IMPORTANT NOTICE: NOT for DISTRIBUTION in OR INTO the UNITED STATES EXCEPT to QUALIFIED INSTITUTIONAL BUYERS (''Qibs'')

IMPORTANT NOTICE: NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES EXCEPT TO QUALIFIED INSTITUTIONAL BUYERS (‘‘QIBs’’) AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’) THAT ARE ALSO QUALIFIED PURCHASERS (‘‘QPs’’) WITHIN THE MEANING OF SECTION 2(A)(51) OF THE US INVESTMENT COMPANY ACT OF 1940 (THE ‘‘INVESTMENT COMPANY ACT’’) OR OTHERWISE TO PERSONS TO WHOM IT CAN LAWFULLY BE DISTRIBUTED IMPORTANT: You must read the following before continuing. The following applies to the attached document (the ‘‘Prospectus’’), and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. If you have gained access to this transmission contrary to any of the following restrictions, you are not authorised and will not be able to purchase any of the securities described herein (the ‘‘Securities’’). You acknowledge that this electronic transmission and the delivery of the attached Prospectus is intended for you only and you agree you will not forward this electronic transmission or the attached Prospectus to any other person. Any forwarding, distribution or reproduction of this document in whole or in part is unauthorised. Failure to comply with the following directives may result in a violation of the US Securities Act of 1933 (the ‘‘Securities Act’’) or the applicable laws of other jurisdictions. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’) TO OR FOR THE ACCOUNT OR BENEFIT OF A PERSON NOT KNOWN TO THE TRANSFEROR TO BE A US PERSON (AS DEFINED IN REGULATION S), BY PREARRANGEMENT OR OTHERWISE, OR WITHIN THE UNITED STATES ONLY TO QIBs THAT ARE ALSO QPs IN RELIANCE ON THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A, OR ANOTHER EXEMPTION THEREFROM, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. Confirmation of your representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the securities referred to herein, investors must be (i) non-US persons (within the meaning of Regulation S under the Securities Act) outside the United States who are not acting for the account or benefit of US persons or (ii) QIBs that are also QPs that are acquiring the securities for their own account or the account of another QIB that is also a QP. By accepting this e-mail and accessing the Prospectus, you shall be deemed to have represented to us that: (1) (A) you and any customers you represent are not US persons and/or are not acting for the account or benefit of any US persons and the electronic mail address that you gave us and to which this e-mail has been delivered is not located in the US or (B) you are a QIB that is also a QP acquiring the securities referred to herein for your own account and/or for another QIB that is also a QP and (2) you consent to delivery of such Prospectus by electronic transmission. The Prospectus may only be communicated or caused to be communicated to persons in the United Kingdom in circumstances where section 21(1) of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’) does not apply and may be distributed in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the ‘‘Order’’), or (ii) are persons falling within Article 49(2)(a) to (d) (‘‘high net worth companies, unincorporated associations etc.’’) of the Order (all such persons together being referred to as ‘‘Relevant Persons’’). In the United Kingdom, the Prospectus is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which the Prospectus relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. The Securities are not eligible for placement and circulation in the Russian Federation, unless, and to the extent, otherwise permitted by Russian law. The information provided in the Prospectus is not an offer, or an invitation to make offers, to sell, exchange or otherwise transfer securities in the Russian Federation or to or for the benefit of any Russian person or entity. The Prospectus and information contained herein does not constitute an advertisement or an offer of any securities in the Russian Federation. It is not intended to be, and must not be, distributed or circulated in the Russian Federation unless and to the extent otherwise permitted under Russian law. The Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate on behalf of the issuer of the Securities in such jurisdiction. This Prospectus is being sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and, consequently, none of Novolipetsk Steel, Steel Funding Limited, Deutsche Bank AG, London Branch, ING Bank N.V., London Branch, J.P. Morgan Securities plc, Societ´ e´ Gen´ erale´ nor any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any difference between the attached document distributed to you in electronic format and the hard copy version available to you on request. You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. 29MAY201618012959 US$700,000,000 4.50 per cent. Loan Participation Notes due 2023 (Issued by, with limited recourse to,) Steel Funding Limited (incorporated under the laws of Ireland) for the sole purpose of financing a loan to Novolipetsk Steel (a public joint stock company incorporated under the laws of the Russian Federation) Issue Price: 100 per cent.

Steel Funding Limited, a company incorporated as a limited liability company under the laws of Ireland (the ‘‘Issuer’’), is issuing an aggregate principal amount of US$700,000,000 4.50 per cent. Loan Participation Notes due 2023 (the ‘‘Notes’’) for the sole purpose of financing a loan (the ‘‘Loan’’) to Novolipetsk Steel, a public joint stock company organized under the laws of the Russian Federation (‘‘NLMK’’ or the ‘‘Borrower’’), pursuant to a loan agreement dated 10 June 2016 (the ‘‘Loan Agreement’’) between the Issuer and the Borrower. Pursuant to the trust deed (the ‘‘Trust Deed’’) relating to the Notes between the Issuer and Deutsche Trustee Company Limited, as trustee (the ‘‘Trustee’’), the Issuer will provide certain security for all payment obligations in respect of the Notes for the benefit of the holders of Notes (the ‘‘Noteholders’’), including a first fixed charge in favour of the Trustee of all amounts paid and payable to it under the Loan Agreement and an assignment to the Trustee of the Issuer’s rights and interests under the Loan Agreement, other than in respect of certain reserved rights (as more fully described in ‘‘Overview of the Transaction Structure and the Security’’). Interest on the Loan will be payable at a rate of 4.50 per annum semi-annually in arrears on the interest payment date falling on 15 June and 15 December in each year, commencing on 15 December 2016, and, provided that the Issuer receives such payment in full, the Notes will bear interest from, and including, 15 June 2016 and payable on such dates at the same rate. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest, premium (if any) and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest, premium (if any) and additional amounts (if any) are due, for an amount equivalent to the principal, interest, premium (if any) and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer from the Borrower pursuant to the Loan Agreement. The Issuer will have no other financial obligation under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the credit and financial standing of the Borrower in respect of the obligations of the Borrower under the Loan Agreement. The Loan, and correspondingly the Notes, may be redeemed early at the option of NLMK in certain circumstances, all as more fully described in ‘‘Loan Agreement’’ and ‘‘Terms and Conditions of the Notes’’. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE ‘‘RISK FACTORS’’ BEGINNING ON PAGE 11. The Notes and the Loan (together, the ‘‘Securities’’) have not been, and will not be, registered under the US Securities Act of 1933 (the ‘‘Securities Act’’), and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act (‘‘Regulation S’’)). The Notes may be offered and sold (i) within the United States only to qualified institutional buyers (‘‘QIBs’’), as defined in Rule 144A under the Securities Act (‘‘Rule 144A’’), that are also qualified purchasers (‘‘QPs’’), as defined in Section 2(a)(51) of the US Investment Company Act of 1940 (the ‘‘Investment Company Act’’), in reliance on the exemption from registration under Section 5 of the Securities Act provided by Rule 144A or on another exemption therefrom, (the ‘‘Rule 144A Notes’’) and (ii) to non-US persons in offshore transactions as defined in and in reliance on Regulation S (the ‘‘Regulation S Notes’’). The Issuer has not been and will not be registered under the Investment Company Act. Prospective purchasers are hereby notified that sellers of the Rule 144A 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 this distribution of the Prospectus (as defined below), see ‘‘Subscription and Sale’’ and ‘‘Transfer Restrictions’’. This prospectus (the ‘‘Prospectus’’) has been approved by the Central Bank of Ireland (the ‘‘Central Bank’’), as competent authority under Directive 2003/71/EC (the ‘‘Prospectus Directive’’). The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange Plc (the ‘‘Irish Stock Exchange’’) for the Notes to be admitted to the official list (the ‘‘Official List’’) and trading on its regulated market (the ‘‘Main Securities Market’’). The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC (the ‘‘Markets in Financial Instruments Directive’’). Such approval relates only to the Notes which are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC and/or which are to be offered to the public in any Member State of the European Economic Area. It is expected that the Notes will be rated BBB by Fitch Ratings Ltd (‘‘Fitch’’), Ba1 by Moody’s Investors Service, Ltd. (‘‘Moody’s’’) and BB+ by Standard & Poor’s Credit Market Services France SAS (‘‘Standard and Poor’s’’). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating agency. Fitch, Moody’s and Standard and Poor’s are established in the European Union and are registered under the Regulation (EC) No. 1060/2009, as amended (the ‘‘CRA Regulation’’). As such, Fitch, Moody’s and Standard and Poor’s are included in the list of credit rating agencies published by the European Securities and Markets Authority (‘‘ESMA’’) on its website in accordance with the CRA Regulation. The Notes will be offered and sold in the minimum denomination of US$200,000 and higher integral multiples of US$1,000. The Regulation S Notes will initially be represented by interests in a global note certificate in registered form (the ‘‘Regulation S Global Note Certificate’’), without interest coupons, which will be deposited with a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream, Luxembourg’’), and registered in the name of a nominee, on or about 15 June 2016 (the ‘‘Issue Date’’). The Rule 144A Notes will initially be represented by interests in a global note certificate in registered form (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 Cede & Co., as nominee of, and deposited with a custodian for, The Depository Trust Company (‘‘DTC’’) on or about the Issue Date. Beneficial interests in the Global Note Certificates will be shown on, and transfers thereof will be effected only through records maintained by, DTC, Euroclear or Clearstream, Luxembourg (as the case may be) and their respective participants. See ‘‘Clearing and Settlement’’. Individual note certificates in registered form will only be available in certain limited circumstances as described herein. The Issuer will use the proceeds received from the issue and sale of the Notes for the sole purpose of making the Loan. NLMK intends to use the proceeds of the Loan (a) to finance the purchase of (i) US$500,000,000 4.95% Loan Participation Notes due 2019 issued by the Issuer (the ‘‘2019 Notes’’) and (ii) US$800,000,000 4.45% Loan Participation Notes due 2018 issued by the Issuer (the ‘‘2018 Notes’’, and together with the 2019 Notes, the ‘‘Existing Notes’’) in each case tendered and accepted for purchase in accordance with the terms and conditions of the tender offer launched by the Issuer on 31 May 2016, pursuant to a tender offer memorandum of the same date (the ‘‘Tender Offer’’), that is expected to be settled on or about 17 June 2016, (b) for refinancing of existing indebtedness, and (c) for general corporate purposes. Joint Lead Managers Deutsche Bank ING J.P. Morgan Société Générale Corporate & Investment Banking Prospectus dated 10 June 2016 IMPORTANT INFORMATION ABOUT THIS PROSPECTUS This Prospectus comprises a prospectus for the purposes of the Prospectus Directive for the purpose of giving information with regard to the Issuer, NLMK and NLMK and its subsidiaries taken as a whole (the ‘‘Group’’) which, according to the particular nature of the Issuer, NLMK, the Group, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, NLMK and the Group and of the rights attaching to the Notes. Each of the Issuer and NLMK (whose registered offices are set out on pages 146 and 215 of this Prospectus) accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of each of the Issuer and NLMK (each of whom has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, NLMK, the Joint Lead Managers (as defined in ‘‘Subscription and Sale’’) or the Trustee to subscribe for or purchase any Notes in any jurisdiction where it is unlawful to make such an offer or invitation. The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, NLMK, the Joint Lead Managers and the Trustee to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Prospectus, see ‘‘Subscription and Sale’’ and ‘‘Transfer Restrictions’’. No person is authorised to provide any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, NLMK, the Joint Lead Managers or the Trustee. The delivery of this Prospectus at any time does not imply that the information contained in it is correct as at any time subsequent to its date. Neither the delivery of this Prospectus nor the offering, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer or NLMK since the date of this Prospectus. None of the Issuer, NLMK, the Joint Lead Managers, the Trustee or any of its or their respective representatives or affiliates makes any representation to any offeree or purchaser of the Notes offered hereby regarding the legality of an investment by such offeree or purchaser under applicable legal, investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes. Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or sell any Notes or possess this Prospectus. Any consents or approvals that are needed in order to purchase any Notes must be obtained. The Issuer, NLMK, the Joint Lead Managers and the Trustee are not responsible for compliance with these legal requirements. The appropriate characterization of the Notes under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase the Notes, is subject to significant interpretative uncertainties. No representation or warranty is made as to whether, or the extent to which, the Notes constitute a legal investment for investors whose investment authority is subject to legal restrictions, and investors should consult their legal advisers regarding such matters. In connection with the issue of the Notes, J.P. Morgan Securities plc (the ‘‘Stabilising Manager’’) (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) 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 Notes is made and, if commenced, may be discontinued at any time and must be brought to an 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 Notes. The contents of NLMK’s website do not form any part of this Prospectus. No representation or warranty, express or implied, is made by the Joint Lead Managers, the Trustee or any of their or its affiliates or any person acting on their behalf as to the accuracy or completeness of the

i information set forth in this Prospectus. Nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Each person receiving this Prospectus acknowledges that such person has not relied on the Joint Lead Managers, the Trustee or any of its or their affiliates or any person acting on their behalf in connection with its investigation of the accuracy or completeness of such information or its investment decision. Each person contemplating making an investment in the Notes from time to time must make its own investigation and analysis of the creditworthiness of NLMK and the Group 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 investment. The Prospectus as approved by the Central Bank, will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(b) of Prospectus (Directive 2003/71/EC) Regulations 2005. Any investment in Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank. The Issuer is not and will not be regulated by the Central Bank as a result of issuing the Notes.

NOTICE TO UNITED KINGDOM RESIDENTS This document is only being distributed to and is only directed at (1) persons who are outside the United Kingdom, (2) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (3) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as ‘‘Relevant Persons’’). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its contents.

NOTICE TO PROSPECTIVE US INVESTORS THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE US SECURITIES AND EXCHANGE COMMISSION (THE ‘‘SEC’’), ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER US REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. THIS OFFERING IS BEING MADE IN THE UNITED STATES IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT FOR AN OFFER AND SALE OF THE NOTES WHICH DOES NOT INVOLVE A PUBLIC OFFERING. IN MAKING YOUR PURCHASE, YOU WILL BE DEEMED TO HAVE MADE CERTAIN ACKNOWLEDGMENTS, REPRESENTATIONS AND AGREEMENTS. SEE ‘‘SUBSCRIPTION AND SALE’’ AND ‘‘TRANSFER RESTRICTIONS’’. THIS PROSPECTUS IS BEING PROVIDED (1) TO A LIMITED NUMBER OF INVESTORS IN THE UNITED STATES THAT THE ISSUER REASONABLY BELIEVES TO BE ‘‘QIBS’’ THAT ARE ALSO ‘‘QPS’’ FOR INFORMATIONAL USE SOLELY IN CONNECTION WITH THEIR CONSIDERATION OF THE PURCHASE OF THE NOTES AND (2) TO INVESTORS OUTSIDE THE UNITED STATES WHO ARE NOT US PERSONS IN CONNECTION WITH OFFSHORE TRANSACTIONS COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S.

NOTICE TO RUSSIAN INVESTORS This Prospectus or information contained therein is not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in the Russian Federation to or for the benefit of any Russian person or entity, and does not constitute an advertisement or offering of any securities in the Russian Federation within the meaning of Russian securities laws. Information contained in this Prospectus is not intended for any persons in the Russian Federation who are not ‘‘qualified investors’’ within the meaning of Article 51.2 of the Federal Law no. 39-FZ ‘‘On the securities market’’ dated 22 April 1996, as amended (‘‘Russian QIs’’) and must not be distributed or circulated into Russia or made available in Russia to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law.

ii AVAILABLE INFORMATION The Issuer and NLMK have agreed that, for so long as any Notes are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the Securities Act, they will, during any period in which they are neither subject to Section 13 or 15(d) of the US 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 Trustee for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner, prospective purchaser or the Trustee, the information required to be provided by Rule 144A(d)(4) under the Securities Act.

FORWARD-LOOKING STATEMENTS Certain statements in this Prospectus are not historical facts and are forward-looking statements. Forward- looking statements appear in various locations, including, without limitation, under the headings ‘‘Overview’’, ‘‘Risk Factors’’, ‘‘Operating and Financial Review’’ and ‘‘Business’’. The Group may also from time to time make written or oral forward-looking statements in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements concerning the Group’s plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, its competitive strengths and weaknesses, its business strategy and the trends the Group anticipates in the industries and the political and legal environment in which it operates and other information that is not historical information. Words such as ‘‘believes’’, ‘‘anticipates’’, ‘‘estimates’’, ‘‘expects’’, ‘‘intends’’, ‘‘predicts’’, ‘‘projects’’, ‘‘could’’, ‘‘may’’, ‘‘will’’, ‘‘plans’’ and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, 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 listed under ‘‘Risk Factors’’, as well as those included elsewhere in this Prospectus. Each prospective investor 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. These factors include, among others: • the ongoing armed conflict in Eastern Ukraine, which adversely affects the economic environment in Russia and may lead to more expansive sanctions targeting metals and mining companies or a broader segment of the Russian economy; • economic, social, legal and political developments in the Russian Federation and the international markets in which the Group operates; • the prices of the Group’s steel products and the raw materials which it requires; • tariffs and other restrictions on the import or export of steel or raw materials; • the costs of energy and transportation; • the Group’s ability to fund its future operations and capital needs through borrowing or otherwise; • the Group’s ability to successfully implement any of its business strategies; • the Group’s ability to integrate its businesses, including recently acquired businesses, and to realize anticipated cost savings and operational benefits from such integration; • an increase or decrease in demand for the Group’s products and services; • the Group’s ability to obtain the licenses necessary for its businesses; • the effects of competition; • the effects of international political events; • inflation, interest rate and exchange rate fluctuations; and • the Group’s success in identifying other risks to its businesses and managing the risks of the aforementioned factors.

iii This list of factors is not exhaustive. Some of these factors are discussed in greater detail in this Prospectus, in particular, but not limited to, discussion in ‘‘Risk Factors’’. When relying on forward-looking statements, each prospective investor should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which the Group operates. Such forward-looking statements speak only as of the date on which they are made. Accordingly, neither the Issuer nor NLMK undertakes any obligation to update or revise any of them, whether as a result of new information, future events or otherwise, unless required to do so by applicable law. NLMK 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.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION Presentation of Financial Information The consolidated financial information of the Group included in this Prospectus: • as at and for the three months ended 31 March 2016 and 2015 has, unless otherwise indicated, been derived from the unaudited interim condensed consolidated financial statements of the Group as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (the ‘‘Interim Financial Statements’’); and • as at and for the years ended 31 December 2015, 2014 and 2013 has, unless otherwise indicated, been derived from the audited consolidated financial statements of the Group as at and for the years ended 31 December 2015 and 2014 (the ‘‘Annual Financial Statements’’). In this Prospectus, the Annual Financial Statements and the Interim Financial Statements are together referred to as the ‘‘Financial Statements’’. The Interim Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (‘‘IAS 34’’) as issued by the International Accounting Standards Board (the ‘‘IASB’’), and the Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the IASB (‘‘IFRS’’). The Interim Financial Statements and the Annual Financial Statements are set out in the Appendix to this Prospectus.

Non-IFRS Financial Measures (unaudited) This Prospectus contains certain unaudited non-IFRS financial measures relating to the Group’s business and financial results, including Adjusted EBITDA, Adjusted EBITDA margin, net debt and cash costs. These non-IFRS financial measures are not prepared in accordance with IFRS and may be different from non-IFRS financial measures used by other companies. NLMK uses these non-IFRS financial measures since management believes such measures and ratios are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Group’s industries. These measures have limitations as an analytical tool, and they should not be considered in isolation, or as a substitute for analysis of the Group results as reported under IFRS. See—‘‘Selected Consolidated Financial Information’’.

Financial Statements of the Issuer The audited financial statements of the Issuer as at and for the years ended 31 December 2015 and 2014, together with the audit reports thereon, have been filed with the Central Bank of Ireland and shall be deemed to be incorporated in, and to form part of, this Prospectus. Such financial statements are located at http://ise.ie/debt_documents/Financial%20Statement%2031%20Decembe%202014_ Steel%20Funding%20Ltd_237ef7c8-a0a4-4dda-a2a7-ed9e8d1eec83.pdf; http://ise.ie/debt_documents/ Annual%20Financial%20Statement_2ca32201-0b72-4b3f-a87c-374137394ffc.pdf.

General Information In this Prospectus, all references to ‘‘Russia’’ are to the Russian Federation. References to ‘‘US’’ or the ‘‘United States’’ are to the United States of America. References to ‘‘U.K.’’ or the ‘‘United Kingdom’’ are to the United Kingdom of Great Britain and Northern Ireland. References to ‘‘Ireland’’ are to Ireland. References to the ‘‘EU’’ or the ‘‘European Union’’ are to the union formed following ratification of the Maastricht Treaty and currently comprising 27 states, and references to ‘‘Europe’’ are to the geographical

iv region of Europe, including those states which are members of the European Union. Definitions of certain terminology associated with the Group’s business are set forth under ‘‘Glossary of Terms’’.

Currencies and Exchange Rates In this Prospectus, references to ‘‘US dollars’’, or ‘‘US$’’, or ‘‘$’’ are to the lawful currency of the United States, references to ‘‘rubles’’ or ‘‘RUB’’ are to the lawful currency of the Russian Federation and references to ‘‘euro’’ or ‘‘EUR’’ are to the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended. The functional currency of all of the Group’s Russian entities is considered to be the Russian ruble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group’s Financial Statements have been prepared using the US dollar as the Group’s reporting currency, utilizing period-end exchange rates for assets and liabilities, corresponding period quarterly (and starting from January 2016— monthly) weighted average exchange rates for the consolidated statement of profit or loss accounts and historic rates for equity accounts. The following tables show, for the periods indicated, certain information regarding the exchange rate between the ruble and the US dollar, based on the official exchange rate quoted by the Central Bank of the Russian Federation (the ‘‘CBR’’).

Rubles per US dollar Period For the period High Low Average(1) end Year ended 31 December 2013 ...... 33.47 29.93 31.85 32.73 Year ended 31 December 2014 ...... 67.79 32.66 38.42 56.26 Year ended 31 December 2015 ...... 72.88 49.18 60.96 72.88 Three months ended 31 March 2016 ...... 83.59 67.61 74.63 67.61

Rubles per US dollar For each month from April 2016 to June 2016 High Low April 2016 ...... 68.89 64.33 May 2016 ...... 67.05 64.51 June 2016 (up to and including 10 June) ...... 66.85 63.74 The exchange rate between the ruble and the US dollar on 10 June 2016 was 63.74 rubles per US$1.00. The exchange rate between the ruble and the euro on 31 March 2016 was 76.54 rubles per EUR 1.00 (79.70 rubles per EUR 1.00 on 31 December 2015; 68.34 rubles per EUR 1.00 on 31 December 2014; and 44.97 rubles per EUR 1.00 on 31 December 2013). No representation is made that amounts presented in a particular currency in this Prospectus could have been converted into such currency at any particular rate or at all. A market exists for the conversion of rubles into other currencies, but the limited availability of other currencies may tend to inflate their values relative to the ruble. Fluctuations in the respective exchange rates between the ruble and the US dollar and the ruble and the euro in the past are not necessarily indicative of fluctuations that may occur in the future. These rates may also differ from the actual rates used in the preparation of certain information in this Prospectus. Solely for the convenience of the reader, certain amounts included in ‘‘Business’’ and elsewhere in this Prospectus have been translated from rubles into US dollars at the rate of RUB 67.61 per US$1.00, the official exchange rate as published by the CBR on 31 March 2016.

