11 30 (53) Income tax relating to components of other comprehensive income 29 (273) (112) Total other comprehensive income 664 (3,202)

Total comprehensive income for the period 998 (399)

Total comprehensive income attributable to:

Owners of the Company 757 (599) Non controlling interest 241 200

The accompanyingThe accompanying notes notes on pages on pages F-8 17to toF-59 67 form anan integralintegral part part of of these these financial financial statements statements 14

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Metinvest B.V. Consolidated Statement of Cash Flows All amounts in millions of US Dollars

Note Year ended Year ended 31 December 2009 31 December 2008

Cash flows from operating activities Profit before income tax 475 3,558

Adjustments for: Depreciation of property, plant and equipment (“PPE”) and amortisation of intangible assets, net of amortisation of deferred income 555 641 Impairment and devaluation of PPE 49 50 Loss on disposal of property, plant and equipment 26 1 39 Impairment of trade and other receivables 25 11 29 Finance income 27 (43) (53) Finance costs 28 167 477 Foreign exchange differences (36) (621) Net increase in retirement benefit obligation 46 132 Share of result of associates 11 5 (21) Write-offs of inventory 14 - 273 Other non-cash operating (incomes)/losses 3 71 Operating cash flows before working capital changes 1,233 4,575

Decrease/(increase) in inventories 304 (580) Increase in trade and other accounts receivable (22) (318) Increase in trade and other accounts payable 96 189 Decrease in liabilities under moratorium - (3) Decrease in other non-current assets 20 - Decrease in other non-current liabilities (3) (11) Cash generated from operations 1,628 3,852 Income taxes paid (344) (827) Interest paid (74) (169) Net cash from operating activities 1,210 2,856 Cash flows from investing activities Purchase of property, plant and equipment (324) (679) Proceeds from sale of property, plant and equipment 15 5 Acquisition of subsidiaries, net of cash acquired 7 (1,699) Acquisition of United Coal Company, net of cash acquired (31) (400) Payments for subsidiaries and non controlling interest – SCM Group and related parties (122) (205) Loans issued to SCM Group companies (37) (130) Interest received 2 20 Dividends received - 29 Net cash used in investing activities (490) (3,059)

Cash flows from financing activities Proceeds from loans and borrowings 115 1,403 Repayment of loans and borrowings (719) (1,591) Net trade financing repayments (156) (113) Dividends paid (58) (352) Net cash used in financing activities (818) (653) Effect of exchange rate changes on cash and cash (4) (17) equivalents

Net decrease in cash and cash equivalents (102) (873) Cash and cash equivalents at the beginning of the year 16 261 1,134

Cash and cash equivalents at the end of the year 16 159 261

The Theaccompanying accompanying notes notes on pageson pages F-8 17 to to F-59 67 form form an an integral integral part part of of these these financial financial statements statements 15

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Metinvest B.V. Consolidated Statement of Changes in Equity All amounts in millions of US Dollars

Non Total Attributable to owners of the Company controlling equity Share Share Other Retained Total interest In million of US Dollars capital premium reserves earnings

Balance at 1 January 2008 - 4,172 (1,500) 3,356 6,028 1,287 7,315

Total comprehensive income for the period (2,530) 1,931 (599) 200 (399) Realised revaluation reserve - - (226) 226 - - - Acquisition of interest in the subsidiaries from SCM Group companies and related parties - - (83) - (83) (11) (94) Increase in non controlling interest as a result of Group restructuring - - - (48) (48) 48 - Dividends paid - - - (360) (360) (176) (536)

Balance at 31 December 2008 4,172 (4,339) 5,105 4,938 1,348 6,286

Total comprehensive income for the period - - 373 384 757 241 998 - Realised revaluation reserve - (160) 160 - - - Acquisition of interest in the subsidiaries from SCM Group companies and related parties (Note 6) - - 7 - 7 (129) (122) Decrease in non controlling interest due to Group restructuring (Note 6) - - - 14 14 (14) - Business combination (Note 6) - - - - - (61) (61) Acquisition of non controlling interest in Promet (Note 6) - - - (51) (51) 51 - Dividends declared by Parent and non wholly owned subsidiaries - - - (20) (20) (109) (129)

Balance at 31 December 2009 - 4,172 (4,119) 5,592 5,645 1,327 6,972

The accompanyingThe accompanying notes notes on pages on pages F-8 to17 F-59 to 67 form form an an integralintegral part of thesethese consolidatedconsolidated IFRS IFRS financial financial statements statements 16

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

1 Metinvest B.V. and its operations

Metinvest B.V. (the “Company”), is a joint stock company limited by shares registered in the Netherlands. The Company was acquired by JSC System Capital Management (“SCM”) in 2004 and designated to hold the metals and mining assets of SCM. The Company and its subsidiaries (together referred to as the “Group” or “Metinvest Group”) are a fully integrated steel producer, owning assets in each link of the production chain – from iron ore mining, coking coal mining and coke production, through to semi-finished and finished steel production; as well as pipe rolling and plate/coil production. The steel products and iron ore are sold on both the Ukrainian and export markets. SCM has been performing a comprehensive legal restructuring of its holdings, whereby all controlling interests in its companies related to the steel and mining business were transferred to Metinvest B.V. As the Metinvest Group has been formed through a reorganisation of entities under common control, these consolidated financial statements have been prepared using the predecessor basis in a manner similar to the pooling of interest method. Accordingly, the financial statements, including corresponding amounts, have been presented as if the transfers of controlling interests in the subsidiaries had occurred at the beginning of the earliest period presented, or, if later, on the date of acquisition of the subsidiary by the transferring entities under common control. The assets and liabilities of the transferred subsidiaries were recorded in these consolidated financial statements at the carrying amount in the transferring entities’ financial statements. The difference between the carrying amount of net assets and the purchase consideration was recorded as an adjustment to the merge reserve in equity. As at 31 December 2009, this legal reorganisation is almost complete and SCM is committed to transferring the remaining interests in its metals and mining subsidiaries to Metinvest B.V. by 31 December 2010. Until November 2007, the Company was 100% owned by JSC System Capital Management. SCM is registered in Donetsk, Ukraine and is controlled by Mr. Rinat Akhmetov. In November 2007 the Company acquired from parties known as Smart Group ("SMART") 82% of the shares in the share capital of JSC Inguletskiy Mining and Processing Works in exchange for the transfer to it of 25% of the shares in the share capital of the Company. Further JSC SCM and SMART negotiated and agreed that SMART would contribute their equity interest in JSC Makeyevka Steel Plant ("MMZ") and JSC Promet Steel in exchange SMART would acquire veto rights over the management of the Company. Due to the complexity of the transaction, Promet Steel was acquired in 2009, while certain procedural matters concerning the acquisition of MMZ have yet to be finalized. As of 31 December 2009, Metinvest B.V. is owned 75% by SCM and 25% by Smart Group.

The principal subsidiaries of Metinvest B.V. are presented below:

effective % interest as Segment Country of at 31 December incorporation Name 2009 2008

Metinvest Holding LLC 100.0% 51.2% Corporate Ukraine MetalUkr Holding Limited 65.6% 65.6% Corporate Cyprus JSC Azovstal Iron and Steel Works 95.8% 94.6% Steel Ukraine JSC Enakievo Metallurgical Works 90.6% 88.2% Steel Ukraine JV LLC Metalen 100.0% 95.6% Steel Ukraine JSC Khartsyzsk Tube Works 97.6% 95.1% Steel Ukraine Ferriera Valsider S.P.A. 70.0% 70.0% Steel Italy Metinvest Trametal S.P.A. 100.0% 100.0% Steel Italy Spartan UK Ltd 100.0% 100.0% Steel UK Metinvest International S.A. 100.0% 100.0% Steel Switzerland LLC SMC Metinvest 100.0% 100.0% Steel Ukraine LLC Metinvest Ukraine 100.0% 51.6% Steel Ukraine JSC Avlita 65.6% 65.6% Coke and coal Ukraine JSC Avdiivka By-Product Coke Plant 91.0% 79.9% Coke and coal Ukraine JSC Krasnodonugol 90.9% 79.9% Coke and coal Ukraine JSC Severniy Mining and Processing Works ** 41.5% 41.5% Iron ore Ukraine JSC Central Mining and Processing Works ** 49.8% 49.8% Iron ore Ukraine JSC Inguletskiy Mining and Processing Works 82.5% 82.5% Iron ore Ukraine United Coal Company* 100.0% - Coke and coal USA JSC Makeyevka Steel Works* 0% - Steel Ukraine JSC Promet Steel* 95.0% - Steel Bulgaria

* - entity acquired by the Group in 2009 ** - the nominal interest held is over 50%.

As part of the Shareholder Agreement, SCM has agreed to sell/contribute its remaining equity interests in the above entities and certain other equity investments to Metinvest B.V. As at 31 December 2009, SCM's carrying value of such assets totalled USD 1,038 million (31 December 2008: USD 914 million). As of the date of preparation of these financial statements, the Shareholders are undecided on the exact mechanism and at which value these assets will be brought into Metinvest B.V. 17

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

1 Metinvest B.V. and its operations (continued)

As at 31 December 2009, Group employed approximately 79 thousand people (31 December 2008: 89 thousand).

The Company’s registered address is Alexanderstraat 23, 2514 JM, The Hague. The company is registered with the commercial trade register under the number 24321697. The principal places of production facilities of the Group are in Ukraine and Italy and USA.

The consolidated financial statements of Metinvest B.V. for the year ended 31 December 2009 were authorised for issue in accordance with a resolution of the Board of Directors on 7 April 2010.

2 Operating environment of the Group

The Ukrainian economy is vulnerable to market downturns and slowdowns elsewhere in the world. The ongoing global financial crisis has resulted in considerable instability in the capital markets, significant deterioration in the liquidity of banks, much tighter credit conditions where credit is available, and a significant devaluation of the national currency against other major currencies. In the fourth quarter of 2008, international agencies began to downgrade the country's credit ratings. Whilst the Ukrainian Government is introducing various stabilising measures aimed at providing liquidity and supporting debt re-financing for Ukrainian banks, there continues to be uncertainty regarding access to capital and its cost to for the Group.

The deterioration of the global steel markets and decline in commodity prices has particularly impacted the demand for Ukrainian production, which in turn reduced the demand for the Group's supplies. In addition, the customers of the Group may also have been affected by the deterioration in their own liquidity, which could in turn impact their ability to repay amounts due to the Group. To the extent that information is available, the Group has reflected revised estimates of expected future cash flows in its impairment assessment. These factors could affect the Group's financial position, results of operations and business prospects.

Management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies

Basis of preparation and statement of compliance. These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. The consolidated financial statements have been prepared under the historical cost convention unless stated otherwise. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 5, Adoption of New or Revised Standards and Interpretations).

These consolidated financial statements are presented in millions of US dollar and all values are rounded off to the nearest million except where otherwise indicated.

Critical accounting estimates and judgements in applying accounting policies. The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from these estimates. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the IFRS consolidated financial statements are disclosed in Note 4.

Principles of consolidation. Subsidiaries are those companies and other entities (including special purpose entities) in which the Group , directly or indirectly, have an interest of more than one half of the voting rights or otherwise have power to govern the financial and operating policies so as to obtain economic benefits. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange. The date of exchange is the acquisition date where a business combination is achieved in a single transaction, and is the date of each share purchase where a business combination is achieved in stages by successive share purchases.

The excess of the cost of acquisition over the fair value of the net assets of the acquiree at each exchange transaction represents goodwill. The excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over cost of the acquisition (“negative goodwill”) is recognised immediately in the consolidated income statement.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. Accounting polices of subsidiaries have been changed where necessary to ensure consistency with the policies of the Group.

Non-controlling interest is that part of the net results and of the net assets of a subsidiary, including the fair value adjustments, which is attributable to interests which are not owned, directly or indirectly, by the Company.

Non-controlling interest forms a separate component of equity, except for non-controlling interest in subsidiaries registered in the form of limited liability companies.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Purchases of subsidiaries from parties under common control. Purchases of subsidiaries from parties under common control are accounted under the predecessor values method. Under this method the financial statements of the entity are presented as if the businesses had been consolidated from the beginning of the earliest period presented (or the date that the entities were first under common control, if later). The assets and liabilities of the subsidiary transferred under common control are at the predecessor entity’s book values. The difference between the consideration given and the aggregate book value of the assets and liabilities (as of the date of the transaction) of the acquired entity is recorded as an adjustment to equity. This is recorded as a separate reserve. No additional goodwill is created by such purchases.

Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Non- controlling interest is valued on proportionate basis of net assets.

Investments in associates. Associates are entities over which the Group has significant influence, but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated impairment losses, if any. The Group's share of the post-acquisition profits or losses of associates is recorded in the consolidated income statement, and its share of post-acquisition movements in reserves is recognised in reserves. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured accounts receivable, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and their associates are eliminated to the extent of the Group' interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Any excess of the fair value of the Group’s share in the acquired associate’s net assets (”negative goodwill”) is recognised immediately in the consolidated income statement.

Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the General Director of the Group that makes strategic decisions. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in another economic environment.

Foreign currency translation. The currency of each of consolidated entities is the currency of the primary economic environment in which the entity operates. The functional currency for the majority of the consolidated entities is either Ukrainian hryvnia (“UAH”) or US dollar (“USD”).

Transactions denominated in currencies other than the relevant functional currency are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates are recognised in the consolidated income statement.

Monetary assets and liabilities are translated into functional currency at the official exchange rate at the respective balance sheet dates. Translation at year end does not apply to non-monetary items including equity investments. The effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale reserve in equity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Translation from functional to presentation currency. The Group has selected the US dollar (“USD”) as the presentation currency. The USD has been selected as the presentation currency for the Group as: (a) management of the Group manages business risks and exposures, and measures the performance of its businesses in the USD; (b) the USD is widely used as a presentation currency of companies engaged primarily in metallurgy; and (c) the USD is the most convenient presentation currency for non-Ukrainian users of these IFRS consolidated financial statements.

The results and financial position of each consolidated entity are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity. All the components of consolidated equity are translated at the closing rate of that balance sheet date, except for retained earnings, which is stated at historical rates. The balancing figure goes to cumulative currency translation reserve in other reserves in equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. When a subsidiary is disposed of through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity, the exchange differences deferred in equity are reclassified to the consolidated income statement.

As at 31 December 2009, the principal rate of exchange used for translating foreign currency balances was USD 1 = UAH 7.985 (31 December 2008: USD 1 = UAH 7.7); EUR 1 = UAH 11.449 (31 December 2008 EUR 1 = 10.86 UAH). Exchange restrictions in Ukraine are limited to compulsory receipt of foreign accounts receivable within 180 days of sales. Foreign currency can be easily converted at a rate close to the National Bank of Ukraine rate. At present, the UAH is not a freely convertible currency outside of Ukraine.

Property, plant and equipment. Property, plant and equipment is stated using the revaluation model. Fair values are based on valuations by external independent valuers. The frequency of revaluation depends upon the movements in the fair values of the assets being revalued. Subsequent additions to property plant and equipment are recorded at cost. Cost includes expenditure directly attributable to acquisition of the items. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. As at 31 December 2008 and 31 December 2009, property, plant and equipment are stated at revalued amounts less accumulated depreciation and provision for impairment, if required.

Increases in the carrying amount arising on revaluation are credited to other comprehensive income and increase the other reserves in equity. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Decreases that offset previous increases in the carrying amount of the same asset decrease the previously recognised revaluation reserve directly in equity; all other decreases are charged to the income statement. The revaluation reserve in equity is transferred directly to retained earnings when the surplus is realised either on the retirement or disposal of the asset or as the asset is used by the Group; in the latter case, the amount of the surplus realised is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.

Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value that can be allocated to a separate depreciation period.

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalized with the carrying amount of the replaced component being written off. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognized in the consolidated income statement as an expense when incurred.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Property, plant and equipment are derecognized upon disposal or when no future economic benefits are expected from the continued use of the asset. Gains and losses on disposals determined by comparing proceeds with carrying amount of property, plant and equipment are recognised in the consolidated income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

Depreciation is charged to the consolidated income statement on a straight-line basis to allocate costs or revalued amounts of individual assets to their residual value over the estimated remaining useful lives. Depreciation commences at the moment when assets is put into use. The estimated remaining useful lives are as follows:

Remaining useful lives in years Buildings and structures from 2 to 60 Plant and machinery from 2 to 35 Furniture, fittings and equipment from 2 to 10

Estimates of remaining useful lives are made on a regular basis for all buildings, plant and machinery, with annual reassessments. Changes in estimates are accounted for prospectively.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the assets were already of the age and in the condition expected at the end of the useful life. The residual value of an asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate, at each balance sheet date.

Construction in progress represents prepayments for property, plant and equipment, and the cost of property, plant and equipment, construction of which has not yet been completed. No depreciation is charged on such assets until they are put into use.

The Company capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.

Asset retirement obligations. According to the Code on Mineral Resources, Land Code of Ukraine, Mining Law, Law on Protection of Land and other legislative documents, the Group is responsible for site restoration and soil rehabilitation upon abandoning of its mines. Estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of an item of property, plant and equipment when incurred when the item is acquired. Changes in the measurement of an existing asset retirement obligation that result from changes in the estimated timing or amount of the outflows, or from changes in the discount rate are recognised in the income statement or other reserves in equity to the extent of any revaluation balance existence in respect of the related asset. Provisions in respect of abandonment and site restoration are evaluated and re-estimated annually, and are included in these consolidated financial statements at each balance sheet date at their expected net present value, using discount rates which reflect the economic environment in which the Group operates.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the acquirer’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated balance sheet. Goodwill on acquisitions of associates is included in the investment in associates. It is carried at cost less accumulated impairment losses, if any. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purposes of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business to which the goodwill arose.

Other intangible assets. All of the Group’s other intangible assets have definite useful lives and primarily include capitalised computer software, licences, coal reserves and long-term sales contracts. Acquired computer software and other licences are capitalised on the basis of the costs incurred to acquire and bring them to use.

Other intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell. Licences and coal reserves are amortised using the units-of-production method over all estimated proven and probable reserve assigned to the mines. Proven and probable reserves exclude non-recoverable coal and ore reserves and estimated processing losses. Amortization rates are updated when revisions to coal reserve estimates are made. Coal reserve estimates are reviewed when events and circumstances indicate a reserve change is needed. Long-term sales contracts are amortised using a units-of-production method, based on fulfilment of the contract.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Impairment of non-financial assets. Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation are reviewed for impairment whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less cost to sell and value in use. For purposes of assessing impairment, assets are grouped to the lowest levels for which there are separately identifiable cash flows (cash generating unit). Non-financial assets, other than goodwill, that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Classification of financial assets. The Group classifies financial assets into the following measurement categories: loans and receivables and available-for-sale financial instruments.

Loans and receivables are financial receivables created by the Group by providing money, goods or services directly to a debtor, other than those receivables which are created with the intention to be sold immediately or in the short term or which are quoted in an active market. Loans and receivables comprise primarily loans, trade and other accounts receivable including purchased loans and promissory notes. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

All other financial assets are included in the available-for-sale category.

Initial recognition of financial instruments. The Group’s principal financial instruments comprise available-for-sale investments, loans and borrowings, cash and cash equivalents and short-term deposits. The Group has various other financial instruments, such as trade debtors and trade creditors, which arise directly from its operations.

The Group’s financial assets and liabilities are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price, except for the transactions with related parties which are based on contract value. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial instruments that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial instrument. All other purchases and sales are recognised on the settlement date with the change in value between the commitment date and settlement date not recognised for assets carried at cost or amortised cost and recognised in equity for assets classified as available-for-sale.

Subsequent measurement of financial instruments. Subsequent to initial recognition, the Group’s financial liabilities and loans and receivables are measured at amortised cost. Amortised cost is calculated using the effective interest rate method and, for financial assets, it is determined net of any impairment losses. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

The face values of financial assets and liabilities with a maturity of less than one year, less any estimated credit adjustments, are assumed to be their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments.

Gains and losses arising from a change in the fair value of available-for-sale assets are recognised directly in equity. In assessing the fair value of financial instruments, the Group uses a variety of methods and makes assumptions based on market conditions existing at the balance sheet date.

When available-for-sale assets are sold or otherwise disposed of, the cumulative gain or loss recognised in equity is included in the determination of net profit. When a decline in fair value of available-for-sale assets has been recognised in equity and there is objective evidence that the assets are impaired, the loss recognised in equity is removed and included in the determination of net profit, even though the assets have not been derecognised.

Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in the consolidated income statement. Dividends on available-for-sale equity instruments are recognised in the consolidated income statement when the consolidated entity’s right to receive payment is established and inflow of economic benefits is probable.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Impairment losses are recognised in the consolidated income statement when incurred as a result of one or more events that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an instrument below its cost is an indicator that it is impaired. The cumulative impairment loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in the consolidated income statement, is removed from equity and recognised in the consolidated income statement. Impairment losses on equity instruments are not reversed through the consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the consolidated income statement, the impairment loss is reversed through current period’s consolidated income statement.

Derecognition of financial assets. Group derecognises financial assets when (i) the assets are redeemed or the rights to cash flows from the assets have otherwise expired or (ii) the Group has transferred substantially all the risks and rewards of ownership of the assets or (iii) the Group has neither transferred nor retained substantially all risks and rewards of ownership but has not retained control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Income taxes. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The income tax charge is recognised in the consolidated income statement except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes, other than on income, are recorded within operating expenses.

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax is provided on post acquisition retained earnings and other post-acquisition movements in reserves of subsidiaries, except where the Group controls the subsidiary’s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

Inventories. Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the weighted average principle. The cost of finished goods and work in progress comprises raw material, direct labour, other direct costs and related production overheads based on normal operating capacity but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and selling expenses.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Trade and other receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered to be indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the consolidated income statement against general and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the consolidated income statement against general and administrative expenses.

Renegotiated trade and other receivables are measured at amortised cost based on the new pattern of renegotiated cash flows. A gain or loss is recognised in the consolidated income statement on the date of renegotiation, which is subsequently amortised using the effective interest method. If the terms of a receivable are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms.

Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as non- current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are charged to the income statement when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in the income statement.

Promissory notes. A portion of sales and purchases is settled by promissory notes or bills of exchange, which are negotiable debt instruments.

Sales and purchases settled by promissory notes are recognised based on the management’s estimate of the fair value to be received or given up in such settlements. The fair value is determined with reference to observable market information.

Long-term promissory notes are issued by the Group as payment instruments, which carry a fixed date of repayment and which the supplier can sell in the over-the-counter secondary market. Promissory notes issued by the Group are carried at amortised cost using the effective interest method.

The Group also accepts promissory notes from the customers (both issued by customers and third parties) as settlement of accounts receivable. Promissory notes issued by customers or issued by third parties are carried at amortised cost using the effective interest method. A provision for impairment of promissory notes is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Restricted balances are excluded from cash and cash equivalents for the purposes of the cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date are included in other non-current assets. Cash and cash equivalents are carried at amortised cost using effective interest rate method.