Rounding Certain amounts that appear in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

v Reproduction of Information NLMK obtained the market data used in this Prospectus under the headings ‘‘Overview’’, ‘‘Risk Factors’’, ‘‘Operating and Financial Review’’, ‘‘The Steel Industry’’ and ‘‘Business’’ from internal surveys, industry sources and currently available public information. The main sources for information on the steel industry were: (i) the World Steel Association (formerly the International Iron and Steel Institute), an international steel industry body and a provider of statistical information on the global steel industry; (ii) the Federal Customs Service of the Russian Federation; (iii) Metal Expert, a steel industry publication in Russia and the Commonwealth of Independent States (‘‘CIS’’); (iv) The Federal State Statistics Service of the Russian Federation; (v) Chermet Corporation, a provider of statistical information on the Russian steel industry; and (vi) OAO NIIBTMET, a Russian research institute which compiles statistical information on health and safety in the Russian metallurgical industry. NLMK also obtained Russian macroeconomic and foreign exchange data from the CBR. The Issuer and NLMK accept responsibility for having correctly reproduced information obtained from industry publications or public sources, and, as far as the Issuer and NLMK are aware and have been able to ascertain from information published by those industry publications or public sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. However, investors should keep in mind that neither the Issuer nor NLMK have independently verified information which they have obtained from third-party sources, including from industry and Russian government bodies. Certain market share information and other statements in this Prospectus regarding the industry in which the Group operates and the position of the Group relative to its competitors are not based on published statistical data or information obtained from independent third parties. Rather, such information and statements reflect the reasonable estimates of NLMK based upon information obtained from trade and business organisations and associations and other contacts within the metallurgical industry. This information from the internal estimates and surveys of the Group has not been verified by any independent sources.

vi ENFORCEABILITY OF JUDGMENTS The Issuer is a limited liability company incorporated under the laws of Ireland. NLMK is a public joint stock company incorporated under the laws of the Russian Federation. Most of the assets of the Issuer and most of the assets of NLMK are located outside the United Kingdom and the United States. In addition, all of the directors of the Issuer and substantially all of the directors and executive officers of NLMK named in this Prospectus reside outside the United Kingdom and the United States, and a substantial part of the assets of such persons are located outside the United Kingdom and the United States. As a result, it may not be possible for Noteholders or the Trustee to effect service of process within the United Kingdom or the United States upon any of the Issuer or NLMK or their respective officers and directors or to enforce against any of them court judgments obtained in English or US courts. In addition, it may be difficult for the Noteholders or the Trustee to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom and the United States, liabilities predicated upon English laws or US federal securities laws. Courts in the Russian Federation will generally recognise judgments rendered by a court in any jurisdiction outside the Russian Federation only if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the jurisdiction where the judgment is rendered or a federal law is adopted in the Russian Federation providing for the recognition and enforcement of foreign court judgments. No such treaty for the reciprocal recognition and enforcement of foreign court judgments in civil and commercial matters exists between the Russian Federation and certain other jurisdictions (including the United Kingdom and the United States), and no relevant federal law on enforcement of foreign court judgments has been adopted in the Russian Federation. As a result, new proceedings may have to be brought in the Russian Federation in respect of a judgment already obtained in any such jurisdiction against NLMK or its officers or directors. These limitations, as well as the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of such judgment or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes. In the absence of an applicable treaty, enforcement of a final judgment rendered by a foreign court may still be recognised by a Russian court on the basis of reciprocity, if courts of the jurisdiction where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. In two recent instances, Russian courts have recognised and enforced a foreign court judgment (an English court judgment in one instance and a Dutch court judgment in the other instance), on the basis of a combination of the principle of reciprocity and the existence of a number of bilateral and multilateral treaties to which both the United Kingdom and the Russian Federation, and both the Netherlands and the Russian Federation, respectively, are parties. The courts determined that such treaties constituted grounds for the recognition and enforcement of the relevant foreign court judgment in the Russian Federation. In the absence of established court practice, however, no assurances can be given that a Russian court would be inclined in any particular instance to recognise and enforce a foreign court judgment on these or similar grounds. The existence of reciprocity must be established at the time the recognition and enforcement of a foreign judgment is sought, and it is not possible to predict whether a Russian court will in the future recognise and enforce on the basis of reciprocity a judgment issued by a foreign court, including an English court. The Loan Agreement and any non-contractual obligations arising out of or in connection with the Loan Agreement will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto against NLMK to be settled by arbitration in accordance with the rules of the LCIA (formerly the London Court of International Arbitration) (the ‘‘LCIA Rules’’). The place of such arbitration shall be London, England. The Russian Federation and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘‘New York Convention’’). Consequently, Russian courts should generally recognise and enforce in the Russian Federation an arbitral award from an arbitral tribunal in the United Kingdom on the basis of the rules of the New York Convention (subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation). The Arbitrazh Procedural Code of the Russian Federation (the ‘‘Arbitrazh Procedural Code’’) sets out the procedure for the recognition and enforcement of foreign arbitral awards by Russian courts. The Arbitrazh Procedural Code also contains a list of grounds for the refusal of recognition and enforcement of foreign

vii arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention. The Arbitrazh Procedural Code and other Russian procedural legislation could change, and other grounds for Russian courts to refuse the recognition and enforcement of foreign courts’ judgments and foreign arbitral awards could arise in the future. Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the LCIA Rules and the application of English law to the Loan Agreement and any non-contractual obligations arising out of or in connection with the Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies and credit organisations in particular.

viii TABLE OF CONTENTS

OVERVIEW ...... 1 RISK FACTORS ...... 11 USE OF PROCEEDS ...... 35 CAPITALISATION ...... 36 SELECTED CONSOLIDATED FINANCIAL INFORMATION ...... 37 OPERATING AND FINANCIAL REVIEW ...... 40 THE STEEL INDUSTRY ...... 85 BUSINESS ...... 91 MANAGEMENT AND CORPORATE GOVERNANCE ...... 123 PRINCIPAL SHAREHOLDERS ...... 127 RELATED PARTY TRANSACTIONS ...... 128 REGULATORY MATTERS ...... 130 DESCRIPTION OF THE ISSUER ...... 146 OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY ...... 148 LOAN AGREEMENT ...... 150 TERMS AND CONDITIONS OF THE NOTES ...... 172 SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ..... 184 TRANSFER RESTRICTIONS ...... 188 CERTAIN ERISA CONSIDERATIONS ...... 192 CLEARING AND SETTLEMENT ...... 194 TAXATION ...... 198 SUBSCRIPTION AND SALE ...... 211 INDEPENDENT AUDITORS ...... 214 GENERAL INFORMATION ...... 215 GLOSSARY OF TERMS ...... 217 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...... F-1

ix OVERVIEW This overview may not contain all the information that may be important to prospective purchasers of the Notes and, therefore, should be read in conjunction with this entire Prospectus, including the more detailed information regarding the Group’s business and the financial statements and related notes included elsewhere in this Prospectus. Prospective purchasers of the Notes should also carefully consider the information set forth under the heading ‘‘Risk Factors’’. Certain statements in this Prospectus include forward-looking statements that also involve risks and uncertainties as described under ‘‘Forward-Looking Statements’’.

OVERVIEW OF THE GROUP The Group is a leading and one of the most efficient international steel producers with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of high value added products to end users. With global operations across Europe, North America and Asia, the Group has a high level of self-sufficiency in key raw materials and energy resources, low cost steelmaking operations located in the Central District and Ural region of Russia, and mini-mills and rolling assets located in close proximity to its key customers in Russia, Europe and the United States. The Group has a diversified portfolio of steel products, with a strong presence in many industry sectors in both its Russian and international markets. NLMK is the largest producer of steel in Russia with approximately 22% of total Russian steel production in 2015. The Group’s product range includes slabs, hot-rolled steel, long steel products such as rebar and wire rod and a variety of high value added products, which include a range of hot-rolled thick plates, cold-rolled steel, galvanized and pre-painted steel, electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel and metalware. High value added products represented approximately 29% of the total volume of sales of steel products of the Group in 2015 (27% in the three months ended 31 March 2016). In 2015, the Group had sales revenue of US$8,008.3 million, Adjusted EBITDA of US$1,948.3 million, Adjusted EBITDA margin of 24%, and in the three months ended 31 March 2016 the Group had sales revenue of US$1,576.9 million, Adjusted EBITDA of US$290.2 million and Adjusted EBITDA margin of 18%. The Group’s products are sold to over 70 countries in Europe, North America, Asia, Africa and the Middle East. The diversity of the Group’s products and export strength gives it the flexibility to focus on the most attractive markets and helps to protect it from downturns in a particular customer segment or geography. The Group identifies the most attractive markets using a range of criteria, including market growth potential, supply and demand balance, profitability, lead times and the complexity of the supply chain. In 2015, the Group produced approximately 22% of the overall Russian crude steel output, 15% of the overall Russian hot-rolled steel output, 38% of the overall Russian cold-rolled steel output, 26% of the overall Russian galvanized steel output, 26% of the overall Russian pre-painted steel output and 20% of the overall Russian rebar steel output, according to Metal Expert. The Group’s Russian operations produced 22% of the overall output of high value added products in Russia in 2015. The Group is a steel producer with a high degree of vertical integration and with control over a substantial part of its production chain, from its upstream operations, comprising the mining of raw materials and upstream diversified steelmaking (with a balance between BOF and EAF routes of crude steel production), to downstream steel processing (both flat and long finished steel products) close to the end users of its products and export seaports. The Group’s Russian operations represent 100% of the mining capacity of the Group, approximately 95% of its crude steelmaking capacity and approximately 60% of its downstream (production of rolled steel) processing capacity, including flat and long steel production. The Group’s mining division supplies raw materials, including iron ore concentrate, fluxing materials, coke and scrap to the Group’s Russia-based steelmaking operations. The Group’s core mining business is OJSC Stoilensky GOK (‘‘Stoilensky’’), an open pit mine with approximately 6 billion tonnes of primary iron ore reserves and one of the lowest cash costs of production (cost of mining and beneficiation per tonne of iron ore concentrate) in the global iron ore industry. Stoilensky supplies all of the Group’s iron ore concentrate and sinter ore requirements. The Group’s other raw material producing subsidiaries include OJSC Dolomit (‘‘Dolomit’’) and OJSC Studenovskaya Joint Stock Mining Company (‘‘Stagdok’’), which supply fluxing materials, and OJSC Altai-Koks (‘‘Altai-Koks’’), Russia’s largest non-integrated coke producer, which, together with the Lipetsk site’s coke production facilities, supplies all of the Group’s coke requirements. In addition, over 70% of all scrap consumed by the Group’s sites in Russia in 2015 was supplied by the Group’s captive scrap businesses which collect and process ferrous scrap, making NLMK one of the largest scrap collecting and processing companies in Russia. As part of the ongoing upstream development, the Group is currently seeking to expand the production of iron ore at Stoilensky by

1 approximately 10% while also constructing a pelletizing plant expected to produce over 6 million tonnes per year of iron ore pellets, which management expects to be operational in 2016. In addition, the Group has licenses to two coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the Kemerovo region, Western Siberia, and Usinsky-3 in the Komi Republic. The Group considers these deposits as a long-term option for further development. The Group seeks to control costs throughout the production cycle and believes that it enjoys one of the most competitive production cost structures in the global steel industry. Management believes that the Group’s main production site in Lipetsk, which accounts for approximately 75% of the overall crude steel capacity of the Group, has one of the lowest cash costs of steel production among the world’s steel producers and one of the lowest among its Russian competitors. The Group achieves this by ensuring economies of scale in the production process and by upgrading its production facilities, which management believes include some of the most modern in the global steel industry. The Group also operates a long steel division in Russia comprising electric arc furnace-steel production and rolling mills producing rebar, wire-rod and metalware. The Group enjoys an advantageous geographical position, with production sites located close to its customer base in regions with extensive transportation infrastructure. The Group’s Russian operations benefit from a long-term agreement with Freight One, a transportation company, for the supply of transport and rail logistics services. Freight One is part of Universal Cargo Logistics Holding B.V. (‘‘UCL Holding’’), one of the largest railway wagon fleet owners in Russia. UCL Holding is currently an entity under common control. The Group’s main production site in Lipetsk (Novolipetsk) has convenient access to the Black Sea and Baltic Sea ports from where its products are shipped overseas. In addition, iron ore deposits are situated in close proximity to the Group’s main production site in Lipetsk. Most of the Group’s Russian customers are located within 500 kilometers of its main production site in Lipetsk, helping to streamline company logistics. In addition, the Group operates rolling mills in two of its key overseas markets through its subsidiaries and associate companies in the European Union (in Belgium, Denmark, France and Italy), which together form the NLMK Europe business unit, and through its subsidiaries in the United States, which together form the NLMK USA business unit. NLMK Europe and NLMK USA together represent approximately 40% of the downstream processing capacity of the Group (or over 6 million tonnes a year). A substantial part of the feedstock (slabs) used by NLMK Europe and NLMK USA in the manufacturing of high value added products is supplied by the Group’s Russian operations. In February 2014, the Group announced its new strategic goals for the coming three years (‘‘Strategy 2017’’). Strategy 2017 is focused on unlocking significant internal potential of the Group’s businesses by boosting operational and process efficiency across the entire production chain, enhancing vertical integration into key raw materials, increasing sales of high value added (HVA) products, and pursuing environmental, safety and human capital development programmes. Strategy 2017 is centred on gaining leadership in operational efficiency, developing a world-class resource base, and achieving leading positions in strategic markets. Special emphasis is placed on industrial safety, sustainability and human capital development. Strategy 2017 targets net gains of US$1.0 billion per year and envisions overall development capex of US$1.0 billion. In 2014–2015, the Company estimates that the structural net gain for the Group as a result of Strategy 2017 totalled US$477 million per year (using 2015 prices, in comparison with 2013 base-level), or 48% of the total Strategy 2017 target the Group plans to achieve by 2018. The Company estimates that over 85% of the savings in 2014–2015 came from operational efficiency programmes that did not require any capital outlay, with the remaining 15% coming from investment projects. In 2015, the Company estimates net gains totalled US$256 million (from 2014 base-level).

Competitive Strengths Sustainable growth capabilities The Group is a growth business whose objective is to deliver above average long-term growth relative to its competitors, while minimizing risks arising out of operating in a highly cyclical industry. The Group’s Russian low-cost steelmaking platform remains its main growth engine, and the Group has focused on expanding its steelmaking capacity. In 2013 the Group launched operation of NLMK-Kaluga, an advanced electric arc furnace (‘‘EAF’’) mini-mill located in the Central European part of Russia (‘‘NLMK Kaluga’’), with annual capacity of 1.5 million tonnes of steel and 0.9 million tonnes of rolled products. The rolling capacity of the mill can potentially be expanded to 1.5 million tonnes. In 2018 the Group plans to start reconstruction of one of blast furnaces of Lipetsk production site. The upgrade will extend the service life

2 of the blast furnace by at least 20 years and boost its productivity by 8% to 3.4 million tonnes of pig iron per year. Pursuing efficient vertical integration remains the Group’s principal means of reducing industry risks. The Group has a high degree of vertical integration comprising a wide range of upstream assets ranging from mining and energy generation to primary steelmaking, processing and distribution. The Group seeks to improve its profitability by enhancing its operational efficiency, increasing self-sufficiency in raw materials and consequentially reducing consumption of expensive resources. The Group has shifted its strategic focus from external expansion to improving efficiency and extending its presence in attractive product niches, industries and regions. Management believes that continuing development of its downstream capacity enables the Group to meet evolving customer requirements and to improve profitability by offering high value added products. By producing high value added products, the Group is able to safeguard the value generated at its upstream production facilities and to maximise their capacity utilisation rates. Following the acquisition of the rolling assets in Europe and the United States that now form its International Operations (NLMK Europe and NLMK USA), the Group is able to process up to 90% of its steel mainly produced in Russia into finished product, even after a significant crude steel capacity expansion in 2012–2013. The Group intends to expand its product offering by developing its downstream capabilities, capturing opportunities in both growing markets, like Russia, as well as in mature markets, in each case by offering high value added and premium quality products, including niche products, manufactured in close proximity to the end-user.

Self-sufficiency in key resources The Group has been pursuing self-sufficiency in key resources in order to secure supplies and to control the costs of steel. The Group’s upstream assets, such as its mining, coke production and scrap processing facilities, supply it with the key input materials, such as iron ore, coke, scrap and fluxes required for crude steel production, and enable it to manage risks associated with price fluctuations for raw materials. In 2015, iron ore concentrate and sinter ore production at Stoilensky covered all of the Group’s requirements in primary ferrous materials, Stagdok and Dolomit supplied all of the fluxes required by the Group and Altai-Koks (together with the coke operations at the Lipetsk site) fully covered its coke requirements. In addition, over 70% of all scrap consumed by the Group’s Russian assets was supplied by the Group’s captive scrap processing network. The Group has also built a portfolio of mining rights for coking coal deposits and considers them as a long-term investment.

Low-cost and efficient operations Efficiency remains the cornerstone of the Group’s strategy. The Group is a cost leader and it strives to secure and maintain cost leadership positions in all of the core markets where it competes. For instance, the cash cost of slabs produced at the Group’s Lipetsk site in 2015 was US$206 per tonne, which was considerably below the global average of US$320 per tonne (according to data published by World Steel Dynamics). The Group produces most of its raw materials and liquid steel in low cost locations combining integrated (BOF) and scrap-based (EAF) production routes, while more than a third of the Group’s finished products are produced in developed markets in close proximity to its diverse customer base. The Group also controls its costs by operating in-house raw materials and energy production, as well as by maintaining lower conversion costs across the entire production chain. The level of in-house generated electric energy self-sufficiency at the Lipetsk site was 57% in 2015. In order to manage the risk related to coking coal prices, the Group is implementing alternative technologies (such as tar pitch, which is already rolled out at Altai-Koks, as well as hot stamping and pulverized coal injection) that allow it to replace premium grades of coal with less expensive coal, while maintaining the same quality of coke. The Group also aims to replace the consumption of coke and natural gas with steam coals, also known as PCI coal, with the first of the Group’s blast furnaces transferred to PCI technology in 2013 and 2014. The Group plans to continue implementation of this technology in the remainder of 2016. The increase in productivity in terms of output of steel per employee at the Group’s Lipetsk site (from 420 tonnes in 2013 to 463 tonnes in 2015, representing an increase of 10%) reflects the Group’s commitment to maximising efficiency in its operations. The Group also runs management efficiency initiatives identifying cost reduction opportunities and converting them into cost savings.

3 Location of assets The Group’s business model is based, in part, on leveraging the geographical location of its assets. The Group’s mining and steel production assets (the most material- and resource-intensive part of the integrated process) are located in Russia, a low-cost region, while production of finished products is concentrated in the key sales markets in close proximity to its customers in Russia, the United States and Europe.

Flexibility The Group has a flexible business model, which enables it to address the increasing challenges in the industry. The diversity and the flexibility of the Group’s business are enhanced by its extensive product mix, which helps manage exposure to divergent industry cycles. The Group’s product portfolio is well balanced between both finished and semi-finished and standard and high-end products, contributing to superior asset performance and profitability. Ongoing technological innovation and product development increases the share of new products in the Group’s product mix, making its business more adaptable to the needs of its clients. In most product categories, the Group seeks to maintain a healthy balance between exposure to emerging and mature markets, thereby balancing growth and stability. The Group’s robust production capabilities and flexible production policy allowed it to increase the sales of semi-finished products in 2015 by 24% as compared to 2014, and to maintain overall sales volumes and high capacity utilisation rates.

Solid financial standing and operational and financial performance The Group believes that its balanced business model, control over a significant portion of its raw material and energy supplies and its program of modernising production facilities have enabled it to achieve a high level of operating and financial performance. In 2015, the Group’s net debt to Adjusted EBITDA ratio was 0.6 compared to 0.7 in 2014 and 1.9 in 2013. Despite the industry-wide challenges and falling commodity prices, the Group’s profit for 2015 increased to US$967.4 million as compared to US$772.5 million in 2014 and US$145.4 million in 2013. The Group’s credit ratings are as follows:

Long-term National Rating agency rating rating scale Outlook Standard and Poor’s ...... BB+ RuAA+ Stable Moody’s ...... Ba1 — Negative Fitch ...... BBB AA+(rus) Negative

Strategy With the adoption of the Strategy 2017 in 2014, the focus of the Group’s strategy has shifted from expansion of production capabilities to the increased focus on development of existing assets and improvement of their efficiency. Management’s mission as set forth in the Strategy 2017 is to unlock the Group’s internal value through boosting the operational efficiency of its business model. Strategy 2017’s key strategic targets are to achieve US$1 billion of net gains per year, structurally reduce the Company’s capital expenditures, maintain stable free cash flow generation, and keep leverage at or below a targeted ratio of Net Debt to Adjusted EBITDA of 1.0x. To achieve this mission, the Group plans to pursue the following strategies:

4 Leading positions in strategic markets The Group plans to enter or to expand its presence in attractive product niches, industries, and regions. It intends to achieve higher utilisation rates at existing capacities and growth in domestic sales, as well as increase the level of high value added products in the Group’s portfolio.

Leadership in sustainability and safety The Group seeks to operate in a safe, socially and environmentally responsible manner. It plans to minimize its environmental footprints. It seeks to ensure that its production processes comply with the strictest environmental and occupational health and safety standards. The Group aims to gain improvements in labour productivity supported by a motivated staff.

Risk Factors Investment in the Notes involves a high degree of risk. For a detailed discussion of the risks and other factors to be considered when making an investment with respect to the Notes, see ‘‘Risk Factors’’ and ‘‘Forward-Looking Statements’’. Prospective investors in the Notes should carefully consider the risks and other information contained in this Prospectus prior to making any investment decision with respect to the Notes. Prospective investors should note that the risks described in this Prospectus are not the only risks the Group faces. NLMK and the Issuer have described only the risks they consider to be material. However, there may be additional risks that they currently consider immaterial or of which they are currently unaware.

5 OVERVIEW OF THE OFFERING The following overview of the Offering should be read in conjunction with, and is qualified in its entirety by, ‘‘Terms and Conditions of the Notes’’, ‘‘Clearing and Settlement’’ and ‘‘Loan Agreement’’.

The Notes Issuer ...... Steel Funding Limited. Joint Lead Managers ...... Deutsche Bank AG, London Branch, ING Bank N.V., London Branch, J.P. Morgan Securities plc and Societ´ e´ Gen´ erale.´ Notes Offered ...... US$700,000,000 4.50 per cent. Loan Participation Notes due 2023. Issue Price ...... 100 per cent. of the principal amount of the Notes. Issue Date ...... 15June 2016 Maturity Date ...... 15June 2023 Trustee ...... Deutsche Trustee Company Limited. Principal Paying and Transfer Agent . Deutsche Bank AG, London Branch. Registrar (Regulation S Notes) ..... Regulation S Notes: Deutsche Bank Luxembourg S.A. US Paying Agent, Rule 144A Registrar and Transfer Agent ..... Deutsche Bank Trust Company Americas. Interest ...... On each interest payment date (being 15 June and 15 December in each year and commencing on 15 December 2016), the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan accrues at a rate of 4.50 per cent. per annum from and including the Issue Date. Form and Denomination ...... The Notes will be issued in registered form, in denominations of US$200,000 and higher multiples of US$1,000. 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 Regulation S Global Note Certificate shall be registered in the name of a nominee of, and deposited with a common depositary for, Euroclear and Clearstream, Luxembourg and the Rule 144A Global Note Certificate shall be registered in the name of Cede & Co. as nominee of, and deposited with a custodian for, DTC. Status of the Notes ...... The Notes are limited recourse, secured obligations of the Issuer as more fully described in ‘‘Terms and Conditions of the Notes— Status’’. The sole purpose of the issue and the Notes is to provide the funds for the Issuer to finance the Loan.