Share capital. Ordinary shares issued are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is presented in the notes as a share premium.

Dividends. Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed before the balance sheet date or proposed or declared after the balance sheet date but before the financial statements are authorised for issue. If settlement of a dividend liability exceeds twelve months from the balance sheet date it is included within long-term liabilities and measured at the present value of the future cash flows required to settle the liability using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The effect of initial discounting and subsequent accretion of the discount is recognised directly in equity.

F-16 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Loans and borrowings. Loans and borrowings are recognized initially at fair value, net of transaction costs incurred and subsequently carried at amortised cost using the effective interest method.

Liabilities under moratorium. Liabilities under moratorium are carried at amortised cost using the effective interest method.

Government grants. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the consolidated income statement on a straight line basis over the expected lives of the related assets. Government grants relating to an expense item are recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

Trade and other payables. Trade and other payables are recognised and initially measured under the policy for financial instruments. Subsequently, instruments with a fixed maturity are re-measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any transaction costs and any discount or premium on settlement. Financial liabilities which do not have a fixed maturity are subsequently carried at fair value.

Prepayments received. Prepayments are carried at amounts originally received.

Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Where the Group expects a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Contingent assets and liabilities. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

Contingent liabilities are not recognised in the financial statements unless it is probable that an outflow of economic resources will be required to settle the obligation and it can be reasonably estimated. Contingent liabilities are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

Employee benefits. Defined Contributions Plan. The Group makes statutory contributions to the Social Insurance Fund, Pension Fund and Insurance against Unemployment Fund of Ukraine in respect of its employees. The contributions are calculated as a percentage of current gross salary, and are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labour costs in the consolidated income statement.

Employee benefits: Defined Benefit Plan. Certain entities within the Group participate in a mandatory State defined retirement benefit plan, which provides for early pension benefits for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon retirement subject to certain conditions. The liability recognised in the balance sheet in respect of the defined benefit pension plan is the present value of the defined benefit obligation at the balance sheet date, less adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by actuaries using the Projected Unit Credit Method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining working lives. Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.

F-17 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Revenue recognition. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax and discounts and after eliminating sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(a) Sale of goods, by-products and merchandise

The Group manufactures and sells a range of steel products to large, medium and small size customers. By- products and merchandise are sold to the same range of customers. Revenues from sales of goods, by-products and merchandise are recognised at the point of transfer of risks and rewards of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. The Group uses standardised INCOTERMS such as cost-and-freight (CFR) , free-carrier (FCA), cost-insurance-freight (CIF), free-on-board (FOB) and ex-works (EXW) which define the point of risks and reward transfers. Revenue is recorded on an accrual basis as earned.

Sales are recorded based on the price indicated in the specifications to the sales contracts. The sales price is established separately for each specification.

The Group also engages in sale and purchase transactions the objective of which is to manage cash flows. Such transactions are not revenue generating to the Group and accordingly such sales and purchases are presented on a net basis with any gain or loss presented in other operating income/(expenses). Accounts receivable and payable from such transactions are presented gross.

(b) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income.

Sales of services are recognised in the accounting period in which the services are rendered, by reference to stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

(d) Dividend income

Dividend income is recognised when the right to receive payment is established.

(e) Commission income

The Group acts as an agent for sales transactions on behalf of the third parties. The commission income received by the Group as a fee for facilitating such transactions is recognised at the point of transfer of risks and rewards of ownership of the goods to the customers of the third parties. Such income is reported as part of ‘other income’.

Value added tax. VAT in Ukraine where the majority of the Group operations are concentrated is levied at two rates: 20% on domestic sales and imports of goods, works and services and 0% on export of goods. Export of services is exempt from VAT. A taxpayer’s VAT liability equals the total amount of VAT collected within a reporting period, and for domestic operations arises on the earlier of the date of shipping goods to a customer or the date of receiving payment from the customer; for export operations arises on the date of customs clearance of exported goods. A VAT credit is the amount that a taxpayer is entitled to offset against his VAT liability in a reporting period. For domestic and export operations rights to VAT credit arise when a VAT invoice is received, which is issued on the earlier of the date of payment to the supplier or the date goods are received. Where provision has been made for impairment of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT. VAT assets recoverable in cash from the State are included into Group’s assets. All other VAT assets and liabilities are netted only within the individual companies of the Group.

F-18 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

3 Basis of preparation and significant accounting policies (continued)

Recognition of expenses. Expenses are accounted for on an accrual basis. Cost of goods sold comprises the purchase price, transportation costs, commissions relating to supply agreements and other related expenses.

Finance income and costs. Finance income and costs comprise interest expense on borrowings, losses on early repayment of loans, interest income on funds invested, income on origination of financial instruments and foreign exchange gains and losses.

All interest and other costs incurred in connection with borrowings are expensed using the effective interest rate method. Interest income is recognised as it accrues, taking into account the effective yield on the asset.

Changes in presentation. Where necessary, corresponding figures have been adjusted to confirm to changes in the presentation in the current year.

Translation of the components of consolidated equity into presentation currency. In 2009 management has changed presentation of components of consolidated equity and started to translate all the components at closing rate, except for retained earnings, which are showed at historical rate. This change was done retrospectively and has the following impact onto the movement of other reserves in equity for the year ended 31 December 2008:

Other reserves as originally presented:

Revaluation Revaluation of Merge Cumulative Total of available- property, plant reserve currency for-sale and equipment translation investments reserve Balance as at 31 December 2007 229 1,246 (2,952) (23) (1,500)

Total comprehensive income for the period (181) 272 - (2,621) (2,530) Depreciation transfer, net of tax - (226) - - (226) Acquisition of interest in the subsidiaries from SCM Group companies and related parties (Note 6) - - (83) - (83) Balance as at 31 December 2008 48 1,292 (3,035) (2,644) (4,339)

Other reserves as restated:

Total comprehensive income for the period (196) (79) - (2,255) (2,530) Depreciation transfer, net of tax - (226) - - (226) Acquisition of interest in the subsidiaries from SCM Group companies and related parties (Note 6) - - (83) - (83) Balance as at 31 December 2008 33 941 (3,035) (2,278) (4,339)

Change of classification of expenses for transportation. In 2009 management has changed the classification of expenses for transportation of finished goods from the production plants to the Group traders from cost of sales to selling expenses. This change is resulting in decrease of cost of sales in 2008 by USD 130 million and the respective increase in selling expenses.

Management believes that these reclassifications result in a more appropriate presentation of the consolidated financial statements.

F-19 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

4 Critical accounting estimates and judgments in applying accounting policies

The Group make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the IFRS consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment of property, plant and equipment and goodwill. The entities of the Group are required to perform impairment tests for their cash-generating units. One of the determining factors in identifying a cash-generating unit is the ability to measure independent cash flows for that unit. For many of the Group’s identified cash-generating units a significant proportion of their output is input to another cash-generating unit.

The Group also determines whether goodwill is impaired at least on an annual basis. This requires estimation of the value in use/ fair value less costs to sell of the cash-generating units or groups of cash-generating units to which goodwill is allocated. Allocation of goodwill to groups of cash generating units reguires significant judgement related to expected synergies. Estimating value in use/ fair value less costs to sell requires the Group to make an estimate of expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

The recoverable amount of goodwill and cash-generating units were estimated based on the higher of value in use and fair value less costs to sell. Additional information is disclosed in Notes 8 and 10.

Impairment of trade and other accounts receivable. Management estimates the likelihood of the collection of trade and other accounts receivable based on an analysis of individual accounts. IAS 39 requires the estimate of an impairment loss which is computed as the difference between the carrying value of a receivable and the present value of the future cash flows discounted at the receivables effective interest rate. Factors taken into consideration when estimating the future cash flow include an ageing analysis of trade and other accounts receivable in comparison with the credit terms allowed to customers, and the financial position of and collection history with the customer. In the current environment there is significant judgement in estimating the expected payment date, the discount rate and whether penalty interest will be collected. Should actual collections be less than management’s estimates, the Group would be required to record an additional impairment expense.

MMZ and Promet business combination. As discussed in the Note 1 and Note 6, MMZ and Promet have been consolidated effective 1 January 2009; however MMZ has not been legally transferred to the Group as at 31 December 2009 and transfer of legal rights over Promet happened in December 2009. In concluding to consolidate without legal title judgement is required to assess whether control, as defined by IFRS 3 (revised), has passed. Such judgment was driven by the following matters:

• according to the shareholders agreement signed in 2007, Smart committed to transfer its interest in MMZ and Promet to Metinvest Group (Note 1); • businesses of MMZ and Promet, owned by SMART Group as minority shareholders in the Company, became mutually dependent on the Group’s operations; • On 1 January 2009 Smart Group granted to Metinvest B.V. power to manage the financial and operating policies of MMZ; • On 31 December 2009 Promet issued additional shares in favour of Metinvest B.V. for total nominal value of USD 51 million (BGN 70 million) of which USD 13 million were paid in cash. As a result the Group became legal owner of 95% of Promet; • SMART Group’s intention to contribute MMZ to the Company in 2010 in accordance with Shareholder’s agreement disclosed in Note 1.

F-20 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009

4 Critical accounting estimates and judgments in applying accounting policies (continued)

Post-employment and other employee benefit obligations. Management assesses post-employment and other employee benefit obligations using the Projected Unit Credit Method based on actuarial assumptions which represent management’s best estimates of the variables that will determine the ultimate cost of providing post-employment and other employee benefits. Since the plan is administered by the State, the Group may not have full access to information and therefore assumptions regarding when, or if, an employee takes early retirement, whether the Group would need to fund pensions for ex-employees depending on whether that ex-employee continues working in hazardous conditions, the likelihood of employees transferring from State funded pension employment to Group funded pension employment could all have a significant impact on the pension obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The major assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on the current market conditions. Additional information is disclosed in Note 22.

Related party transactions. In the normal course of business the Group enters into transactions with related parties. Judgement is applied in determining if transactions are priced at market or non-market rates, where there is no active market for such transactions. Financial instruments are recorded at origination at fair value using the effective interest method. The Group’s accounting policy is to record gains and losses on related party transactions, other than business combination or equity investments, in the income statement. The basis for judgement is pricing for similar types of transactions with unrelated parties and an effective interest rate analysis.

Fair valuation of property, plant and equipment. The Group engages independent appraisers to determine fair value of its property, plant and equipment. Total amount of revaluation recognised in 2009 is 1,091 million US dollar, with total carrying value of property, plant and equipment 5,649 million US dollars at 31 December 2009. The majority of buildings, structures, plant and machinery is specialised in nature and is rarely sold in the open market in Ukraine, consequently, the fair value was primarily determined using depreciated replacement cost. Fair valuation requires significant judgements to be applied in respect of the costs of reproduction or replacement of the property, plant and equipment and levels of physical, functional or economical depreciation, and obsolescence. Would these judgements be different, the additional revaluation or devaluation should be recorded in the financial statements.

Remaining useful lives of property, plant and equipment. The Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the technical requirements. Management will increase the depreciation charge where useful lives are less than previously estimated lives.

Functional currency. Judgement was applied in determining the functional currency of Metinvest B.V., which is a holding company for operations of the Group in Ukraine, Italy, United States of America and other countries. The functional currency of Metinvest B.V. was determined on the basis that (i) in management's opinion Metinvest B.V. is not an extension of and is not integral to the Ukrainian operations; (ii) the primary economic exposures are to a number of countries; and (iii) Metinvest B.V. retains cash and obtains financing in US Dollars. Management therefore selected the US Dollar as the functional currency of Metinvest B.V. Should a different functional currency be selected, additional translation gains/losses would arise on loans and other payables with no effect on total equity reported. Amount of loans and other payables of Metinvest B.V totalled USD 2,302 million as at 31 December 2009 (31 December 2008: USD 2,839 million).

F-21 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

5 Adoption of new or revised standards and interpretations

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2009: IFRS 8, ‘Operating segments’. IFRS 8 replaces IAS 14, ‘Segment reporting’. It requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the General director of the Group. The adoption of IFRS 8 has resulted in change of presentation of segment information and separation of certain immaterial activities into other segments. Comparative segment disclosures have been restated to conform to the presentation in the current period. The Group has decided to early adopt improvements to IFRS 8 issued in April 2009, which allows the Group to not disclose information about segment assets and liabilities in these consolidated financial statements, since such information is not regularly provided to CODM. IAS 23 (amendment), 'Borrowing costs'. The amendment requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs is removed. From 1 January 2009 the Group has changed its policy in respect of capitalisation of borrowing costs. There were no significant new qualifying assets for which commencement date occurred after 1 January 2009. No costs were capitalised in 2009. IAS 1 (revised), ‘Presentation of financial statements’. The revised standard prohibits the presentation of items of income and expenses (that is ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non- owner changes in equity’ to be presented separately from owner changes in equity. All ‘non-owner changes in equity’ are required to be shown in a statement of comprehensive income. The Group has elected to present two statements: an income statement and a statement of comprehensive income. The consolidated financial statements have been prepared under the revised disclosure requirements. Improvements to International Financial Reporting Standards (issued in May 2008) Improving Disclosures about Financial Instruments - Amendment to IFRS 7, Financial Instruments: Disclosures, issued in March 2009. The amendment requires enhanced disclosures about fair value measurements and liquidity risk. The following new standards, amendments to standards and interpretations have been issued and are not effective for the financial year beginning 1 January 2009 but have been early adopted by the Group: IFRS 3 (revised), ‘Business combinations’, (effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009) and IAS 27 (revised), ‘Consolidated and separate financial statements’ (effective for annual periods beginning on or after 1 July 2009), and consequential amendments to IAS 28, ‘Investments in associates’ and IAS 31, ‘Interests in joint ventures’,. Among other changes the revised IAS 27 requires an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non- controlling interests having a deficit balance (the previous standard required the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The revised IFRS 3 continues to apply the acquisition method to business combinations, with some significant changes. For example, an acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. There is a choice on an acquisition-by-acquisition basis to measure non-controlling interests in the acquiree either at fair value or at the proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed.. Early adoption of this standard had following implications on 2009 reporting: • costs related to acquisition of UCC totalling USD 5.5 million were recorded as expense in administrative costs in the income statement; • non-controlling interest deficit was recognised upon obtaining of control over financial and operating policies of MMZ and Promet. Upon consolidation of MMZ and Promet, effective 1 January 2009, the Group recorded a non-controlling interest deficit of USD 61 million directly in non-controlling interest in the statement of changes in equity.

F-22 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

5 Adoption of new or revised standards and interpretations (continued)

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2009 and have not been early adopted: IFRIC 17, ‘Distributions of non-cash assets to owners’, effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group, as it has not made any non-cash distributions. IFRIC 18, ‘Transfers of assets from customers’, effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers. IFRS 9, Financial Instruments (issued in November 2009, effective for annual periods beginning on or after 1 January 2013, with earlier application permitted). The new standard uses a simplified approach to classification of financial assets which determines whether a financial asset is measured at amortised cost or at fair value. The approach in IFRS 9 is based on how an entity manages its financial assets (its business model) and the contractual cash flow characteristics of the financial assets. The Group is currently assessing the impact of the new standard on its financial statements. Amendment to IAS 24, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning on or after 1 January 2011). Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010). Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective for annual periods beginning on or after 1 January 2010). Classification of Rights Issues - Amendment to IAS 32 (issued 8 October 2009; effective for annual periods beginning on or after 1 February 2010). Eligible Hedged Items - Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009). Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective for annual periods beginning on or after 1 January 2010). Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s financial statements.

F-23 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

6 Business combinations

Acquisitions during 2009

On 30 April 2009, the Group, through its 100% subsidiary Metinvest U.S. Inc acquired a 100% equity interest in United Coal Company LLC (“UCC”) for purchase consideration of USD 899 million which includes USD 443 million in cash and USD 599 million payable in equal semi annual instalments through 2015 bearing interest at 2.5% p.a. through 31 December 2011 and 5% p.a. thereafter, and accordingly having a fair value of USD 456 million. UCC is a US based coal mining business, which produced 5 million tons of coal concentrate in 2008.

The following table summarizes preliminary fair values of the net assets acquired at the date of acquisition. The fair values for property, plant and equipment and intangible assets were determined by independent appraiser. Fair values of all other assets and liabilities were determined by management. The acquired entities have not previously reported under IFRS and, therefore, historic IFRS balances have not been presented.

In million of US Dollars Fair values

Property, plant and equipment 207 Intangible assets 585 Other non-current assets 7 Inventories 45 Trade and other accounts receivable 47 Cash and cash equivalents 12 Deferred tax liability (70) Retirement benefit obligations (10) Other non-current liabilities (39) Trade and other accounts payables (61)

Fair value of net assets of subsidiary 723

Fair value of acquired interest in net assets of subsidiary 723 Goodwill arising from the acquisition 176

Total purchase consideration 899

Less: fair value of notes payable for acquisition (456) Less: cash and cash equivalents of subsidiary acquired (12)

Outflow of cash on acquisition 431

Intangible assets acquired include coal reserves in the amount of USD 418 million, long-term sales contracts in the amount of USD 144 million, mining permits in the amount of USD 15 million and other intangibles totalling USD 8 million.

The preliminary identified goodwill totalling USD 176 million is primarily attributed to the expected synergies from integration of the acquired operations with the Group’s existing business, and long-term security of coal supply. Total amount of goodwill expected to be deductible for tax purposes is USD 239 million.

Gross contractual amount of receivables acquired are not significantly different from the fair value defined by management.

Revenue and net loss of UCC included in the consolidated income statement from 1 May 2009 totalled USD 298 million and USD 48 million, respectively.

If the acquisition had been completed on 1 January 2009, the net revenues of the Group would be USD 147 million higher and net profit of the Group would not change significantly.

F-24 Level: 4 – From: 0 – Thursday, April 22, 2010 – 23:00 – eprint3 – 4210 Section 12a

Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

6 Business combinations (continued)

Acquisitions during 2009: MMZ and Promet

As discussed in Note 1, SCM and SMART Group as shareholders in the Company agreed to combine their respective interests in the steel and mining assets. While legal transfer of MMZ has not been completed as of 31 December 2009, these entities became mutually dependent on the Group’s operations. Further on 1 January 2009 Smart Group granted to Metinvest B.V. the unconditional power to govern the financial and operating policies of MMZ. On 31 December 2009 Promet issued additional shares in favour of the Metinvest B.V. for total nominal value of USD 51 million (BGN 70 million) of which USD 13 million were paid in cash. As a result the Group became legal owner of 95% of Promet. Given these matters and SMART Group’s commitment to contribute MMZ to the Company in 2010, MMZ and Promet were consolidated effective 1 January 2009.

The following table summarizes fair values of the net assets as at 1 January 2009. The fair values for property, plant and equipment and defined benefit obligations were determined by professional advisers. Fair values of all other assets and liabilities were determined by management. The acquired entities have not previously reported under IFRS and, therefore, historic IFRS balances have not been presented.

Fair values Fair values Fair values In million of US Dollars MMZ Promet Total

Property, plant and equipment 159 109 268 Deferred tax asset 25 - 25 Inventories 51 105 156 Trade and other accounts receivable 190 27 217 Accounts receivable from the Group 178 8 186 Accounts receivable from other parties 12 20 34 Cash and cash equivalents 1 6 7 Trade and other accounts payable (447) (259) (706) Accounts payable to the Group (381) (248) (629) Accounts payable to other parties (66) (11) (77) Loans and borrowings (1) (8) (9) Deferred tax liability - (8) (8) Retirement benefit obligations (11) - (11)

Fair value of net assets of subsidiary (33) (28) (61)

Non-controlling interest (33) (28) (61)

Fair value of acquired interest in net assets of subsidiary - - -

Gross contractual amount of receivables acquired are not significantly different from the fair value defined by management.

Revenue and net loss of these acquired subsidiaries included in the consolidated income statement for the reporting period totalled USD 512 million and USD 121 million respectively.

Acquisition of interest in subsidiaries from SCM Group or related parties

As discussed in Note 1, the Group’s legal reorganisation is ongoing and during the year ended 31 December 2009, the Group acquired from SCM the remaining 48.8% interest in Metinvest Holding LLC for cash consideration of USD 122 million. The difference between the carrying value of this interest and the consideration paid totalling USD 7 million has been recorded as a credit in other reserves in the statement of changes in equity.

During the year ended 31 December 2009, the Group completed various internal transfers of interests in existing subsidiaries, which resulted in an increase of effective interests as at 31 December 2009. The net result of such transfers was a reclassification of USD 14 million between non controlling interest and shareholders retained earnings.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

6 Business combinations (continued)

Acquisitions during 2008

On 8 February 2008, the Group acquired a 100% equity interest in Trametal S.P.A. and its subsidiary Spartan Ltd, for cash consideration of EUR 1,150 million. Expenses related to the acquisition totalled EUR 19 million (total equivalent to USD 1,703 million). Trametal and Spartan are steel rolling mills located in Italy and the United Kingdom, with capacities of 440,000 tonnes and 145,000 tonnes per annum respectively.

The following table summarizes fair values of the net assets acquired at the date of acquisition. The fair values for property, plant and equipment was determined by professional advisers. Fair values of all other assets and liabilities were determined by the management. The acquired entities have not previously reported under IFRS and, therefore, historic IFRS balances have not been presented.

In million of US Dollars Fair values

Property, plant and equipment 161 Inventories 119 Trade and other accounts receivable 225 Cash and cash equivalents 10 Deferred tax liability (41) Trade and other accounts payable (138) Loans and borrowings (30) Other liabilities (2)

Fair value of net assets of subsidiary 304

Fair value of acquired interest in net assets of subsidiary 304 Goodwill arising from the acquisition (Note 8) 1,399

Total purchase consideration 1,703

Less: cash and cash equivalents of subsidiary acquired (10)

Outflow of cash and cash equivalents on acquisition 1,693

Goodwill identified on the acquisition of Spartan/Trametal is primarily attributed to the expected synergies from integration of the acquired operations with the Group’s existing steel business and the premium paid for gaining direct access to European steel market.

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7 Segment information

The chief operating decision-maker (“CODM”) has been identified as the General Director of the Group. The CODM reviews the Group’s internal reporting in order to assess performance and allocate resources. Internal reporting is based on IFRS figures. Management has determined the operating segments based on these reports. Management of the Group assesses the performance of the operating segments based on a measure of the adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”). Management adjusts EBITDA for certain non core expenses. The Group is organised on the basis of three main business segments: • Steel – comprising the production and sale of semi-finished and finished steel products; • Coke and Coal – comprising the mining and sale of metallurgical and steam coal, production and sale of coke; • Iron ore – comprising the production, enrichment and sale of iron ore. The Group is a vertically integrated steel and mining business. A significant portion of the Group’s iron ore and coke and coal production are used in its steel production operations. The CODM also reviews cash paid for capital investments in the reporting period. Working capital and indebtedness positions are reviewed on an aggregated basis, therefore segment balance sheets are not reviewed by the CODM.

Group business is not subject to seasonal fluctuations. Steel Coke and Iron ore Eliminations Total In million of US Dollars Coal

2009

Sales – external 3,990 737 1,299 - 6,026 Sales to other segments 49 602 526 (1,177) - Total of the reportable segments’ revenue 4,039 1,339 1,825 (1,177) 6,026

Adjusted EBITDA 394 244 811 - 1,449 Reconciling items: Sponsorship and other charity payments (189) Depreciation and amortisation (555) Corporate overheads (49) Impairment and devaluation of PPE (49) Finance costs (167) Finance income 43 Share of result of associate (5) Other (3) Profit before tax 475

\ Steel Coke and Iron ore Unallocated Total Coal

Capital expenditure 174 69 81 - 324 Significant non-cash items included into adjusted EBITDA: - Impairment charge on financial assets (4) - 15 - 11 - unrealised gain on foreign exchange differences (36) - - - (36) - net change in retirement benefit obligations 17 16 13 - 46

Analysis of revenue by category:

Steel Coke and Iron ore Total Coal

2009

Sales of own products 3,927 612 1,255 5,794 Sales of purchased goods 63 125 44 232 Total 3,990 737 1,299 6,026

During 2009 the Group has sold steel products in the amount of USD 827 million to a single customer, which makes 14% of total sales of the Group. For amounts outstanding please refer to Note 15. 36

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

7 Segment information (continued)

Steel Coke and Iron ore Eliminations Total Coal

2008

Sales – external 9,263 1,316 2,634 13,213 Sales to other segments 80 1,250 1,614 (2,944) - Total revenue 9,343 2,566 4,248 (2,944) 13,213

Adjusted EBITDA 1,941 651 2,177 - 4,769 Reconciling items: Sponsorship and other charity payments (83) Depreciation and amortisation (641) Impairment and devaluation of PPE (50) Corporate overheads (34) Finance costs (477) Finance income 53 Share of result of associates 21 Profit before tax 3,558

Steel Coke and Iron ore Unallocated Total Coal

Capital expenditure 285 102 292 - 679 Significant non-cash items included into adjusted EBITDA: - Impairment charge on financial assets 29 - - - 29 - unrealised gain on foreign exchange differences (621) - - - (621) - inventory write-off 273 - - - 273 - net change in retirement benefit obligations 53 41 38 - 132 - other significant non-cash items 70 - - - 70

Analysis of revenue by category:

Steel Coke and Iron ore Total Coal

2008

Sales of own products 7,850 1,059 2,528 11,437 Sales of goods for resale 1,413 257 106 1,776 Total 9,263 1,316 2,634 13,213

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

7 Segment information (continued)

Geographical segments. The Group’s three business segments operate in six main geographical areas. Revenue by location of customers is presented below:

2009 Steel Coke and coal Iron ore Total

Ukraine 536 377 719 1,632 South Eastern Asia 994 3 387 1,384 Rest of Europe 963 13 150 1,126 CIS 908 28 - 936 Middle East and Northern Africa 543 31 43 617 North America 2 282 - 284 Other countries 44 3 - 47

Total 3,990 737 1,299 6,026

2008 Steel Coke and coal Iron ore Total

Ukraine 1,542 1,221 1,931 4,694 South Eastern Asia 1,405 3 249 1,657 Rest of Europe 3,133 56 370 3,559 CIS 1,073 26 17 1,116 Middle East and Northern Africa 1,416 8 26 1,450 North America 572 - 41 613 Other countries 122 2 - 124

Total 9,263 1,316 2,634 13,213

External revenue is based on where the customer is located. Capital expenditure is based on where the assets are located. Capital expenditure excludes assets acquired through business combinations.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

8 Goodwill

The movements of goodwill were as follows:

2009 2008

Net book amount as at 1 January 1,662 569

Acquisition of subsidiaries (Note 6) 176 1,399 Currency translation differences 17 (306)

Net book amount as at 31 December 1,855 1,662

Goodwill is allocated to cash-generating units (“CGUs”) or groups of CGUs which represent the lowest level within the Group at which goodwill is monitored by management. Management divided the business into three main groups of CGUs to which goodwill was allocated:

2009 2008

Steel 1,419 1,394 Iron ore 227 235 Coke and coal 209 33

Total 1,855 1,662

The recoverable amount has been determined based on fair value less cost to sell calculations. Cash flow projections, based on financial budgets approved by senior management, and third party prices were used to determine projected sales.

The following table summarizes key assumptions on which management has based its cash flow projections to undertake the impairment testing of goodwill:

2009 2008

Steel Post-tax discount rate for the next 5 years 22% - 10% 27% - 10% Revenue growth rate for the next 5 years 1% - 32% (54%) - 19% Growth rate in perpetual period 3% 3% Gross margins 4% - 16% 12% - 18% EBITDA margins 3% - 14% 11% - 16%

Iron ore Post-tax discount rate for the next 5 years 22% - 10% 27% - 12% Revenue growth rate for the next 5 years 1% - 28% (68%) - 28% Growth rate in perpetual period 3% 3% Gross margins 44% - 45% 42% - 44% EBITDA margins 49% - 50% 48% - 50%

Coke and coal Post-tax discount rate for the next 5 years 22% - 10% 27% - 14% Revenue growth rate for the next 5 years 2% - 57% (49%) - 19% Growth rate in perpetual period 3% 3% Gross margins 16% - 25% 18% - 26% EBITDA margins 22% - 28% 22% - 30%

Management used a multi-period discount rate ranging from 22% in 2010 to 10% in 2013 (2008: from 27% in 2009 to 19% in 2011), which stabilizes at 10% in 2013 and onwards (2008: 10% in 2013).

The values assigned to the key assumptions represent management’s assessment of future trends in the business and are based on both external and internal sources.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

8 Goodwill (continued)

As at 31 December 2009 Steel division recoverable amount exceeds its carrying amount by USD 1,315 million (2008: USD 1,093 million). The table below summarises the impact of change of main assumptions with other variables held constant to the impairment of goodwill related to Steel division:

Goodwill impairment required Volumes Decrease of volumes of sales in all the periods by 12% recoverable amount equals carrying amount Decrease of volumes of sales in all the periods by 15% USD 399 million

Prices Decrease of prices in all the periods by 6% recoverable amount equals carrying amount Decrease of prices in all the periods by 10% USD 865 million

Discount rates Increase of discount rates in all periods by 2.1% recoverable amount equals carrying amount Increase of discount rates in all periods by 4% USD 764 million

As at 31 December 2009 Coke and Coal division recoverable amount exceeds its carrying amount by USD 1,660 million. The table below summarises the impact of change of main assumptions with other variables held constant to the impairment of goodwill related to Coke and Coal division:

Goodwill impairment required Volumes Decrease of volumes of sales in all the periods by 10% recoverable amount equals carrying amount Decrease of volumes of sales in all the periods by 11% USD 166 million

Prices Decrease of prices in all the periods by 11% recoverable amount equals carrying amount Decrease of prices in all the periods by 15% USD 195 million

Discount rates Increase of discount rates in all periods by 7,1% recoverable amount equals carrying amount Increase of discount rates in all periods by 9% USD 192 million

With regard to assessment of value in use of the goodwill related to Iron Ore division, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value to materially exceed the recoverable amount.

9 Other intangible assets

The movements of other intangible assets were as follows:

2009 2008 Coal Long- Licenses Other Licenses Other reserves term and intangible intangible sales mining assets assets contracts permits

As at 1 January - - 699 13 1,118 17

Acquisition of subsidiaries (Note 6) 418 144 15 8 - - Additions - - - - - 9 Amortisation (3) (65) (37) (3) (54) (6) Currency translation differences - - (21) (1) (365) (7)

As at 31 December 415 79 656 17 699 13

The iron ore license acquired as part of acquisition of the InGOK is being amortised using the units-of-production method over its useful life of approximately 20 years.

The coal reserves and long-term sales contracts were acquired as part of the acquisition of UCC. The coal reserves are being amortised using the units-of-production method over its useful life of approximately 90 years. The long-term sales contracts are being amortised over the remaining term of the contracts. Expected amortisation based on the fulfilment of the contracts for 2010 is USD 51 million. 40

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

10 Property, plant and equipment

The movements of property, plant and equipment were as follows:

Cost or valuation Land Buildings Plant and Furniture, Construction Total and machinery fittings and in progress structures equipment

As at 1 January 2008 - 2,110 2,835 100 962 6,007

Acquisition of subsidiaries - 37 127 1 4 169 Additions - 3 55 13 617 688 Transfers - 232 555 22 (809) - Reclassifications - (2) 56 (54) - - Disposals - (7) (33) (13) (13) (66) Elimination against gross carrying amount - (46) (155) - - (201) Revaluation - 176 265 3 32 476 Devaluation - (27) (26) (1) (23) (77) Currency translation differences - (779) (1,159) (25) (276) (2,239)

As at 31 December 2008 - 1,697 2,520 46 494 4,757

Acquisition of subsidiaries 55 79 261 20 60 475 Additions - - - 1 314 315 Transfers 28 110 199 - (337) - Disposals (3) (13) (15) (6) (7) (44) Reclassification to inventory - (2) (2) - (7) (11) Elimination against gross carrying amount - (193) (356) (15) - (564) Revaluation - 383 665 6 37 1,091 Currency translation differences 1 (70) (71) - (9) (149)

As at 31 December 2009 81 1,991 3,201 52 545 5,870

Accumulated depreciation and impairment As at 1 January 2008 (20) (139) 2 (7) (164)

Charge for the year (181) (380) (19) - (580) Disposals 1 9 12 - 22 Elimination against gross carrying amount 46 155 - - 201 Currency translation differences 65 164 (5) 2 226 As at 31 December 2008 (89) (191) (10) (5) (295)

Charge for the year - (140) (308) (14) - (462) Disposals - 2 4 5 2 13 Impairment or devaluation - (19) (30) - - (49) Elimination against gross carrying amount - 193 356 15 - 564 Currency translation differences - 6 2 - - 8

As at 31 December 2009 - (47) (167) (4) (3) (221)

Net book value as at 31 December 2008 1,608 2,329 36 489 4,462 31 December 2009 81 1,944 3,034 48 542 5,649

Net carrying amount had no revaluation taken place as at 31 December 2008 - 985 1,398 32 379 2,794 as at 31 December 2009 56 1,015 1,566 38 438 3,113

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

10 Property, plant and equipment (continued)

The Group engaged independent appraisers to determine fair value of its property, plant and equipment as at 31 December 2009. The majority of buildings, structures, plant and machinery is specialised in nature and is rarely sold in the open market in Ukraine, consequently, the fair value was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economical depreciation, and obsolescence.

The assets transferred to the Ukrainian subsidiaries of the Group upon privatisation did not include the land on which the Group’s factories and buildings are situated. The Group has the option to purchase this land upon application to the state registration body or to continue occupying this land under a rental agreement. Ukrainian legislation does not specify an expiry date to this option. As at 31 December 2009, the Group has not filed any application to exercise the purchase option. Total payments under land lease agreement for 2009 and 2008 were insignificant.

As at 31 December 2009 USD 192 million of buildings, plant and machinery were pledged to third parties as collateral for loans and borrowings (31 December 2008: nil) (Note 19).

11 Investments in associates

The principal associates of the Group are as follows:

2009 2008 Name Segment % of Carrying % of Carrying ownership value ownership value

IMU Steel 49.90% 81 49.90% 70 JSC Donetskkoks Coke and coal 24.50% 9 24.50% 10 JSC Zaporozhkoks Coke and coal 25.00% 33 25.00% 22 Other Iron ore N/a 21 N/a 21

Total 144 123

No associates are listed on international stock exchanges.

Movements in the carrying amount of the Group investments in associates are presented below:

2009 2008

Carrying amount at 1 January 123 239

Share of other equity movements of associates 30 (53) Transfer from associates to subsidiaries - (3) Dividends received from associates - (29) Share of after tax results of associates (5) 21 Currency translation differences (4) (52)

Carrying amount at 31 December 144 123

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

11 Investments in associates (continued)

The summarised financial information of the Group’s major associates is as follows:

2009 Segment % of Total Total Revenue Profit/ ownership assets liabilities (loss)

IMU Steel 49.9% 162 - - - JSC Donetskkoks Coke and coal 24.5% 58 24 16 (3) JSC Zaporozhkoks Coke and coal 25.0% 159 61 219 (7)

2008 Segment % of Total Total Revenue Profit/ ownership assets liabilities (loss)

IMU Steel 49.9% 138 - - 49 JSC Donetskkoks Coke and coal 24.5% 47 8 24 (4) JSC Zaporozhkoks Coke and coal 25.0% 156 99 533 6

12 Available-for-sale investments

As at 31 December, securities available-for-sale were as follows:

2009 2008

Securities quoted on the Ukrainian stock market 18 9 Other - 1

Total 18 10

The fair value of the available-for-sale investments was determined based on the quotations on Ukrainian Stock market. The increase in value of quoted securities totalling USD 8 million has been credited to the revaluation reserve in equity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

13 Other non-current assets

2009 2008 Cash in Escrow account for UCC acquisition - 400 Long-term loans issued to related parties (USD denominated, Libor + 3%, mature in 2011) 46 46 Long-term loans issued to related parties (USD denominated, 7%, mature in 2011) 149 151 Long-term receivables for promissory notes sold to related parties (UAH denominated, 14% effective interest) - 21 Other non-current financial assets 10 13 Other non-current non-financial assets 8 -

Total 213 631

Analysis by credit quality of financial non-current assets is as follows:

2009 2008

Balances neither past due nor impaired: - Related parties 195 218 - RBS Citizens - 201 - JPMorgan Chase - 199 - Other 10 13

Total non-current and not impaired 205 631

The maximum exposure to credit risk at the reporting date is the fair value of non-current assets. The Group does not hold any collateral as security.

14 Inventories

2009 2008

Raw materials 427 568 Finished goods and work in progress 456 395 Goods for resale 15 81

Total inventories 898 1,044

No inventory write down recognised as an expense in 2009 (2008: USD 273 million).

As at 31 December 2009, inventories totalling USD 356 million (31 December 2008: USD 236 million) have been pledged as collateral for borrowings (Note 19).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

15 Trade and other receivables

2009 2008 Trade receivables 989 1,338 Receivables on commission sales 152 370 Receivables for bonds and promissory notes sold 403 319 Interest accrued on long term loans issued 31 16 Other financial receivables 98 55

Total financial assets 1,673 2,098

Recoverable value added tax 117 164 Prepayments made 63 77 Income tax prepaid 88 71 Other receivables 38 19

Total trade and other receivables 1,979 2,429

As at 31 December 2009, 40% of trade accounts receivable was denominated in USD and 9% in EUR (2008: 64% in USD, 11% in EUR).

Movements in the impairment provision for trade and other receivables are as follows:

2009 2008 Trade Other financial Trade Other financial receivables receivables receivables receivables

Provision for impairment at 1 January 40 37 15 53 Provision/(reversal) for impairment during the year 30 (19) 29 - Currency translation differences (2) 2 (4) (16)

Provision for impairment at 31 December 68 20 40 37

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

15 Trade and other receivables (continued)

Analysis by credit quality of financial trade and other receivables is as follows:

2009 2008 Trade and other Other Trade and other Other receivables on financial receivables on financial commission receivables commission receivables

- Key customers 79 - 58 - - SCM and other related companies, including associates 44 73 49 16 - Balances covered with bank letters of credit 53 - 94 - - Balances insured 100 - 137 2 - Existing customers with no history of default 147 32 23 14 - New customers 24 - 9 - - Balances renegotiated with key customers 9 - 519 - - Balances renegotiated with SCM and other related companies, including associates 5 423 92 339 - Balances renegotiated with other customers 24 - - 15

Total current and not impaired 485 528 981 386

Past due but not impaired - less than 30 days overdue 71 - 141 1 - 30 to 90 days overdue 143 - 203 - - 90 to 180 days overdue 91 - 114 - - 180 to 360 days overdue 146 1 47 - - over 360 days overdue 205 1 4 3

Total past due but not impaired 656 2 509 4

Total individually impaired 68 22 258 37

Less impairment provision (68) (20) (40) (37)

Total 1,141 532 1,708 390

As of 31 December 2009 72% of overdue but not impaired over 30 days related to key customers (2008: 7%) and 22% to SCM and other related parties (2008: 71%).

Credit concentration. As at 31 December 2009, 33% of trade receivables and receivables on commission are due from a single party, as the Group has an arrangement to sell pipe and plates for pipes (31 December 2008: 27%). The payments from this customer have been delayed and the Group has extended the credit terms to approximately three months beyond the standard credit terms. An impairment charge totalling USD 19 million computed as the present value of the deferred payment schedule has been recorded in the income statement in 2009.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

16 Cash and cash equivalents

2009 2008 Current accounts 155 261 Bank deposits up to 3 months 4 -

Total cash and cash equivalents 159 261

No bank balances and term deposits are past due or impaired.

17 Share capital

Number of Ordinary Share Total outstanding shares shares premium

At 1 January 2008 9,000 - 4,172 4,172

At 31 December 2008 9,000 - 4,172 4,172

At 31 December 2009 9,000 - 4,172 4,172

As at 31 December 2009, the authorised, issued and fully paid share capital comprised 9,000 ordinary shares with a par value of EUR 10. Each ordinary share carries one vote.

Share premium represents the excess of contributions received over the nominal value of shares issued.

On 3 December 2009 Metinvest B.V. declared dividends totalling USD 20 million.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

18 Other reserves

Revaluation Revaluation of Merge Cumulative Total of available- property, plant reserve currency for-sale and equipment translation investments reserve

Balance as at 1 January 2008 229 1,246 (2,952) (23) (1,500)

Total comprehensive income for the period (196) (79) - (2,255) (2,530) Depreciation transfer, net of tax - (226) - - (226) Acquisition of interest in the existing subsidiaries from SCM and related parties (Note 6) - - (83) - (83) Balance as at 31 December 2008 33 941 (3,035) (2,278) (4,339) Total comprehensive income for the period 21 475 - (123) 373 Depreciation transfer, net of tax - (160) - - (160) Acquisition of additional interest in existing subsidiaries from SCM and related parties - - 7 - 7 Balance as at 31 December 2009 54 1,256 (3,028) (2,401) (4,119)

The revaluation reserve for available-for-sale investments is transferred to profit or loss when realised through sale or impairment. Revaluation reserve for property, plant and equipment is transferred to retained earnings when realised through depreciation, impairment, sale or other disposal. Currency translation reserve is transferred to profit or loss when realised through disposal of a subsidiary by sale, liquidation, repayment of share capital or abandonment of all, or part of, that subsidiary.

Retained earnings of the Group represent the earnings of the Group entities from the date they have been established or acquired by the entities under common control. Group subsidiaries distribute profits as dividends or transfer them to reserves on the basis of their statutory financial statements prepared in accordance with local GAAP as appropriate. Ukrainian legislation identifies the basis of distribution as retained earnings only, however this legislation and other statutory laws and regulations are open to legal interpretation and, accordingly, management believes at present it would not be appropriate to disclose the amount of distributable reserves in these consolidated financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

19 Loans and borrowings

As at 31 December, loans and borrowings were as follows:

2009 2008 Non-current Bank borrowings 750 1,140 Non-bank borrowings 4 4 Bonds 175 175

929 1,319 Current Bank borrowings 1,011 1,365 Non-bank borrowings 3 1

1,014 1,366

Total loans and borrowings 1,943 2,685

2009 2008

Loans and borrowings due: - up to 6 months 545 998 - from 6 to 12 months 469 368 - between 1 and 5 years 871 1,290 - after 5 years 58 29 Total borrowings 1,943 2,685

The majority of the Group’s borrowings have variable interest rates. The weighted average effective interest rates and currency denomination of loans and borrowings as at the balance sheet date are as follows:

2009 2008

In % per annum USD EUR UAH USD EUR GBP Bank borrowings 3% 2% 27% 3% 4% 11% Non-bank borrowings 4% - - 6% - - Bonds issued 9% - - 9% - - Reported amount 1,381 544 18 1,994 684 7

As at 31 December 2009 the bank borrowings denominated in UAH and the bonds issued were attracted at fixed interest rate (31 December 2008: at fixed interest rate); the bank borrowings denominated in EUR were attracted at Euribor 1 month - 6 months plus margin of 0%-2% (31 December 2008: Euribor 1 month - 6 months plus margin of 0%-2%); the bank borrowings and the non-bank borrowings denominated in USD were attracted at Libor 1 month - 12 months plus margin of 0.6%-7% (31 December 2008: Libor 1 month - 3 months plus margin of 0%-10%).

As at 31 December 2009, borrowings amounting to USD 396 million were secured with inventories and property, plant and equipment (31 December 2008: USD 331 million) (Notes 10, 14). As at 31 December 2009, borrowings amounting to USD 818 million were secured with the future sales proceeds (31 December 2008: USD 1,471 million).

As at 31 December 2009, the Group had pledged 100% of the issued share capital of Metinvest Trametal S.P.A. and 100% of the issued share capital of Spartan UK Ltd for loans drawn by Metinvest Trametal S.P.A. with balance outstanding as at 31 December 2009 of EUR 280 million (equivalent of USD 402 million).

Group does not hedge their foreign currency obligations or interest rate exposures.

As at 31 December 2009, the fair value of bonds was USD 150 million (31 December 2008: USD 96 million) and the fair value of Bank borrowings was USD 1,713 million (31 December 2008: no significant difference from carrying value) as determined by reference to observable market quotations.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

20 Seller’s notes

2009 2008

UCC notes 491 -

- Non-current portion 330 Current portion 161 -

As discussed in Note 6, in April 2009 the Group issued notes to acquire UCC, with a nominal value of USD 599 million (fair value of USD 456 million) bearing interest at 2.5% p.a. through 31 December 2011 and 5% p.a. through 2015. Effective interest rate of Seller’s notes is 12.5% p.a. This loan is repayable in equal semi annual instalments though 2015.

UCC notes are unsecured and subordinated to other borrowings of the Group (up to USD 3 billion excluding interest).

21 Deferred income

In accordance with the state program Ukrainian State support of creation and re-equipment of entities which extract coal, lignite and peat, the Group coal mining company Krasnodonugol, obtained government grants for the purchases of property, plant and equipment. No grants have been received since 2004.