6 The Notes will constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and other amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of Reserved Rights, all as more fully described in ‘‘Terms and Conditions of the Notes—Status’’. Security ...... The Notes will be secured by the Charge (as defined in ‘‘Overview of the Transaction Structure and the Security’’) on: • all principal, interest and other amounts now or hereafter payable to the Issuer by NLMK under the Loan; • the right to receive all sums which may be or become payable by NLMK under any claim, award or judgment relating to the Loan Agreement; and • all the rights, title and interest in and to all sums of money now or in the future deposited in the Account (as defined in ‘‘Overview of the Transaction Structure and the Security’’) and the debts represented thereby (including interest from time to time earned on the Account, if any), pursuant to the Trust Deed, provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. The Notes will also be secured by an assignment with full title guarantee by the Issuer to the Trustee of its rights under the Loan Agreement (save for the Reserved Rights and those rights subject to the Charge) pursuant to the Trust Deed. Withholding Taxes ...... All payments of principal and interest in respect of the Notes by or on behalf of the Issuer will be made without deduction or withholding 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 any authority having the power to tax, other than as required by law or regulations. Subject to certain exceptions, in the event that any such deduction or withholding by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax is required by law or regulations, the Issuer will be required to pay such additional amounts as shall result in the receipt by the noteholders of such amount as would have been received by them had not such withholding or deduction been required, to the extent the Issuer receives corresponding amounts from NLMK under the Loan Agreement.

7 Optional Redemption by NLMK for Taxation Reasons ...... The Issuer will be required to redeem in whole, but not in part, the Notes at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption in the event that (1) NLMK elects to repay the Loan on the basis that it is required to pay increased amounts of principal, interest or any other amount due under the Loan Agreement on account of Russian or Irish withholding taxes or as a result of the enforcement of the security provided for in the Trust Deed, or (2) NLMK elects to repay the Loan on the basis that it is required to pay additional amounts on account of certain costs incurred by the Issuer pursuant to the Loan Agreement. Optional Redemption by the Issuer for Illegality ...... In limited circumstances as more fully described in the Loan Agreement, the Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, upon giving notice to the Trustee and the Noteholders, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of redemption, in the event that it becomes unlawful for the Issuer to fund the Loan or allow the Loan to remain outstanding under the Loan Agreement or allow the Notes to remain outstanding or for the Issuer to maintain or give effect to any of its obligations in connection with the Loan Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes and, in such case, the Issuer shall require the Loan to be repaid in full. Relevant Events ...... Upon the occurrence of a Relevant Event (as defined in the Trust Deed), the Trustee may, subject as provided in the Trust Deed and subject to being indemnified and/or secured and/or prefunded to its satisfaction, enforce the security created in its favour pursuant to the Trust Deed. Ratings ...... It is expected that the Notes will be rated: • BBB by Fitch; • Ba1 by Moody’s; and •BB by Standard & Poor’s. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid or paid on a particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. Listing ...... Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on the Main Securities Market.

8 Selling Restrictions ...... The Notes are subject to selling restrictions in the United States, the United Kingdom, Ireland, the Russian Federation and any other applicable jurisdictions. See ‘‘Subscription and Sale’’. Governing Law and Arbitration ..... The Notes, the Trust Deed, the Paying Agency Agreement (as defined below) and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law and the Issuer has submitted in such documents to the jurisdiction of the courts of England. Use of Proceeds ...... The gross proceeds to the Issuer from the offering of the Notes are expected to be US$700,000,000, which the Issuer intends to use for the sole purpose of financing the Loan to NLMK pursuant to the terms of the Loan Agreement. Security Codes ...... Regulation S Notes: Common Code: 140577561 International Security Identification Numbers (‘‘ISIN’’): XS1405775617 Rule 144A Notes: Common Code: 098266844 ISIN: US85812PAC77 CUSIP: 85812PAC7 Clearing Systems ...... DTC (in the case of the Rule 144A Notes) and Euroclear and Clearstream, Luxembourg (in the case of the Regulation S Notes). Yield ...... The annual yield of the Notes when issued is 4.50 per cent. Risk Factors ...... An investment in the Notes involves a high degree of risk. See ‘‘Risk Factors’’. Certain Covenants ...... The Issuer has covenanted under the Trust Deed that, as long as any Notes remain outstanding, it will not, without the prior written consent of the Trustee, agree to any amendment or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement. The Loan Lender ...... Steel Funding Limited, a company organized and existing as a limited liability company under the laws of Ireland. Borrower ...... Novolipetsk Steel, an open joint stock company incorporated under the laws of the Russian Federation. Status of the Loan ...... The Loan is a direct, unconditional, unsubordinated and unsecured obligation of NLMK and obligations under the Loan will rank at least pari passu with all other direct, unconditional, unsubordinated and unsecured indebtedness of NLMK. Principal Amount of the Loan ...... US$700,000,000 Interest on the Loan ...... 4.50 per cent. per annum, payable semi-annually in arrears on 15 June and 15 December in each year starting on 15 December 2016.

9 Use of Proceeds ...... NLMK intends to use the proceeds of the Loan (a) to finance the purchase of the Existing Notes in each case tendered and accepted for purchase in accordance with the terms and conditions of the Tender Offer, that is expected to be settled on or about 17 June 2016, (b) for refinancing of existing indebtedness, and (c) for general corporate purposes. See ‘‘Use of Proceeds’’. Early Prepayments by NLMK ...... See ‘‘Optional Redemption by NLMK for Taxation Reasons’’ and ‘‘Optional Redemption by the Issuer for Illegality’’ above and Clause 5 (Repayment and Prepayment) described in ‘‘Loan Agreement’’. Withholding Taxes and Increased Costs ...... Payments under the Loan Agreement shall be made without deduction or withholding for or on account of Russian or Irish taxes, except as required by law. Subject to certain exceptions, in the event that any deduction or withholding for or on account of such taxes is required by law with respect to payments under the Loan Agreement or that any deduction or withholding for or on account of Irish taxes is required by law or regulations with respect to payments under the Notes, NLMK will be obliged to increase the amounts payable under the Loan Agreement to the extent necessary to ensure that the Issuer receives (or the Noteholders receive, as applicable) the amount which would have been received had such deduction or withholding not been required. Certain Covenants ...... The Loan Agreement contains a negative pledge, a restriction on certain reorganisations, a covenant to pay taxes and information delivery requirements, all as more fully described in ‘‘Loan Agreement’’. Events of Default ...... The Loan Agreement contains various events of default, including a cross-acceleration provision in respect of certain indebtedness of NLMK or any Material Subsidiary (as defined in the Loan Agreement) in excess of US$50 million (or its equivalent in another currency), all as more fully described in ‘‘Loan Agreement’’. Governing Law ...... The Loan Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law.

10 RISK FACTORS Investment in the Notes involves a high degree of risk. Prospective investors in the Notes should carefully consider the following information about the risks described below, together with other information contained in this Prospectus prior to making any investment decision with respect to the Notes. The risks highlighted below could have a material adverse effect on the Group’s business, results of operations, financial condition or prospects, which, in turn, could have a material adverse effect on the ability of NLMK to service its payment obligations under the Loan Agreement and, as a result, the debt service on the Notes. In addition, the trading price of the Notes could decline if any of these risks materialize, and Noteholders may lose some or all of their investment. Prospective investors should note that the risks described below are not the only risks the Group faces. NLMK and the Issuer have described only the risks they consider to be material. However, there may be additional risks that they currently consider immaterial or of which they are currently unaware, and any of these risks could have the effect set forth above.

RISKS ASSOCIATED WITH THE GROUP’S BUSINESS AND INDUSTRY The Group’s business is dependent on the global economic environment. The global economic downturn which began in 2008 has had an extensive adverse impact on the steel industry. The substantial contraction in industrial activity in 2009 had a significant impact on both pricing and demand for steel products and iron ore. While many economies have subsequently experienced some recovery from the economic crisis, growth in many markets remains slow, and many markets which previously had seen very high growth have exhibited slower growth in recent years. In particular, China has recently seen a substantial decline in its rate of growth, which has contributed to a significant decline in commodity prices generally, and the prices of iron ore and steel in particular. Furthermore, the global financial and economic crisis resulted in extreme volatility in the debt and equity markets, which led to severe reductions in liquidity, as well as to a general increase in the cost of borrowing for private sector borrowers. The global economy continues to be subject to a number of uncertainties, including mounting government deficits, discontinuation of government stimulus programs, deflation in certain markets, continuing high levels of unemployment and concerns over the stability of monetary union in the European Union (see ‘‘—Risks relating to the Eurozone Crisis’’), as well as continued slow growth or contraction in some markets. If global economic conditions deteriorate or a similar economic contraction were to reoccur, the resulting contraction in demand for many of the Group’s products and the tightening of the credit markets could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

The Group operates in a cyclical industry, and any local or global downturn in the steel industry may have an adverse effect on its results of operations and financial condition. The steel industry is cyclical in nature because the industries in which steel customers operate are cyclical and sensitive to changes in general economic conditions. The demand for steel products thus generally correlates to macroeconomic fluctuations in the economies in which steel producers sell products, as well as in the global economy. The prices of steel products are influenced by various factors, including global and regional steel consumption, worldwide production capacity and capacity utilisation rates, raw material costs, exchange rates, trade barriers and improvements in steelmaking processes. The global economic downturn which began in 2008 resulted in a deceleration in steel demand and a decline in steel prices, and steel prices are still below 2008 levels. Further, the continuing adverse global economic conditions, overcapacity in the steel industry, significant decline in raw materials prices and substantially higher levels of Chinese exports, together with a substantial decline in China’s rate of growth, have led to a decline in steel prices in 2015, and while steel prices recovered in the first quarter of 2016 driven by growth in raw materials’ prices and increased buying activity amidst restocking at the trading companies, no assurance can be given that economic conditions will not deteriorate again with resulting adverse effects on steel prices. The reduction in steel demand has also resulted in global overcapacity of steel production, which has led to reduced capacity utilisation rates and, in some cases, closures of production capacity. See ‘‘—The Group’s business is dependent on the global economic environment’’. In response to deteriorating conditions of local producers, governments in several countries, including the United States and the European Union, have also imposed anti-dumping duties on steel products imported from China and Russia (including the

11 Group’s products). These policies, if they continue or become more widespread, could impair the Group’s assets to export markets. See ‘‘—An increase in existing trade barriers or the imposition of new trade barriers in the Group’s principal export market could cause a significant decrease in the demand for its products in those markets’’. In the first quarter of 2016, the global economic situation demonstrated uneven recovery with some regions still showing negative growth trends and this had a negative impact on steel markets, including European markets. See ‘‘Business—NLMK Europe’’. The demand for steel products and global steel production capacity have been strongly influenced by the developing world, particularly China, as well as India and other emerging markets. China is the largest global steel producer, and the balance between its domestic production and consumption has been one of the major drivers of global steel prices. The rate of growth of gross domestic product in China has decelerated in the recent years, while the volume of steel exported by China has significantly increased. To the extent the surplus of domestic steel production relative to domestic steel demand in China results in increased volumes of export sales by Chinese producers, the global steel markets may experience further downward pricing trends. In the future, demand for steel products and prices of steel may continue to experience significant fluctuations as a result of these and other factors, many of which are beyond the Group’s control. Prolonged declines in global steel demand or prices would have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The ongoing armed conflict in Eastern Ukraine and the international reaction to Russia’s actions in the Crimean region, which resulted in the imposition of sanctions, could further materially adversely affect the economic environment in Russia, including the business, financial condition, and results of operations of the Group, and create significant political and economic uncertainty. The continuing significant civil and political crisis in Ukraine and the armed conflict in Eastern Ukraine have affected Russia’s relations with the EU, the United States and certain other countries (including Canada, Australia and Norway). In March 2014, a referendum on the status of Crimea was held which resulted in a majority of votes in favour of seceding from Ukraine and joining the Russian Federation as a federal constituent entity. On 18 March 2014, Russia and Crimea signed an agreement on the accession of the Republic of Crimea to the Russian Federation. On 21 March 2014, the Russian parliament passed legislation extending the effect of Russian laws and operation of governmental authorities to the territory of Crimea. Following these events, a number of countries imposed various sanctions against Russia and refused to recognise the referendum in Crimea as legal. The United States and the EU have imposed sanctions on a number of Russian officials and individuals, former Ukrainian officials, and several Russian companies, banks and businessmen, with the consequences that entities and individuals in the US and EU cannot do business with them or provide funds or economic resources to them, with assets in the relevant sanctioning jurisdictions subject to seizure and the individuals to visa bans. In addition, the US and EU have applied ‘‘sectoral’’ sanctions, whose principal consequences are that several leading Russian banks have been restricted from accessing Western capital. Similar sanctions have been imposed on companies in the oil and gas sector and on defence companies. The current sanction regime is a result of multiple extensions by the US and EU in the term and scope of sanctions, the most recent of which were taken in March 2016. The US executive order implementing sectoral sanctions also permits sanctions to be applied against companies in the metals and mining sectors. The reaction of Western countries to the events in Eastern Ukraine and Crimea, in particular the economic sanctions described above, has adversely affected the Russian economy and Russia’s financial markets, increased the cost of capital and capital outflows and worsened the investment climate in Russia. During the course of 2014, international rating agencies S&P and Moody’s downgraded their foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ and ‘Baa2’, respectively, with negative outlook. On 26 January 2015, S&P cut its long-term foreign currency sovereign bond rating for the Russian Federation to ‘BB+’ with negative outlook, and on 20 February 2015, Moody’s cut its sovereign debt rating for the Russian Federation to Ba1 with negative outlook; each of these ratings is below ‘investment grade’. As the Group’s main production assets are located in the Russian Federation, an expansion of sanctions to the metals and mining sector could cause difficulties in the implementation of investment projects dependent on supplies of imported equipment and in raising funds on EU and US markets. In addition, US/EU sanctions could apply to US and EU employees or directors of the Group and its subsidiaries,

12 meaning such individuals could not approve or in any other way participate in operations with the banned organisations or enter into transactions to which sanctions apply. The impact of any escalation in tensions between Russia and Ukraine could negatively affect the Russian economy. This, in turn, could result in a general lack of confidence among international investors in the region’s economic and political stability and in Russian investments generally. Such a lack of confidence could result in reduced liquidity, increased trading volatility and significant declines in the price of listed securities of companies with significant operations in Russia, and in the Group’s inability to raise debt or equity capital in the international capital markets, which may materially adversely affect its business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes. The conflict in Ukraine is ongoing and could continue or escalate. Significant hostilities between Ukraine and Russia, if such were to occur, would likely cause substantial economic disruption to both countries. There would also likely be calls from the West for a comprehensive sanction regime that would seek to isolate Russia from the world economy. If no resolution of the current level of ongoing civil insurrection in eastern Ukraine is forthcoming and Russia is continued to be perceived as acting inimically, there may well be further strengthening and broadening of sanctions against Russian persons. Various prominent Western politicians have already called for strengthening sanctions. For example, there have been proposals to cut off Russia from the international SWIFT payment system, which would disrupt ordinary banking services in Russia and any cross-border trade. Although the Group is not currently subject to any US or EU sanctions, more expansive sanctions targeting metals and mining companies or a broader segment of the Russian economy could interfere with the Group’s operations, which may have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

The Group’s largest market in terms of revenues is Russia, and a continued economic downturn in Russia could have a material adverse effect on its business and financial condition. The Group derived 39% of its total revenues from sales to customers in Russia in 2015 (37% in the three months ended 31 March 2016) and is therefore vulnerable to economic conditions in Russia. The Russian economy has experienced significantly fluctuating growth rates over the last two decades, including recent significant declines. In 2014 Russia’s GDP growth rate slowed to 0.6% and in 2015 Russia’s GDP declined by 3.7%. Furthermore, a significant portion of the Group’s products in Russia are used in the construction and infrastructure, automotive and engineering industries, which are particularly vulnerable to general economic downturns. A material downturn in the Russian economy could have a negative effect on the businesses of some of the Group’s customers and reduce demand for the Group’s products, which may have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Economic and political uncertainty in Europe may impact the Group’s business. The region comprising the member states of the European Union that have adopted the euro (the ‘‘Eurozone’’) has been affected by the general slow growth in the economies of its Member States following the global economic crisis, as well as the continued financial crisis in Greece and negotiations over its inability to repay its substantial debt. On 30 June 2015, Greece became the first developed country to miss its loan payment to the International Monetary Fund. Although the payment was finally made during a grace period, Greece remains in a difficult financial position and would not be able to meet its further loan repayments without further assistance from the European Central Bank. Financial markets and the supply of credit are likely to continue to be impacted by concerns surrounding the sovereign debts of Greece and potentially other EU countries, the possibility of further credit rating downgrades of, or defaults on, such sovereign debt, the possible exit of Great Britain from the European Union, concerns about a slowdown in growth in certain economies and uncertainties regarding the stability and overall standing of the European Monetary Union. Governments and regulators have implemented austerity programmes and other remedial measures to respond to the Eurozone debt crisis and stabilise the financial system but the actual impact of such programmes and measures are difficult to predict. If the Eurozone debt crisis is not resolved, it may be the case that one or more countries may default on their debt. If such an event were to occur, it could result in unpredictable market volatility as customers in

13 the region could potentially reduce purchases from the Group, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes. In addition, the departure of one or more countries from the European Monetary Union may result in the imposition of, among other things, exchange controls and mandatory payment laws. The exact nature of the risks that the Group faces in this context is difficult to predict and guard against in light of the difficulties in predicting the outcomes of the remedial measures being undertaken in Europe or the extent to which the Eurozone debt crisis, a slowdown in growth or recession in Europe and elsewhere will impact on the global economy, and the fact that the risks are outside of the Group’s control. To the extent that the economic conditions in the European Union worsen, the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes could be materially adversely affected.

The steel industry is highly competitive. The Russian and international markets for steel and steel products are highly competitive. The Group competes primarily on the basis of price, volume, quality, technical innovation and the ability to meet customers’ product specifications and delivery schedules. The Group’s competitors include foreign steel producers, some of which are larger, have greater capital resources and more extensive global operations than the Group, as well as competitors in developing economies which may have comparable production costs. Furthermore, the highly competitive nature of the steel industry combined with excess production capacity for some steel products has resulted, and may in the future continue to result, in downward pressure on prices of some of the Group’s products. The intensity of competition, combined with the cyclical nature of steel markets, results in significant variations in economic performance, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group is dependent on suppliers for some of the raw materials that it uses and a disruption in supply or change in price could have a material adverse effect on its results of operations. The Group requires substantial amounts of raw materials in the steel production process, in particular iron ore and coking coal. While the Group has developed a substantial degree of self-sufficiency in raw material supplies for its Russian operations (which represent more than 90% of the Group’s total crude steel capacity), particularly with regard to iron ore concentrate and sinter ore requirements, coke and scrap (in which it is 100%, 100% and over 80% self-sufficient, respectively), the Group currently relies on third- party suppliers to provide all its coking coal requirements. Although the Group has acquired licenses for the exploration and development of coal deposits in Russia (Zhernovskoye-1, including Zhernovski- Gluboki, in Western Siberia and Usinsky-3 in the Komi Republic in the north west of Russia), the Group considers these deposits as a long term option and has not included the development of these deposits in its Strategy 2017 announced in 2014. It believes that, provided feasibility studies are complete and approval to proceed with the projects is granted, it will require at least another four to six years before it begins commercial mining at these deposits. In addition, the Group’s operations require various other raw materials, including iron ore pellets, ferro-alloys and non-ferrous metals, which are currently sourced from third-party suppliers. The price and availability of raw materials sourced from third parties are subject to market conditions, and the Group may not be able to adjust the prices of its steel products to recover the costs of significant increases in the prices of such raw materials. Any significant change in the prices or supply of raw materials could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘—Increased energy costs or an interruption in the Group’s electricity or natural gas supply could materially adversely affect its business and results of operations’’.

Increased energy costs or an interruption in the Group’s electricity or natural gas supply could materially adversely affect its business and results of operations. Energy costs, particularly the costs of electricity and gas, comprise a significant portion of the Group’s cost of production. Electricity prices have increased in recent years in Russia. In 2015, the price of electricity consumed by the Group’s Russian subsidiaries, which in 2015 accounted for 96% of the Group’s total crude steel production, remained at the level of 2014, though the Group expects further increases in

14 electricity prices in the future. In addition, in 2015, the Group purchased 3 billion cubic meters of natural gas, with 2.8 billion cubic meters purchased by the Group’s Russian operations from PJSC Gazprom (‘‘Gazprom’’) and the rest from other suppliers. Domestic natural gas prices are regulated by the government and have been rising in recent years in line with a restructuring plan for the Russian gas sector aimed at achieving a comparable level of gas prices in the domestic and international markets. In 2015, the average price (in rubles) of natural gas purchased by the Group’s Russian companies increased by approximately 4% as compared with 2014. An interruption in the Group’s electricity or natural gas supplies would have a significant effect on its business and results of operations. In the event of a failure in the electricity grid, production of the Group’s steel products could continue for only a limited time. Gas is one of the heating fuels, in addition to coke, that the Group uses in its blast furnaces and any interruption in supply could result in a decrease in the production levels of the blast furnaces and require the Group to consume significantly more coke.

Increased rail transportation costs or a disruption in rail transportation could significantly affect the Group’s operations, product distribution, business and financial results. Railway transportation is the Group’s principal means of transporting raw materials and steel products to its facilities. Railway tariffs for freight of the Group’s raw materials and products increased, on average, by approximately 10%, 0% and 7% in 2015, 2014 and 2013, respectively, resulting in significant increases in the Group’s transportation costs over the three year period. A further significant increase in rail tariffs could adversely affect the Group’s profitability. The Group has a long-term cooperation arrangement (expiring in 2017) with Freight One (currently an entity under common control), which is part of the UCL Holding group, one of the largest railway wagon fleet owners in Russia. However, transportation for the Group’s Russian operations is ultimately dependent on the railway network operated by the state-owned monopoly, Joint Stock Company Russian Railways (‘‘RZD’’). The Russian railway system is subject to risks of disruption as a result of the declining physical condition of the facilities, the limited capacity of border stations and load shedding, including those due to poorly maintained rail cars and train collisions. The Group’s coking operations are located in the Altai region of Russia, which is approximately 3,600 kilometers from the Group’s steel production units in Lipetsk, and, therefore, the Group is subject to the risk that the transportation of these supplies may be disrupted. Any prolonged disruption in the supply of raw materials to the Group or delivery of the Group’s steel products could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘—Risks Relating to the Russian Federation—Some of Russia’s physical infrastructure is in very poor condition, which could disrupt normal business activity of the Group or lead to increased costs’’.

Wage increases in Russia may reduce the Group’s profit margins. In the three months ended 31 March 2016, the average number of employees of the Group’s Russian operations represented 94% of the total average number of Group employees in that period. Wage costs in Russia have historically been significantly lower than wage costs in the more economically developed countries of North America and Europe for similarly skilled employees. However, if wage costs were to increase in Russia, this could result in a reduction in the Group’s profit margins. Although the Group has been able in the past to increase production efficiency in order to offset cost pressures resulting from wage inflation, to the extent that the Group is unable to continue to increase the efficiency and productivity of its employees, wage increases could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Equipment failures or production curtailments or shutdowns could adversely affect the Group’s sales and profitability. Interruptions in production capacities will inevitably increase production costs and reduce sales and earnings. In addition to equipment failures, the Group’s facilities are also subject to the risk of catastrophic loss due to unanticipated events, such as fires, explosions or adverse weather conditions. The Group makes efforts to prevent these risks and implements the preventive fire safety program based on international standards such as FM-Global and NFPA. The Group’s manufacturing processes depend on critical pieces of steelmaking equipment, such as blast furnaces, basic oxygen furnaces, continuous casters and rolling equipment, as well as electrical equipment such as transformers, and this equipment may, on occasion, be

15 out of service as a result of unanticipated failures. In the future, the Group may experience material plant shutdowns or periods of reduced production as a result of any equipment failures. Despite the fact the Group implemented a risk-oriented medium-term maintenance capital expenditures programme with a five-year planning horizon for equipment that reached critical wear out, has insurance for equipment damage and business interruption, has implemented fire safety program and timely replaces equipment with critical degree of wear, there can be no assurance that amounts recoverable under such insurance policies would be sufficient to compensate the Group for losses and expenses resulting from equipment failure or shutdown. Furthermore, a longer-term business disruption could result in a loss of customers. If this were to occur, future sales and the Group’s profitability could be adversely affected. In addition, the climate of the regions of Russia where the Group’s production facilities are located affects its operations during various times of the year. If colder weather starts earlier or ends later in the year, then the Group’s operating capacity may be reduced or stockpiles of raw materials may be increased.