2009 2008

As at 1 January 17 27 Amortisation of deferred income to match related depreciation (8) (1) Currency translation differences (1) (9)

As at 31 December 8 17

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

22 Retirement benefit obligations

2009 2008

Present value of unfunded defined benefit obligations 385 381 Unrecognised net actuarial loss 12 (31) Unrecognised past service cost (54) (63) Liability in the consolidated balance sheet 343 287

The amounts recognised in the consolidated income statement were as follows:

2009 2008

Current service cost 29 24 Recognised cost of past service 8 64 Interest cost 45 41 Recognized actuarial (gains)/losses (3) 16

Total 79 145

Changes in the present value of the defined benefit obligation were as follows:

2009 2008

Defined benefit obligation as at 1 January 381 512

Current service cost 29 24 Actuarial gains (42) (113) Past service cost 2 141 Interest cost 45 41 Benefits paid (33) (30) Acquired with subsidiaries 21 - Currency translation differences (18) (194)

Defined benefit obligation as at 31 December 385 381

The movement in the present value of the liability recognised in the consolidated balance sheet was as follows:

2009 2008

As at 1 January 287 311

Benefits paid (33) (30) Net expense recognised in the income statement 79 145 Acquired with subsidiaries 21 - Currency translation differences (11) (139) As at 31 December 343 287

Past service cost arose as a result of changes in 2008 to the pension legislation, which increased the benefits payable. To the extent that the benefits were already vested immediately following the changes to the defined benefit plan, past service cost was recognized in 2008 income statement in the amount of USD 64 million. The remaining USD 54 million past service cost will be recognised as an expense on a straight-line basis over the average period until the benefits become vested.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

22 Retirement benefit obligations (continued)

The principal actuarial assumptions used were as follows:

2009 2008 Nominal discount rate 15% 12% Nominal salary increase 5%-20% 5%-10% Nominal pension entitlement increase 5%-20% 5%-10%

Payments in respect of post-employment benefit plans obligations expected to be made during the year ending 31 December 2010 are USD 39 million.

Experience adjustments for 2009 approximates USD 12 million (2008: USD 38 million; 2007: USD 82 million).

The sensitivity of the defined benefit obligation to changes in the principal assumptions is presented below:

2009 2008 Nominal discount rate increase/decrease by 1% (27)/31 (29)/33 Nominal salary increase increase/decrease by 1% 30/(27) 33/(29)

23 Other non-current liabilities

2009 2008

Long-term dividends payable 25 - Tax liabilities under moratorium (Note 31) 23 24 Asset retirement obligations 24 3 Other non-current liabilities 29 18

Total other non-current liabilities 101 45

During 2009 some of the Group non-wholly owned subsidiaries have declared dividends with the deferred payment until 2012. Long-term dividends payable in the total amount of USD 25 million were classified as non-current.

Asset retirement obligations in the total amount of USD 23 million relates to obligation of UCC on recultivation of land after coal extraction.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

24 Trade and other payables

2009 2008

Trade payables 523 717 Payable on sales made on commission 138 68 Payable for acquired subsidiaries and non controlling interest 25 25 Payables for acquisition of non-controlling interest from SCM and related parties 10 7 Dividends payable 230 187 Promissory notes issued (UAH denominated with 15% effective interest) 135 6 Payable for acquired property, plant and equipment 15 22 Accounts payable for promissory notes purchased 16 28 Payable for acquired other financial instruments 25 - Other financial liabilities 37 26 Total financial liabilities 1,154 1,086

Income tax payable 23 50 Other tax payable 45 56 Wages and salaries payable 27 21 Prepayments received 77 24 Accruals for employees’ unused vacations and other payments to employees 32 62 Other allowances 39 25 Other non-financial liabilities 2 2

Total current liabilities 1,399 1,326

25 Expenses by nature

2009 2008

Raw materials including coke and coal and change in finished goods and work in progress 1,661 3,584 Goods for resale 232 1,629 Energy materials including gas, electricity 860 1,020 Wages and salaries 519 682 Transportation services 603 832 Repairs and maintenance expenses 232 385 Pension and social security costs 160 216 Pension costs – defined benefit obligations (Note 22) 79 145 Depreciation and amortisation (Note 10, 9, 21) 555 641 Impairment of property, plant and equipment and devaluation of PPE. 34 50 Impairment of trade and other receivables (Note 15) 11 29 Other costs 382 457

Total operating expenses 5,328 9,670

Classified in the income statement as

- cost of sales 4,365 8,375 - distribution costs 696 969 - general and administrative expenses 267 326

Total operating expenses 5,328 9,670

Raw materials include USD 152 million of costs of transportation of raw materials (2008: USD 75 million).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

25 Expenses by nature (continued)

Auditor’s fees

The following fees were expensed in the income statement in the reporting period:

2009 2008

Audit of the financial statements 2 2 Tax services - - Other non audit services - -

Total 2 2

26 Other operating (expenses)/income, net

Other operating income and expenses for the year ended 31 December were as follows:

2009 2008

Maintenance of social infrastructure (18) (20) Loss on property, plant and equipment (1) (39) Loss on sales of inventory (7) (8) Foreign exchange gains less losses 179 621 Sponsorship and other charity payments (197) (101) Other expenses (50) (35)

Total other operating (expenses)/income, net (94) 418

27 Finance income

Finance income for the year ended 31 December was as follows:

2009 2008

Interest income - bank deposits 2 20 - other 12 16 Gain on origination of financial liabilities 21 - Other finance income 8 17

Total finance income 43 53

The majority of finance income relates to term deposits and long term loans issued to related parties.

28 Finance costs

Finance costs for the year ended 31 December were as follows:

2009 2008

Foreign exchange losses 18 258 Interest expense - borrowings 75 198 - Seller’s notes 10 - - imputed interest on Seller’s notes 27 - - imputed interest on other financial liabilities 10 1 Other finance costs 27 20

Total finance costs 167 477

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

29 Income tax

Income tax for the year ended 31 December was as follows:

2009 2008

Current tax 298 711 Deferred tax (157) 44

Income tax expense 141 755

The Group is subject to taxation in several tax jurisdictions, depending on the residence of its subsidiaries. In 2009 Ukrainian corporate income tax was levied on taxable income less allowable expenses at the rate of 25% (2008: 25%). In 2009, the effective tax rate for Swiss operations was 11% (2008: 9%) and for European Companies tax rate in 2009 varied from 29.2% to 45.8% (2008: varied from 25.5% to 34%). The effective tax rate for US operations was 40% (2008: not applicable). Reconciliation between the expected and the actual taxation charge is provided below. 2009 2008

IFRS profit before tax 475 3,558

Tax calculated at domestic tax rates applicable to profits in the respective countries (67) (923)

Tax effect of items not deductible or assessable for taxation purposes: - non-deductible expenses (59) (90) - non-taxable income (primarily operating exchange gains) 37 204 Effect of foreign exchange realised as a result of currency sale (63) - Effect of PPE indexation for tax purposes 11 54

Income tax expense (141) (755)

The weighted average applicable tax rate was 14.1% in 2009 (2008: 25.9%).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

29 Income tax (continued)

Differences between IFRS and Ukrainian and other countries’ statutory taxation regulations give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 25% (2008: 25%) for the majority of subsidiaries.

31 December Business Credited/ Charged Currency 31 December 2008 combi- (charged) to to equity translation 2009 nations income difference statement

Tax effect of deductible temporary differences

Property, plant and equipment 3 25 (3) - (3) 22 Intangible assets - 14 10 - - 24 Long-term receivables 8 - (6) - - 2 Inventory valuation 30 - 4 - (1) 33 Trade and other accounts receivable 12 - 10 - - 22 Accrued expenses 10 - 38 - - 48 Tax losses carried forward - 37 46 - - 83 Retirement benefit obligations 72 3 16 - (3) 88 Prepayments received and deferred income 32 7 10 - (1) 48 Other 12 - 4 - - 16

Gross deferred tax asset 179 86 129 - (8) 386

Less offsetting with deferred tax liabilities (157) (61) (80) - - (298)

Recognised deferred tax asset 22 25 49 - (8) 88

Tax effect of taxable temporary differences

Property, plant and equipment (449) (8) 60 (273) 16 (654) Intangible assets (174) (68) (6) - 6 (242) Accounts receivable valuation (172) (36) - 6 (202) Advances paid (41) - 1 (40) Inventory tax differences (17) 5 - - (12) Borrowings and long-term payables fair valuation - (63) 13 - - (50) Other (3) (8) - (11)

Gross deferred tax liability (856) (139) 28 (273) 29 (1,211)

Less offsetting with deferred tax assets 157 61 80 - - 298 Recognised deferred tax liability (699) (78) 108 (273) 29 (913)

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

29 Income tax (continued)

1 January Business Credited/ Charged Currency 31 December 2008 combi- (charged) to to equity translation 2008 nations income difference statement

Tax effect of deductible temporary differences

Property, plant and equipment 28 - (26) - 1 3 Long-term receivables 2 - 10 - (4) 8 Inventory valuation 34 - 12 - (16) 30 Trade and other accounts receivable 21 - (3) - (6) 12 Accrued expenses 8 - 7 - (5) 10 Promissory notes receivable 4 - (4) - - - Retirement benefit obligations 78 - 31 - (37) 72 Prepayments received and deferred income 32 - 17 - (17) 32 Other 13 - 4 - (5) 12

Gross deferred tax asset 220 - 48 - (89) 179

Less offsetting with deferred tax liabilities (149) - (23) - 15 (157)

Recognised deferred tax asset 71 - 25 - (74) 22

Tax effect of taxable temporary differences

Property, plant and equipment (633) (32) 162 (112) 166 (449) Intangible assets (280) - 13 - 93 (174) Accounts receivable valuation - - (251) - 79 (172) Advances paid (44) - (17) - 20 (41) Inventory tax differences (5) (9) (4) - 1 (17) Borrowings and long-term payables fair valuation (9) - 8 - 1 - Other (2) - (3) - 2 (3)

Gross deferred tax liability (973) (41) (92) (112) 362 (856)

Less offsetting with deferred tax assets 149 - 23 - (15) 157 Recognised deferred tax liability (824) (41) (69) (112) 347 (699)

The tax charge relating to components of other comprehensive income is as follows:

2009 2008 Before tax Deferred tax After tax Before tax Deferred tax After tax charge charge

Revaluation of property, plant and equipment 1,091 (273) 818 449 (112) 337

In the context of the Group’s current structure, tax losses and current tax assets of different Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties

For the purposes of these IFRS consolidated financial statements, parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise significant influence over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Unless stated otherwise, other related parties are related through common control under SCM. As at 31 December 2009 and 2008 significant balances outstanding with related parties are detailed below:

2009 2008 SCM Asso- Other Smart SCM Asso- Other Smart ciates related Group ciates related Group parties parties ASSETS

Other non-current assets, including: 191 10 - 3 218 - 3 - Receivables for promissory notes - 6 - - 21 - - - Long-term loans issued 191 4 - - 197 - - - Other non-current assets - - - 3 - - 3 - Trade and other receivables, including: 222 174 286 7 335 90 36 600 Trade receivable and receivables on commission sales - 172 13 6 - 86 12 572 Prepayments made - - 2 - - - 5 28 Receivables for promissory notes and bonds sold 188 - 211 1 319 - - - Interest accrued on long term loans issued 31 - - - 14 - - - Other financial receivables 3 2 60 - 2 4 19 - Cash and cash equivalents - - 64 - - - 196 -

2009 2008 SCM Asso- Other Smart SCM Asso- Other Smart ciates related Group ciates related Group parties parties LIABILITIES

Non-current liabilities, including: 14 6 4 11 - 2 3 - Non-bank borrowings - - 3 - - - 3 - Long-term dividends payable 14 - - 11 - - - - Other non-current liabilities - 6 1 - - 2 - - Trade and other payables, including: 174 233 122 68 146 170 43 181 Accounts payable for promissory notes purchased - 16 - - - 27 - - Payables for acquired subsidiaries and non-controlling interest - 2 8 - - - 7 - Dividends payable 173 - - 41 146 - - - Trade payables and payables on sales made on commission - 213 72 - - 139 35 181 Prepayments received - 2 38 - - 4 - - Other financial liabilities 1 - 4 27 - - 1 -

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties (continued)

Significant transactions (excluding purchases) with related parties during 2009 and 2008 are detailed below:

2009 SCM Associates Other Smart Total related Group parties Sales, including: 132 17 - 149 Steel - 15 - 15 Coke and coking coal 120 - - 120 Other 12 2 - 14

Other operating income/(expense) net (50) (119) (9) (178) Sponsorship and other charity payments (53) (118) (15) (186) Other 3 (1) 6 8

Finance income, including: 15 - - - 15 Interest income - bank deposits - - 1 - 1 Interest income - other 12 - - - 12 Other finance income 3 - (1) - 2

2008 SCM Associates Other Smart Total related Group parties Sales, including: - 300 85 1,020 1,405 Steel - - 80 500 580 Coke and coking coal - 293 - 264 557 Other - 7 5 256 268

Other operating income/(expense) net 11 1 (65) - (53) Sponsorship and other charity payments - - (92) - (92) Other 11 1 27 - 39

Finance income, including: 11 - 14 - 25 Interest income - bank deposits - - 4 - 4 Interest income - other 8 - 7 - 15 Other finance income 3 - 3 - 6

During 2009 the Group acquired US dollar denominated deposit certificates totalling USD 85 million from the entities under common control. These deposit certificates were subsequently sold to the entities under common control for UAH 685 million (equivalent to USD 88 million). Receivables for such transaction amounted to USD 35 million. These transactions are performed for cash management purposes.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties (continued)

The following is a summary of purchases from related parties in 2009 and 2008:

2009 SCM Associates Other Smart Total related Group parties Purchases, including: - 156 463 3 622 Metal products - 1 1 - 2 Coke and coking coal - 13 98 - 111 Spare parts and materials - 104 22 - 126 Electricity - - 305 - 305 Fuel - 1 1 - 2 Services - 37 7 - 44 Other - - 29 3 32

Acquisition of interest in subsidiaries from SCM or related parties (Note 6) 122 - - - 122

2008 SCM Associates Other Smart Total related Group parties Purchases, including: - 286 718 1,081 2,085 Metal products - - 18 1,079 1,097 Coke and coking coal 41 278 2 321 Spare parts and materials - 179 48 - 227 Electricity - - 354 - 354 Fuel - 1 9 - 10 Services 64 11 - 75 Other 1 - - 1

Acquisition of interest in subsidiaries from SCM or related parties (Note 6) 94 - - - 94

During 2008 the Group commenced trading activities with MMZ and Promet including but not limited to sales of raw materials and re-selling of MMZ products. As discussed in Note 6, MMZ and Promet operations and balances were consolidated into the Group from 1 January 2009.

In 2009, the remuneration of key management personnel of the Group comprised current salaries and related bonuses totalling USD 7.8 million (in 2008 USD 8.3 million).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

31 Contingencies, commitments and operating risks

Tax legislation. Ukrainian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and State authorities. Recent events within Ukraine suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years proceeding the year of review. Under certain circumstances reviews may cover longer periods.

The Group occasionally conduct intercompany transactions at terms that may be assessed by the Ukrainian tax authorities as non-market. Because of non-explicit requirements of the applicable tax legislation, such transactions have not been challenged in the past. However, it is possible with evolution of the interpretation of tax law in Ukraine and changes in the approach of tax authorities, that such transactions could be challenged in the future. The impact of any such challenge cannot be estimated; however, Management believes that it will not be significant.

Bankruptcy proceedings During 2006, bankruptcy proceedings were initiated in respect of JSC Krasnodonugol. The amount of the creditors’ claims summarised by the external manager was USD 219 million of which USD 128 million relates to the Group. During 2007 and 2008 liabilities of USD 19 million were re-purchased by the Group. Based on the previous court decisions made, management of the Group believe that the amount of USD 10 million not recognised by the Group will be rejected by the court and, therefore, is not recognised as a liability. Net amount of the liabilities recorded as at 31 December 2009 is USD 36 million. Group recognised USD 23 million as non current liability related to the bankruptcy moratorium. For the remaining balance the Group is continually negotiating early settlement and thus recorded those as part of trade and other payable.

Since April 2004, Group subsidiaries, Inguletsky GOK, Severniy GOK and Cental GOK, have operated under the protection granted by law N 1677-IV On specific features of privatization of companies within the Ukrrudprom government-run JSC (further - “Law on Ukrrudprom entities”). The Law on Ukrrudprom entities provided a 5-year penalty free grace period over all tax and non tax arrears to the State budget of Ukraine, stayed any bankruptcy petitions against companies and prohibited the forced administration or sale of the Companies’ assets. During this period, these companies together with Metinvest have sought to quantify, negotiated and amicably settle pre moratorium creditor claims. The 5 year moratorium expired on 9 April 2009 and subsequently the entities became subject to the Law on Retrieval of Creditworthiness of a Debtor (further – “Bankruptcy Law”). In December 2009, all bankruptcy proceedings against Severniy GOK and Cental GOK were dismissed by the court and the unsettled pre moratorium debts were reclassified into the respective categories of trade and other payables from which these debts had been originally segregated. Subsequent to expiry of the 5-year moratorium introduced by the Law on Ukrrudprom entities in April 2009, up until March 2010, Inguletsky GOK continued to operate under the protection of a moratorium established initially in accordance with the “Bankruptcy Law”.

Management also believes that the expiration of moratorium will not have any adverse effects on the operations of the Group or its financial position.

Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal and external professional advice management is of the opinion that no material losses will be incurred in respect of claims in excess of provisions that have been made in these consolidated financial statements.

Environmental matters. The enforcement of environmental regulation in Ukraine is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluate its obligations (including assets retirement obligations) under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated, but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage.

Capital expenditure commitments. As at 31 December 2009, the Group has contractual capital expenditure commitments in respect of property, plant and equipment totalling USD 128 million (31 December 2008: USD 68 million). The Group has already allocated the necessary resources in respect of these commitments. Management of the Group believes that future net income and funding will be sufficient to cover this and any similar commitments.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

31 Contingencies, commitments and operating risks (continued)

Guarantees issued. As at 31 December 2009, the Group has outstanding guarantees to third parties in the amount of USD 60 million (31 December 2008: USD 95 million).

Assets pledged. As at 31 December 2009, the Group had pledged 60% plus 1 share of JSC Central Mining and Processing Works and JSC Severniy Mining and Processing Works for USD 240 million loan drawn by the Group’s parent SCM Limited. For other assets pledged refer to Notes 10, 14, 19.

Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings. Non- compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. As of 31 December 2009 the Group was in compliance with the covenants.

Insurance. At present, Metinvest Group maintains ‘All Risk’ property damage and business interruption coverage for its major subsidiaries including JSC Azovstal Iron and Steel Works JSC Enakievo Metallurgical Works, JSC Khartsyzsk Tube Works, JSC Severniy Mining and Processing Works, JSC Central Mining and Processing Works, JSC Inguletskiy Mining and Processing Works and JSC Avdiivka By-Product Coke Plant.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

32 Financial risk management

Financial risk management

The Group activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management is carried out by a central treasury department (Group treasury). Group treasury identifies and evaluates financial risks in close co-operation with the group’s operating units. Group treasury provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, and investment of excess liquidity.

(a) Market risk.

(i) Foreign exchange risk.

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed through (i) borrowings denominated in the relevant foreign currencies; (ii) different treasury operations like forward, swap and other. Fair value of derivatives as at 31 December 2009 and 2008 is immaterial.

Foreign exchange risk is managed centrally by Group treasury. Group treasury has set up a policy to manage foreign exchange risk. Group treasury sets limits on the level of exposure by currency and maximum amount of exposure. The subsidiaries have not entered into transactions designed to hedge against these foreign currency risks without permission of Group treasury.

At 31 December 2009, if the UAH had strengthened/ weakened by 10% against the US dollar with all other variables held constant, post-tax profit for the year would have been USD 73 million (2008: USD 436 million at 25% change) higher/lower, mainly as a result of foreign exchange losses/gains on translation of US dollar denominated trade receivables and foreign exchange gains/losses on translation of US dollar denominated borrowings.

At 31 December 2009, if the UAH had strengthened/ weakened by 10% against the EUR with all other variables held constant, post-tax profit for the year would have been USD 77 million lower/higher (2008: USD 238 million higher/lower at 25% change), mainly as a result of foreign exchange losses/gains on translation of Euro denominated trade receivables and foreign exchange gains/losses on translation of Euro denominated borrowings.

(ii) Price risk.

The Group is exposed to equity securities price risk because of investments held by the Group and classified as available-for-sale.

The majority of the Group’s equity investments are quoted on the over-the-counter electronic exchange. The Group determines related fair value gains/losses on the available-for-sale financial assets by reference to the available over- the-counter quotations.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

32 Financial risk management (continued)

Metinvest's revenue is exposed to the market risk from price fluctuations related to the sale of its steel and iron ore products. The prices of the steel and iron ore products sold both within Ukraine and abroad are generally determined by market forces. These prices may be influenced by factors such as supply and demand, production costs (including the costs of raw material inputs) and global economic growth. The prices of the products that Metinvest sells to third parties are also affected by supply/demand and global/Ukrainian economic growth. Adverse changes in respect of any of these factors may reduce the revenue that Metinvest receives from the sale of its steel or mined products.

Metinvest's exposure to commodity price risk associated with the purchases is limited as the Group is vertically integrated and is self sufficient for iron ore and coking coal requirements.

(iii) Cash flow and fair value interest rate risk.

The Group’s income and operating cash flows are dependent of changes in market interest rates.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain a balanced borrowings portfolio of fixed and floating rate instruments. As at 31 December 2009, 29% of the total borrowings were provided to the Group at fixed rates (31 December 2008: 7%). During 2009 and 2008, the Group’s borrowings at variable rate were denominated in USD and EUR.

Management does not have a formal policy of determining how much of the Group’s exposure should be to fixed or variable rates. However, at the time of issuing new debt management uses its judgment to decide whether it believes that a fixed or variable rate would be more favourable to the Group over the expected period until maturity.

Refer to Note 13, 19 and 20 for information about maturity dates and effective interest rates of financial instruments.

At 31 December 2009, if interest rates on USD and EUR denominated borrowings had been on 1% higher/lower (2008: 4.5%) with all other variables held constant, post-tax profit for the year would have been USD 13 million (2008: USD 113 million) lower/higher.

(b) Credit risk

Credit risk is managed on group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. When wholesale customers are independently rated, these ratings are used for credit quality assessment. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.

Financial assets, which potentially subject the Group to credit risk, consist principally of cash, loans, trade and other accounts receivable.

Cash is placed with major Ukrainian and international reputable financial institutions, which are considered at time of deposit to have minimal risk of default.

The Group has policies in place to ensure that provision of loans and sales of products/services are made to customers with an appropriate credit history. The Group credit risk exposure is monitored and analysed on a case-by- case basis. Credit evaluations are performed for all customers requiring credit over a certain amount. The carrying amount of loans, trade and other accounts receivable, net of provision for impairment, represents the maximum amount exposed to credit risk. Concentration of credit risk mainly relates to CIS and European countries where the major customers are located.

The maximum exposure to credit risk at 31 December 2009 is USD 2,037 million (2008: USD 2,990 million) being the fair value of long and short term loans issued and receivables and cash. The Group does not hold any collateral as security

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

32 Financial risk management (continued)

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group treasury maintains flexibility in funding by maintaining availability under committed credit lines.