The Group will require a significant amount of cash to fund its capital investments, and, if the Group is unable to generate this cash through its operations or through external sources, this program may not be completed on schedule or at all. The Group’s business is and will continue to be capital-intensive. The Group’s capital expenditures were US$756 million in 2013, US$563 million in 2014 and US$595 million in 2015 (in each case excluding VAT). In the past, the Group has generated a substantial portion of the cash necessary for these improvements and repairs through internal operations, and NLMK expects to continue to do so in the foreseeable future. If the Group’s cash flows are reduced, and the Group is not able to obtain alternative sources of external financing at an acceptable cost or in the amounts required, the Group’s planned capital investments may be substantially delayed or interrupted. In addition, the Group’s capital investments are subject to a variety of other uncertainties, including changes in economic conditions, delays in completion, cost overruns and defects in design or construction. No assurance can be given that the Group’s capital projects will be completed on schedule or that expected operational improvements will be fully realized as currently envisioned. A failure to complete the Group’s capital expenditure projects would, in turn, result in decreased efficiency of the Group’s operations as well as declines in production capacity, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group has substantial short-term borrowings. The Group had short-term borrowings of US$597 million as at 31 March 2016. The Group’s ability to refinance its short-term debt may depend on factors outside its control, including conditions in Russian and global credit markets. If the Group is unable to refinance such short-term borrowings on acceptable terms, the Group may need to reprioritize the allocation of its capital resources, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group’s existing and future level or scope of insurance coverage may not be adequate. The Group operates many industrial facilities in which hazardous materials and substances that have the potential to present risks to the health or safety of workers and neighboring populations are in use. In relation to the Group’s Russian operations, the insurance industry in Russia is not as well developed as in certain other jurisdictions. Although the Group believes that, with respect to such Russian operations, it maintains insurance levels generally in line with the relevant local market standards, some of its business units do not have comprehensive business interruption insurance and do not maintain environmental liability insurance. Should any claims arise involving the Group’s business or products, it may be held liable for amounts exceeding applicable coverage ceilings or funding requirements and for uninsured events. Furthermore, any accident, whether it occurs at a production site or during the transport or use of products made by the Group, may result in production delays or claims for compensation, particularly contractual claims or product liability claims, which could have material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘Business—Insurance’’.

16 New or more stringent environmental or health and safety laws and regulations or stricter enforcement of existing environmental or health and safety laws and regulations in the countries in which the Group operates may have a significant negative effect on the Group’s operating results. The Group operates in an industry which affects the environment and requires compliance with stringent regulatory requirements. The operations of steelmaking plants have potential environmental problems, including the generation of pollutants and their decontamination, and storage and disposal of wastes and other hazardous materials. Pollutant emissions and discharges, as well as disposed wastes, contain such substances as benzopyrene, nitrogen and sulfur oxides, sulfates, phenols and sludges (including those containing chrome, copper, nickel and zinc). Pollution risks and associated clean-up costs are often impossible to assess until audits of compliance with environmental standards have been performed and the extent of liability under environmental laws can be clearly determined. Environmental regulations are being revised in the Russian Federation and elsewhere, and the Group regularly evaluates its obligations in line with new or amended legislation. New and stricter environmental requirements are being imposed from time to time, and fines and other payments may increase. In addition to its Russian operations, the Group has operations in the European Union and the United States and must comply with the environmental regulations in those regions. The Group’s operations are associated with the emission of ‘‘greenhouse gases’’, and the introduction of prospective international obligations on ‘‘greenhouse gases’’ regulations, including the Paris Agreement expected to apply from 2020, may have an adverse impact on Group’s operations. The Group is also subject to health and safety laws, regulations and standards, including workplace health and safety requirements. The Group’s compliance with these environmental, health and safety laws and regulations requires a commitment of significant financial resources. These laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons resulting from environmental, health and safety incidents and other impacts of the Group’s past and current operations, and could lead to the imposition of substantial fines, penalties, other civil or criminal sanctions, the curtailment or cessation of operations, orders to pay compensation, orders to remedy the effects of violations and/or orders to take preventative steps against possible future violations. In addition, the Group, as a rule, has not been indemnified when it acquired businesses against (or released from) any environmental liabilities, or with respect to required expenses for the natural environment restoration, arising from activities that occurred prior to the acquisition of these businesses and the Group does not maintain insurance for such risks; therefore, the Group may be responsible for the entire amount of such liabilities (if any) and any expenses with regard to their discharge. Furthermore, evolving regulatory standards, enforcement and expectations may result in increased litigation or increased costs, all of which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Group may consider further acquisitions as part of its strategic development but there can be no assurance that the Group will be able to integrate successfully such acquired businesses or identify suitable acquisition targets. As part of the implementation of its business strategy, the Group may consider further acquisitions, which will help it to meet its production requirements, increase vertical integration or enhance future growth. The acquisition and integration of new companies and businesses pose significant risks to the Group’s existing operations, such as the difficulty of integrating the operations and personnel of the acquired business, problems with minority shareholders in acquired companies and their material subsidiaries, the potential disruption of the Group’s own business, the assumption of liabilities, including in relation to tax and environmental matters, relating to the acquired assets or businesses, the possibility that indemnification agreements with the sellers of those assets may be unenforceable or insufficient to cover potential tax or other liabilities, the difficulty of implementing effective management, financial and accounting systems and controls over the acquired business, the imposition and maintenance of common standards, controls, procedures and policies and the impairment of relationships with employees and counterparties as a result of difficulties arising out of integration. Furthermore, the value of any business the Group acquires or invests in may be less than the amount that the Group pays for it if, for example, there is a decline in the position of that business in the relevant market in which it operates or there is a decline in the market generally, which could impact the Group’s profitability. See ‘‘Operating and Financial Review—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’.

17 Estimates of the Group’s mining reserves and resources are subject to uncertainties. The estimates concerning the reserves of iron ore deposits and other raw materials that the Group’s mining segment has a license to mine are subject to considerable uncertainties. These estimates are based on interpretations of geological data obtained from sampling techniques and projected rates of production in the future. Actual production results may differ significantly from reserves estimates. In addition, it may take many years from the exploration phase before production is possible. During that time, the economic feasibility of exploiting a discovery may change as a result of changes in the market price of the relevant raw material. The Group’s ability to develop these reserves is subject to its ability to obtain, maintain and renew the licenses to those reserves. See ‘‘—The Group’s business could be adversely affected if it fails to obtain, maintain or renew necessary licenses, including subsoil licenses, and permits or fail to comply with the terms of its licenses and permits’’.

The Group’s mining and steel operations are subject to hazards and risks that could lead to unexpected production delays, increased costs, damage to property or injury or death to persons. The Group’s mining operations, like those of other companies engaged in mining operations, are subject to all of the hazards and risks normally associated with the exploration, development and production of natural resources, any of which could result in production shortfalls or damage to persons or property. In particular, hazards associated with the Group’s open-pit mining operations include flooding of the open pit, collapses of the open-pit wall, accidents associated with the operation of large open-pit mining and ore handling equipment, accidents associated with the preparation and ignition of large-scale open-pit blasting operations, production disruptions due to weather and hazards associated with the disposal of mineralized waste water, such as groundwater and waterway contamination. There are also hazards associated with the Group’s steel production operations, including fires or accidents at blast furnaces and other industrial accidents, and such operations may involve the use of hazardous materials and substances that have the potential to present risks to the health and safety of workers and neighboring populations. The Group is at risk of experiencing any, some or all of these hazards. The occurrence of any of these hazards could result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental or natural resource damage, delays to production or shipping, reduced sales, increased costs, losses associated with remedying the situation, as well as potential legal liability for the Group. The liabilities resulting from any of these risks may not be adequately covered by insurance, and no assurance can be given that the Group will be able to obtain additional insurance coverage at rates it considers to be reasonable. The Group may therefore incur significant costs that could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. See ‘‘—The Group’s existing and future level or scope of insurance coverage may not be adequate’’.

Inflation, or appreciation in real terms of the ruble against the US dollar or the euro, may materially adversely affect the Group’s results of operations. A substantial majority of the Group’s production activities are located in Russia, and the majority of its direct costs are incurred in Russia. Russia has experienced high levels of inflation since the early 1990s. As a result of increases in the inflation rate, which in 2013 was 6.5%, in 2014 was 11.4%, in 2015 was 12.9% and in the three months ended 31 March 2016 was 2.1%, the Group experienced inflation-driven increases in some of the costs of its Russian operations, such as salaries, that are linked to the general price level in Russia. However, the Group may not be able to increase the prices that it receives for its products sufficiently in order to preserve operating margins, particularly, in the case of export sales, if that inflation is accompanied by real appreciation of the ruble against the US dollar or the euro. Accordingly, high rates of inflation in Russia could increase the Group’s costs in Russia and decrease its operating margins. The Group’s reporting currency is the US dollar. The Group’s products are typically priced in rubles for sales in the Russian Federation and in US dollars and euros for sales outside the Russian Federation, whereas the majority of the Group’s direct costs are incurred in rubles. Although the ruble has depreciated against the dollar in recent periods, an appreciation of the ruble against the US dollar or the euro would result in an increase in the Group’s costs relative to revenues, adversely affecting the Group’s results of operations. In this situation, due to competitive pressures, the Group may not be able to raise the prices that it charges for its products sufficiently to preserve its expected operating margins, and real appreciation

18 of the ruble against the US dollar or the euro may materially adversely affect the Group’s results of operations.

Devaluation of the ruble against the US dollar may have a material adverse effect on the Group’s business. The ruble experienced significant depreciation against the US dollar in 2008 and in the beginning of 2009, largely as a result of the 2008/2009 crisis and the significant fall in prices in oil and commodities that are principal generators of Russia\s export earnings, as well as, in 2014 and 2015, due to slowing growth and decline of Russia’s GDP, a substantial decrease in oil prices and capital outflows. Between 1 August 2008 and 1 March 2009, the ruble depreciated by 34% against the US dollar (from 23.42 rubles per US$1.00 to 35.72, according to the CBR); however, the exchange rate has fluctuated significantly in 2012–2015, ranging from 28.95 rubles per US$1.00 to 34.04 rubles per US$1.00 in 2012; from 29.93 rubles per US$1.00 to 33.47 rubles per US$1.00 in 2013; from 32.66 rubles per US$1.00 to 67.79 per US$1.00 in 2014 and from 49.18 rubles per US$1.00 to 72.88 rubles per US$1.00 in 2015. Although a depreciation of the ruble generally reduces the Group’s ruble costs in US dollar terms, it may also negatively affect the Group in a number of ways, including, among other things, by increasing inflation and having a negative effect on the Russian economy, which could have a material adverse effect on the Group’s business.

The Group’s business could be adversely affected if it fails to obtain, maintain or renew necessary licenses, including subsoil licenses, and permits or fails to comply with the terms of its licenses and permits. The Group’s mining subsidiaries do not have property rights to the deposits that they mine. Instead, they have licenses to explore and develop those deposits. Therefore, the Group’s business depends on the continuing validity of its licenses, including subsoil licenses for its mining operations, and the issuance of new licenses and the Group’s compliance with their terms. In relation to the Group’s three mining subsidiaries, Stoilensky principal mining license expires on 31 December 2017. The other licenses of Stagdok and Dolomit are due to expire in 2028, 2040 and 2029, respectively. In addition, the Group may require new licenses or permits if it seeks to expand its existing operations or commence new operations. Regulatory authorities exercise considerable discretion in the timing of license issuance and renewal and the monitoring of licensees’ compliance with license terms. Requirements imposed by these authorities, which require the Group to comply with numerous industrial standards, recruit qualified personnel, maintain necessary equipment and quality control systems, monitor operations, maintain appropriate filings and, upon request, submit appropriate information to the licensing authorities, may be costly and time-consuming and may result in delays in the commencement or continuation of exploration or production operations. An application for an update of the license for the Zhernovsky-1 coal deposit is under review of the Federal Agency of Subsoil Use (‘‘Rosnedra’’). If the application is not satisfied and the current deadlines specified in the license are not met, though the Group considers such an outcome unlikely, the authorities could take action against the Group, including potentially a suspension or termination of the Zhernovskoye deposit license, for a failure to comply with the terms of the license. Private individuals and the public at large possess rights to comment on and otherwise engage in the licensing process. Accordingly, the licenses and permits the Group needs may be invalidated and may not be issued or renewed, or if issued or renewed, may not be issued or renewed in a timely fashion, or may involve requirements which restrict the Group’s ability to conduct its operations or to do so profitably. The legal and regulatory basis for the licensing requirements is often unclear, and ministerial acts and instructions that attempted to clarify licensing requirements are often inconsistent with legislation, which increases the risk that the Group may be found in non-compliance. In addition, it is possible that licenses applied for and/or issued in reliance on acts and instructions relating to subsoil rights issued by the Ministry of Natural Resources and Ecology of the Russian Federation could be challenged by the governmental authorities or otherwise as being invalid if they were found to be beyond the authority of that ministry. In the event that the licensing authorities discover a material violation, the Group may be required to suspend its operations or incur substantial costs in eliminating or remedying the violation, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

19 The Group’s competitive position and future prospects depend on its senior management’s experience and expertise. The Group’s ability to maintain its competitive position and to implement its business strategy is dependent to a large degree on the services of its senior management team. The loss or diminution in the services of members of the Group’s senior management team or an inability to attract, retain and maintain additional senior management personnel could have a material adverse effect on the Group’s business, financial condition, results of operations or prospects. Competition in Russia for personnel with relevant expertise is intense due to the limited quantity of qualified individuals, and this situation seriously affects the Group’s ability to retain its existing senior management and attract additional qualified senior management personnel, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

An increase in existing trade barriers or the imposition of new trade barriers in the Group’s principal export markets could cause a significant decrease in the demand for its products in those markets. Some of the products of the Group’s Russian operations are subject to various trade barriers, such as anti-dumping duties, tariffs and quotas, in its principal export markets, including the United States and EU. See ‘‘Regulatory Matters—Trade Barriers and Anti-Dumping Regulations’’. For example, in February 2016 the United States introduced preliminary anti-dumping duties in respect of cold-rolled steel products ranging from 12.3%–16.8%. EU authorities introduced a 26.2% anti-dumping duty specifically targeting cold-rolled flat steel products manufactured by NLMK. These trade barriers affect the demand for the Group’s products by effectively increasing the prices for those products compared to domestically available product. An increase in existing trade barriers, or the imposition of new trade barriers, could cause a significant decrease in the demand for the Group’s products in its principal export markets, which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The Russian Government may impose export tariffs or pricing restrictions on Russian steel and mining producers, which could adversely affect the demand for its products. Historically, the Russian Government has considered adopting export tariffs on certain steel and mining products, potentially including products produced by the Group. Certain of the Group’s major customers, as well as other major consumers of steel products, have presented, and may in the future present, to the Russian Government initiatives to introduce such export tariffs in order to affect the pricing of steel and mining products in the domestic market. However, no decision has been made to this effect and, therefore, the impact of any such export tariffs or measures as may be adopted on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes is uncertain. The Group’s ability to determine prices for the sales of its products in Russia could also be adversely affected to the extent that pricing ceilings or other restrictions are imposed. See ‘‘—Risks Relating to the Russian Federation—The Group is subject to anti-monopoly laws enforced by the FAS, which may result in certain limitations being imposed on the Group’s activities, the violation of which may result in civil, administrative and even criminal liability’’.

If transactions the Group or its predecessors have entered into are challenged for non-compliance with applicable legal requirements, the transactions could be invalidated or liabilities imposed on the Group. The Group and its predecessors have taken a variety of actions relating to share issuances, share disposals and acquisitions, valuation of property, interested party transactions, major transactions and anti-monopoly issues, in respect of which the Group, or its predecessors, did not fully comply with applicable legal procedures and which, therefore, could be subject to a legal challenge. A successful challenge against the Group for not complying with applicable legal requirements could result in the invalidation of those transactions or the imposition of liabilities on the Group. Moreover, since applicable provisions of law in various jurisdictions are subject to many different interpretations, the Group may not be able to successfully defend any challenge brought against similar transactions, and the invalidation of any such transactions or imposition of any such liability may, individually or in the aggregate, have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

20 The Group’s operations could be adversely affected by labour relations. Most of the Group’s employees are members of a trade union. Although the Group considers the Group’s employee relations to be satisfactory, large union representation subjects the Group’s businesses to the threat of interruptions through strikes, lockouts or delays in renegotiations of labour contracts. In NLMK Europe and NLMK USA divisions, 4% and 2% of employees, respectively, were represented by a trade union as at 31 March 2016, as well as approximately 49% of employees of the Lipetsk site. The Group’s existing collective bargaining agreement with its main trade union at the Lipetsk site is due to expire in December 2016. To the extent that the Group is not able to renew the collective bargaining agreement on terms favourable to the Group or if the Group’s operations are affected by work stoppages or labour disputes at its NLMK Russia, NLMK Europe or NLMK USA divisions, the Group’s business, results of operations and financial condition or the trading price of the Notes could be materially adversely affected.

NLMK is beneficially controlled by a single person. NLMK is beneficially controlled by Mr. Vladimir Lisin (the ‘‘Majority Shareholder’’), who as at the date of this Prospectus, controlled indirectly 85.5% of NLMK’s shares (See ‘‘Principal Shareholders’’). As a result, the Majority Shareholder has the ability to exert significant influence over certain actions in respect of NLMK. While transactions with the Majority Shareholder and affiliates of the Majority Shareholder can benefit the Group and NLMK believes that such transactions have been conducted on an arm’s length basis, there can be no assurance that the Group could not have achieved more favourable terms had such transactions not been entered into with related parties. To the extent that the interests of the Majority Shareholder were to conflict with the interests of the Noteholders, the trading price of the Notes could be materially adversely affected.

RISKS RELATING TO THE RUSSIAN FEDERATION Emerging markets are subject to greater risks than more developed markets, including significant legal, economic and political risks. Investors in emerging markets such as Russia should be aware that these markets are subject to greater risk than more developed markets, including in some cases significant legal, economic and political risks. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in debt or equity markets of all emerging market countries as investors move their money to more stable, developed markets. Financial problems or an increase in the perceived risks associated with investing in emerging economies may adversely affect the level of foreign investment, which may, in turn, adversely affect the economies in those countries. In addition, during such times, companies that operate in emerging markets can face severe liquidity constraints as foreign funding sources are withdrawn. As a result, financial turmoil in Russia could seriously disrupt the Group’s business and its ability to service its payment obligations under the Loan Agreement, as well as result in a decrease in the trading price of the Notes. Investors should also note that an emerging economy such as that of Russia is subject to rapid change and that the information set out in this Prospectus 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, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved. Potential investors are urged to consult with their own legal and financial advisors before making an investment in the Notes.

Some of Russia’s physical infrastructure is in very poor condition, which could disrupt normal business activity of the Group or lead to increased costs. Russia’s physical infrastructure largely dates back to Soviet times and has not been adequately funded and maintained since the dissolution of the Soviet Union. The rail and road networks, power generation and transmission, communications systems and building stock have been particularly affected. In the past, Russia has experienced electricity and heating shortages and blackouts, and the Russian railway system is subject to risks of disruption as a result of the declining physical condition of rail tracks and a shortage of rail cars. The poor condition or further deterioration of the physical infrastructure in Russia may harm its national economy, disrupt the transportation of goods and supplies, increase the costs of doing business and interrupt business operations, each of which could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

21 Investments in Russia may be adversely affected by fluctuations in the global economy. The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. Since Russia is one of the world’s largest producers and exporters of oil, natural gas and metal products, the Russian economy is especially sensitive to commodity prices on the world markets. The sharp decrease in prices for natural resources in 2008 and 2014–2016 resulted in a significant decrease of governmental revenues, which had a negative effect on the Russian economy. Commodity prices continue to be volatile and future fluctuations in the global markets could substantially limit the Group’s access to capital. These developments could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Potential political or social conflicts could create an uncertain operating environment hindering the Group’s long-term planning ability and could have a material adverse effect on the value of investments in Russia, including the trading price of the Notes. The Russian Federation is a federation of sub-federal political units, consisting of republics, territories, regions, cities of federal importance and autonomous regions and districts, some of which have the right to manage their internal affairs pursuant to agreements with the federal government and in accordance with applicable laws. The delineation of authority and jurisdiction among the members of the Russian Federation and the federal government is, in some instances, unclear. In practice, the division of authority and uncertainty could hinder the Group’s long-term planning efforts and may create uncertainties in the Group’s operating environment, which may prevent it from effectively carrying out its business strategy. In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, acts of terrorism (principally connected with the North Caucuses region) and military conflict, including the military conflict between the Russian Federation and Georgia in 2008, recent deterioration in relations between the Russian Federation and Turkey as a result of attack on the Russian military jet by Turkish Air Forces along the Syrian-Turkish border in November 2015 and recent participation of the armed forces of the Russian Federation in the Syrian conflict. If existing conflicts remain unresolved, or new disturbances or hostilities arise, the Group may be unable to access capital, or access capital on terms reasonably acceptable to it, which may have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

A reversal of reform policies or government policies targeted at specific individuals or companies could have an adverse effect on the Group’s business as well as investments in Russia more generally. From 2001 until 2013, the political and economic situation in Russia became generally more stable, which accelerated the reform process and made Russia more attractive to investment. Such stability, however, has been negatively affected by the global financial crisis, the economic sanctions imposed by the United States and the EU and the on-going economic recession. See ‘‘—The ongoing armed conflict in Eastern Ukraine and the international reaction to Russia’s action in connection with Crimea resulting in the imposition of sanctions could materially adversely affect the economic environment in Russia, including the business, financial condition, and results of operations of the Group, and create significant political and economic uncertainty’’. Moreover, in December 2011 and in 2012, there were public protests alleging voting irregularities in federal parliamentary and presidential elections and demanding political reform. Any significant further increases in political instability, a struggle over the direction of future reforms, or a reversal of the reform process, could lead to another deterioration in Russia’s investment climate that might constrain the Group’s ability to obtain financing in the international capital markets, limit its sales in Russia or otherwise have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes. In the past, Russian authorities have prosecuted some Russian companies, their executive officers and their shareholders on tax evasion and related charges. In some cases, the result of these prosecutions has been the imposition of prison sentences for individuals and significant claims for unpaid taxes. Any similar actions by governmental authorities could lead to further negative effect on investor confidence in Russia’s business and legal environment, which could have a material adverse effect on the Group’s ability to raise equity and debt capital in the international markets, as well as the Group’s business, results of operations,

22 financial condition, the its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

Economic instability in Russia could harm the Group’s business and investment plans. Over the last two decades, the Russian economy has experienced at various times: • significant volatility in its GDP; • high levels of inflation; • increases in, or high, interest rates; • sudden price declines in the natural resource sector; • instability in the local currency market; • lack of reform in the banking sector and a weak banking system providing limited liquidity to Russian enterprises; • budget deficits; • the continued operation of loss-making enterprises due to the lack of effective bankruptcy proceedings; • capital flight; and • significant increases in poverty rates, unemployment and underemployment. In addition, despite the campaign pursued by the Russian government against crime and corruption, the then President (and current Prime Minister) Mr. Dmitry Medvedev acknowledged in April 2012 that these measures had yielded only limited results to date. The Russian economy has been subject to abrupt downturns in the past. In late 2008, at the outset of the global economic downturn, the Government announced plans to institute more than US$200 billion in emergency financial assistance in order to ease taxes, refinance foreign debt and encourage lending. However, these measures had a limited effect, and the Russian economy has not yet fully recovered from the economic downturn. The impact of the global economic downturn on the Russian economy led to, among other things, several suspensions of trading on MICEX and RTS by market regulators since September 2008, a reduction in the Russian GDP and disposable income of the general population, a severe impact on bank liquidity, a significant devaluation of the ruble against the US dollar and euro, sharp decrease in industrial production and a rise in unemployment. Furthermore, following the imposition of economic sanctions by the United States and the EU and the decline of oil prices, Russia’s GDP growth rate slowed to 0.6% in 2014 and declined by 3.7% in 2015. With the Russian economy experiencing a recession in 2015 that is expected to continue in 2016, the Russian banking sector may experience renewed instability. For example, according to the CBR, the level of past due of loans to non-financial enterprises in the Russian banking sector has increased from 4.2% in January 2015 to 6.5% in March 2016. Any deterioration in the general economic conditions in Russia could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

The ongoing development in the Russian legal system and Russian legislation creates an uncertain environment for investment and for business activity. Russia continues to develop its legal framework in accordance with international standards and the requirements of a market economy. Since 1991, new Russian domestic legislation has been put into place. Currently, this system includes the Constitution of the Russian Federation of 1993, the Civil Code of the Russian Federation and other federal laws, decrees, orders and regulations issued by the President, the Russian Government and federal ministries, which can be complemented by regional and local rules and regulations, adopted in certain spheres of regulation. Several fundamental Russian laws have only recently become effective and there still remain gaps and inconsistencies in regulatory infrastructure. Consequently, certain areas of judicial practice are not yet fully settled, and are therefore sometimes difficult to predict. Among the risks of the current Russian legal system are: • inconsistencies among (i) federal laws, (ii) decrees, orders and regulations issued by the President, the Russian Government, federal ministries and regulatory authorities and (iii) regional and local laws, rules and regulations;

23 • limited judicial and administrative guidance on interpreting Russian legislation; • the relative inexperience of judges, courts and arbitration tribunals in interpreting new principles of Russian legislation, particularly business and corporate law; • substantial gaps in the regulatory structure due to delay or absence of implementing legislation; and • a high degree of unchecked discretion on the part of governmental and regulatory authorities. There are also legal uncertainties relating to property rights in Russia. During Russia’s transformation to a market economy, the Russian Government has enacted legislation to protect property against expropriation and nationalization, and, if property is expropriated or nationalized, legislation provides for fair compensation. However, there is no assurance that such protections would be enforced. Notwithstanding the implementation of recent measures, including the reforms of the Russian court system introduced by then President Dmitry Medvedev with the stated aim of ‘‘making the courts become as much as possible independent from the state authorities’’, the transitional state of the Russian legal system could affect the Group’s ability to enforce its rights under contracts, or to defend itself against claims by others, which could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Findings of failure to comply with existing laws or regulations, unlawful, arbitrary or selective government action or increased governmental regulation of the Russian operations of the Group could result in substantial additional compliance costs or various sanctions. The Group’s operations and properties in Russia are subject to regulation by various government entities and agencies at both the federal and regional levels. Regulatory authorities often exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of licenses and permits and in monitoring licensees’ compliance with license terms, which may lead to inconsistencies in enforcement. Russian authorities have the right to, and frequently do, conduct periodic inspections of operations and properties of Russian companies throughout the year. Any such future inspections may conclude that the Group violated applicable laws, decrees or regulations. Findings that the Group failed to comply with existing laws or regulations or directions resulting from government inspections may result in the imposition of fines, penalties or more severe sanctions, including the suspension, amendment or termination of the Group’s licenses or permits or in requirements that the Group suspend or cease certain business activities, or in criminal and administrative penalties being imposed on the Group’s officers. In addition, unlawful, arbitrary or selective government actions directed against other Russian companies (or the consequences of such actions) may generally impact on the Russian economy, including the securities market. Any such actions, decisions, requirements or sanctions, or any increase in governmental regulation of the Russian operations of the Group, could increase the Group’s costs and could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes.

Shareholder liability under Russian legislation could cause NLMK to become liable for the obligations of its subsidiaries. Under Russian law, NLMK may be primarily liable for the obligations of its Russian subsidiaries jointly and severally with such entities if: (i) NLMK has the ability to make decisions for such Russian subsidiaries as a result of its ownership interest, the terms of a binding contract or in any other way; and (ii) the relevant Russian subsidiary concluded the transaction giving rise to the obligations pursuant to NLMK’s instructions or with the consent of NLMK. In addition, NLMK may have secondary liability for the obligations of its Russian subsidiaries if the subsidiary becomes insolvent or bankrupt as a result of the action of NLMK. Accordingly, NLMK could be liable in some cases for the debts of its subsidiaries, which could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

24 The accession of the Russian Federation to the World Trade Organisation may lead to changes in the business and legal environment in Russia. The Russian Federation officially became a member of the World Trade Organisation (‘‘WTO’’) on 22 August 2012. The accession may lead to significant changes in Russian legislation including, among others, the regulation of foreign investments in Russian companies and competition laws, as well as changes in the taxation system and customs regulations in Russia. In addition, implementation of the WTO rules may result in an increase in competition in the markets where the Group operates. Although during 2012–2015 Russia adopted certain changes to its legislation related to its accession to the WTO (for example, for regulation of intellectual property), it is unclear yet if and when all necessary legislative changes related to the accession will take place. If further new legislation is implemented in Russia as a result of its accession to the WTO, such legislation could have a material adverse effect on the Group’s business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement and as a consequence the Issuer’s ability to make payments under or the trading price of the Notes.

The Group is subject to anti-monopoly laws enforced by the FAS, which may result in certain limitations being imposed on the Group’s activities, the violation of which may result in civil, administrative and even criminal liability. The Federal Law No. 135-FZ ‘‘On Protection of Competition’’ dated 26 July 2006, which came into force on 26 October 2006 (the ‘‘Competition Law’’), generally prohibits any concerted action, agreement or coordination of business activity that results or may result in, among other things: (a) price fixing, discounts, extra charges or margins; (b) coordination of auction bids; (c) partition of a commodity market by territory, volume of sales or purchases, types of goods, customers or suppliers; (d) refusal to enter into contracts with buyers (customers) for reasons other than economic or technological reasons; (e) imposing unfavourable contractual terms; (f) fixing disparate prices for the same goods, for reasons other than economic or technological reasons; (g) creation of barriers to entering or exiting a market; and (h) restriction of competition in any other way. There is no established court practice on what concerted actions or coordination of business activity is and courts interpret these concepts inconsistently. As a result, there is significant uncertainty as to what actions may be viewed as violation of the Competition Law. In a number of precedents, Russian courts found concerted actions where market participants acted in a similar way within the same period of time, although, arguably, there have been legitimate economic reasons for such behavior and the behavior was not aimed at restriction of competition. Therefore, there is a risk that the Group can be found in violation of the Competition Law if its market behaviour vis-a-vis` its customers or suppliers is viewed as being similar to behavior of the Group’s competitors and perceived by the FAS as a purported restriction of competition. The Competition Law also prohibits any form of unfair competition, including, among other things, through defamation or otherwise. Such broad interpretations of the Competition Law may result in the FAS imposing substantial limitations on the Group’s activities, may limit operational flexibility and may result in civil, administrative and even criminal liability. As a major Russian steel and metalware producer, the Group is likely to have a market share in Russia that exceeds 50%, which means that the Group is deemed to have a dominant position in those markets. Under the Competition Law, companies having a dominant position are subject to restrictions on their ability to set prices for their products, which may adversely affect the Group’s results of operations. See ‘‘Regulatory Matters—Regulation of Competition’’. The FAS, which has extensive powers to investigate perceived violations of the Competition Law, has been very active over the last several years in policing marketing, sales and supply strategies of major participants of the Russian steel industry. In 2011, following an investigation, the FAS concluded that the Group had breached the Competition Law in setting prices for sales in Russia of electrical (transformer) steel, and, following the upholding of the FAS decision by the Moscow Arbitrazh Court, the Group filed an appeal against this decision with the Ninth Arbitrazh Court of Appeal on 10 September 2012, which has been rejected. The Group filed cassation appeals with the Federal Arbitrazh Court of Moscow District on 17 and 18 December 2012. The Group has also filed an appeal against the administrative procedural decision regarding the amount of the penalty imposed by the FAS (approximately RUB 63.4 million) with the Moscow Arbitrazh Court on 16 October 2012, which is aimed at decreasing the sum of the fine. In the course of 2013 – 2014 higher courts dismissed the FAS claims and upheld the Group’s position. In similar cases in the future fines imposed by the FAS, or orders to change its business operations in a manner that increases costs or reduces profit margin and revenue could adversely affect the Group’s

25 business, results of operations, financial condition, its ability to service its payment obligations under the Loan Agreement or the trading price of the Notes. In addition, the Group’s gas pipeline facility at its Lipetsk site is deemed to be a ‘‘natural monopoly’’ for the purposes of Russian law, and, as a result, the Group may face additional regulation or restrictions on the use of such pipeline, including requirements to provide access to the pipeline to third parties or the imposition of pricing conditions. See ‘‘Regulatory Matters—Regulation of Natural Monopolies’’.

RISKS RELATING TO TAXATION The Russian taxation system is relatively underdeveloped. The Russian Government is constantly reforming the tax system by redrafting parts of the Tax Code of the Russian Federation (the ‘‘Russian Tax Code’’). These changes have resulted in some improvement in the tax climate. As of 1 January 2009 the corporate profits tax rate was reduced to 20%. However, starting from 1 January 2015, the general tax rate on dividends was increased from 9 to 13%. For individuals who are tax resident in the Russian Federation the current personal income tax rate is 13%. The general rate of VAT is 18%. Since 1 January 2010 the Unified Social Tax was replaced by social security charges to the Russian pension, social security and medical insurance funds. For 2016, the total of the respective charges to the pension fund equals 22% of the taxable base up to RUB 796,000 of an employee’s annual remuneration and 10% of the amount exceeding RUB 796,000; additional charges to the pension fund may be payable with regard to employees working in hazardous and dangerous conditions of work; mandatory social insurance contributions against occupational accidents and diseases are payable on employees’ wages. Charges to the social security fund equal 2.9% of the taxable base up to RUB 718,000 of an employee’s annual remuneration and are not paid on amounts exceeding RUB 718,000. Charges to the medical insurance fund equal 5.1% of an employee’s annual remuneration. Other rates apply to specific categories of employees. In addition, the new Russian transfer pricing legislation has been in force since 1 January 2012. In 2015 controlled foreign companies and beneficial ownership provisions were introduced. Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of the Russian Federation, laws that introduce new taxes or worsen a taxpayer’s position cannot be applied retroactively. Nonetheless, there have been several instances when such laws have been introduced and applied retroactively. Despite the Russian Government having taken steps to reduce the overall tax burden in recent years in line with its objectives, there is a possibility that the Russian Federation could impose arbitrary or onerous taxes and penalties in the future, which can complicate tax planning and related business decisions. Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit has been taken. In certain circumstances repeated tax audits (i.e. audits with respect to same taxes and the same periods) are possible. Generally, the statute of limitations for the commission of a tax offence is also limited to three years from the date on which it was committed or from the date following the end of the tax period during which the tax offence was committed (depending on the nature of the tax offence). Nevertheless, according to the Russian Tax Code and based on current judicial interpretation, there may be cases where the tax offence statute of limitations may be extended beyond three years. Tax audits or inspections may result in additional costs to the Group, in particular if the relevant tax authorities conclude that the Group did not satisfy its tax obligations in any given year. Such audits or inspections may also impose additional burdens on the Group by diverting the attention of management. In October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation issued a ruling concerning judicial practice with respect to unjustified tax benefits. In this context, a tax benefit means a reduction in the amount of a tax liability resulting, in particular, from a reduction of the tax base, the receipt of a tax deduction or tax concession or the application of a lower tax rate, and the receipt of a right to a refund (offset) or reimbursement of tax. The ruling provides that where the true economic intent of operations is inconsistent with the manner in which they have been taken into account for tax purposes, a tax benefit may be deemed to be unjustified. The same conclusion may apply when an operation lacks a reasonable economic or business rationale. As a result, a tax benefit cannot be regarded as a business objective in its own right. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little practice for distinguishing between lawful

26 tax optimization and tax avoidance or evasion. The tax authorities have actively sought to apply this concept when challenging tax positions taken by taxpayers in court, and are anticipated to expand this trend in the future. Although the intention of this ruling was to combat tax abuses, in practice there can be no assurance that the tax authorities will not seek to apply this concept in a broader sense than may have been intended by the Supreme Arbitration Court. As a result of these rules, it is possible that despite the best efforts of the Group to comply with Russian tax laws and regulations, certain transactions and activities of the Group that have not been challenged in the past may be challenged in the future, resulting in a greater than expected tax burden, exposure to significant fines and penalties and potentially severe enforcement measures for the Group. Recent developments show that the Russian tax authorities are scrutinizing various tax planning and mitigation techniques, including international tax planning, used by taxpayers. In particular, the Russian Federation introduced ‘‘controlled foreign companies (CFC)’’ rules, the concept of ‘‘tax residency for legal entities’’, ‘‘beneficial ownership’’ concept and is in the process of ratifying of international information exchange agreements (including country-by-country reporting standards developed by OECD). At the moment, it is unclear how the above measures will be applied in practice by the Russian tax authorities and the courts. The Group operates in various jurisdictions and includes companies incorporated outside of the Russian Federation. It is possible that with the introduction of these rules and changes in the interpretation and application of these rules and changes by the Russian tax authorities and/ or courts, the Group might become subject to additional taxation in the Russian Federation in respect of its operations outside the Russian Federation. Furthermore, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures may affect the Group’s overall tax efficiency and may result in significant additional taxes becoming payable. No assurance can be given that no additional tax exposures will arise. All the aforesaid evolving tax conditions create tax risks in the Russian Federation that are greater than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on the Group’s operations, including management’s resources. Furthermore, these risks and uncertainties complicate the Group’s tax planning and related business decisions, potentially exposing the Group to significant fines, penalties and enforcement measures, and could materially adversely affect the Group’s business, results of operations, financial condition and its ability to service its payment obligations under the Loan Agreement and as a consequence, the Issuer’s ability to make payments under, or the trading price, of the Notes.

Consolidation of certain Group companies for Russian tax purposes could be subject to challenge by the Russian tax authorities. In accordance with the amendments to the Russian Tax Code introduced in November 2011, in 2012 NLMK’s management set up a consolidated group of taxpayers (the ‘‘Consolidated Group of taxpayers’’) which includes 21 Group companies as of the date of this Prospectus. The companies among the Consolidated Group of taxpayers are considered a single taxpayer for profits tax purposes. Furthermore, as part of the Consolidated Group of taxpayers the Group companies may reduce the profits tax base of the current tax period by the amount of tax losses incurred by one of the members of the Consolidated Group of taxpayers in such tax period. According to Russian tax law, the transactions conducted between Group companies included in the Consolidated Group of taxpayers should not be considered controlled transactions for transfer pricing purposes. However, there can be no assurance that the above Russian tax treatment of the Group companies as the Consolidated Group of taxpayers will not be challenged by the Russian tax authorities throughout the term of the Loan.

Russian transfer pricing rules may subject the Group’s transfer prices to challenge by the Russian tax authorities. On 1 January 2012, new transfer pricing rules were introduced to Russian tax law. In summary, this transfer pricing legislation results in new transfer pricing rules. In particular, the methods for monitoring the prices of controlled transactions were expanded and the list of controlled transactions currently includes: • cross-border transactions with certain types of commodities where the amount of income attributable to one counterparty exceeds RUB 60 million;

27 • Russian domestic transactions between related entities if the total annual turnover of such transactions exceeds RUB 1 billion; • transactions with residents of offshore jurisdictions included in the list established by the Ministry of Finance of the Russian Federation where the amount of income attributable to one counterparty exceeds RUB 60 million; and • transactions between Russian legal entities and related foreign legal entities. The Russian transfer pricing rules require taxpayers to notify the Russian tax authorities as to all controlled transactions. Taxpayers are also required to present to the Russian tax authorities transfer pricing documentation upon request. The Russian transfer pricing rules could have a material adverse effect on the Group’s business, results of operations and financial condition, its ability to service its payment obligations under the Loan Agreement, all of which may affect the trading price of the Notes. See also ‘‘—Consolidation of certain Group companies for Russian tax purposes could be subject to challenge by the Russian tax authorities’’.

Payments on the Loan may be subject to Russian withholding tax. In general, interest payments on borrowed funds made by a Russian legal entity to non-residents are subject to Russian withholding tax at a rate of 20% for legal entities or organisations and 30% for non-resident individuals, unless such withholding is reduced or eliminated pursuant to the terms of an applicable double tax treaty (See ‘‘Taxation—Certain Russian Tax Considerations’’). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid with respect to ‘‘quoted bonds’’ (as defined below). In particular, Russian borrowers are exempted from the obligation to withhold Russian withholding tax from interest payments made to foreign companies on debt obligations arising in connection with placement by these foreign companies of quoted bonds, provided that: (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer; and (2) the issuer duly confirms its tax residence. For the purpose of the Russian Tax Code, ‘‘quoted bonds’’ means bonds and other debt obligations (1) which passed the listing procedure and/or (2) which were admitted to circulation on one or more foreign stock exchanges and/or (3) rights to which are recorded by a foreign depositary-clearing organisation, provided such foreign stock exchanges and depositary-clearing organisations are specified in the list of foreign financial intermediaries (the ‘‘List’’). The List, which became effective on 30 December 2012, includes the Irish Stock Exchange amongst the recognised foreign stock exchanges and Euroclear Bank SA/NV (‘‘Euroclear’’), Clearstream and the Depository Trust & Clearing Corporation (‘‘DTCC’’) amongst the recognised foreign depositary-clearing organisations. While Clearstream and DTCC are mentioned in the List, the List does not explicitly mention Clearstream Banking, societ´ e´ anonyme (‘‘Clearstream, Luxembourg’’) and the Depository Trust Company (‘‘DTC’’). According to the shareholding structure of Clearstream and DTCC groups, Clearstream, Luxembourg and DTC are member entities of Clearstream and DTCC groups respectively, and, therefore, Clearstream, Luxembourg and DTC are parts of Clearstream and DTCC respectively. However, there is a residual risk that the Russian tax authorities may apply a formalistic approach and take a position that Clearstream, Luxembourg and DTC are not included in the List based on the fact that they are not explicitly mentioned in the List. Criteria (1) and (2) should be satisfied as the Notes will be listed on the Irish Stock Exchange. The Notes should satisfy criterion (3) because the rights to the Notes will be held in Euroclear and Clearstream, Luxembourg and/ or DTC, which for the purposes of the Russian Tax Code essentially should mean that the rights to the Notes are ‘‘recorded’’ with one of the above foreign depositary-clearing organisations. According to the Russian Tax Code, in order to be treated as ‘‘quoted bonds’’ fulfilment of one of the above criteria is sufficient. Therefore, the Notes should be recognised as ‘‘quoted bonds’’ for purposes of the Russian Tax Code. NLMK, based on professional advice received, believes that it should not be obligated to withhold Russian withholding tax from interest payments made to the Issuer under the Loan Agreement because (i) the Notes should be considered ‘‘quoted bonds’’ as described above; and (ii) the Loan is financed from the funds received from the issue of the Notes; provided the Issuer duly confirms its Irish tax residence. If the Notes are (i) delisted from the Irish Stock Exchange and (ii) exchanged for duly executed and authenticated registered Notes in definitive form in the limited circumstances specified in the Global Note Certificate, the above exemption related to ‘‘quoted bonds’’ could not apply and NLMK will be required to

28 withhold Russian income tax on interest payments made by NLMK to the Issuer. Besides that, if the Notes are delisted from the Irish Stock Exchange and deposited with a common depository for, and registered in the name of a nominee of, Clearstream, Luxembourg or DTC only, the Notes may potentially not fall within the definition of ‘‘quoted bonds’’ under the Russian Tax Code and, therefore, there is a residual risk that NLMK may be required to withhold Russian tax from interest payments made by NLMK to the Issuer. Further, currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay Russian tax (provided that such legal entities are neither Russian tax residents, nor foreign entities, which are recognised as controlled by the Russian tax residents under the Russian CFC Rules). However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities will not attempt to collect the tax from foreign income recipients. See ‘‘Taxation—Certain Russian Tax Considerations’’. If any payments under the Loan are subject to any Russian or Irish withholding tax, NLMK will be obliged to increase the amounts payable as may be necessary to ensure that the Issuer (or other recipient) receives a net amount equal to the amount it would have received in the absence of such withholding taxes. In addition, payments in respect of the Notes will be made without deduction or withholding for or on account of taxes except as required by law or regulation. Subject to certain exceptions (see ‘‘Taxation— Certain Irish Tax Considerations’’), in the event that any deduction or withholding for or on account of Irish taxes is required by law or regulation with respect to payments under the Notes, NLMK will be obliged to increase the amount payable under the Loan Agreement to the extent necessary to ensure that the Issuer receives (or the Noteholders receive, as applicable) the amount which would have been received had such deduction or withholding not been required. If withholding in respect of payments pursuant to the Loan Agreement occurs as a result of application of any amendments or clarification to, or change in the Russian/Ireland tax treaty or as a result of the application of Russian withholding tax, NLMK has a right to prepay the loan in accordance with clause 5.2 of the Loan Agreement. While the Loan Agreement provides for NLMK to pay such corresponding amounts in these circumstances, there are some doubts as to whether a tax gross up clause such as that contained in the Loan Agreement is enforceable under Russian law. Due to the limited recourse nature of the Notes, if NLMK fails to pay any such gross up amounts, the amount payable by the Issuer under the Notes will be correspondingly reduced. Any failure by NLMK to increase such payments would constitute an Event of Default under the Loan Agreement. In certain circumstances (including following enforcement of the security upon the occurrence of a ‘‘Relevant Event’’ as defined in the Trust Deed), in the event that NLMK is obliged to increase the amounts payable, it may prepay the principal amount of the Loan together with accrued interest and/or additional amounts payable (if any) thereon, and all outstanding Notes would be redeemed by the Issuer (to the extent that it has actually received the relevant funds from NLMK). The Issuer will grant security over certain of its rights in the Loan Agreement to the Trustee in respect of its obligations under the Notes. The security under the Trust Deed will become enforceable upon the occurrence of a Relevant Event, as defined in the Trust Deed. In these circumstances, payments under the Loan Agreement (other than in respect of ‘‘Reserved Rights’’, as described in ‘‘Terms and Conditions of the Notes’’) would be required to be made to, or to the order of, the Trustee. Under Russian tax law, payments of interest and other payments made by NLMK to the Trustee will in general be subject to Russian income tax withholding at a rate of 20% (or, potentially, 30% in respect of non-resident individual Noteholders). It is not expected that the Trustee will, or will be able to, claim a withholding tax exemption under any double tax treaty. However, pursuant to the Russian Tax Code, it is possible that NLMK will be exempt from the obligation to withhold Russian withholding tax from interest payments to the Trustee under the exemption established for ‘‘quoted bonds’’ (as described above). However, there is ambiguity as to the applicability of the exemption in this situation. If the exemption does not apply and tax is withheld it may be possible for some Noteholders who may be eligible for an exemption from Russian withholding tax under double tax treaties and the applicable Russian tax law to claim a refund of tax withheld, although there would be considerable practical difficulties in obtaining any such refund. There is a risk that, under the Russian thin capitalisation rules in certain circumstances where parties related to NLMK (i.e. any foreign corporate shareholder of NLMK owning directly or indirectly more than 20% share in NLMK’s charter capital and, potentially, affiliates of such foreign corporate shareholder, collectively the ‘‘Related Parties’’) hold Notes, part or all of the interest to be paid by NLMK under the Loan could be reclassified as dividends for Russian tax purposes. This would occur if the overall amount of the ‘‘controlled debt’’ of NLMK, calculated on an individual related party basis, exceeded three times the ‘‘own capital’’ (‘‘sobstvenniy capital’’) of NLMK, calculated in accordance with the requirements of the Russian Tax Code. Interest in the amount of such excess would be reclassified as dividends for Russian tax