The Group treasury analyses the ageing of their assets and the maturity of their liabilities and plans their liquidity depending on the expected repayment of various instruments. In case of insufficient or excessive liquidity in individual entities, the Group relocate resources and funds among the entities of the Group to achieve optimal financing of the business needs of each entity.

The table below analyses the group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows

Less than Between 1 Between 2 Over At 31 December 2009 1 year and 2 years and 5 years 5 years

Borrowings 1,057 498 479 6 Seller’s notes 174 100 306 93 Other non-current liabilities - (43) (25) - Trade and other payables 1,166 - - - Guarantees issued 60 - - -

At 31 December 2008

Borrowings 1,398 130 1,189 30 Other non-current liabilities - 46 - - Trade and other payables 1,086 - - - Guarantees issued 95 - - -

33 Capital risk management

The Group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non-current borrowings” as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

The Group has yet to determine its optimum gearing ratio. Presently, the majority of debt is due within 1 - 5 years and the Group is actively pursuing mechanisms to extend the credit terms to match its long-term investment strategy. The Group has credit ratings assigned by two international rating agencies, Fitch and Moody’s, B- and B2 respectively, ceiled by the Sovereign rating.

31 December 31 December 2009 2008 Total borrowings (Notes 19) 1,943 2,685 Less: cash and cash equivalents (Note 16) 159 261 Net debt 1,784 2,424 Total equity 6,972 6,286 Total capital 8,756 8,710

Gearing ratio 20% 28%

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

34 Fair values of financial instruments

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the group is the current bid price.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments.

The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is required to interpret market data to determine the estimated fair value. Ukraine continues to display some characteristics of an emerging market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments.

Financial instruments carried at fair value. Available-for-sale investments are carried on the consolidated balance sheet at their fair value. Cash and cash equivalents are carried at amortised cost which approximates current fair value.

Fair values were determined based on quoted market prices except for certain investment securities available-for- sale for which there were no available external independent market price quotations. These securities have been fair valued by the Group on the basis of results of recent sales of equity interests in the investees between unrelated third parties.

Financial assets carried at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty. Carrying amounts of trade and other accounts receivable approximate their fair values.

Liabilities carried at amortised cost. The fair value is based on quoted market prices, if available. The estimated fair value of fixed interest rate instruments with stated maturity, for which a quoted market price is not available, was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on demand, discounted from the first date that the amount could be required to be paid (Note 19, 20 and 23).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

35 Reconciliation of classes of financial instruments with measurement categories

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2009:

Loans and Available-for-sale Total receivables assets

ASSETS Cash and cash equivalents (Note 16) - Current accounts 155 - 155 - Term deposits 4 - 4 Trade and other receivables (Note 15) - Trade receivables and receivables on commission 1,141 - 1,141 - Other financial receivables 532 - 532 Available-for-sale investments (Note12) - Securities quoted on the Ukrainian stock market - 18 18 - Other - - Other non-current assets (Note13) 205 - 205

TOTAL FINANCIAL ASSETS 2,037 18 2,055

NON-FINANCIAL ASSETS 10,115

TOTAL ASSETS 12,170

All of the Group’s financial liabilities are carried at amortised cost.

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2008:

Loans and Available-for-sale Total receivables assets

ASSETS Cash and cash equivalents (Note 16) - Current accounts 261 - 261 - Term deposits - - - Trade and other receivables (Note 15) - Trade receivables and receivables on commission 1,708 - 1,708 - Other financial receivables 390 - 390 Available-for-sale investments (Note12) - Securities quoted on the Ukrainian stock market 9 9 - Other 1 1 Other non-current assets (Note13) 231 - 231

TOTAL FINANCIAL ASSETS 2,590 10 2,600

NON-FINANCIAL ASSETS - - 8,756

TOTAL ASSETS - - 11,356

36 Events after the balance sheet date

As disclosed in Note 1, the Shareholders agreed to combine their respective steel and mining assets however the Group also owned certain non steel and mining assets which the shareholders have agreed to remove from the Group. In February 2010, JSC Avlita, a consolidated subsidiary at 31 December 2009, and other significant interests in associates with a total carrying value of UAH 1,875 million (USD 235 million) as at 31 December 2009, were sold to SCM for USD 536 million generating gain of USD 301 million. 67

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2009 All tabular amounts in millions of US Dollars

36 Events after balance sheet date (continued)

In March 2010, the Group has acquired from SCM the remaining 34.4% equity interest in MetalUkr Holding Limited for purchase consideration of USD 510 million. The Group has agreed with SCM the setting off payment for this acquisition with the payment for subsidiaries and associates sold to SCM in February 2010. As a result of this acquisition the Group has increased its effective share in MetalUkr Holding Limited to 100%, in JSC Severniy Mining and Processing Works – to 63.3%, JSC Central Mining and Processing Works – to 76.0%.

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The above auditors report is the original auditors report that was issued on 7 April 2010 with respect to the Financial Statements for the period ending 31 December 2009. These Financial Statements also contained the Director’s report and the stand alone financial statements. For purposes of the Offering Memorandum the Director’s report and stand alone financial statements have been omitted. Furthermore the page references in the original auditor’s report refer to the statutory financial statements, which page reference compares to pages F-2 to F-59 in this Offering Memorandum.

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Metinvest B.V.

IFRS Consolidated Financial Statements

31 December 2008

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Contents

IFRS CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet ...... F-64 Consolidated Income Statement ...... F-65 Consolidated Statement of Cash Flows...... F-66 Consolidated Statement of Changes in Equity ...... F-68 Notes to the IFRS consolidated financial statements ...... F-69 – F-118

1 Metinvest B.V. and its operations ...... F-69 2 Operating environment of the Group...... F-70 3 Basis of preparation and significant accounting policies ...... F-71 4 Critical accounting estimates and judgments in applying accounting policies ...... F-80 5 Adoption of new or revised standards and interpretations ...... F-81 6 Business combinations ...... F-84 7 Segment information ...... F-86 8 Goodwill...... F-88 9 Other intangible assets ...... F-91 10 Property, plant and equipment ...... F-92 11 Investments in associates ...... F-93 12 Available-for-sale investments...... F-94 13 Other non-current assets ...... F-95 14 Inventories ...... F-95 15 Trade and other receivables ...... F-96 16 Cash and cash equivalents ...... F-98 17 Share capital ...... F-99 18 Other reserves...... F-100 19 Loans and borrowings...... F-101 20 Liabilities under moratorium ...... F-102 21 Deferred income ...... F-103 22 Retirement benefit obligations...... F-103 23 Other non-current liabilities ...... F-104 24 Trade and other payables ...... F-104 25 Expenses by nature...... F-105 26 Other operating income/(expenses), net...... F-106 27 Finance income ...... F-106 28 Finance costs ...... F-106 29 Income tax...... F-107 30 Balances and transactions with related parties ...... F-110 31 Contingencies, commitments and operating risks ...... F-113 32 Financial risk management ...... F-114 33 Capital risk management ...... F-116 34 Fair values of financial instruments...... F-117 35 Reconciliation of classes of financial instruments with measurement categories ...... F-118 36 Events after the balance sheet date ...... F-118

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Metinvest B.V. Consolidated Balance Sheet All amounts in millions of US dollars

Note 31 December 2008 31 December 2007

ASSETS

Non-current assets Goodwill 8 1,662 569 Other intangible assets 9 712 1,135 Property, plant and equipment 10 4,462 5,843 Investments in associates 11 123 239 Available-for-sale investments 12 10 144 Deferred tax asset 29 22 71 Other non-current assets 13 631 399 Total non-current assets 7,622 8,400

Current assets Inventories 14 1,044 1,150 Trade and other receivables 15 2,429 1,755 Cash and cash equivalents 16 261 1,134 Total current assets 3,734 4,039

TOTAL ASSETS 11,356 12,439

EQUITY

Share capital 17 - - Share premium 17 4,172 4,172 Other reserves 18 (4,339) (1,500) Retained earnings 5,105 3,356 Equity attributable to the Company’s equity holders 4,938 6,028 Minority interest 1,348 1,287 TOTAL EQUITY 6,286 7,315

LIABILITIES

Non-current liabilities Loans and borrowings 19 1,319 1,273 Deferred income 21 17 27 Retirement benefit obligations 22 287 311 Deferred tax liability 29 699 824 Other non-current liabilities 23 45 54 Total non-current liabilities 2,367 2,489

Current liabilities Loans and borrowings 19 1,366 1,679 Trade and other payables 24 1,326 934 Liabilities under moratorium 20 11 22 Total current liabilities 2,703 2,635 TOTAL LIABILITIES 5,070 5,124

TOTAL LIABILITIES AND EQUITY 11,356 12,439

Signed and authorized for release on behalf of Metinvest B.V. on 29 April 2009:

Igor Syry, Director B

John W. Macdonald, Director A

TheThe accompanying accompanying notes notes on onpages pages F-69 15 to 64F-118 form form an integral an integral part ofpart these of these IFRS IFRSconsolidated consolidated financial financial statements statements 10

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Metinvest B.V. Consolidated Income Statement All amounts in millions of US dollars

Note Year ended Year ended 31 December 2008 31 December 2007

Revenue 7 13,213 7,425 Cost of sales 25 (8,505) (4,895) Gross profit 4,708 2,530

Distribution costs 25 (839) (465) General and administrative expenses 25 (326) (230) Other operating income/(expenses), net 26 418 (62) Operating profit 3,961 1,773

Finance income 27 53 60 Finance costs 28 (477) (188) Share of result of associates 11 21 (3) Profit before income tax 3,558 1,642 Income tax expense 29 (755) (321) Profit for the year 2,803 1,321

Profit is attributable to: Equity holders of the parent Company 1,931 953 Minority interests 872 368

Profit for the year 2,803 1,321

The accompanyingThe accompanying notes notes on pageson pages F-69 15 to to F-11864 form form an integralan integral part partof these of these IFRS IFRS consolidated consolidated financial financial statements statements 11

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Metinvest B.V. Consolidated Statement of Cash Flows All amounts in millions of US Dollars

Note Year ended Year ended 31 December 2008 31 December 2007

Cash flows from operating activities Profit before income tax 3,558 1,642

Adjustments for:

Depreciation of property, plant and equipment (“PPE”) and amortisation of intangible assets, net of amortisation of deferred income 25 641 454 Impairment and devaluation of PPE 25 50 52 Loss on disposal of property, plant and equipment 26 39 28 (Reversal of impairment)/impairment of trade and other receivables 25 29 7 Finance income 27 (53) (60) Finance costs 28 477 188 Foreign exchange differences (621) (36) Net increase in retirement benefit obligation 202 57 Share of result of associates 11 (21) 3 Write-offs of accounts payable 26 - (14) Write-offs of inventory 14 273 15 Other non-cash operating gains 1 (8) Operating cash flows before working capital changes 4,575 2,328

Increase in inventories (580) (379) Increase in trade and other accounts receivable (318) (372) Increase/(decrease) in trade and other accounts payable 189 186 Decrease in liabilities under moratorium (3) (30) Decrease in other non-current liabilities (11) (13) Cash generated from operations 3,852 1,720 Income taxes paid (827) (445) Interest paid (169) (150) Net cash from operating activities 2,856 1,125 Cash flows from investing activities Purchase of property, plant and equipment (679) (493) Proceeds from sale of property, plant and equipment 5 - Proceeds from sale of interest in subsidiary - 4 Acquisition of subsidiaries, net of cash acquired (1,699) (11) Prepayment for United Coal Company 13 (400) - Payments for subsidiaries and minority interest acquired in prior periods – third parties - (456) Payments for subsidiaries and minority interest – SCM Group and related parties (205) (462) Loans issued to SCM Group companies (130) - Acquisition of associates - (46) Interest received 20 29 Dividends received 29 - Proceeds from disposal of investments available-for-sale - 11 Net cash used in investing activities (3,059) (1,424)

The Theaccompanying accompanying notes notes on onpages pages F-69 15 toto F-11864 form form an integralan integral part partof these of these IFRS IFRS consolidated consolidated financial financial statements statements 12

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Metinvest B.V. Consolidated Statement of Cash Flows All amounts in millions of US Dollars

Note Year ended Year ended 31 December 2008 31 December 2007

Cash flows from financing activities Proceeds from loans and borrowings 1,403 1,545 Repayment of loans and borrowings (1,591) (614) Net trade financing proceeds/(repayments) (113) 424 Dividends paid (352) (182) Net cash generated in financing activities (653) 1,173 Effect of exchange rate changes on cash and cash (17) 36 equivalents

Net increase in cash and cash equivalents (873) 910 Cash and cash equivalents at the beginning of the year 16 1,134 224

Cash and cash equivalents at the end of the year 16 261 1,134

The accompanyingThe accompanying notes notes on pageson pages F-69 15 to to F-118 64 form form an integralan integral part part of these of these IFRS IFRS consolidated consolidated financial financial statements statements 13

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Metinvest B.V. Consolidated Statement of Changes in Equity All amounts in millions of US Dollars

Minority Total Attributable to equity holders of the Company interest equity Share Share Other Retained Total capital premium reserves earnings

Balance as at 1 January 2007 - 138 674 2,306 3,118 711 3,829

Share in equity reserves of associates (Note 11) - - 85 - 85 5 90 Revaluation of property, plant and equipment - - 563 - 563 267 830 Realised revaluation reserve - - (140) 140 - - - Revaluation of available-for- sale investments - - 92 - 92 - 92 Currency translation differences - - 9 - 9 6 15 Net income recognised directly in equity - - 609 140 749 278 1,027 Profit for the year - - - 953 953 368 1,321 Total recognised income for 2007 - - 609 1,093 1,702 646 2,348 Acquisition of subsidiaries – common control (Note 17) - 2,495 (2,495) - - 3 3 Acquisition of subsidiaries (Note 6) - 1,539 - - 1,539 271 1,810 Acquisition of interest in the subsidiaries from SCM Group companies and - related parties - (500) - (500) 7 (493) Decrease in minority on additional share issue to SCM by the Group subsidiary 212 - 212 (212) - Dividends (Note 17) - - - (43) (43) (139) (182) Balance as at 31 December 2007 - 4,172 (1,500) 3,356 6,028 1,287 7,315

Share in equity reserves of associates (Note 11) - - (49) - (49) (4) (53) Revaluation of property, plant and equipment (Note 10) - - 272 - 272 65 337 Realised revaluation reserve - - (226) 226 - - Revaluation of available-for- sale investments - - (132) (132) (132) Currency translation differences - - (2,621) (2,621) (733) (3,354) Net income recognised directly in equity - - (2,756) 226 (2,530) (672) (3,202) Profit for the year - - - 1,931 1,931 872 2,803 Total recognised income for 2008 - - (2,756) 2,157 (599) 200 (399) Acquisition of interest in the subsidiaries from SCM Group companies and related parties (Note 6) - - (83) - (83) (11) (94) Increase in minority interest as a result of Group restructuring (Note 6) - - - (48) (48) 48 - Dividends (Note 17) (360) (360) (176) (536) Balance as at 31 December 2008 - 4,172 (4,339) 5,105 4,938 1,348 6,286

The accompanyingThe accompanying notes on notes pages on pagesF-69 to 15 F-118 to 64 form an integral partpart of of these these consolidated IFRS consolidated IFRS financial financial statements statements 14

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

1 Metinvest B.V. and its operations

Metinvest B.V. (the “Company”), is a joint stock company limited by shares registered in the Netherlands. The Company was acquired by JSC System Capital Management (“SCM”) in 2004 and designated to hold the metals and mining assets of SCM. The Company and its subsidiaries (together referred to as the “Group” or “Metinvest Group”) are a fully integrated steel producer, owning assets in each link of the production chain – from iron ore mining, coking coal mining and coke production, through to semi-finished and finished steel production; as well as pipe rolling and plate/coil production. The steel products and iron ore are sold on both the Ukrainian and export markets. SCM has been performing a comprehensive legal restructuring of its holdings, whereby all controlling interests in its companies related to the metals and mining business were transferred to Metinvest B.V. As the Metinvest Group has been formed through a reorganisation of entities under common control, these consolidated financial statements have been prepared using the predecessor basis in a manner similar to the pooling of interest method. Accordingly, the financial statements, including corresponding amounts, have been presented as if the transfers of controlling interests in the subsidiaries had occurred at the beginning of the earliest period presented (i.e. 1 January 2007), or, if later, on the date of acquisition of the subsidiary by the transferring entities under common control. The assets and liabilities of the transferred subsidiaries were recorded in these consolidated financial statements at the carrying amount in the transferring entities’ financial statements. The difference between the carrying amount of net assets and the purchase consideration was recorded as an adjustment to the merge reserve in equity. As at 31 December 2008, this legal reorganisation is almost complete and SCM is committed to transferring the remaining interests in its metals and mining subsidiaries to Metinvest B.V. by 31 December 2009. Until November 2007, the Company was 100% owned by JSC System Capital Management. SCM is registered in Donetsk, Ukraine and is controlled by Mr. Rinat Akhmetov. In July 2007, SCM signed a Shareholder Agreement with Smart Group LLC, whereby the parties agreed to combine their metals and mining assets. The Smart Group would contribute their equity interests in JSC Inguletskiy Mining and Processing Works, Makeyevka Steel Plant and Promet Steel in exchange for a 25% plus 1 share interest in Metinvest B.V. In November 2007, 82% of Inguletsky GOK was transferred to the Company in exchange for a new share issue of 25% of Metinvest B.V. Thereby as of 31 December 2008, Metinvest B.V. is owned 75% by SCM and 25% by Smart Group. The principal subsidiaries of Metinvest B.V. are presented below:

Name effective % interest as Segment Country of at 31 December incorporation

2008 2007

Metinvest Holding LLC 51.2% 51.2% Corporate Ukraine Metinvest Holding B.V. 100.0% 100.0% Corporate Netherlands JSC Azovstal Iron and Metals and mining Works 94.6% 94.6% Metals Ukraine JSC Enakievo Metallurgical Works 88.2% 88.1% Metals Ukraine JV LLC Metalen 95.6% 95.6% Metals Ukraine JSC Khartsyzsk Tube Works 95.1% 81.1% Metals Ukraine Ferriera Valsider S.P.A. 70.0% 70.0% Metals Italy Metinvest Trametal S.P.A.* 100.0% - Metals Italy Spartan UK Ltd * 100.0% - Metals UK Metinvest International S.A. 100.0% 100.0% Metals Switzerland LLC Leman Ukraine 100.0% 100.0% Metals Ukraine LLC Metinvest Ukraine 51.6% 51.6% Metals Ukraine JSC Avlita 65.6% 65.6% Coke and coal Ukraine JSC Avdiivka By-Product Coke Plant 79.9% 79.9% Coke and coal Ukraine JSC Krasnodonugol 79.9% 79.9% Coke and coal Ukraine JSC Severniy Mining and Processing Works 41.5% 41.5% Iron ore Ukraine JSC Central Mining and Processing Works 49.8% 49.8% Iron ore Ukraine JSC Inguletskiy Mining and Processing Works 82.5% 82.5% Iron ore Ukraine

* - entity created/acquired by the Group in 2008

As part of the Shareholder Agreement, SCM has agreed to sell/contribute its remaining equity interests in the above entities and certain other equity investments to Metinvest B.V. As at 31 December 2008, SCM's carrying value of such assets totalled USD 914 million (31 December 2007: USD 1,022 million). As of the date of preparation of these financial statements, the Shareholders are undecided on the exact mechanism and at which value these assets will be brought into Metinvest B.V.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

1 Metinvest B.V. and its operations (continued)

As at 31 December 2008, Group employed approximately 89 thousand people (31 December 2007: 99 thousand).

The consolidated financial statements of Metinvest B.V. for the year ended 31 December 2008 were authorised for issue in accordance with a resolution of the Board of Directors on 29 April 2009.

2 Operating environment of the Group

Ukraine continues to display certain characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible outside of Ukraine, restrictive currency controls, and high inflation of 22.3% for the year ended 31 December 2008 (2007: 16.6%). The financial situation in the Ukrainian market significantly deteriorated during the fourth quarter of 2008. The ongoing global financial and economic crisis that emerged out of the severe reduction in global liquidity which commenced in the middle of 2007 (often referred to as the “Credit Crunch”) has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector and the wider economy, and, at times, higher interbank lending rates and very high volatility in stock and currency markets. The uncertainties in the global financial markets have also led to failures of banks and other financial sector participants and to bank rescues in the United States of America, Western Europe, Ukraine and elsewhere. Since October 2008 the National Bank of Ukraine (NBU) introduced temporary administration at a number of Ukrainian banks due to their liquidity problems. The full extent of the impact of the ongoing financial crisis is proving to be difficult to anticipate or completely guard against. As a result of the global financial crisis, the Ukrainian economy experienced a reduced level of capital inflow and decrease in demand for exports. Additionally, the country’s ratings by international rating agencies were downgraded in October 2008. These factors, together with increasing domestic uncertainty, lead to volatility in the currency exchange market and resulted in significant downward pressure on the Ukrainian hryvnia (UAH) relative to major foreign currencies. Since October 2008 the NBU has been entering the market to support the national currency. The official UAH to US Dollar (USD) exchange rate of the National Bank of Ukraine devalued by 58.4% from UAH 4.861 at 30 September 2008 to UAH 7.70 at 31 December 2008.

In light of the current economic turmoil, the IMF has agreed to issue a Special Drawing Right (SDR) 11 billion stabilizing loan to Ukraine if the country complies with certain requirements. The first tranche of SDR 3 billion has been received in November 2008 and the next tranche of SDR 1.25 billion was due in February 2009, however at the time of issue of these financial statements it has not been received. The loan is expected to have a positive effect on the Ukrainian economy easing the effect of the crisis and promoting financial stability. The volume of financing has significantly reduced since September 2008. Such circumstances may affect the ability of the Group to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions. The financial crisis significantly impacted the global construction and therefore steel markets, such that demand reduced by 22% and accordingly, Ukrainian metal production also reduced by 37%. Prices for steel products also reduced compared to the peak prices in the middle of 2008. Subsequent to year end global steel demand remains weak.

Deteriorating economic conditions may also have an impact on management’s cash flow forecasts and assessment of the impairment of financial and non-financial assets. To the extent that information is available, management has properly reflected revised estimates of expected future cash flows in its impairment assessments.

Management believes it is taking all the necessary measures to support the sustainability of the Group’s business in the current circumstances

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies

Basis of preparation and statement of compliance. These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by European Union. The consolidated financial statements have been prepared under the historical cost convention unless stated otherwise. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 5, Adoption of New or Revised Standards and Interpretations).

These consolidated financial statements are presented in millions of US dollar and all values are rounded off to the nearest million except where otherwise indicated.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The date of exchange is the acquisition date where a business combination is achieved in a single transaction, and is the date of each share purchase where a business combination is achieved in stages by successive share purchases.