29 purposes. There is a risk that the ‘‘controlled debt’’ of NLMK may include all or part of the Loan, to the extent that any Related Parties acquire any portion of the Notes. Such reclassification of all or a portion of the interest under the Loan as dividends could potentially lead to the imposition of Russian withholding tax on such reclassified interest at the rate of 15% and the non-deductibility of such interest for Russian profit tax purposes by NLMK. Also, such withholding on dividends would trigger the gross up obligation of NLMK discussed above. Based on the assumption that the amount of NLMK’s ‘‘controlled debt’’ calculated in accordance with the requirements of Article 269 of the Russian Tax Code does not exceed three times the amount of ‘‘own capital’’ (‘‘sobstvenniy capital’’) of NLMK calculated on an individual Related Party basis, the Russian thin capitalisation rules should not apply currently to the interest on the Loan. However, changes in these assumptions could result in all or a portion of such interest being subject to the thin capitalisation rules in the future so as to treat ‘‘excess interest’’ related to the Loan as a dividend subject to 15% withholding tax applicable to dividends. Such withholding on dividends would trigger the gross up obligation of NLMK discussed above. It should be noted however that pursuant to the amendments to the Russian Tax Code introduced by Federal Law No. 25-FZ of 15 February 2016, starting from1 January 2017 indebtedness arising from ‘‘quoted bonds’’ should not be recognised as ‘‘controlled debt’’ for the purposes of the Russian Tax Code. It is currently unclear whether the provisions obliging NLMK to gross up payments will be enforceable in the Russian Federation. If, in the case of litigation in the Russian Federation, a Russian court does not rule in favor of the Issuer or the Trustee and Noteholders, there is a risk that a gross up for withholding tax will not take place and that interest payments made by NLMK under the Loan Agreement will be reduced by Russian tax withheld by NLMK at the rate of 20%, or, potentially, with respect to Non-Resident Noteholders—Individuals Russian personal income tax at a rate of 30%. See ‘‘Taxation—Certain Russian Tax Considerations’’. In addition, in the event that (a) until 31 December 2016, interest paid to the Issuer under the Loan Agreement and any other loans extended by the Issuer to fund other loan participation notes represent less than 90% of the total income of the Issuer and (b) starting from 1 January 2017, the Issuer’s interest expenses on the Notes (and on any other ‘‘quoted bonds’’ issued by the Issuer) represent less than 90% of the total expense of the Issuer in any financial year, there is a risk that tax residence rules established by the Russian Tax Code may be applied to the Issuer and the Issuer may be treated as a tax resident of the Russian Federation for Russian tax law purposes in case the Issuer is recognised as managed from the Russian Federation under applicable Russian tax law. In that case, payments of interest under the Notes made by the Issuer to the Noteholders could be recognised by Russian tax authorities as subject to Russian withholding tax at a rate of 20% (or 30% with respect to Non-Resident Noteholders—Individuals). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid by a Russian organisation under ‘‘quoted bonds’’ issued in accordance with the legislation of the foreign jurisdiction (this exemption is also applicable to the foreign organisations, which are either recognised as Russian tax residents, or as those organisations, which activities are leading to creation of a permanent establishment in Russia). Based on the above, the Issuer should be released from the obligation to withhold Russian withholding tax from interest payments made to the Noteholders under the Notes provided that the Notes continue to be recognised as ‘‘quoted bonds’’ for the purposes of the Russian Tax Code as outlined above.

Tax might be withheld on disposals of the Notes in the Russian Federation, thereby reducing their value. If a non-resident Noteholder that is a legal person or organisation, which in each case is not organized under Russian law and which holds and disposes of the Notes otherwise than through a permanent establishment in Russia, sells the Notes and receives proceeds from either a source within the Russian Federation or a Russian tax resident-legal entity, there is a risk that any part of the payment that represents accrued interest may be subject to a 20%. Russian withholding tax (even if a disposal is performed at a loss). The foreign Noteholder may be entitled to a reduction of such Russian withholding tax under an applicable double tax treaty and applicable provisions of the Russian Tax Code (i.e. the ‘‘beneficial ownership’’ concept and the concept of ‘‘tax residency’’). Where proceeds from a disposal of the Notes are received from either a source within the Russian Federation or a Russian tax resident-legal entity by a non-resident Noteholder that is an individual, there is

30 a risk that Russian withholding tax would be charged at a rate of 30% on gross proceeds from such disposal of the Notes less any available documented costs (including the acquisition cost of the Notes). Although such tax may be reduced or eliminated under an applicable double tax treaty, subject to compliance with the treaty clearance formalities and applicable provisions of the Russian Tax Code (i.e. the ‘‘beneficial ownership’’ concept and the concept of ‘‘tax residency’’), in practice individuals would not be able to obtain advance treaty relief in relation to proceeds from a source within the Russian Federation. Obtaining a refund of taxes withheld can be extremely difficult, if not impossible. The imposition or possibility of imposition of the withholding tax could adversely affect the value of the Notes. See ‘‘Taxation—Certain Russian Tax Considerations’’.

RISKS RELATING TO THE NOTES AND THE TRADING MARKET Payments under the Notes are limited to the amount of certain payments received by the Issuer from NLMK under the Loan Agreement. The Issuer has an obligation under the Terms and Conditions of the Notes and the Trust Deed to pay such amounts of principal, interest, and additional amounts (if any) as are due in respect of the Notes. However, the Issuer’s obligation to pay is limited to the amount of principal, interest, and additional amounts (if any) actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement. Consequently, if NLMK fails to meet its payment obligations under the Loan Agreement, this will result in the Noteholders receiving less than the scheduled amount of principal or interest or any other amounts, if any, on the relevant due date. Moreover, except as otherwise expressly provided in the ‘‘Terms and Conditions of the Notes’’ and in the Trust Deed, the Noteholders will not have any proprietary or other direct interest in the Issuer’s rights under, or in respect of, the Loan Agreement. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions of the Loan Agreement, or have direct recourse to NLMK, except through action by the Trustee under the Charge (as defined in the ‘‘Terms and Conditions of the Notes’’) or any assignment of rights, including the Assigned Rights (as defined in the ‘‘Terms and Conditions of the Notes’’). Furthermore, Noteholders should be aware that neither the Issuer or the Trustee accepts any responsibility for the performance by NLMK of its obligations under the Loan Agreement (see ‘‘Terms and Conditions of the Notes’’).

The right of the Issuer to receive payments under the Loan (and therefore its ability to make payments under the Notes as they fall due) is effectively subordinated to any liabilities of NLMK’s subsidiaries, and the ability of Noteholders to recover in full could be adversely affected if NLMK, or any of its subsidiaries, declares bankruptcy, liquidates or reorganises. Some of the Group’s operations are conducted through NLMK’s subsidiaries, and, to a certain extent, NLMK depends on the earnings and cash flows of these subsidiaries to meet its debt obligations, including its obligations under the Loan Agreement. Some of NLMK’s subsidiaries have material liabilities, and many of those liabilities are secured. Since NLMK’s subsidiaries do not guarantee its payment obligations under the Loan Agreement or the Issuer’s payment obligations under the Notes, neither the Issuer nor Noteholders will have any direct claim on NLMK’s subsidiaries’ cash flows or assets. In the event of a bankruptcy, liquidation or reorganisation of any of NLMK’s subsidiaries, their creditors will generally be entitled to payment of their claims from the cash flows and assets of those subsidiaries before any cash flows or assets are made available for distribution to NLMK as a shareholder. This may adversely affect NLMK’s ability to service its payment obligations under the Loan Agreement. In addition, a Noteholder’s claims in the currency of the Notes (US dollars) may be converted into rubles in any Russian bankruptcy proceedings and, therefore, in addition to the general risks of less than full recovery associated with any bankruptcy (or similar) proceedings, Noteholders may be adversely affected by movements in the currency exchange rates between the ruble and the US dollar.

The trading price of the Notes may be volatile. The trading price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the Group’s or its competitors’ operating results, adverse business developments, changes to the regulatory environment in which the Group operates, changes in financial estimates by securities analysts, and the actual or expected sale of a large number of debt securities similar to the Notes, as well as other factors. Any such disruptions may harm Noteholders. In addition, in recent years, the

31 global financial markets have experienced significant price and volume fluctuations that, if repeated in the future, could adversely affect the trading price of the Notes without regard to the Group’s results of operations, prospects or financial condition.

The lack of a public market for the Notes could reduce the value of an investment in the Notes. There may not be an existing market for the Notes at the time they are issued. The Notes are expected to be listed and admitted to trading on the Main Securities Market of the Irish Stock Exchange. However, there can be no assurance that a liquid market will develop for the Notes, that Noteholders will be able to sell their Notes or that such holders will be able to sell their Notes for a price that reflects their value.

The Notes may or must be redeemed early in a number of circumstances, and NLMK may be unable to repay its obligations under the Loan Agreement. In certain circumstances, as more fully described in ‘‘Terms and Conditions of the Notes’’, NLMK may, or in some cases must, prepay the Loan in whole or in part together with accrued interest at any time, and (to the extent that it has actually received the relevant funds from NLMK) the Issuer shall redeem all outstanding Notes in accordance with the Terms and Conditions of the Notes. On such redemption, or at maturity, NLMK may not have the funds to fulfil its obligations under the Loan Agreement and it may not be able to arrange for additional financing. If the early repayment or maturity date of the Loan occurs at a time when other arrangements prohibit NLMK from repaying the Loan, NLMK may try to obtain waivers of such prohibitions from the lenders under those arrangements, or it could attempt to refinance the borrowings that contain the restrictions. If NLMK could not obtain the waivers or refinance these borrowings, it may be unable to repay the Loan.

Changes to NLMK’s credit rating or that of the Russian Federation may adversely affect the Notes’ trading price. It is expected that the Notes will be rated BBB by Fitch, Ba1 by Moody’s and BB by Standard & Poor’s. Any changes in the credit ratings of NLMK or the sovereign rating of the Russian Federation could adversely affect the trading price of the Notes. During the course of 2014, international rating agencies Standard & Poor’s and Moody’s downgraded their foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ and ‘Baa2’, respectively, with negative outlook. On 26 January 2015 Standard & Poor’s cut its long-term foreign currency sovereign bond rating for the Russian Federation to ‘BB+’ with negative outlook, and on 20 February 2015 Moody’s cut its sovereign debt rating for the Russian Federation to Ba1 with negative outlook; each of these ratings is below ‘investment grade’. On 12 January 2015, Fitch downgraded its foreign currency sovereign debt rating for the Russian Federation to ‘BBB’ with negative outlook. A change in the credit rating of one or more other Russian corporate borrowers or banks could also adversely affect the trading price of the Notes. 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.

Noteholders’ rights will be limited so long as the Notes are issued in book-entry interests. Owners of book-entry interests will not be considered owners or holders of Notes unless and until definitive notes are issued in exchange for book-entry interests. Instead, Euroclear, Clearstream, Luxembourg, or DTC or their nominees, will be the sole holders of the Notes. Payments of principal, interest and other amounts owing on or in respect of the Notes in global form will be made as described in ‘‘Summary of the Provisions Relating to the Notes in Global Form’’ and none of the Issuer, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to, or payments of interest, principal or other amounts to, Euroclear, Clearstream, Luxembourg or DTC, or to owners of book-entry interests. Owners of book-entry interests will not have the direct right to act upon any solicitation for consents or requests for waivers or other actions from holders of the Notes, including enforcement of security for the Notes. Instead, Noteholders who own a book-entry interest will be reliant on the nominees for the common depositary or custodian (as registered holder of the Notes) to act on their instructions and/or will be permitted to act directly only to the extent such holders have received appropriate proxies to do so from Euroclear, Clearstream, Luxembourg or DTC or, if applicable, from a participant. There can be no assurances that procedures implemented for the granting of such proxies will be sufficient to enable the Noteholders to vote on any requested actions or to take any other action on a timely basis.

32 Further Issues of Securities by the Issuer may affect the trading price of the Notes. The Issuer may from time to time, without the consent of the Noteholders, create and issue further securities 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, the date of issue and the amount of principal) so as to be consolidated and form a single series with the Notes. Even if such additional securities are treated for non-tax purposes as part of the same series as the Notes, such additional securities may in some cases be treated as a separate series for US federal income tax purposes. In such a case, among other things, such additional securities may be treated as issued with original issue discount (‘‘OID’’) even if the Notes were not issued with OID, or such additional securities may have a greater amount of OID than the Notes for US federal income tax purposes. Additionally, further issues of securities could affect the application of FATCA with respect to the Notes. These differences may affect the market value of the Notes if such additional securities are not otherwise distinguishable from the Notes.

Examiners, preferred creditors under Irish law and floating charges may impose additional risks on the Notes. COMI The Issuer has its registered office in Ireland. As a result there is a rebuttable presumption that its centre of main interest (‘‘COMI’’) is in Ireland and consequently that any main insolvency proceedings applicable to it would be governed by Irish law. In the decision by the European Court of Justice (‘‘ECJ’’) in relation to Eurofood IFSC Limited, the ECJ restated the presumption in Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, that the place of a company’s registered office is presumed to be the company’s COMI and stated that the presumption can only be rebutted if ‘‘factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect’’. As the Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption, although this would ultimately be a matter for the relevant court to decide, based on the circumstances existing at the time when it was asked to make that decision. If the Issuer’s COMI is not located in Ireland, and is held to be in a different jurisdiction within the European Union, Irish insolvency proceedings would not be applicable to the Issuer.

Examinership Examinership is a court moratorium/protection procedure which is available under Irish company law to facilitate the survival of Irish companies in financial difficulties. Where a company, which has its COMI in Ireland is, or is likely to be, unable to pay its debts an examiner may be appointed on a petition to the relevant Irish court under Section 509 of the Companies Act 2014. The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, negative pledges given by the company prior to his appointment will not be binding on the company. Furthermore, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties. During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the relevant Irish court when a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and the relevant Irish court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and the proposals are not unfairly prejudicial to any interested party. The fact that the Issuer is a special purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer.

33 If however, for any reason, an examiner were appointed while any amounts due by the Issuer under the Notes were unpaid, the primary risks to the holders of Notes would be as follows: • the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and • a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders’ views.

Preferred Creditors If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular: • under the terms of the Trust Deed, the Issuer will charge to the Trustee on behalf of Noteholders by way of first fixed charge (the ‘‘Charge’’) as security for its payment obligations in respect of the Notes certain rights under the Loan Agreement and to the Account. Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE and VAT; • under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a fixed charge may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and • in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges.

The proposed financial transactions tax (‘‘FTT’’) On 14 February 2013, the European Commission adopted a proposal (the ‘‘Commission’s Proposal’’) for a Directive for a common FTT in Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain (the ‘‘participating Member States’’). However, Estonia has since stated that it will not participate. The Commission’s Proposal has a very broad scope and could, if introduced, apply to certain transactions relating to the Notes (including secondary market transactions) in certain circumstances. Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain transactions relating to the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, ‘‘established’’ in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State. On 8 December 2015, 10 of the participating Member states issued a statement indicating an agreement on certain features of the FTT. According to this statement, the FTT would apply to certain transactions on shares and derivatives. However, the FTT would not apply to transactions relating to the Notes if it is implemented with the same feature as described in the 8 December 2015 statement. However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.

34 USE OF PROCEEDS The Issuer will use the proceeds received from the issue and sale of the Notes for the sole purpose of making the Loan. NLMK intends to use the proceeds of the Loan (a) to finance the purchase of the Existing Notes in each case tendered and accepted for purchase in accordance with the terms and conditions of the Tender Offer, that is expected to be settled on or about 17 June 2016, (b) for refinancing of existing indebtedness, and (c) for general corporate purposes. The commissions, costs and expenses in connection with the issuance and offering of the Notes and the admission to trading thereof will be paid by NLMK.

35 CAPITALISATION The following table sets forth NLMK’s consolidated capitalisation as of 31 March 2016, derived from the Interim Financial Statements included elsewhere in this Prospectus. The following table should be read in conjunction with ‘‘Selected Consolidated Financial Information’’, ‘‘Operating and Financial Review’’ and the Financial Statements included elsewhere in this Prospectus.

As of 31 March 2016 (Amounts in millions of US dollars) Cash and cash equivalents ...... 545.8 Long-term borrowings ...... 2,068.9 Stockholder’s equity Common stock ...... 221.2 Additional paid-in capital ...... 9.9 Accumulated other comprehensive loss ...... (6,550.9) Retained earnings ...... 11,940.3 Non-controlling interest ...... 12.1 Total stockholder’s equity ...... 5,632.6 Total long-term borrowings and stockholders’ equity ...... 7,701.5 On 3 June 2016, the annual general meeting of shareholders of NLMK approved dividends for the fourth quarter of 2015 of 2.43 rubles per share in the total amount of 14,564 million rubles (US$215.4 million at the exchange rate as at 31 March 2016) and for the three months ended 31 March 2016 of 1.13 rubles per share in the total amount of 6,772 million rubles ($US100.2 million at the exchange rate as at 31 March 2016). On 31 May 2016 the Issuer announced the Tender Offer. Following the expiration of the Tender Offer, the Issuer accepted for purchase US$259,605,000 and US$311,426,000 in principal amount of the 2019 Notes and the 2018 Notes, respectively, thus agreeing to pay US$601,436,262 in aggregate for such notes tendered and accepted. The Tender Offer is expected to be settled on or about 17 June 2016. The Group expects to receive net proceeds from the offering of the Notes of approximately US$695,000,000 (taking into account the estimated total commissions and expenses payable in relation to the offering of the Notes and the admission to trading of the Notes, which are expected to be approximately US$5,000,000).

36 SELECTED CONSOLIDATED FINANCIAL INFORMATION The tables below set forth certain selected historical consolidated financial information of the Group. The selected historical consolidated financial information as of and for the years ended 31 December 2015, 2014 and 2013 set forth below has been derived from the Annual Financial Statements included elsewhere in this Prospectus. The financial information as of and for the three months ended 31 March 2016 and 2015 has been derived from the Interim Financial Statements. The selected historical consolidated financial information should be read in conjunction with ‘‘Operating and Financial Review’’ and the Financial Statements included elsewhere in this Prospectus.

Three months ended Year ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars unless otherwise indicated) Selected consolidated statement of profit or loss data Revenue ...... 8,008.3 10,395.7 10,818.4 1,576.9 2,215.7 Cost of sales ...... (5,495.7) (7,389.0) (8,665.9) (1,167.2) (1,430.4) Gross profit ...... 2,512.6 3,006.7 2,152.5 409.7 785.3 General and administrative expenses ...... (261.1) (364.3) (456.9) (54.4) (64.5) Selling expenses ...... (801.6) (923.1) (945.6) (146.8) (202.7) Other operating income/(expenses) ...... 14.1 6.1 (6.6) (3.1) 3.3 Taxes, other than income tax ...... (75.7) (137.5) (134.6) (16.4) (20.3) Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets ...... 1,388.3 1,587.9 608.8 189.0 501.1 Loss on disposals of property, plant and equipment ...... (7.6) (11.9) (23.0) 0.9 (1.4) Impairment losses and write-off of assets . . . (85.5) (657.2) (21.0) (2.1) (0.1) Share in net losses of associates and other companies accounted for using the equity method ...... (103.0) (193.1) (54.0) (16.1) (23.0) Result of disposal of subsidiary ...... — — (51.4) — — Income on change of restructuring provision — — 7.5 — — Gains on investments ...... 80.3 37.4 2.3 — 59.7 Finance income ...... 51.9 36.5 40.6 10.3 11.6 Finance costs ...... (95.3) (136.8) (121.9) (20.3) (26.7) Foreign currency exchange gain, net ...... 109.5 488.2 85.2 (65.8) (109.1) Other expenses, net ...... (17.5) (15.0) (53.9) (19.0) (16.2) Profit before income tax ...... 1,321.1 1,136.0 419.2 76.9 395.9 Income tax expense ...... (352.9) (362.4) (255.0) (20.5) (74.8) Profit for the year ...... 968.2 773.6 164.2 56.4 321.1 Profit/(loss) attributable to: NLMK shareholders ...... 967.4 772.5 145.4 56.9 320.4 Non-controlling interests ...... 0.8 1.1 18.8 (0.5) 0.7 Earnings per share—basic and diluted: Earnings attributable to NLMK stockholders per share (US dollars) . . . 0.1614 0.1289 0.0243 0.0095 0.0535 Weighted-average shares outstanding: basic and diluted (in thousands) ...... 5,993,227 5,993,227 5,993,227 5,993,227 5,993,227

37 Three months ended Year ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars) Selected consolidated statement of cash flows data Net cash provided by operating activities ...... 1,651.1 1,805.7 1,333.4 421.1 489.0 Net cash used in investing activities ...... (1,399.3) (945.6) (1,015.7) (9.0) (275.4) Net cash used in financing activities ...... (377.8) (1,147.0) (224.2) (231.4) (129.4) Net (decrease)/ increase in cash and cash equivalents . (126.0) (286.9) 93.5 180.7 84.2 Cash and cash equivalents at the end of the period . . . 343.0 549.2 970.0 545.8 614.5

As at 31 December As at 2015 2014 2013 31 March 2016 (Amounts in millions of US dollars) Selected consolidated statement of financial position data Current assets ...... 3,720.6 3,861.1 5,045.4 3,804.8 Non-current assets ...... 5,198.8 6,488.3 11,407.6 5,558.2 Total Assets ...... 8,919.4 10,349.4 16,453.0 9,363.0 Current liabilities ...... 1,313.9 1,627.7 2,320.1 1,288.7 Non-current liabilities ...... 2,467.8 2,465.0 3,734.4 2,441.7 Total Liabilities ...... 3,781.7 4,092.7 6,054.5 3,730.4 Total Equity ...... 5,137.7 6,256.7 10,398.5 5,632.6 Total Liabilities and Equity ...... 8,919.4 10,349.4 16,453.0 9,363.0

Three months ended Year ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars unless otherwise indicated)) Non-IFRS measures Adjusted EBITDA(1) ...... 1,948.3 2,381.4 1,479.9 290.2 640.9 Adjusted EBITDA margin (%)(2) ...... 24 23 14 18 29 Net debt(3) ...... 1,161.4 1,669.9 2,843.6 1,048.2 N/A Net debt to Adjusted EBITDA(4) ...... 0.6 0.7 1.9 N/A N/A

(1) The Group’s Adjusted EBITDA for all periods presented was calculated as shown in the reconciliation below. The Group previously reported Adjusted EBITDA calculated using a different method and those amounts are not presented in this Prospectus. NLMK presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Group’s industry. Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation, or as a substitute for analysis of the Group’s operating results as reported under IFRS. Some of these limitations are as follows:

• Some of the limitations of using the Group’s Adjusted EBITDA as a financial measure include the following: (i) Adjusted EBITDA does not reflect the impact of financing costs, which are significant and could further increase if the Group incurs more debt, on the Group’s operating performance; (ii) Adjusted EBITDA does not reflect the impact of income taxes on the Group’s operating performance; (iii) Adjusted EBITDA does not reflect the impact of depreciation and amortisation on the Group’s operating performance. The assets of the Group’s business that are being depreciated and/or amortized will likely have to be replaced in the future and such depreciation and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from Adjusted EBITDA measures, they do not reflect the Group’s future cash requirements for these replacements; (iv) Adjusted EBITDA does not reflect the impact of gain or loss on disposal of property, plant and equipment; (v) Adjusted EBITDA does not reflect the impairment losses and write-off of assets; (vi) Adjusted EBITDA does not reflect the share in net losses of associates and other companies; (vii) Adjusted EBITDA does not reflect gains on investments; (viii) Adjusted EBITDA does not reflect foreign currency exchange gain, net; (ix) Adjusted EBITDA does not reflect other expenses, net, and (x) Adjusted EBITDA excludes items that the Group considers to be one-off or unusual, but such items may in fact occur.