Minority interest is that part of the net results and of the net assets of a subsidiary, including the fair value adjustments, which is attributable to interests which are not owned, directly or indirectly, by the Company

Minority interest forms a separate component of equity, except for minority interest in subsidiaries registered in the form of limited liability companies.

The excess, and any further losses applicable to the minority, are allocated against the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Transactions with minority interests. When transactions with minority interest are with the parties under common control, the difference between the carrying value of a minority interest and the amount paid to acquire (purchase of minority interest) or sale proceeds (sale of minority interest) is recorded as a debit or credit in the statement of changes in equity. Where such transactions are with third parties, the difference is recorded as goodwill or “negative goodwill” on purchase transaction or, on sale transaction, as gain/loss on disposal in the consolidated income statement.

Unrealised gains on transactions between the Group and their associates are eliminated to the extent of the Group ' interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Any excess of the fair value of the Group’s share in the acquired associate’s net assets (”negative goodwill”) is recognised immediately in the consolidated income statement.

Segment reporting. A business segment is a group of assets and operations engaged in providing products and services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in another economic environment.

Foreign currency translation. The currency of each of the Group or consolidated subsidiaries is the currency of the primary economic environment in which the entity operates. The functional currency for the majority of the consolidated entities is the national currency of Ukraine, Ukrainian hryvnia (“UAH”).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

The results and financial position of each consolidated entity are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet are translated at the closing rate at the date of that balance sheet;

(iii) all resulting exchange differences are recognised as a separate component of equity.

As at 31 December 2008, the principal rate of exchange used for translating foreign currency balances was USD 1 = UAH 7.70 (31 December 2007: USD 1 = UAH 5.05); EUR 1 = UAH 10.86 (31 December 2007 EUR 1 = 7.42 UAH). Exchange restrictions in Ukraine are limited to compulsory receipt of foreign accounts receivable within 180 days of sales. Foreign currency can be easily converted at a rate close to the National Bank of Ukraine rate. At present, the UAH is not a freely convertible currency outside of Ukraine.

Property, plant and equipment. Effective 31 December 2006, the Group changed its accounting policy for property, plant and equipment from the cost model to the revaluation model. Fair value was based on valuations by external independent valuers. The frequency of revaluation depends upon the movements in the fair values of the assets being revalued. Subsequent additions to property plant and equipment are recorded at cost. Cost includes expenditure directly attributable to acquisition of the items. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. As at 31 December 2007 and 31 December 2008, property, plant and equipment are stated at revalued amounts less accumulated depreciation and provision for impairment, if required.

Increases in the carrying amount arising on revaluation are credited to other reserves in equity. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. Decreases that offset previous increases in the carrying amount of the same asset are charged against revaluation reserve directly in equity; all other decreases are charged to the income statement. The revaluation reserve in equity is transferred directly to retained earnings when the surplus is realised either on the retirement or disposal of the asset or as the asset is used by the Group; in the latter case, the amount of the surplus realised is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.

Upon recognition, items of property, plant and equipment are divided into components, which represent items with a significant value that can be allocated to a separate depreciation period.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Remaining useful lives in years Buildings and structures from 2 to 60 Plant and machinery from 2 to 35 Furniture, fittings and equipment from 2 to 10

Estimates of remaining useful lives are made on a regular basis for all buildings, plant and machinery, with annual reassessments. Changes in estimates are accounted for prospectively.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the acquirer’s share of the net identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated balance sheet. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any.

Other intangible assets. All of the Group’s other intangible assets have definite useful lives and primarily include capitalised computer software and licences. Acquired computer software and other licences are capitalised on the basis of the costs incurred to acquire and bring them to use. Other intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell. Purchased license is amortised using a unit of production method based on estimated ore reserves.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Classification of financial assets. The Group classify financial assets into the following measurement categories: loans and receivables and available-for-sale financial instruments.

All other financial assets are included in the available-for-sale category.

The Group’s financial assets and liabilities are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Income taxes. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. The income tax charge is recognised in the consolidated income statement unless it relates to transactions that are recognised, in the same or a different period, directly in equity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Trade and other receivables. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered to be indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

Promissory notes. A portion of sales and purchases is settled by promissory notes or bills of exchange, which are negotiable debt instruments.

Loans and borrowings. Loans and borrowings are recognized initially at fair value, net of transaction costs incurred and subsequently carried at amortised cost using the effective interest method. The Group does not capitalise borrowing costs.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Liabilities under moratorium. Liabilities under moratorium are carried at amortised cost using the effective interest method.

Prepayments received. Prepayments are carried at cost less provision for impairment.

Provisions for liabilities and charges. Provisions for liabilities and charges are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Contingent assets and liabilities. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

Employee benefits. Defined Contributions Plan. The Group make statutory contributions to the Social Insurance Fund, Pension Fund and Insurance against Unemployment Fund of Ukraine in respect of its employees. The contributions are calculated as a percentage of current gross salary, and are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labour costs in the consolidated income statement.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

3 Basis of preparation and significant accounting policies (continued)

Revenue recognition. Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Revenue is recorded on an accrual basis as earned.

Revenues are measured at the fair value of the consideration received or receivable.

Sales are shown net of value added tax (“VAT”) and discounts.

The Group also engage in sale and purchase transactions the objective of which is to manage cash flows. Such transactions are not revenue generating to the Group and accordingly such sales and purchases are presented on a net basis with any gain or loss presented in other operating income/(expenses). Accounts receivable and payable from such transactions are presented gross.

Value added tax. VAT in Ukraine where the majority of the Group operations are concentrated is levied at two rates: 20% on domestic sales and imports of goods, works and services and 0% on export of goods and provision of works or services to be used outside Ukraine. A taxpayer’s VAT liability equals the total amount of VAT collected within a reporting period, and arises on the earlier of the date of shipping goods to a customer or the date of receiving payment from the customer. A VAT credit is the amount that a taxpayer is entitled to offset against his VAT liability in a reporting period. Rights to VAT credit arise when a VAT invoice is received, which is issued on the earlier of the date of payment to the supplier or the date goods are received. VAT related to sales and purchases is recognised in the consolidated balance sheet on a gross basis and disclosed separately as an asset and liability. Where provision has been made for impairment of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT.

Recognition of expenses. Expenses are accounted for on an accrual basis.

Cost of goods sold comprises the purchase price, transportation costs, commissions relating to supply agreements and other related expenses.

All interest and other costs incurred in connection with borrowings are expensed using the effective interest rate method.

Interest income is recognised as it accrues, taking into account the effective yield on the asset.

Changes in presentation. Where necessary, corresponding figures have been adjusted to confirm to changes in the presentation in the current year.

The Group previously presented proceeds from sale of goods and the cost of goods sold as part of revenue and raw material component of cost of sales. In 2008 cost of goods sold and sales proceeds were presented separately in cost of sales and sales, and corresponding figures of the consolidated income statement for the year ended 31 December 2007 were reclassified accordingly (Notes 7, 25). The Group previously presented cash flows relating to trade financing activities on the net basis and included it into the line “proceeds from borrowings”. In 2008 presented cash flows relating to trade financing activities were shown on the net basis in the separate line in consolidated cash flow statement as part of financing activities, corresponding figures of the consolidated cash flow statement for the year ended 31 December 2007 were reclassified accordingly.

Management believes that these reclassifications result in a more appropriate presentation of the consolidated financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008

4 Critical accounting estimates and judgments in applying accounting policies

The Group also determines whether goodwill is impaired at least on an annual basis. This requires estimation of the value in use of the cash-generating units to which goodwill is allocated. Estimating value in use requires the Group to make an estimate of expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

Impairment of trade and other accounts receivable. Management estimates the likelihood of the collection of trade and other accounts receivable based on an analysis of individual accounts. Factors taken into consideration include an ageing analysis of trade and other accounts receivable in comparison with the credit terms allowed to customers, and the financial position of and collection history with the customer. Should actual collections be less than management’s estimates, the Group would be required to record an additional impairment expense.

Post-employment and other employee benefit obligations. Management assesses post-employment and other employee benefit obligations using the Projected Unit Credit Method based on actuarial assumptions which represent management’s best estimates of the variables that will determine the ultimate cost of providing post-employment and other employee benefits. Since the plan is administered by the State, the Group may not have full access to information and therefore assumptions regarding when, or if, an employee takes early retirement, whether the Group would need to fund pensions for ex-employees depending on whether that ex-employee continues working in hazardous conditions, the likelihood of employees transferring from State funded pension employment to Group funded pension employment could all have a significant impact on the pension obligation. The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The major assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on the current market conditions. Additional information is disclosed in Note 22.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

5 Adoption of new or revised standards and interpretations

Certain new IFRSs/IFRICs become effective for the Group after 2008.

IFRIC 11, IFRS 2—Group and Treasury Share Transactions (IFRIC 11 as adopted by the EU is effective for annual periods beginning on or after 1 March 2008);

IFRIC 12, Service Concession Arrangements (IFRIC 12 as adopted by the EU is effective for annual periods beginning on or after 30 March 2009); and

IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (IFRIC 14 as adopted by the EU is effective for annual periods beginning on or after 31 December 2008).

These interpretations did not have any significant effect on the Group’s consolidated financial statements.

Reclassification of Financial Assets—Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures and a subsequent amendment, Reclassification of Financial Assets: Effective Date and Transition. The amendments allow entities the options (a) to reclassify a financial asset out of the held to trading category if, in rare circumstances, the asset is no longer held for the purpose of selling or repurchasing it in the near term; and (b) to reclassify an available-for-sale asset or an asset held for trading to the loans and receivables category, if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity (subject to the asset otherwise meeting the definition of loans and receivables). The amendments may be applied with retrospective effect from 1 July 2008 for any reclassifications made before 1 November 2008; the reclassifications allowed by the amendments may not be applied before 1 July 2008 and retrospective reclassifications are only allowed if made prior to 1 November 2008. Any reclassification of a financial asset made on or after 1 November 2008 takes effect only from the date when the reclassification is made. The Group has not elected to make any of the optional reclassifications during the period.

Certain new standards and interpretations have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods and which the Group has not early-adopted:

IFRS 8, Operating Segments (effective for annual periods beginning on or after 1 January 2009). This standard applies to public entities. IFRS 8 requires an entity to report financial and descriptive information about its operating segments and specifies how an entity should report such information. Management is currently assessing what impact the standard will have on segment disclosures in the Group’s financial statements.]

IAS 23, Borrowing Costs (revised March 2007; effective for annual periods beginning on or after 1 January 2009). The main change to IAS 23 is the removal of the option of expensing borrowing costs that relate to assets under construction. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset. The revised standard applies prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The Group is currently assessing the impact of the amended standard on its financial statements.

IAS 1, Presentation of Financial Statements (revised September 2007; effective for annual periods beginning on or after 1 January 2009). The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position (balance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors. The Group expects the revised IAS 1 to affect the presentation of its financial statements but to have no impact on the recognition or measurement of specific transactions and balances.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

5 Adoption of New or Revised Standards and Interpretations (continued)

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or on the same basis as US GAAP (at fair value). The revised IFRS 3 is more detailed in providing guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, goodwill will be measured as the difference at acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009). The interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

Vesting Conditions and Cancellations—Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009). The amendment clarifies that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect the amendment to affect the consolidated financial statements.

Improvements to International Financial Reporting Standards (issued in May 2008). In 2007, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non-urgent, amendments to IFRS. The amendments issued in May 2008 consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The substantive changes relate to the following areas: classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presentation of financial instruments held for trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of definition of a curtailment under IAS 19; accounting for below market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held for sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over manner of determining fair value of biological assets under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have no or minimal effect on accounting. The Group does not expect the amendments to have any material effect on its financial statements.

Puttable financial instruments and obligations arising on liquidation—IAS 32 and IAS 1 Amendment (effective from 1 January 2009). The amendment requires classification as equity of some financial instruments that meet the definition of a financial liability. The Group does not expect the amendments to have any material effect on its financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

5 Adoption of New or Revised Standards and Interpretations (continued)

Improving Disclosures about Financial Instruments - Amendment to IFRS 7, Financial Instruments: Disclosures (issued in March 2009; effective for annual periods beginning on or after 1 January 2009). The amendment requires enhanced disclosures about fair value measurements and liquidity risk. The entity will be required to disclose an analysis of financial instruments using a three-level fair value measurement hierarchy. The amendment (a) clarifies that the maturity analysis of liabilities should include issued financial guarantee contracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and (b) requires disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an understanding of the timing of the cash flows. An entity will further have to disclose a maturity analysis of financial assets it holds for managing liquidity risk, if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. The Group is currently assessing the impact of the amendment on disclosures in its financial statements.

Other new standards or interpretations. The Group has not early adopted the following other new standards or interpretations: • IFRIC 13, Customer Loyalty Programmes (issued in June 2007; effective for annual periods beginning on or after 1 July 2008 for financial statements prepared under IFRS; adopted by the EU with an effective date postponed to annual periods beginning after 31 December 2008);

IFRIC 15, Agreements for the construction of real estate (effective for annual periods beginning on or after 1 January 2009; not yet adopted by the EU)

IFRIC 16, Hedges of a net investment in a foreign operation (effective for annual periods beginning on or after 1 October 2008; not yet adopted by the EU). This Interpretation applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations.

IFRIC 17, Distribution of Non-Cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009; not yet adopted by the EU); IAS 39 Amendment, Eligible Hedged Items (effective with retrospective application for annual periods beginning on or after 1 July 2009; not yet adopted by the EU); Embedded Derivatives - Amendments to IFRIC 9 and IAS 39 (effective for annual periods ending on or after 30 June 2009; not yet adopted by the EU) Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

6 Business combinations

Acquisitions during 2008

On 8 February 2008, the Group acquired a 100% equity interest in Trametal S.P.A. and its subsidiary Spartan Ltd, for cash consideration of EUR 1,150 million and expenses related to the acquisition amounting to EUR 19 million (USD 1,703 million). Trametal and Spartan are steel rolling mills located in Italy and the United Kingdom, with capacities of 440,000 tonnes and 145,000 tonnes per annum respectively.

In million of US Dollars Fair values

Property, plant and equipment 161 Inventories 119 Trade and other accounts receivable 225 Cash and cash equivalents 10 Deferred tax liability (Note 29) (41) Trade and other accounts payable (138) Loans and borrowings (30) Other liabilities (2)

Fair value of net assets of subsidiary 304

Fair value of acquired interest in net assets of subsidiary 304 Goodwill arising from the acquisition (Note 8) 1,399

Total purchase consideration 1,703

Less: cash and cash equivalents of subsidiary acquired (10)

Outflow of cash and cash equivalents on acquisition 1,693

Preliminary identified goodwill on the acquisition of Spartan/Trametal is primarily attributed to the expected synergies from integration of the acquired operations with the Group’s existing metals business and the premium paid for gaining direct access to European metals market.

Revenue and net profit of the acquired subsidiaries included in the consolidated income statement amounted to USD 756 million and to USD 98 million, respectively.

Net revenues and net profit would not change significantly had the above acquisition been completed on 1 January 2008.

Acquisitions during 2007

As discussed in Note 1, in accordance with the Shareholders Agreement, the Company was to acquire Smart Group's interests in JSC Inguletskiy Mining and Processing Works (“InGOK”), Makeyevka Steel Plant and Promet Steel, however due to legal and regulatory complications, the planned transaction was not completed in 2008. The SCM and Smart Group shareholders plan to finalize the outstanding part of this transaction by 31 December 2009. The completed part of this transaction is disclosed below.

On 22 November 2007, the Company effectively acquired 82.46% in InGOK and in exchange issued 2,250 new ordinary shares to parties controlled by Smart Group. InGOK is the second largest iron ore mining company in Ukraine with production of 13.6 million tonnes of iron ore in 2007. This acquisition was accounted for using the purchase method of accounting from the date the Group obtained financial and operational control over InGOK. Since Metinvest B.V. is not a publicly traded entity and undergoing a comprehensive legal reorganisation, the share issuance was valued based on the fair value of the 82.46% interest in InGOK. The fair value of InGOK was determined by independent appraisers using a combination of valuation techniques including discounted cash flows and comparable transactions.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

6 Business combinations (continued)

The following table summaries fair values of the net assets acquired at the date of acquisition. The fair values for property, plant and equipment, intangibles and retirement benefit obligations were determined by professional advisers. Fair values of all other assets and liabilities were determined by management. IFRS carrying Attributed amount fair value immediately before business combination

Intangible assets – License (Note 9) - 1,118 Property, plant and equipment (Note 10) 755 755 Inventories 45 45 Trade and other accounts receivable 210 210 Cash and cash equivalents 11 11 Retirement benefit obligations (Note 22) (62) (51) Deferred income (Note 21) (12) (12) Deferred tax liability (Note 29) (83) (365) Trade and other accounts payable (137) (137) Other liabilities (24) (27)

Fair value of net assets of subsidiary 703 1,547 Less: minority interest 271

Fair value of acquired interest in net assets of subsidiary 1,276 Goodwill arising from the acquisition 263

Total purchase consideration 1,539

Less: fair value of the shares issued (Note 17) (1,539) Less: cash and cash equivalents of subsidiary acquired (11)

Inflow of cash and cash equivalents on acquisition (11)

The goodwill on the acquisition of JSC Inguletskiy Mining and Processing Works is primarily attributed to the expected synergies from integration of these operations with the Group’s existing iron ore mines and being able to better manage the Ukrainian iron ore market

The Company has not obtained control over JSC Makeyevka Steel Plant and Promet Steel and since no consideration has been paid as at 31 December 2008, these entities have not been consolidated as at 31 December 2008.

Acquisition of interest in subsidiaries from SCM Group or related parties As discussed in Note 1, the Group’s legal reorganisation is on going and during 2008 the Group acquired from SCM an effective 5.3% interest in JSC Khartsyzsk Tube Works for cash consideration of USD 94 million. The difference between the carrying value of this interest and the consideration paid totalling USD 83 million has been recorded as a debit in other reserves in the statement of equity. Further as a result of internal transfer of 26% interest in JSC Khartsyzsk Tube Works Group’s effective interest increased by 8.7%. Because the transfer was made from a partially owned subsidiary to the parent company for consideration significantly exceeding carrying value of the related minority interest, minority interest as a result of this transaction increased by USD 48 million.

During 2007, the Group acquired various incremental interests in its subsidiaries JSC Khartsyzsk Tube Works, JSC Avdiivka By-Product Coke Plant, JSC Azovstal Iron and Metals and mining Works for total consideration of USD 489 million. The difference between the carrying value of the interest acquired and the consideration paid totalling USD 499 million has been recorded as a debit in other reserves in the structure of equity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

7 Segment information

The Group primary format for reporting segment information is business segments and the secondary format is geographical segments.

Business Segments. The Group is organised on the basis of three main business segments:

• Metals; • Coking coal mining and coke production; • Iron ore extraction and processing. Transactions between the business segments are substantially on market terms and conditions. Internal charges between segments have been reflected in the performance of each business segment.

Unallocated income and costs include corporate income and expenses. Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, accounts receivable and cash, and mainly exclude investments and income tax balances. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities and corporate borrowings. Capital expenditure comprises additions to property, plant and equipment and intangible assets. Impairment loss and provisions relate only to those charges made against allocated assets.

Segment information for the main reportable business segments of the Group for the year ended 31 December 2008:

Metals Coke and Iron ore Eliminations Total Coal

2008

Sales – external 9,263 1,316 2,634 13,213 Sales to other segments 80 1,250 1,614 (2,944) - Total revenue 9,343 2,566 4,248 (2,944) 13,213

Segment result 1,648 487 1,860 3,995 Unallocated income/expense, net (34) Share of result of associates 21 Finance income 53 Finance costs (477) Income tax expense (755) Profit for the year 2,803

Analysis of revenue by category:

Metals Coke and Iron ore Total Coal

Sales of own products 7,850 1,059 2,528 11,437 Sales of goods for resale 1,413 257 106 1,776 Total 9,263 1,316 2,634 13,213

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

7 Segment information (continued)

Metals Coke and Iron ore Eliminations Total Coal

Segment assets 6,310 1,875 3,774 (1,247) 10,712 Investments in associates 70 32 21 - 123 Current and deferred tax assets 93 Other unallocated assets 428 Total assets 11,356

Segment liabilities 1,612 408 642 (1,249) 1,413 Loans and borrowings 2,685 Current and deferred tax liability 749 Other unallocated liabilities 223 Total liabilities 5,070

Metals Coke and Iron ore Unallocated Total Coal

Capital expenditure 475 97 285 - 857 Depreciation and amortisation 247 117 277 641 Devaluation and impairment losses charged to the consolidated income statement 29 50 - - 79

Metals Coke and Iron ore Eliminations Total Coal

2007

Sales – external 5,831 836 758 7,425 Sales to other segments 64 955 1,165 (2,184) Total revenue 5,895 1,791 1,923 (2,184) 7,425

Segment result 1,015 161 656 - 1,832

Unallocated income/expense, net (59) Share of result of associates (3) Finance income 60 Finance costs (188) Income tax expense (321) Profit for the year 1,321

Analysis of revenue by category:

Metals Coke and Iron ore Total Coal

Sales of own products 5,418 602 702 6,722 Sales of goods for resale 413 234 56 703 Total 5,831 836 758 7,425

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

7 Segment information (continued)

Metals Coke and Iron ore Eliminations Total Coal

Segment assets 6,513 1,907 4,840 (1,821) 11,439 Investments in associates 158 60 21 - 239 Current and deferred tax assets 84 Other unallocated assets 677 Total assets 12,439

Segment liabilities 1,363 694 564 (1,576) 1,045 Loans and borrowings 2,952 Current and deferred tax liability 931 Other unallocated liabilities 196 Total liabilities 5,124

Metals Coke and Iron ore Unallocated Total Coal

Capital expenditure 260 83 880 - 1,223 Depreciation and amortisation 212 122 120 - 454 Impairment losses charged to the consolidated income statement 33 - 26 - 59

Geographical segments. The Group’s three business segments operate in five main geographical areas. Revenue by location of customers is presented below:

2008 Metals Coke and coal Iron ore Total

Ukraine 1,542 1,221 1,931 4,694 Rest of Europe 3,133 56 370 3,559 Middle East and Northern Africa 1,263 8 26 1,297 CIS 1,089 26 17 1,132 South Eastern Asia 1,542 3 249 1,794 Other countries 694 2 41 737

Total 9,263 1,316 2,634 13,213

2007 Metals Coke and coal Iron ore Total

Ukraine 1,284 747 394 2,425 Rest of Europe 1,573 51 169 1,793 Middle East and Northern Africa 1,119 1 30 1,150 CIS 924 26 1 951 South Eastern Asia 720 - 99 819 Other countries 211 11 65 287

Total 5,831 836 758 7,425

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

7 Segment information (continued)

2008 Carrying amount of Capital expenditure segment assets Ukraine 9,020 622 Europe 3,869 235 Eliminations (1,533) -

Total 11,356 857

2007 Carrying amount of Capital expenditure segment assets Ukraine 10,028 1,195 Europe 2,715 28 Eliminations (304) -

Total 12,439 1,223

External revenue is based on where the customer is located. Segment assets and capital expenditure are based on where the assets are located. Capital expenditure includes assets acquired through business combinations.

8 Goodwill

During 2008, the movements of goodwill were as follows:

2008 2007

As at 1 January 569 306

Acquisition of subsidiaries (Note 6) 1,399 263 Currency translation differences (306) -

As at 31 December 1,662 569

Goodwill is allocated to cash-generating units (“CGUs”) which represent the lowest level within the Group at which goodwill is monitored by management. Management divided the business into three main CGUs to which goodwill was allocated:

2008 2007

Metals 1,394 159 Iron ore 235 359 Coke and coal 33 51

Total 1,662 569

The recoverable amount has been determined based on a fair value less cost to sell calculations. Cash flow projections, based on financial budgets approved by senior management, and third party prices were used to determine projected sales.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

8 Goodwill (continued)

The following table summarizes key assumptions on which management has based its cash flow projections to undertake the impairment testing of goodwill:

2008 2007

Metals Post-tax discount rate 2009 - 2013 27%-10% 10% Revenue growth rate 2009 - 2013 (54%) – 19% (3%) – 11% Growth rate in perpetual period 3% 4% Gross margins for 2009 - onwards 12%-18% 21%

Iron ore Post-tax discount rate 2009 - 2013 27%-12% 10% Revenue growth rate 2009 - 2013 (68%) – 28% (4%) – 10% Growth rate in perpetual period 3% 4% Gross margins for 2009 - onwards 42%-44% 72%

Coke and coal Post-tax discount rate 2009 - 2013 27%-14% 10% Revenue growth rate 2009 - 2013 (49%) – 19% (27%) – 40% Growth rate in perpetual period 3% 3% Gross margins for 2009 - onwards 18%-26% 33%

Management used a multi-period discount rate ranging from 27% in 2009 to 19% in 2011, which stabilizes at lowest levels in 2013 and onwards.

The values assigned to the key assumptions represent management’s assessment of future trends in the business and are based on both external and internal sources.

As at 31 December 2008 Metals division recoverable amount exceeds its carrying amount by USD 1,093 million. The table below summarises the impact of change of main assumptions with other variables held constant to the impairment of goodwill related to Metals division:

Goodwill impairment required Volumes Decrease of volumes of sales in all the periods by 12.5% recoverable amount equals carrying amount Decrease of volumes of sales in all the periods by 20% 665

Prices Decrease of prices in all the periods by 8% recoverable amount equals carrying amount Decrease of prices in all the periods by 10% 252

Discount rates Increase of discount rates in all periods by 3.4% recoverable amount equals carrying amount Increase of discount rates in all periods by 5% 326

With regard to assessment of fair value less cost to sell of the goodwill related to Iron ore and Coke and coal division, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value to materially exceed the recoverable amount.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

9 Other intangible assets

During 2008, the movements of other intangible assets were as follows:

2008 2007 Other Other intangible intangible Licenses assets Licenses assets

As at 1 January 1,118 17 - 9

Acquisition of subsidiaries (Note 6) - - 1,118 1 Additions - 9 - 23 Reclassification to PPE - - - (9) Amortisation (54) (6) - (7) Currency translation differences (365) (7)

As at 31 December 699 13 1,118 17

The iron ore license acquired as part of acquisition of the InGOK is being amortised over its useful life of approximately 20 years using the units of production method.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

10 Property, plant and equipment

During 2008 and 2007, the movements of property, plant and equipment were as follows:

Cost or valuation Buildings Plant and Furniture, Construction Total and machinery fittings and in progress structures equipment

As at 1 January 2007 1,255 1,875 78 837 4,045

Acquisition of subsidiaries (Note 6) 412 300 11 32 755 Additions 2 25 11 430 468 Transfers 129 204 18 (351) - Disposals (22) (56) (9) (7) (94) Elimination against gross carrying amount (94) (177) (14) - (285) Revaluation 424 657 5 21 1,107 Currency translation differences 4 7 - - 11

As at 31 December 2007 2,110 2,835 100 962 6,007

Acquisition of subsidiaries 37 127 1 4 169 Additions 3 55 13 617 688 Transfers 232 555 22 (809) - Reclassifications (2) 56 (54) - - Disposals (7) (33) (13) (13) (66) Elimination against gross carrying amount (46) (155) - - (201) Revaluation 176 265 3 32 476 Devaluation (27) (26) (1) (23) (77) Currency translation differences (779) (1,159) (25) (276) (2,239)

As at 31 December 2008 1,697 2,520 46 494 4,757

Accumulated depreciation and impairment As at 1 January 2007 - - - - -

Charge for the year (106) (328) (14) - (448) Disposals 18 31 2 - 51 Elimination against gross carrying amount 94 177 14 - 285 Impairment (26) (19) - (7) (52) As at 31 December 2007 (20) (139) 2 (7) (164)

Charge for the year (181) (380) (19) - (580) Disposals 1 9 12 - 22 Elimination against gross carrying amount 46 155 - - 201 Currency translation differences 65 164 (5) 2 226

As at 31 December 2008 (89) (191) (10) (5) (295)

Net book value as at 31 December 2007 2,090 2,696 102 955 5,843 31 December 2008 1,608 2,329 36 489 4,462

Net carrying amount had no revaluation taken place 985 1,398 32 379 2,794

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

10 Property, plant and equipment (continued)

The Group engaged independent appraisers to determine fair value of its property, plant and equipment as at 30 September 2008. The majority of buildings, structures, plant and machinery is specialised in nature and is rarely sold in the open market in Ukraine, consequently, the fair value was primarily determined using depreciated replacement cost. This method considers the cost to reproduce or replace the property, plant and equipment, adjusted for physical, functional or economical depreciation, and obsolescence.

As at 31 December 2008 there were no buildings, plant and machinery pledged to third parties as collateral for loans and borrowings (31 December 2007: USD 345 million) (Note 19).

11 Investments in associates

The principal associates of the Group as at 31 December are as follows:

2008 2007 Name Segment % of Carrying % of Carrying ownership value ownership value

IMU Metals 49.90% 70 49.9% 158 JSC Donetskkoks Coke and coal 24.50% 10 24.5% 19 JSC Zaporozhkoks Coke and coal 25.00% 22 25.0% 34 LLC SPU Inkor I Ko Coke and coal - - 49.0% 7 Other Iron ore N/a 21 N/a 21

Total 123 239

No associates are listed on international stock exchanges.

Movements in the carrying amount of the Group investments in associates are presented below:

2008 2007

Carrying amount at 1 January 239 98

Share of other equity movements of associates (53) 90 Acquisition of associates - 61 Transfer from associates to subsidiaries (3) - Dividends received from associates (29) - Share of after tax results of associates 21 (3) Reduction in share capital of associates - (7) Currency translation differences (52) -

Carrying amount at 31 December 123 239

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

11 Investments in associates (continued)

As at 31 December 2008, the summarised financial information of the Group’s major associates is as follows:

Name Segment % of Total Total Revenue Profit/ ownership assets liabilities (loss)

IMU Metals 49.9% 138 - - 49 JSC Donetskkoks Coke and coal 24.5% 47 8 24 (4) JSC Zaporozhkoks Coke and coal 25.0% 156 99 533 6

As at 31 December 2007, the summarised financial information of the Group’s major associates is as follows:

Name Segment % of Total Total Revenue Profit/ ownership assets liabilities (loss)

IMU Metals 49.9% 316 - - 1 JSC Donetskkoks Coke and coal 24.5% 65 2 28 (16) JSC Zaporozhkoks Coke and coal 25.0% 139 63 377 12 LLC SPU Inkor I Ko Coke and coal 49.0% 27 7 59 9

12 Available-for-sale investments

As at 31 December, securities available-for-sale were as follows:

2008 2007

Securities quoted on the Ukrainian stock market 9 141 Other 1 3

Total 10 144

The decline in value of quoted securities totally USD 132 million has been directly debited against the revaluation reserve in equity (Note 18).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

13 Other non-current assets

As at 31 December, other non-current assets were as follows:

2008 2007 Escrow account for United Coal Company acquisition 400 - Receivable from sale of Pavlogradugol - 277 Long-term loans issued to related parties (USD denominated, Libor + 3%, mature in 2011) 46 57 Long-term loans issued to related parties (USD denominated, 7%, mature in 2011) 151 - Long-term receivables for promissory notes sold to related parties (UAH denominated, 14% effective interest, mature in 2010) 21 30 Long-term loans issued to related parties (UAH denominated, 10% effective interest, mature in 2012) - 21 Other non-current assets 13 14

Total 631 399

On 31 August 2008, the Group, through its 100% subsidiary Metinvest U.S. Inc entered into an agreement to acquire United Coal Company LLC, a US based coal mining business, for cash consideration of USD 2,700 million less total indebtedness of the acquiree at the date of closing of the deal. In accordance with this agreement cash in the amount of USD 400 million was placed in escrow. Following the events in the financial markets the Group renegotiated the terms of this agreement. In April 2009 the amended agreement was finalised. The revised purchase consideration is USD 1,000 million which includes USD 400 million on escrow account and USD 600 million payable in instalments through 2015 with interest rate of 2.5% for the period from closing date till 31 December 2011 and in remaining years 5% p.a. thereafter.

Analysis by credit quality of non-current assets is as follows:

2008 2007

Balances neither past due nor impaired: - Related parties 218 385 - RBS Citizens 201 - - JPMorgan Chase 199 - - Other 13 14

Total non-current and not impaired 631 399

The maximum exposure to credit risk at the reporting date is the fair value of non-current assets. The Group does not hold any collateral as security.

14 Inventories

As at 31 December, inventories were as follows:

2008 2007

Raw materials 568 543 Finished goods and work in progress 395 513 Goods for resale 81 94

Total inventories 1,044 1,150

Inventory write down recognised as an expense in 2008 was USD 273 million (2007: USD 15 million).

As at 31 December 2008, inventories totalling USD 236 million (31 December 2007: USD 429 million) have been pledged as collateral for borrowings (Note 19).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

15 Trade and other receivables

2008 2007 Trade receivables 1,708 1,043 Receivable for bonds sold (UAH denominated, non-interest bearing) 183 - Receivables for promissory notes sold (UAH denominated, 15% effective interest) 100 167 Receivables from related parties for investments sold (UAH denominated, non-interest bearing) 36 57 Interest accrued on long term loans issued 16 - Other financial receivables 55 78

Total financial assets 2,098 1,345

Recoverable value added tax 164 196 Prepayments made 77 201 Income tax receivable 71 13 Other receivables 19 -

Total 2,429 1,755

As at 31 December 2008, 64% of trade accounts receivable was denominated in USD and 11% in EUR (2007: 46% in USD, 11% in EUR).

Movements in the impairment provision for trade and other receivables are as follows:

2008 2007 Trade Other financial Trade Other financial receivables receivables receivables receivables

Provision for impairment at 1 January 15 53 12 49 Provision for impairment during the year 29 - 3 4 Amounts written-off during the year as uncollectible - - - - Currency translation differences (4) (16)

Provision for impairment at 31 December 40 37 15 53

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

15 Trade and other receivables (continued)

Analysis by credit quality of trade and other receivables is as follows:

2008 2007 Trade Other Trade Other receivables financial receivables financial receivables receivables Customers with ability to repay short-term obligations – Dun&Bradstreet: - Strong ability 27 - 36 - - Strong ability, but susceptible to adverse economic conditions 28 - 117 - - Acceptable ability, adverse economic conditions are likely to weaken the ability to meet financial commitment 18 - 31 24 - Under regulatory supervision due to its financial situation - - 4 - - Existing customers with no history of default 283 32 266 102 - New customers 14 - 148 -

- Balances renegotiated during the period 611 354 - -

Total current and not impaired 981 386 602 126

Past due but not impaired - less than 30 days overdue 141 1 254 60 - 30 to 90 days overdue 203 - 59 3 - 90 to 180 days overdue 114 - 8 - - 180 – 360 days overdue 47 - 81 1 - over 360 days overdue 4 3 39 112

Total past due but not impaired 509 4 441 176

Total individually impaired 258 37 15 53

Less impairment provision (40) (37) (15) (53)

Total 1,708 390 1,043 302

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

16 Cash and cash equivalents

As at 31 December, cash and cash equivalents are as follows:

2008 2007 Current accounts 261 268 Bank deposits up to 3 months - 866

Total cash and cash equivalents 261 1,134

As at 31 December 2008, 82% of current accounts were denominated in USD and 6% in EUR (2007: 23% in USD, 66% in EUR of current accounts and bank deposits up to 3 months).

As at 31 December 2008 the effective interest rate on short-term bank deposits was 4%.

As at 31 December 2008, no cash and cash equivalents (31 December 2007: USD 45 million) have been pledged as collateral for the borrowings of third parties.

No bank balances and term deposits are past due or impaired. Analysis by credit quality of bank balances and term deposits is as follows:

2008 2007

Bank balances Bank balances payable on Term deposits payable on Term deposits demand demand

Rating by Standard and Poor’s - AA+ - - 16 476 - AA 16 - - - - AA- 43 - - - - A+ - - 1 292 - BBB+ 1 - 3 - - BBB 2 - - BB+ - - 158 45 - BB - - 2 - - BB- - - 1 - - B 199 - 83 53 - B- - - 4 -

Total 261 - 268 866

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

17 Share capital

Number of Ordinary shares Share premium Total outstanding shares

At 1 January 2007 1,802 - 138 138 - Acquisition of subsidiaries – common control 4,948 - 2,495 2,495 Acquisition of subsidiary 2,250 - 1,539 1,539

At 31 December 2007 9,000 - 4,172 4,172

At 31 December 2008 9,000 4,172 4,172

As at 31 December 2008, the authorised and issued share capital comprised 9,000 ordinary shares with a par value of EUR 10. All shares were fully paid. Each ordinary share carries one vote.

On 6 November 2007, the Company issued 4,948 shares to SCM Group companies in exchange for a 47% interest in JSC Azovstal Iron and Metals and Mining Works, a 35% interest in JSC Enakievo Metallurgical Works, a 61% interest in JSC Avdiivka By-Product Coke Plant, and a 56% interest in JSC Khartsyzsk Tube Works. Because such transactions were under common control, the shares issuance was valued by reference to the book values of shareholdings transferred. The respective debit entry was made to merger reserve.

On 29 November 2007, in accordance with the Shareholder Agreement with Smart Group LLC, the Company issued 2,250 shares to parties controlled by Smart Group in exchange for 82.46% interest in InGOK (Note 6).

Share premium represents the excess of contributions received over the nominal value of shares issued.

Immediately prior to the legal reorganisation of the Group as discussed in Note 1, certain transferred entities declared and paid dividend to its former parent. Such distributions have been recorded in these consolidated financial statements as dividend in the statement of changes in equity.

On 25 July 2008 Metinvest B.V. declared dividends totalling USD 360 million.

In accordance with Ukrainian legislation, the Group Ukrainian subsidiaries distribute profits as dividends or transfer them to reserves on the basis of financial statements prepared in accordance with Ukrainian GAAP. The statutory accounting reports of the individual entities are the basis for profit distribution and other appropriations. Ukrainian legislation identifies the basis of distribution as retained earnings. However, this legislation and other statutory laws and regulations are open to legal interpretation and, accordingly, management believes at present it would not be appropriate to disclose an amount of the distributable reserves in these IFRS consolidated financial statements.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

18 Other reserves

Revaluation Revaluation of Merge Cumulative Total of available- property, plant reserve currency for-sale and equipment translation investments reserve

Balance as at 1 January 2007 52 823 (169) (32) 674

Revaluation of property, plant and equipment, net of deferred tax - 563 - - 563 Depreciation transfer, net of tax - (140) - - (140) Revaluation of available-for-sale investments 92 - - - 92 Share in equity reserves of associates 85 - - - 85 Currency translation differences - - - 9 9 Acquisition of subsidiaries – common control - - (2,495) - (2,495) Acquisition of interest in the subsidiaries from SCM Group companies and related parties - - (500) - (500) Disposal of minority interest to SCM - - 212 - 212

Balance as at 31 December 2007 229 1,246 (2,952) (23) (1,500)

Revaluation of property, plant and equipment, net of deferred tax - 272 - - 272 Depreciation transfer, net of tax (226) (226) Revaluation of available-for-sale investments (Note 12) (132) - - - (132) Share in equity reserves of associates (49) - - - (49) Currency translation differences - - - (2,621) (2,621) Acquisition of interest in the subsidiaries from SCM Group companies and related parties (Note 6) (83) (83) Balance as at 31 December 2008 48 1,292 (3,035) (2,644) (4,339)

Due to devaluation of the Ukrainian Hryvnia, as discussed in the Note 2 , the presentation of these financial statements in US Dollars results in a cumulative currency translation difference of USD 2,621 million in 2008.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

19 Loans and borrowings

As at 31 December, loans and borrowings were as follows:

2008 2007 Non-current Non-bank borrowings 4 25 Bank borrowings 1,140 1,073 Bonds 175 175

1,319 1,273 Current Bank borrowings 1,365 1,679 Non-bank borrowings 1 -

1,366 1,679

Total loans and borrowings 2,685 2,952

The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows:

Maturity Interest repricing

2008 2007 2008 2007

Loans and borrowings due: - up to 6 months 998 987 2,500 2,672 - from 6 to 12 months 365 692 7 100 - between 1 and 5 years 1,293 1,260 177 178 - after 5 years 29 13 1 2 Total borrowings 2,685 2,952 2,685 2,952

2008 2007

In % per annum USD EUR GBP USD EUR GBP Bonds issued 9% - - 9% - - Bank borrowings 3% 4% 11% 6% 5% - Non-bank borrowings 6% - - 6% - - Reported amount 1,994 684 7 2,778 174 -

As at 31 December 2008, borrowings amounting to USD 331 million were secured with inventories (31 December 2007: USD 718 million were secured with property, plant and equipment and inventories) (Notes 10, 14). As at 31 December 2008, borrowings amounting to USD 1,471 million were secured with the future sales proceeds (31 December 2007: USD 1,304 million).

As at 31 December 2008, the Group had pledged 100% of the issued share capital of Metinvest Trametal S.P.A. and 100% of the issued share capital of Spartan UK Ltd for loans drawn by Metinvest Trametal S.P.A. with balance outstanding as at 31 December 2008 of USD 423 million.

As at 31 December 2008, the Group had pledged 60% plus 1 share of JSC Central Mining and Processing Works and JSC Severniy Mining and Processing Works for USD 400 million loan drawn by the Group’s parent SCM Limited.

Group does not hedge their foreign currency obligations or interest rate exposures.

Difference between the carrying value and the fair value of bonds as at 31 December 2008 is USD 79 million (31 December 2007: zero). There are no other significant differences between fair value and carrying value of other borrowings.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

20 Liabilities under moratorium

Consolidated financial statements include JSC Severniy Mining and Processing Works and JSC Central Mining and Processing Works which were acquired in 2004 by the SCM Group. Both companies were previously subsidiaries of government-run joint stock company Ukrrudprom. Since 2000, several petitions for bankruptcy were filed against these companies, however, all petitions were withdrawn or suspended.

On 9 April 2004, the Parliament of Ukraine passed the Law N 1677-IV On specific features of privatization of companies within the Ukrrudprom government-run joint stock companies (the “Law”). Under this Law, JSC Ukrrudprom and its subsidiaries were declared as having strategic importance to Ukraine’s economy and security and a five-year moratorium was established over a forced sale of its assets.

In September 2004 and March 2005, the Commercial Court upheld the application of the Law and all further bankruptcy proceeding were suspended until expiry of the 5-year moratorium. Under the Law On Retrieval of Creditworthiness of a Debtor, all actions by creditors to collect pre-moratorium indebtedness owed by JSC Severniy Mining and Processing Works and JSC Central Mining and Processing Works are therefore suspended. The majority of creditor claims against these companies have been confirmed by the Commercial Courts but it is likely that such creditor claims are not due until after 30 April 2009. Therefore, all liabilities are disclosed as current as at 31 December 2008.

In these IFRS consolidated financial statements all pre-moratorium liabilities have been separated and recognised at the amounts which represent management’s best estimate for potential allowed claims and are recorded at amortised cost using an effective interest rate of 18% p.a. Pre moratorium liabilities, including claims, that become known after a petition is filed, are recorded in the period when the respective court decision is issued. Until other information is available, the recorded liability amounts represent management’s best estimate for potential allowed claims.

In August 2006, Severny and Central Mining and Processing Works entered into third party loan agreements and voluntarily committed to resolve the moratorium. Management has commenced discussions with the moratorium creditors and has reassessed the timing and amounts of the cash flows to settle those liabilities which have not resulted in changes in amortised cost of liabilities.

Changes in the liabilities under moratorium are presented below:

2008 2007

As at 1 January 22 52

Restructured and repaid (3) (18) Unwinding of discount - 4 Derecognition of the liabilities (1) (6) (Gain)/loss on repayment - (10) Currency translation differences (7) -

As at 31 December 11 22

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

21 Deferred income

In accordance with the state programme State support of creation and re-equipment of entities which extract coal, lignite and peat, the Group coal mining company Krasnodonugol, obtained government grants for the purchases of property, plant and equipment.

In accordance with the Law of Ukraine "On special regime for investment and innovative activity of technological parks” the company acquired by the Group in 2007, InGOK, operated under a special tax regime until 31 March 2005 and was allowed to remit accrued value added tax and corporate profit tax amounts to a special bank account and use them for innovative activities, which included acquisition of eligible property, plant and equipment. As at 31 December 2007 deferred income in the amount of USD 12 million represented the unamortized amount of the Government grant used for the purchase of property, plant and equipment.

2008 2007

As at 1 January 27 16 Amortisation of deferred income to match related depreciation (1) (1) Acquired with subsidiaries (Note 6) - 12 Currency translation differences (9) -

As at 31 December 17 27

22 Retirement benefit obligations

2008 2007

Present value of unfunded defined benefit obligations 381 512 Unrecognised net actuarial loss (31) (195) Unrecognised past service cost (63) (6) Liability in the consolidated balance sheet 287 311

The amounts recognised in the consolidated income statement were as follows:

2008 2007

Current service cost 24 30 Recognised cost of past service 64 - Interest cost 41 31 Recognized actuarial losses 16 9

Total 145 70

Changes in the present value of the defined benefit obligation were as follows:

2008 2007

Defined benefit obligation as at 1 January 512 347

Current service cost 24 30 Actuarial (gains)/losses (113) 65 Past service cost 141 2 Interest cost 41 31 Benefits paid (30) (14) Acquired with subsidiaries - 51 Currency translation differences (194) -

Defined benefit obligation as at 31 December 381 512

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

22 Retirement benefit obligations (continued)

The movement in the present value of the liability recognised in the consolidated balance sheet was as follows:

2008 2007

As at 1 January 311 204

Benefits paid (30) (14) Net expense recognised in the consolidated income statement 145 70 Acquired with subsidiaries - 51 Currency translation differences (139) - As at 31 December 287 311

Past service cost arose as a result of changes in 2008 in the pension legislation, which increased the benefits payable. To the extent that the benefits were already vested immediately following the changes to a defined benefit plan, past service cost was recognized in 2008 financial statements in the amount of UAH 64 million. The remaining UAH 77 million past service cost will be recognised as an expense on a straight-line basis over the average period until the benefits become vested.