• Other companies in the NLMK’s industry calculate Adjusted EBITDA differently or may use it for different purposes as compared with NLMK, limiting its usefulness as a comparative measure. NLMK compensates for these limitations by relying primarily on its IFRS operating results and using Adjusted EBITDA only supplementally. See the Group’s consolidated statements of profit or loss and consolidated statements of cash flows included in the Financial Statements.

38 Adjusted EBITDA is a measure of the Group’s operating performance that is not required by, or presented in accordance with, IFRS and should not be considered as an alternative to net income, operating income or any other performance measures presented in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of the Group’s liquidity. In particular, Adjusted EBITDA should not be considered as a measure of discretionary cash available to the Group to invest in the growth of its business. A reconciliation of Adjusted EBITDA to operating profit is as follows:

Three months ended Year ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars) Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets ...... 1,388.3 1,587.9 608.8 189.0 501.1 Adjustments for: Depreciation and amortisation ...... 560.0 793.5 871.1 101.2 139.8 Adjusted EBITDA ...... 1,948.3 2,381.4 1,479.9 290.2 640.9 (2) Adjusted EBITDA margin is calculated as a percentage of revenue for the relevant period. (3) Net debt is calculated as the sum of long-term and short-term borrowings less cash and cash equivalents and bank deposits with maturities over three months included in short-term financial investments at the end of the relevant period. (4) Net debt to Adjusted EBITDA is calculated as net debt as at the end of the relevant period divided by Adjusted EBITDA for the relevant period. Net debt to Adjusted EBITDA is not presented for interim financial periods.

39 OPERATING AND FINANCIAL REVIEW The following review of the Group’s financial condition and results of operations as of and for the three months ended 31 March 2016 and 2015 and as of and for the years ended 31 December 2015, 2014 and 2013 includes forward-looking statements that involve risks and uncertainties. See ‘‘Risk Factors’’ and ‘‘Forward-Looking Statements’’ for a discussion of important factors that could cause the actual results to differ materially from the results described in the forward-looking statements contained in this Prospectus. The following should be read in conjunction with the Group’s Financial Statements and the related notes included in this Prospectus. Investors should not rely solely on the information contained in this section. Selected consolidated financial information in this section has been derived from the audited Annual Financial Statements and the Interim Financial Statements (which are unaudited), in each case without material adjustment, unless otherwise stated.

Overview The Group is a leading and one of the most efficient international steel producers with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of high value added products to end users. With global operations across Europe, North America and Asia, it has a high level of self-sufficiency in key raw materials and energy resources, low cost steelmaking operations located in the Central District and Ural region of Russia, and mini-mills and rolling mill assets located in close proximity to its key customers in Russia, Europe and the United States. In 2015, the Group had total revenue of US$8,008.3 million, operating profit of US$1,388.3 million, Adjusted EBITDA of US$1,948.3 million and Adjusted EBITDA margin of 24%, and, in 2014, it had total revenue of US$10,395.7 million, operating profit of US$1,587.9 million, Adjusted EBITDA of US$2,381.4 million and Adjusted EBITDA margin of 23%. In the three months ended 31 March 2016, the Group had total revenue of US$1,576.9 million, operating profit of US$189.0 million, Adjusted EBITDA of US$290.2 million and Adjusted EBITDA margin of 18%. The Group’s has the following five reporting segments: • Russian flat products • Foreign rolled products • Russian long products • Mining • Investments in associate entity NBH The Group’s principal business segment is the Russian flat products segment, comprising the operations of the Russian steel production companies Novolipetsk (the main production site in Lipetsk representing approximately 80% of the steelmaking capacity of the Group) and VIZ-Steel LLC (‘‘VIZ-Steel’’), as well as Altai-Koks, a metallurgical coke producer, and until the end of 2015 all operations of steel trading companies. Starting from the first quarter of 2016, operations of steel trading companies are included in the Russian flat products segment to the extent they do not relate to sales of long products. The Russian flat products segment produces and sells saleable pig iron, steel slabs (semi-finished steel products), hot-rolled steel, cold-rolled steel, galvanized and pre-painted steel and electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel, as well as other products including coke. The Russian flat products segment generated revenue from external customers, which are defined as revenues from customers other than the Group’s other operating segments or businesses, of US$4,718.7 million in 2015 and US$5,684.1 million in 2014 (US$927.6 million in the three months ended 31 March 2016, as compared to US$1,269.8 million in the three months ended 31 March 2015). Gross profit for the Russian flat products segment, on a standalone basis before consolidation adjustments, was US$2,064.5 million in 2015 and US$2,204.8 million in 2014 (US$335.9million in the three months ended 31 March 2016, as compared to US$660.2 million in the three months ended 31 March 2015) and its operating profit was US$1,195.9 million in 2015 and US$874.2 million in 2014 (US$168.7 million in the three months ended 31 March 2016, as compared to US$446.9 million in the three months ended 31 March 2015). The foreign rolled products segment produces and sells flat steel products: hot- and cold-rolled steel, galvanized steel and a wide range of thick plates. The foreign rolled products segment comprises the operations of the Group’s downstream companies located in Denmark (NLMK Dansteel) and in the

40 United States (NLMK Indiana, NLMK Pennsylvania and Sharon Coating). The foreign rolled products segment generated revenue from external customers of US$1,441.9 million in 2015 and US$2,015 million in 2014 (US$316.5 million in the three months ended 31 March 2016, as compared to US$419.6 million in the three months ended 31 March 2015). In 2015, the foreign rolled products segment, on a standalone basis before consolidation adjustments, made a gross loss of US$70.6 million, compared to a gross profit of US$118.3 million in 2014 (a gross profit of US$17.2 million in the three months ended 31 March 2016, as compared to a gross loss of US$6 million in the three months ended 31 March 2015) and it made an operating loss of US$165.7 million in 2015, compared to an operating profit of US$21.4 million in 2014 (an operating loss of US$7 million in the three months ended 31 March 2016, as compared to an operating loss of US$29.6 million in the three months ended 31 March 2015). The core activities of the Russian long products segment are ferrous scrap collection and processing, steelmaking (EAF-based), long products (rebar and wire-rod) and metalware manufacturing. The Russian long products segment primarily comprises the operations of OJSC Nizhneserginsky Metizno- Metallurgicheskiy Zavod (‘‘NSMMZ’’), NLMK-Metalware and NLMK-Kaluga, as well as the scrap unit Vtorchermet NLMK. Starting from the first quarter of 2016, revenue of steel trading companies generated from long products sales is allocated to the Russian long products segment. The Russian long products segment generated revenue from external customers of US$859.0 million in 2015 and US$1.446.9 million in 2014 (US$165.1 million in the three months ended 31 March 2016, as compared to US$231.1 million in the three months ended 31 March 2015). Gross profit for the Russian long products segment, on a standalone basis before consolidation adjustments, was US$126.2 million in 2015 and US$236.2 million in 2014 (US$12.6 million in the three months ended 31 March 2016, as compared to US$44.4 million in the three months ended 31 March 2015), and its operating loss was US$16.8 million in 2015, compared to an operating profit of US$242.3 million in 2014 (an operating loss of US$14.6 million in the three months ended 31 March 2016, as compared to an operating profit of US$9.6 million in the three months ended 31 March 2015). The mining segment mines and processes iron ore concentrate, sinter ore, fluxing limestone and metallurgical dolomite, principally for use in the Group’s steel business. The mining segment primarily comprises the operations of iron ore producer Stoilensky and producers of fluxing materials Dolomit and Stagdok. The mining segment generated revenue from external customers of US$184.2 million in 2015 and US$345.9 million in 2014 (US$25.0 million in the three months ended 31 March 2016, as compared to US$46.1 million in the three months ended 31 March 2015). Gross profit for the mining segment, on a standalone basis before consolidation adjustments, was US$363.3 million in 2015 and US$720.2 million in 2014 (US$63.3 million in the three months ended 31 March 2016, as compared to US$86.5 million in the three months ended 31 March 2015), and its operating profit was US$256.8 million in 2015 and US$576.3 million in 2014 (US$48.9 million in the three months ended 31 March 2016, as compared to US$56.6 million in the three months ended 31 March 2015). The investments in associate entity NBH segment represents the Group’s investments in NBH, a group of European downstream companies engaged in production of hot rolled, cold rolled coils and galvanized and pre-pained steel, and also production of a wide range of plates, quenched and tempered steel and ingots for forging, as well as a number of steel service centers located in the European Union. NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013. See ‘‘Operating and Financial Review—Significant Factors Affecting the Group’s Results of Operations— Acquisitions and Disposals’’. The investments in associate entity NBH segment generated revenue from external customers of US$1,212.7 million in 2015 and US$1,462.4 million in 2014 (US$274.3 million in the three months ended 31 March 2016, as compared to US$331.8 million in the three months ended 31 March 2015). Gross profit for the investments in associate entity NBH segment, on a standalone basis before consolidation adjustments, was US$156.2 million in 2015 and US$142.0 million in 2014 (US$18.9 million in the three months ended 31 March 2016, as compared to US$48.4 million in the three months ended 31 March 2015), and its operating loss was US$172.2 million in 2015 and US$215.9 million in 2014 (an operating loss of US$25.4 million in the three months ended 31 March 2016, as compared to an operating loss of US$34.9 million in the three months ended 31 March 2015).

41 The following table shows for the periods indicated revenue, gross profit/(loss) and operating profit/(loss) for the Group’s segments on a standalone basis, before giving effect to eliminations on consolidation, as well as intersegmental adjustments, and other consolidation adjustments.

Three months Year ended 31 December ended 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars) Revenue(1) Russian flat products ...... 6,064.6 7,872 7,864.4 1,137.2 1,611.4 Foreign rolled products ...... 1,441.9 2,015 1,694.7 316.5 419.6 Russian long products ...... 1,152.3 1,814.6 1,716.3 189.3 274.0 Mining ...... 589.2 1,067.7 1351 107.2 135.1 Investments in associate entity NBH ...... 1,277.6 1,517.3 1,452.7 282.7 355.0 All other(2) ...... 11.8 0.1 0.6 1.2 — Intersegmental operations(3) ...... (2,044.3) (3,277.4) (2,992.4) (316.0) (473.5) NBH deconsolidation adjustments ...... (484.8) (613.6) (268.9) (141.2) (105.9) Total revenue ...... 8,008.3 10,395.7 10,818.4 1,576.9 2,215.7 Gross profit/(loss)(1) Russian flat products ...... 2,064.5 2,204.8 1,208.9 335.9 660.2 Foreign rolled products ...... (70.6) 118.3 (101.0) 17.2 (6.0) Russian long products ...... 126.2 236.2 208.5 12.6 44.4 Mining ...... 363.3 720.2 928.0 63.3 86.5 Investments in associate entity NBH ...... 156.2 142.0 125.1 18.9 48.4 All other(2) ...... 6.8 — 0.3 0.2 — Intersegmental operations(3) ...... 22.4 (272.8) (166.1) (19.5) 0.2 NBH deconsolidation adjustments ...... (156.2) (142.0) (51.2) (18.9) (48.4) Total gross profit ...... 2,512.6 3,006.7 2,152.5 409.7 785.3 Operating profit/(loss)(1) Russian flat products ...... 1,195.9 874.2 (254.6) 168.7 446.9 Foreign rolled products ...... (165.7) 21.4 (42.3) (7.0) (29.6) Russian long products ...... (16.8) 874.2 324.8 (14.6) 9.6 Mining ...... 256.8 576.3 787.1 48.9 56.6 Investments in associate entity NBH ...... (172.2) (215.9) (244.9) (25.4) (34.9) All other(2) ...... 5.2 (2.2) (8.1) 0.1 (0.4) Intersegmental operations(3) ...... 112.9 (124.1) 10.3 (7.1) 18.0 NBH deconsolidation adjustments ...... 172.2 215.9 36.5 25.4 34.9 Total operating profit ...... 1,388.3 1,587.9 608.8 189.0 501.1

(1) Including intersegmental operations. (2) Comprises revenue primarily derived from the Group’s finance business, which provides insurance services to the Group and to other commercial and retail customers. (3) Represent consolidation adjustments eliminating intersegmental operations and balances. The following table shows as at the dates indicated assets for the Group’s segments on a standalone basis, before giving effect to eliminations on consolidation, as well as any consolidation adjustments.

As at As at 31 December 31 March 2015 2014 2013 2016 (Amounts in millions of US dollars) Assets Russian flat products ...... 7,509.6 8,902.9 13,223.2 7,730.2 Foreign rolled products ...... 1,036.6 1,491.9 1,476.3 1,000.9 Russian long products ...... 953.4 1,367.9 2,799.6 956.4 Mining ...... 1,476.6 1,948.9 2,382.5 1,563.7 Investments in associate entity NBH ...... 1,485.4 1,857.2 2,094.2 1,460.1 All other ...... 11.6 99.7 62.8 12.2 Intersegmental operations(1) ...... (2,195.6) (3,611.8) (3,912.6) (2,015.5) NBH deconsolidation adjustments ...... (1,358.2) (1,707.3) (1,673.0) (1,345.0) Total assets ...... 8,919.4 10,349.4 16,453.0 9,363.0

(1) Represent consolidation adjustments eliminating intersegmental operations and balances.

42 Significant Factors Affecting the Group’s Results of Operations The Group’s results of operations are affected by a number of external factors, including the demand and price for steel products in the markets in which the Group operates, Russian macroeconomic trends, production costs (in particular, raw materials, energy and transportation costs) and currency exchange fluctuations, as well as acquisitions and disposals made by the Group.

Demand and price for steel in the markets in which the Group operates The demand for steel products generally correlates to macroeconomic fluctuations in the economies in which steel producers sell products, as well as in the global economy. The prices of steel products are influenced by various factors, including global and regional steel consumption, worldwide production capacity and capacity utilisation rates, raw material costs, exchange rates, trade barriers and improvements in steelmaking processes. The demand for steel products and global steel production capacity have been strongly influenced by the developing world, particularly China, as well as India and other emerging markets. The global economic downturn which began in 2008 resulted in a decline for steel demand and prices. In the recent years, the market has been oversupplied as a result of increasing supply driven by unprecedented growth in crude steel capacity, aggravated by declining demand due to the global economic downturn. In 2015, excess global steelmaking capacity was eight times the total volume of steel produced in Russia. China made almost as much steel in 2015 as all other countries combined, which led to a significant drop in prices to a twelve-year low. Alongside a global decline in a demand, Russian demand for steel also showed a significant decline in 2015. For example, demand for steel products used in construction fell by 14% in the first nine months of 2015. The slowdown in Russian demand in 2015 was worse than in any other country and is expected to continue in 2016 in almost all sectors of the Russian economy. In 2015, average prices for standard grades of flat and long products in Russia decreased in US dollar terms by 17–32%; while prices in ruble terms increased by 8–30% as a result of the ruble devaluation. In Europe and the United States, prices for steel products in US dollar terms fell in 2015 by 25% and 31%, respectively.

Russian macroeconomic trends A substantial part of the Group’s operations is based in Russia and the Group generates a significant proportion of its sales in Russia, with 37% of the Group’s total revenue being generated from Russia in the three months ended 31 March 2016 and 2015 and 39%, 43% and 40%, respectively, in the years ended 31 December 2015, 2014 and 2013. As a result, Russian macroeconomic trends, including the overall growth in the economy, significantly influence the Group’s performance. The table below summarizes certain key macroeconomic indicators relating to the Russian economy in the years ended 31 December 2015, 2014 and 2013.

Year ended 31 December 2015 2014 2013 GDP growth/(decline), % ...... (3.7) 0.7 1.3 Percentage change in consumer price index ...... 12.9 11.4 6.5 Unemployment rate, % ...... 5.6 5.2 5.5

Source: Russian Federal State Statistics Service In 2015, domestic finished steel consumption fell by 8%, decreasing by 14% in the long steel sector and by 5% in the flat steel sector. The decline was partially offset by a growing demand for steel used in pipes. Russian steel production decreased by 1% in 2015 to 71.1 million tonnes; this was primarily due to stable steel supply to the domestic market and a rise in steel exports accompanied by a 30% decrease in imports. In the three months ended 31 March 2016, domestic consumption of steel products continued to be negatively impacted by the macroeconomic pressures in Russia. Inflation in the Russian Federation was 2.1% in the three months ended 31 March 2016 and 12.9% in 2015, 11.4% in 2014 and 6.5% in 2013. Russian inflation has generally not had a material impact on the Group’s revenues in the periods under review, primarily because the prices of the Group’s products and the raw materials which it uses are mainly determined by global trends. While some of the Group’s costs, in particular employee salaries, are affected by inflation, they have not historically represented a substantial

43 percentage of production costs. However, the devaluation of Russian ruble which started in 2014 and continued in 2015 led to a decrease of the Group’s cost of sales as more than 70% of the Group’s cost of sales in 2015 were denominated in Russian rubles.

Costs The Group requires substantial amounts of raw materials in the steel production process, in particular iron ore concentrate, sinter ore, pellets, coking coal, limestone, dolomite, ferro-alloys, non-ferrous metal and scrap metal. In furtherance of its vertical integration strategy, the Group has invested in iron ore mining and a processing company primarily to secure a supply of iron ore at competitive market rates and to insulate the Group to a significant extent, on a consolidated basis, from the impact of increases in prices of iron ore materials. Stoilensky, an open pit iron ore mine, currently produces iron ore concentrate and sinter ore in excess of the Group’s needs. In the second half of 2016 NLMK plans to launch pelletizing plant on Stoilensky, which will secure self-sufficiency in iron ore pellets. Also, in accordance with Strategy 2017, in 2017 the Group will launch a recycling facility to process iron waste into briquettes with annual capacity of 700,000 tpa. The Group is already self-sufficient in metallurgical coke due to its coke production facilities at Altai-Koks and its main production site in Lipetsk. In addition, the Group has licenses to develop coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the Kemerovo region, Western Siberia, and Usinsky-3 in the Komi Republic. The Group considers the development of these deposits as long-term options for further development. Meanwhile, in order to reduce risks associated with the growth in costs related to coking coal consumption in its blast furnace operations, the Group implemented a number of new technologies including pulverized coal injection, tar pitch granulation, among others. The Group has to date installed tar pitch granulation at its Altai-Koks site that improves coke quality and reduces consumption of imported high grade coking coal in coke manufacturing. In addition, the Group is aiming to complete the installation of Pulverized Coal Injection (PCI) technology at its blast furnaces 6 and 7 at its Lipetsk site which it expects will enable it to substitute approximately 20% and 60%, respectively, of coke and natural gas consumption per tonne of pig iron with cheaper energy (PCI) coal grades. The Group’s limestone and dolomite demands are fully satisfied by its subsidiaries, Stagdok and Dolomit, respectively, and various strategies are being pursued to ensure that output meets the Group’s growing demand. The Group’s scrap collecting and processing unit, Vtorchermet NLMK, provides approximately 80% of the ferrous scrap required by its Russian steelmaking plants, mitigating the risk of third-party supply interruptions. The Group also consumes large volumes of electricity and natural gas and its operating costs are therefore influenced by increases in energy prices. In 2015 and 2014, the Group’s integrated electricity generation facilities supplied approximately 57% and 54%, respectively, of the electricity requirements of the Group’s main production site in Lipetsk (which, in 2015, produced 94% of the Group’s total steel output), with the remainder being purchased from the electricity market. In the three months ended 31 March 2016, approximately 62% of the electricity requirements of the Lipetsk site were supplied from the Group’s integrated electricity generation facilities. The Group is seeking to mitigate the risk of electric energy price inflation through increasing its in-house generating capacity using by-product gases, as well as through implementing improvements in production efficiency to reduce the volume of energy consumed in steel production. In 2015, natural gas tariffs increased by 4% while electricity prices remained at the level of 2014 (in each case as compared to the average price paid by the Group’s Russian companies in 2014), although the Company expects further increases in electricity prices in the future. The Group meets a significant proportion of its rail transportation requirements under a long-term agreement (expiring in 2017) with Freight One. As a result, the Group’s transportation costs have been relatively stable in the periods under review.

Currency exchange fluctuations The Group’s export sales generate foreign currency earnings. As the Group exports a significant part of its production, for which payment is made in US dollars and euros, the Group is exposed to currency exchange rate fluctuations. See ‘‘—Quantitative and Qualitative Disclosures about Market Risk—Foreign currency exchange rate risk’’.

44 The table below shows the average exchange rate of the ruble against the US dollar and the euro for the periods indicated.

Three months Year ended 31 December ended 2015 2014 2013 31 March 2016 Average exchange rate(1) (rubles per US dollar) ...... 60.96 38.42 31.85 74.63 Average exchange rate(1) (rubles per euro) ...... 67.78 50.82 42.31 82.34

(1) The average of the exchange rate for the relevant period, based on the rates in such period for each Russian business day (quoted by the CBR for that day) and each Russian non-business day (which is equal to the rate quoted by the CBR for the preceding Russian business day). It should be noted that the methodology for calculating average rates for a period for the purposes of the Financial Statements is different than the methodology used in this table.

Acquisitions and Disposals In the periods under review, the Group has completed the following disposals.

Disposals of interest in NLMK Belgium Holdings S.A. In September 2013, the Group signed an agreement with Societe Wallonne de Gestion et de Participations S.A. (‘‘SOGEPA’’), a Belgian state-owned company, to sell a 20.5% stake in NLMK Belgium Holdings S.A. (‘‘NBH’’), which comprises NLMK Europe’s operating and trading companies, excluding NLMK DanSteel A/S, for EUR 91.1 million (US$122.9 million). The agreement provided SOGEPA with certain governance rights over NBH and its subsidiaries, with key management decisions taken jointly by the Group and SOGEPA by their representation on the Board of Directors of NBH as well as call options for the Group and put options for SOGEPA over its 20.5% stake. The Group sought SOGEPA as a strategic investor in the context of the continuing restructuring of its European assets aimed at further enhancing efficiency and optimizing costs. The agreement resulted in the loss of control by the Group over NBH and, therefore, NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013. See Note 20 to 2015 Financial Statements. In March 2015, the Group and SOGEPA agreed to increase SOGEPA’s share in NBH from 20.5% to 49%. Under the agreement the Group’s and SOGEPA’s existing respective put and call options over the SOGEPA shares in NBH were terminated. Disposal of the option resulted in gain amounted to US$76.0 million and included in ‘‘Gains on investments’’ line of the consolidated statement of profit or loss. Earlier, in December 2014, the Group converted its existing loans into NBH share capital in the amount of EUR 220 million (US$267.3 million) with a corresponding reflection in the consolidated financial statements for the year ended 31 December 2014. In December 2015, the Group converted its existing loans into NBH share capital in the amount of EUR 100 million (US$109.5 million) with a corresponding reflection in the consolidated financial statements for the year ended 31 December 2015. These contributions did not change Group’s proportionate stake in NBH. The Group and SOGEPA have agreed to support NBH in obtaining financing of its working capital. In March 2015 the Group and SOGEPA made additional contributions into NBH share capital proportionally to their stake in the amount of EUR 20.4 million (US$22.0 million) and EUR 19.6 million (US$21.5 million), respectively.