The principal actuarial assumptions used were as follows:

2008 2007 Nominal discount rate 12% 9% Nominal salary increase 5%-10% 7%-25% Nominal pension entitlement increase 5%-10% 7%-25%

Payments in respect of post-employment benefit plans obligations expected to be made during the year ending 31 December 2009 are USD 30 million (2008: USD 20 million).

Experience adjustments for 2008 approximates USD 38 million (2007: USD 82 million; 2006: 38 million).

The sensitivity of the defined benefit obligation to changes in the principal assumptions is:

2008 2007 Nominal discount rate increase/decrease by 1% (29)/33 (48)/57 Nominal salary increase increase/decrease by 1% 33/(29) 55/(47)

23 Other non-current liabilities

As at 31 December, other non-current liabilities were as follows:

2008 2007

Long-term promissory notes issued (UAH denominated, 18% effective interest, - 6 mature in 2009) Tax liabilities under moratorium (Note 31) 24 29 Asset retirement obligations 3 6 Other non-current liabilities 18 13

Total other non-current liabilities 45 54

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

24 Trade and other payables

As at 31 December trade and other payables were as follows:

2008 2007

Trade payables 785 312 Payable for acquired subsidiaries and minority interest 25 25 Payables for acquisition of interest in Group companies from SCM and related parties (USD denominated, non interest bearing) 7 118 Dividends payable 187 30 Promissory notes issued 6 21 Accounts payable for promissory notes purchased 28 42 Other financial liabilities 48 63 Total financial liabilities 1,086 611

Income tax payable 50 107 Other tax payable 56 80 Wages and salaries payable 21 34 Prepayments received 24 41 Accruals for employees’ unused vacations 29 42 Allowance for future costs and payments 15 14 Other non-financial liabilities 45 5

Total current liabilities 1,326 934

As at 31 December 2008, 27% of trade accounts payable were denominated in USD and 13% in EUR (2007: 18% in USD, 10% in EUR).

25 Expenses by nature

Expenses by nature for the year ended 31 December were as follows:

2008 2007

Raw materials 3,452 2,337 Goods for resale 1,629 633 Gas and electricity 1,020 708 Wages and salaries 682 510 Purchased services 955 519 Repairs and maintenance expenses 385 259 Pension and social security costs 216 162 Pension costs – defined benefit obligations (Note 22) 145 70 Depreciation and amortisation (Note 10, 9, 21) 641 454 Impairment of property, plant and equipment and devaluation of PPE (Note 10) 50 52 Impairment of trade and other receivables (Note 15) 29 7 Other costs 477 190 Change in finished goods and work in progress (11) (311)

Total operating expenses 9,670 5,590

Classified as

- cost of sales 8,505 4,895 - distribution costs 839 465 - general and administrative expenses 326 230

Total operating expenses 9,670 5,590

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

25 Expenses by nature (continued)

Auditor’s fees

The following fees were expensed in the income statement in the reporting period:

2008 2007

Audit of the financial statements 2 1 Other non audit services - 1

Total 2 2

26 Other operating income/(expenses), net

Other operating income and expenses for the year ended 31 December were as follows:

2008 2007

Extinguishment of other accounts payable - 14 Maintenance of social infrastructure (20) (21) Gain (loss) on sales of inventory (8) 7 Loss on disposal of property, plant and equipment (39) (28) Foreign exchange gains less losses 621 - Charitable donations (101) (23) Insurance compensation - 28 Other expenses (35) (39)

Total other operating expenses, net 418 (62)

27 Finance income

Finance income for the year ended 31 December was as follows:

2008 2007

Interest income - bank deposits 20 29 - other 16 16 Other finance income 17 15

Total finance income 53 60

The majority of finance income relates to term deposits and long term loans issued to related parties.

28 Finance costs

Finance costs for the year ended 31 December were as follows: 2008 2007

Foreign exchange losses 258 - Interest expense - borrowings 198 132 - other 1 27 Other finance costs 20 29

Total finance costs 477 188

The majority of finance costs relate to loans and borrowings.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

29 Income tax

Income tax for the year ended 31 December was as follows:

2008 2007

Current tax 711 505 Deferred tax 44 (184)

Income tax expense 755 321

The Group is subject to taxation in several tax jurisdictions, depending on the residence of its subsidiaries. In 2008 Ukrainian corporate income tax was levied on taxable income less allowable expenses at the rate of 25% (2007: 25%). In 2008, the effective tax rate for Swiss operations was 9% (2007: 11%) and for European Companies tax rate in 2008 varied from 25.5% to 34% (2007: 31%). Reconciliation between the expected and the actual taxation charge is provided below. 2008 2007

IFRS profit before tax 3,558 1,642

Tax calculated at domestic tax rates applicable to profits in the respective countries (923) (372)

Tax effect of items not deductible or assessable for taxation purposes: - non-deductible expenses (90) (33) - non-taxable income (primarily operating exchange gains) 204 14 Effect of PP&E indexation for tax purposes 54 23 Deferred taxation on pension obligations - 47

Income tax expense (755) (321)

The weighted average applicable tax rate was 25.9% in 2008 (2007: 23%). The increase is caused by a change in the profitability of the Group’s subsidiaries in EU countries.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

29 Income tax (continued)

31 December Business Credited/ Charged Currency 31 2007 combi- (charged) to to equity translation December nations income difference 2008 statement

Tax effect of deductible temporary differences

Property, plant and equipment 28 (26) 1 3 Long-term receivables 2 10 (4) 8 Inventory valuation 34 12 (16) 30 Trade and other accounts receivable 21 (3) (6) 12 Accrued expenses 8 7 (5) 10 Promissory notes receivable 4 (4) - - Retirement benefit obligations 78 31 (37) 72 Prepayments received and deferred income 32 17 (17) 32 Other 13 4 (5) 12

Gross deferred tax asset 220 48 (89) 179

Less offsetting with deferred tax liabilities (149) (23) 15 (157)

Recognised deferred tax asset 71 25 (74) 22

Tax effect of taxable temporary differences

Property, plant and equipment (633) (32) 162 (112) 166 (449) Intangible assets (280) 13 93 (174) Accounts receivable valuation - - (251) - 79 (172) Advances paid (44) (17) 20 (41) Inventory tax differences (5) (9) (4) 1 (17) Borrowings and long-term payables fair valuation (9) 8 1 - Other (2) (3) 2 (3)

Gross deferred tax liability (973) (41) (92) (112) 362 (856)

Less offsetting with deferred tax assets 149 - 23 - (15) 157 Recognised deferred tax liability (824) (41) (69) (112) 347 (699)

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

29 Income tax (continued)

1 January Business Credited/ Charged to 31December 2007 combi- (charged)to equity 2007 nations income statement

Tax effect of deductible temporary differences

Property, plant and equipment 22 - 6 - 28 Long-term receivables 7 - (5) - 2 Inventory valuation 32 2 - - 34 Trade and other accounts receivable 20 1 - - 21 Accrued expenses 7 1 - - 8 Promissory notes receivable - - 4 - 4 Retirement benefit obligations 1 13 64 - 78 Prepayments received and deferred income 40 - (8) - 32 Other 4 1 8 - 13

Gross deferred tax asset 133 18 69 - 220

Less offsetting with deferred tax liabilities (92) (18) (39) - (149)

Recognised deferred tax asset 41 - 30 - 71

Tax effect of taxable temporary differences

Property, plant and equipment (376) (97) 117 (277) (633) Intangible assets - (280) - - (280) Advances paid (24) (4) (16) - (44) Inventory tax differences (7) (2) 4 - (5) Borrowings and long-term payables fair valuation (18) - 9 - (9) Other (3) - 1 - (2)

Gross deferred tax liability (428) (383) 115 (277) (973)

Less offsetting with deferred tax assets 92 18 39 - 149

Recognised deferred tax liability (336) (365) 154 (277) (824)

As at 31 December 2008, the Company has not recorded a deferred tax liability in respect of taxable temporary differences of USD 3,618 million associated with investments in subsidiaries as the Company is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future (31 December 2007: USD 4,859 million). In the context of the Group’s current structure, tax losses and current tax assets of different Group companies may not be offset against current tax liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties

Unless stated otherwise, other related parties are related through common control under SCM. As at 31 December 2008 and 2007 significant balances outstanding with related parties are detailed below:

2008 2007 Other Other Asso- related Smart Asso- related SCM ciates parties Group SCM ciates parties ASSETS

Other non-current assets, including: 21 - 200 - 30 4 355 Receivables for promissory notes 21 - - - 30 - - Long-term loans issued - - 197 - - - 78 Other non-current assets - - 3 - - 4 277 Trade and other receivables, including: 138 90 233 600 208 50 97 Trade receivable - 86 12 572 - 31 47 Prepayments made - - 5 28 - - 11 Receivables for promissory notes sold 100 - - - 151 - - Receivables for investments sold 36 - - - 54 - 3 Short-term loans issued - - 14 - - - - Receivables for bonds sold - - 183 - - - - Other financial receivables 2 4 19 - 3 19 36 Cash and cash equivalents - - 196 - - - 135

2008 2007 Other Other Asso- related Smart Asso- related SCM ciates parties Group SCM ciates parties LIABILITIES

Non-current liabilities, including: - 2 3 - 7 - 22 Non-bank borrowings - - 3 - 2 - 22 Other non-current liabilities - 2 - - 5 - - Trade and other payables, including: - 170 189 181 - 87 152 Accounts payable for promissory notes purchased - 27 - - - 42 - Payables for acquisition of interest in Group companies - - 7 - - - 118 Dividends accrued - - 146 - - - - Trade payables - 143 35 181 - 45 2 Other liabilities - - 1 - - - 32

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties (continued)

Significant transactions (excluding purchases) with related parties during 2008 and 2007 are detailed below:

2008 Other related Smart SCM Associates parties Group Total Sales, including: - 300 85 1,020 1,405 Metals - - 80 500 580 Coke and coking coal - 293 - 264 557 Other - 7 5 256 268

Other operating income/expense net 11 1 (65) - (53) Charitable donations - - (92) - (92) Other 11 1 27 - 39

Finance income, including: 3 - 22 - 25 Interest income - bank deposits - - 4 - 4 Interest income - other - - 15 - 15 Other finance income 3 - 3 - 6

2007 Other related SCM Associates parties Total Sales, including: - 187 91 278 Metals - 2 90 92 Coke and coking coal - 180 - 180 Other - 5 1 6

Other operating income - 1 5 6

Sales of investments available-for-sale, shares in subsidiaries, including: - - 279 279 Associates - - 2 2 JSC Pavlogradugol - - 277 277

Finance income, including: 10 - 28 38 Interest income - bank deposits - - 7 7 Interest income - other 10 - 6 16 Other finance income - - 15 15

Finance costs, including: (16) - (4) (20) Interest expense – borrowings - - (4) (4) Other finance costs (16) - - (16)

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

30 Balances and transactions with related parties (continued)

The following is a summary of purchases from related parties in 2008 and 2007:

2008 Other related Smart SCM Associates parties Group Total Purchases, including: - 286 718 1,081 2,085 Metal products - - 18 1,079 1,097 Coke and coking coal 41 278 2 321 Spare parts and materials - 179 48 - 227 Electricity - - 354 - 354 Fuel - 1 9 - 10 Services 64 11 - 75 Other 1 - - 1

Acquisition of interest in subsidiaries from SCM or related parties (Note 6) - - 94 - 94

2007

Other related SCM Associates parties Total Purchases, including: - 185 371 556 Coke and coking coal - 44 132 176 Spare parts and materials - 93 8 101 Electricity - - 203 203 Fuel - - 8 8 Services - 47 16 63 Other - 1 4 5

Acquisition of interest in subsidiaries from SCM or related parties - - 496 496

During 2008 the Group commenced trading activities with JSC Makeyevka Steel Plant and Promet Steel including but not limited to sales of raw materials and re-selling of JSC Makeyevka Steel Plant products. As discussed in Note 1, JSC Makeyevka Steel Plant and Promet Steel are part of the unfulfilled business combination with the Smart Group, accordingly transactions between Group entities and JSC Makeyevka Steel Plant and Promet Steel have been disclosed as related party transactions.

In 2008, the remuneration of key management personnel of the Group comprised current salaries totalling USD 8.3 million (in 2007 USD 8.7 million).

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

31 Contingencies, commitments and operating risks

Tax legislation. Ukrainian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and State authorities. Recent events within Ukraine suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Bankruptcy proceedings. During 2006, bankruptcy proceedings were initiated in respect of the one of the Group subsidiaries. The amount of the creditors’ claims summarised by the external manager is USD 219 million of which USD 128 million relates to the Group. During 2007 and 2008 liabilities of USD 19 million were re-purchased by the Group. Based on the previous court decisions made, management of the Group believe that the amount of USD 10 million not recognised by the Group will be rejected by the court and, therefore, is not recognised as a liability. Net amount of the liabilities recorded as at 31 December 2008 is 38 million. Group recognised USD 24 million as non current liability related to the bankruptcy moratorium (Note 23). For the remaining balance the Group is continually negotiating early settlement and thus recorded those as part of trade and other payable.

Capital expenditure commitments. As at 31 December 2008, the Group has contractual capital expenditure commitments in respect of property, plant and equipment totalling USD 68 million (31 December 2007: USD 288 million). The Group has already allocated the necessary resources in respect of these commitments. The management of the Group believes that future net income and funding will be sufficient to cover this and any similar commitments.

Guarantees issued. As at 31 December 2008, the Group has outstanding guarantees to third parties in the amount of USD 95 million (31 December 2007: nil).

Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings. Non- compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. The Group was in compliance with the covenants during 2008 and as at 31 December 2008.

Insurance. The insurance industry in Ukraine is developing and many forms of insurance protection common in other parts of the world are not yet generally available. The Group has all risk property coverage for its major production facilities however, the Group does not have full coverage for business interruption, or third party liability in respect of property or environmental damage arising from accidents on the Group’s property or relating to the Group’s operations Until such insurance coverage becomes available in Ukraine, the Group is effectively self insured.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

32 Financial risk management

Financial risk management

The Group activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk.

(i) Foreign exchange risk.

Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency. Management sets limits on the level of exposure by currency and in total. The subsidiaries domiciled in Ukraine have not entered into transactions designed to hedge against these foreign currency risks. The foreign subsidiaries have forward contracts which were designed as hedge of expected future sales to customers. Fair value of derivatives is immaterial.

At 31 December 2008, if the UAH had strengthened/ weakened by 25% against the US dollar with all other variables held constant, post-tax profit for the year would have been USD 436 million (2007: USD 102 million at 5% change) higher/lower, mainly as a result of foreign exchange losses/gains on translation of US dollar denominated trade receivables and foreign exchange gains/losses on translation of US dollar denominated borrowings.

At 31 December 2008, if the UAH had strengthened/ weakened by 25% against the EUR with all other variables held constant, post-tax profit for the year would have been USD 238 million lower/higher (2007: USD 33 million higher/lower at 5% change), mainly as a result of foreign exchange losses/gains on translation of Euro denominated trade receivables and foreign exchange gains/losses on translation of Euro denominated borrowings.

(ii) Price risk.

The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as available for sale. Such investments are in the Ukrainian steel segment and accordingly are not managed.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

32 Financial risk management (continued)

Metinvest's revenue is exposed to the market risk from price fluctuations related to the sale of its steel products. The prices of the steel products sold both within Ukraine and abroad are generally determined by market forces. These prices may be influenced by factors such as supply and demand, production costs (including the costs of raw material inputs) and global economic growth. The prices of the mined products that Metinvest sells to third parties are also affected by supply and demand and global and Ukrainian economic growth. Adverse changes in respect of any of these factors may reduce the revenue that Metinvest receives from the sale of its steel or mined products.

Metinvest's exposure to commodity price risk associated with the purchases is limited as the Group is vertically integrated and is self sufficient for iron ore and coking coal requirements.

(iii) Cash flow and fair value interest rate risk.

The Group’s income and operating cash flows are dependent of changes in market interest rates.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain a balanced borrowings portfolio of fixed and floating rate instruments. As at 31 December 2008, 7% of the total borrowings were provided to the Group at fixed rates (31 December 2007: 11%). During 2008 and 2007, the Group’s borrowings at variable rate were denominated in USD and EUR.

Refer to Note 13 and 19 for information about maturity dates and effective interest rates of financial instruments. Repricing for fixed rate financial instruments occurs at maturity of fixed rate financial instruments. Repricing of floating rate financial instruments occurs continually.

At 31 December 2008, if interest rates on USD and EUR denominated borrowings had been on 4.5% higher/lower (2007: 1%) with all other variables held constant, post-tax profit for the year would have been USD 113 million (2007: USD 12) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.

(b) Credit risk

Financial assets, which potentially subject the Group to credit risk, consist principally of cash, loans, trade and other accounts receivable.

Cash is placed with major Ukrainian and international reputable financial institutions, which are considered at time of deposit to have minimal risk of default.

The maximum exposure to credit risk at the reporting date is USD 2,590 million (2007: USD 2,601 million) being fair value of long and short term loans and receivables and cash. The Group does not hold any collateral as security

The Group management believes that credit risk is appropriately reflected in impairment allowances recognised against assets. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties.

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

32 Financial risk management (continued)

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, group treasury maintains flexibility in funding by maintaining availability under committed credit lines.

The Group Treasury analyses the ageing of their assets and the maturity of their liabilities and plans their liquidity depending on the expected repayment of various instruments. In case of insufficient or excessive liquidity in individual entities, the Group relocate resources and funds among Group to achieve optimal financing of the business needs of each entity.

Less than Between 1 Between 2 Over At 31 December 2008 1 year and 2 years and 5 years 5 years

Borrowings 1,398 130 1,189 30 Other non-current liabilities - 46 - - Trade and other payables 1,086 - - -

At 31 December 2007

Borrowings 1,831 485 970 6 Other non-current liabilities - 55 - - Trade and other payables 611 - - -

33 Capital risk management

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including “current and non- current borrowings” as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

31 December 31 December 2008 2007 Total borrowings (Note 19) 2,685 2,952 Less: cash and cash equivalents (Note 16) 261 1,134 Net debt 2,424 1,818 Total equity 6,286 7,315 Total capital 8,710 9,133 Gearing ratio 28% 20%

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

34 Fair values of financial instruments

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Metinvest B.V. Notes to the Consolidated Financial Statements – 31 December 2008 All tabular amounts in millions of US Dollars

35 Reconciliation of classes of financial instruments with measurement categories

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2008:

Loans and Available-for-sale Total receivables assets

ASSETS Cash and cash equivalents (Note 16) - Current accounts 261 - 261 - Term deposits - - - Trade and other receivables (Note 15) - Trade receivables 1,708 - 1,708 - Other financial receivables 390 - 390 Available-for-sale investments (Note12) - Securities quoted on the Ukrainian stock market 9 9 - Other 1 1 Other non-current assets (Note13) 231 - 231

TOTAL FINANCIAL ASSETS 2,590 10 2,600

NON-FINANCIAL ASSETS - - 8,756

TOTAL ASSETS - - 11,356

All of the Group’s financial liabilities are carried at amortised cost.

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2007:

Loans and Available-for-sale Total receivables assets

ASSETS Cash and cash equivalents (Note 16) - Current accounts 268 - 268 - Term deposits 866 - 866 Trade and other receivables (Note 15) - Trade receivables 1,043 - 1,043 - Other financial receivables 302 - 302 Available-for-sale investments (Note12) - Securities quoted on the Ukrainian stock market - 143 143 - Other - 1 1 Other non-current assets (Note13) 399 - 399

TOTAL FINANCIAL ASSETS 2,878 144 3,022

NON-FINANCIAL ASSETS - - 9,417

TOTAL ASSETS - - 12,439

36 Events after the balance sheet date

As discussed in Note 13, in April 2009 the Group renegotiated the terms of the agreement on acquisition of United Coal Company LLC.

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The above auditors report is the original auditors report that was issued on 29 April 2009 with respect to the Financial Statements for the period ending 31 December 2008. These Financial Statements also contained the Director’s report and the stand alone financial statements. For purposes of the Offering Memorandum the Director’s report and stand alone financial statements have been omitted. Furthermore the page references in the original auditor’s report refer to the statutory financial statements, which page reference compares to pages F-62 to F-118 in this Offering Memorandum.

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REGISTERED OFFICE OF THE ISSUER Metinvest B.V. Alexanderstraat 23 2514 JM The Hague The Netherlands

AUDITORS OF THE ISSUER PricewaterhouseCoopers Accountants N.V. Thomas R. Malthusstraat 5 1066 JR Amsterdam P.O. Box 90351 1006 BJ Amsterdam The Netherlands

TRUSTEE BNY Corporate Trustee Services Limited One Canada Square London E14 5AL United Kingdom

REGISTRAR PRINCIPAL PAYING AGENT U.S. PAYING AGENT, AND The Bank of New York AND TRANSFER AGENT TRANSFER AGENT (Luxembourg) S.A. The Bank of New York Mellon The Bank of New York Mellon Aerogolf Center One Canada Square New York Branch 1A Hoehenhof, L-1736 London E14 5AL 101 Barclay Street Senningerberg United Kingdom New York, NY 10286 Luxembourg United States

IRISH LISTING AGENT The Bank of New York Mellon (Ireland) Limited Hanover Building Windmill Lane Dublin 2 Ireland

LEGAL ADVISERS To the Issuer as to English To the Issuer as to To the Issuer as to and United States law Dutch law Ukrainian law Baker & McKenzie LLP Baker & McKenzie Baker & McKenzie – CIS, Limited 100 New Bridge Street Amsterdam N.V. Renaissance Business Center London EC4V 6JA Claude Debussylaan 54 24 Vorovskoho Street United Kingdom 1082 MD Kyiv 01054 P.O. Box 2720 Ukraine 1000 CS Amsterdam The Netherlands

To the Joint Lead Managers To the Joint Lead Managers To the Joint Lead Managers and the Trustee as to English and the Trustee as to and the Trustee as to and United States law Dutch law Ukrainian law Linklaters LLP Linklaters LLP Sayenko Kharenko One Silk Street World Trade Centre Amsterdam 10 Muzeyny Provulok London EC2Y 8HQ Tower H, 22nd Floor Kyiv 01001 United Kingdom Zuidplein 180 Ukraine 1077 XV Amsterdam The Netherlands Level: 9 – From: 9 – Tuesday, May 18, 2010 – 10:04 – eprint6 – 4210 Section 13

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