Seasonality Seasonal effects have a relatively limited impact on the Group’s results due to market and product diversification. Nonetheless, while the prices of most of the Group’s raw materials are not subject to seasonal variations, the price of scrap metal does fluctuate seasonally, typically rising in spring and autumn and falling in summer and winter, largely as a result of the creation and depletion of winter stockpiles. Consumption of combustive, lubricative and energy supplies during the winter months is generally higher than during the rest of the year. In addition, the Group’s costs of transporting, unloading and storing raw materials in the winter months are higher. There is also usually a lower demand in Russia and CIS countries for steel products used in construction, especially long steel products (rebar, metalware and wire rod), in the winter period, which usually results in lower revenues in the first and the fourth quarters, compared to the second and third quarters of the year.

45 Recent Developments On 31 May 2016 the Issuer announced the Tender Offer. Following the expiration of the Tender Offer, the Issuer accepted for purchase US$259,605,000 and US$311,426,000 in principal amount of the 2019 Notes and 2018 Notes, respectively, thus agreeing to pay US$601,436,262 in aggregate for such notes tendered and accepted. The Tender Offer is expected to be settled on or about 17 June 2016.

Results of Operations for the Three Months ended 31 March 2016 and 2015 The following table sets forth a summary of the Group’s consolidated financial results for the three months ended 31 March 2016 and 2015.

Three months ended 31 March 2016 2015 (Amounts in millions of US dollars) Consolidated statements of profit or loss Revenue ...... 1,576.9 2,215.7 Cost of sales ...... (1,167.2) (1,430.4) Gross profit ...... 409.7 785.3 General and administrative expenses ...... (54.4) (64.5) Selling expenses ...... (146.8) (202.7) Other operating income/(expenses) ...... (3.1) 3.3 Taxes other than income tax ...... (16.4) (20.3) Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets ...... 189.0 501.1 Gain/(loss) on disposals of property, plant and equipment ...... 0.9 (1.4) Impairment losses and write-off of assets ...... (2.1) (0.1) Share in net losses of associates and other companies accounted for using the equity method ...... (16.1) (23.0) Gains on investments ...... — 59.7 Finance income ...... 10.3 11.6 Finance costs ...... (20.3) (26.7) Foreign currency exchange loss, net ...... (65.8) (109.1) Other expenses, net ...... (19.0) (16.2) Profit before income tax ...... 76.9 395.9 Income tax expense ...... (20.5) (74.8) Profit for the period ...... 56.4 321.1 Profit / (loss) attributable to ...... NLMK shareholders ...... 56.9 320.4 Non-controlling interests ...... (0.5) 0.7

46 Revenue Total revenue decreased by US$638.8 million, or 29%, to US$1,576.9 million in the three months ended 31 March 2016 from US$2,215.7 million in the three months ended 31 March 2015. This decrease was primarily attributable to the reduction in average sales prices and the weakening of the Russian ruble exchange rate. The following tables show a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Pig iron ...... 27.5 2 49.7 2 (22.2) (45) Semi-finished ...... 383.7 24 672.0 30 (288.3) (43) Flat ...... 835.5 53 1,040.0 47 (204.5) (20) Plates ...... 62.7 4 71.9 3 (9.2) (13) Long...... 130.5 8 206.3 9 (75.8) (37) Others(1) ...... 137.0 9 175.8 8 (38.8) (22) Total ...... 1,576.9 100 2,215.7 100.0 (638.8) (29)

(1) Includes sales of iron ore, coke and scrap.

Three months ended 31 March 2016 2015 Change Volumes (%) Volumes (%) (%) (Amounts in thousands of tonnes, except percentages) Pig iron ...... 150.1 4 154.6 4 (4.5) (3) Semi-finished ...... 1,421.7 34 1,470.9 37 (49.2) (3) Flat ...... 1,932.9 47 1,707.7 43 225.2 13 Plates ...... 121.6 3 108.6 3 13.0 12 Long...... 515.9 12 516.0 13 (0.1) 0 Total ...... 4,142.1 100 3,957.8 100 184.3 5 In the three months ended 31 March 2016, the volume of sales of flat products increased by 13% to 1.9 million tonnes, and comprised 47% of total volume of sales (43% in the three months ended 31 March 2015). In addition, the volume of sales of plates increased by 12% to 0.1 million tonnes in the three months ended 31 March 2016. These increases in sales volumes of flat products and plates were driven by increased consumption in domestic markets. In the three months ended 31 March 2016, the Group’s average price for steel products decreased to US$348 per tonne, a 33% decrease from US$515 per tonne in the three months ended 31 March 2015, primarily due to a deterioration in pricing trends in the Group’s key sales markets as a result of increased steel exports from China and a decline in steel consumption in the United States and Russia. The following table shows a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated. The region ‘‘European Union’’ comprises revenue from sales to customers in the member states of the European Union while

47 ‘‘other regions’’ includes revenue from sales to customers in European states which are not a member of the European Union.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 588.1 37 783.7 35 (195.6) (25) European Union ...... 315.7 20 387.6 18 (71.9) (19) Middle East, including Turkey ...... 132.8 8 171.0 8 (38.2) (22) North America ...... 282.5 18 392.6 18 (110.1) (28) Asia and Oceania ...... 76.3 5 175.0 8 (98.7) (56) Other regions ...... 181.5 12 305.8 14 (124.3) (41) Total ...... 1,576.9 100.0 2,215.7 100.0 (638.8) (29) In the three months ended 31 March 2016, the Group recorded the following decreases in revenues from export markets: Asia and Oceania (56%, or US$98.7 million) and North America (28%, or US$110.1 million). The Group’s revenues from sales to Russia decreased by 25% in the three months ended 31 March 2016 as compared with the three months ended 31 March 2015. The total revenue of the Group decreased in the three months ended 31 March 2016 by 29% to US$1,576.9 million, compared to US$2,215.7 million in the three months ended 31 March 2015, primarily as a result of the decline in sales price by 32% year-on-year which was partially offset by the increase in sales by 5% year-on-year driven by higher sales in Russia, the European Union and the United States. The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages Russian flat products(1) ...... 927.6 59 1,269.8 57 (342.2) (27) Foreign rolled products ...... 316.5 20 419.6 19 (103.1) (25) Russian long products ...... 165.1 10 231.1 10 (66.0) (29) Mining ...... 25.0 2 46.1 2 (21.1) (46) Investments in associate entity NBH ...... 274.3 17 331.8 15 (57.5) (17) All other ...... 1.2 0.1 0.0 0 1.2 NBH deconsolidation adjustments ...... (132.8) (8) (82.7) (4) (50.1) 61 Total ...... 1,576.9 100 2,215.7 100 (638.8) (29)

(1) Revenue of the Russian flat products segment also includes revenue from sales to external customers of Altai-Koks, which produces coke and coke by-products, as well as revenues from sales of the Group’s trading companies, Novex and Novexco, which, in addition to products of the Russian flat products segment, sell iron ore concentrate, coke and other chemical products. Revenue of the Group’s trading companies from sales of long products were allocated to the Russian flat products segment until the end of 2015 but, starting from the first quarter of 2016, are allocated to the Russian long products segment.

48 Russian flat products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the Russian flat products segment for the periods indicated.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 27.5 3 49.7 4 (22.2) (45) Slabs ...... 238.7 26 404.9 32 (166.2) (41) Hot-rolled ...... 216.2 23 260.9 21 (44.7) (17) Cold-rolled ...... 131.2 14 173.4 14 (42.2) (24) Galvanized ...... 49.8 5 91.7 7 (41.9) (46) Pre-painted ...... 55.9 6 68.4 5 (12.5) (18) Transformer ...... 113.6 12 95.5 8 18.1 19 Dynamo ...... 28.5 3 36.0 3 (7.5) (21) Other revenue ...... 66.2 7 89.4 7 (23.2) (26) Total revenue from external customers ...... 927.6 100 1,269.8 100 (342.2) (27)

Three months ended 31 March 2016 2015 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 150.1 6 154.6 6 (4.6) (3) Slabs ...... 857.7 35 949.1 40 (91.5) (10) Hot-rolled ...... 747.3 30 571.0 24 176.3 31 Cold-rolled ...... 385.7 15 340.3 14 45.4 13 Galvanized ...... 111.7 5 162.2 7 (50.5) (31) Pre-painted ...... 91.3 4 88.7 4 2.6 3 Transformer ...... 72.2 3 63.6 3 8.6 14 Dynamo ...... 58.1 2 54.1 2 3.9 7 Total sales volumes ...... 2,458.3 100 2,383.6 100 106.6 5 Revenue of the Russian flat products segment, on a consolidated basis, decreased by 27% to US$927.6 million in the three months ended 31 March 2016 from US$1,269.8 million in the three months ended 31 March 2015, representing 59% of consolidated revenue in the three months ended 31 March 2016, compared to 57% in the three months ended 31 March 2015. The decrease in Russian flat products segment revenue was primarily due to a decrease in average prices of products of the Russian flat products segment. The total volume of sales by the Russian flat products segment increased by 9% in the three months ended 31 March 2016 as compared with the three months ended 31 March 2015 primarily as a result of growth of finished steel sales to external customers in domestic and external markets.

49 Foreign rolled products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the foreign rolled products segment.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... 0.4 0 1.0 0 (0.6) (60) Plate ...... 62.7 20 71.9 17 (9.2) (13) Hot-rolled ...... 102.8 32 141.8 34 (39.0) (28) Cold-rolled ...... 81.8 26 107.9 26 (26.1) (24) Coated steel ...... 50.0 16 64.5 15 (14.5) (22) All others ...... 18.8 6 32.5 8 (13.7) (42) Total revenue ...... 316.5 100 419.6 100 (103.1) (25)

Three months ended 31 March 2016 2015 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 1.0 0 3.0 1 (2.0) (66) Plate ...... 120.9 21 108.6 20 12.3 11 Hot-rolled ...... 242.4 41 222.4 41 20.0 9 Cold-rolled ...... 142.2 24 131.6 24 10.6 8 Coated steel ...... 82.2 14 73.9 14 8.3 11 Total sales volumes ...... 588.6 100 539.5 100 49.2 9 Revenue of the foreign rolled products segment, on a consolidated basis, decreased by 25% to US$316.5 million in the three months ended 31 March 2016 from US$419.6 million in the three months ended 31 March 2015, representing 20% of consolidated revenue in the three months ended 31 March 2016, compared to 19% in the three months ended 31 March 2015. The decrease in foreign rolled products segment revenue in the three months ended 31 March 2016 was primarily due to declining steel prices year-on-year, which was partly offset by increase of sales volumes by 9% year-on-year.

Russian long products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the Russian long products segment.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 26.9 16 17.4 8 9.5 55 Long products ...... 111.7 68 172.6 75 (60.9) (35) Metalware ...... 18.8 11 33.7 15 (14.9) (44) Scrap ...... 2.1 1 4.8 2 (2.7) (56) All others ...... 5.6 3 2.6 1 3.0 115 Total revenue from external customers ...... 165.1 100 231.1 100 (66.0) (29)

50 Three months ended 31 March 2016 2015 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 109.0 17 52.4 9 (56.6) 108 Long products ...... 455.7 73 441.2 78 14.5 3 Metalware ...... 60.2 10 74.8 13 (14.6) (20) Total sales volumes ...... 624.9 100 568.3 100 56.5 10 Revenue of the Russian long products segment, on a consolidated basis, decreased by 29% to US$165.1 million in the three months ended 31 March 2016 from US$231.1 million in the three months ended 31 March 2015, representing 10% of consolidated revenue in the three months ended 31 March 2016, compared to 10.4% in the three months ended 31 March 2015. The decrease in long products segment revenue in the three months ended 31 March 2016 was primarily due to an increase in the volume of sales of products of the Russian long products segment, which was partially offset by a decrease in average prices. The increase in volume of sales of products of the Russian long products segment in the three months ended 31 March 2016 as compared to the three months ended 31 March 2015 was primarily due to an increase in export sales of long products as a result of a sharp decrease in the Russian construction industry demand for long products. In the three months ended 31 March 2016, average prices (excluding delivery fee) for long products and metalware decreased by approximately 40% and 35%, respectively, as compared with the three months ended 31 March 2015.

Mining segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the mining segment. A substantial majority of the volume of sales of the mining segment are made to other Group companies.

Three months ended 31 March 2016 2015 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Iron ore concentrate ...... 18.9 76 36.4 79 (17.5) (48) Sinter ore ...... 3.9 15 6.6 14 (2.7) (41) Limestone ...... 0.2 1 0.2 0 0.0 0 Dolomite ...... 0.5 2 0.7 2 (0.2) (29) All others ...... 1.6 6 2.2 5 (0.6) (27) Total revenue from external customers ...... 25.0 100 46.1 100 (21.1) (46)

Three months ended 31 March 2016 2015 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Iron ore concentrate ...... 894.9 86 772.2 71 122.7 16 Sinter ore ...... 150.0 14 206.4 21 (56.4) (27) Revenue of the mining segment, on a consolidated basis, decreased by 46% to US$25.0 million in the three months ended 31 March 2016 from US$46.1 million in the three months ended 31 March 2015, representing 2% of consolidated revenue in the three months ended 31 March 2016, compared to 2% in the three months ended 31 March 2015. The decrease in revenue was primarily due to a devaluation in the exchange rate of Russian ruble and a decrease in sales prices for iron ore year-on-year.

51 The volume of sales by the mining segment to external customers increased by 4% in the three months ended 31 March 2016 as compared with the three months ended 31 March 2015, primarily as a result of an increase of 16% in sales of iron ore concentrate to external customers due to an increase in sales to Russian customers, which was partially offset by a decrease in sales volumes of sinter ore. See ‘‘Business— Raw Materials and Energy—Iron ore concentrate and pellets’’.

Investments in associate entity NBH Revenue of the investments in associate entity NBH segment, on a consolidated basis, decreased by 17% to US$274.3 million in the three months ended 31 March 2016 from US$331.8 million in the three months ended 31 March 2015, representing 17% of consolidated revenue in the three months ended 31 March 2016, compared to 15% in the three months ended 31 March 2015. The decrease in the investments in associate entity NBH segment revenue in the three months ended 31 March 2016 was primarily due to a decrease in average sales prices by 15–25% year-on-year, which was partly offset by an increase in sales volumes by 4%.

Cost of sales and gross margin, depreciation and amortisation Total cost of sales as a percentage of revenue increased to 74% in the three months ended 31 March 2016 from 65% in the three months ended 31 March 2015, decreasing the gross margin to 26% in the three months ended 31 March 2016 from 35% in the three months ended 31 March 2015. The following tables show the gross profit and gross margin for the Russian flat products, foreign rolled products, Russian long products, mining and investments in associate entity NBH segments and all other operations for the periods indicated, in each case on a standalone segmental basis before giving effect to eliminations on consolidation, as well as intersegmental adjustments, and other consolidation adjustments.

Three months ended 31 March 2016 Russian Foreign Russian Investments Inter- flat rolled long in associate All segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) ...... 927.6 316.5 165.1 25.0 274.3 1.2 — (132.8) 1,576.9 Intersegmental revenue(2) ...... 209.6 — 24.2 82.2 8.4 — (316.0) (8.4) — Depreciation and amortisation ...... (64.3) (17.6) (10.1) (9.1) (18.3) (0.1) — 18.3 (101.2) Gross profit ...... 335.9 17.2 12.6 63.3 18.9 0.2 (19.5) (18.9) 409.7 Gross margin (%) .... 30 5 7 59 7 17 — — 26

Three months ended 31 March 2015 Russian Foreign Russian Investments Inter- flat rolled long in associate All segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) ...... 1,269.8 419.6 231.1 46.1 331.8 — — (82.7) 2,215.7 Intersegmental revenue(2) ...... 341.6 — 42.9 89.0 23.2 — (473.5) (23.2) 0.0 Depreciation and amortisation ...... (93.2) (17.1) (21.8) (7.4) (20.1) (0.3) — 20.1 (139.8) Gross profit ...... 660.2 (6.0) 44.4 86.5 48.4 — 0.2 (48.4) 785.3 Gross margin (%) .... 41 (1) 16 64 14 — 0 46 35

(1) Represents sales to external customers. (2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment, on a standalone basis before consolidation adjustments, decreased to US$335.9 million in the three months ended 31 March 2016 from US$660,2 million in the

52 three months ended 31 March 2015, and its gross margin decreased to 30% in the three months ended 31 March 2016 from 41% in the three months ended 31 March 2015. The decrease in gross margin of the Russian flat products segment was primarily due to the narrowing spreads between steel and raw material prices and changes in segment allocation for export traders’ sales. Starting from the first quarter of 2016, financial results of export sales for individual segments are recognised as sales of such segments rather than sales of the Russian flat products segment, and in the first quarter of 2016, there was a significant increase in export shipments of long products through traders that were part of the Russian flat products segment. The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Three months ended 31 March 2016 2015 Cost of sales Cost of sales of of Russian Russian flat flat products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 154.5 19 192.5 19 (20) Coal and coke ...... 173.4 21 188.2 19 (8) Scrap ...... 48.5 6 58.0 6 (16) Ferro-alloys ...... 47.9 6 73.5 7 (35) Other materials, including zinc(1) ...... 150.5 18 223.4 22 (33) Electricity (external supplies) ...... 30.3 4 37.7 4 (20) Gas...... 39.9 5 50.0 5 (20) Payroll costs ...... 76.9 9 91.7 9 (16) Depreciation ...... 63.1 8 77.4 8 (19) Other costs ...... 33.8 4 24.9 2 36 Total cost of sales of Russian flat products segment(2) ...... 818.8 100 1,017.3 100 (20)

(1) Also includes costs attributable to spare parts and ongoing maintenance. (2) Results of operations with NBH with respect to slab sales were included in total cost of sales of Russian flat products segment. NBH is accounted using the equity method and presented separately in the Segment Information note to the Financial Statements. Cost of sales of the Russian flat products segment decreased by 20% in the three months ended 31 March 2016 to US$818.8 million from US$1,017.3 million in the three months ended 31 March 2015. The decrease in cost of sales was mainly due to the ruble devaluation and operational efficiency program gains.

Foreign rolled products segment Gross profit of the foreign rolled products segment, on a standalone basis before consolidation adjustments, was US$17.2 million in the three months ended 31 March 2016 as compared to a loss of US$6.0 million in the three months ended 31 March 2015, and its gross margin was 5% in the three months ended 31 March 2016 compared to negative 1% in the three months ended 31 March 2015. The increase in gross profit of the foreign rolled products segment was primarily due to widening spreads between prices for slab and finished products and increase in sales volume. The segment had an operating loss of US$7.0 million in the three months ended 31 March 2016, as compared to operating loss of US$29.6 million in the three months ended 31 March 2015.

Russian long products segment Gross profit of the Russian long products segment, on a standalone basis before consolidation adjustments, decreased to US$12.6 million in the three months ended 31 March 2016 from US$44.4 million in the three months ended 31 March 2015, and its gross margin decreased to 7% in the three months ended 31 March 2016 from 16% in the three months ended 31 March 2015, primarily as a result of a decrease in sales prices by 38% year-on-year. The segment had an operating loss of US$14.6 million in the three months ended 31 March 2016, as compared to a profit of US$9.6 million in the three months ended 31 March 2015.

53 The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segmental basis.

Three months ended 31 March 2016 2015 Cost of sales of Cost of sales of Russian long Russian long products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 107.3 61 171.8 75 (38) Ferro-alloys ...... 5.4 3 7.5 3 (28) Other materials ...... 19.8 11 18.8 8 5 Electricity (external supplies) ...... 12.6 7 16.0 7 (21) Gas...... 2.4 1 3.6 2 (33) Other energy(1) ...... 2.6 2 3.5 2 (26) Payroll costs ...... 14.9 8 20.0 9 (26) Depreciation ...... 9.6 5 21.7 9 (56) Other costs ...... 2.1 1 (33.3) (15) (106) Total cost of sales of Russian long products segment ...... 176.7 100 229.6 100 (23)

(1) Includes fuels and lubricants. Cost of sales of the Russian long products segment decreased by 23% in the three months ended 31 March 2016 to US$176.7 million from US$229.6 million in the three months ended 31 March 2015. The decrease in cost of sales was mainly due to the devaluation of Russian ruble and a decrease in sales volume.

Mining segment Gross profit of the mining segment, on a standalone basis before consolidation adjustments, decreased to US$63.3 million in the three months ended 31 March 2016 from US$86.5 million in the three months ended 31 March 2015, and its gross margin decreased to 59% in the three months ended 31 March 2016 from 64% in the three months ended 31 March 2015, primarily due to the reduction of iron ore prices. The following table shows, for the three months ended 31 March 2016 and 2015, a cost of sales breakdown for the Group’s mining segment.

Three months ended 31 March 2016 2015 Cost of sales Cost of sales of Mining of Mining segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 3.5 8 4.5 9 (21) Electricity (external supplies) ...... 10.0 23 11.6 24 (14) Gas...... 0.8 2 0.9 2 (10) Other energy(2) ...... 2.8 6 3.2 7 (13) Payroll costs ...... 13.1 30 15.0 31 (13) Depreciation ...... 7.7 18 7.2 15 8 Other costs ...... 5.9 13 6.2 13 (5) Total cost of sales of mining ...... 43.9 100 48.6 100 (10)

(1) Includes grinding and explosive materials. (2) Includes fuels and lubricants. Cost of sales of the mining segment decreased by 10% in the three months ended 31 March 2016 to US$43.9 million from US$48.6 million in the three months ended 31 March 2015. The decrease in cost of sales was mainly due to the effect of operational efficiency programs and ruble devaluation.

54 Investments in associate entity NBH segment Gross profit of the investments in associate entity NBH segment, on a standalone basis before consolidation adjustments, decreased to US$18.9 million in the three months ended 31 March 2016 from US$48.4 million in the three months ended 31 March 2015, and its gross margin decreased to 7% in the three months ended 31 March 2016 from 14% in the three months ended 31 March 2015, primarily due to a 25% year-on-year decline in steel prices in the EU market. Cost of sales of the investments in associate entity NBH segment decreased by 16% in the three months ended 31 March 2016 to US$263.8 million from US$306.6 million in the three months ended 31 March 2015. The decrease in cost of sales was mainly due to the decline in average slab prices by 15–20% year-on-year (representing approximately 60% of total costs of sales) and implementation of operating efficiency programmes.

General and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax Total general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax decreased by US$63.5 million, or 22%, to US$220.7 million in the three months ended 31 March 2016 from US$284.2 million in the three months ended 31 March 2015. The following table shows a breakdown of general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, for the periods indicated.

Three months ended 31 March 2016 2015 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (54.4) (64.5) 10.1 (16) Selling expenses ...... (146.8) (202.7) 55.9 (28.0) Other operating income/(expenses) ...... (3.1) 3.3 (6.4) (194.0) Taxes other than income tax ...... (16.4) (20.3) 3.9 (19) Total general and administrative, selling and other operating expenses and taxes, other than income tax ...... (220.7) (284.2) 63.5 (22) General and administrative expenses decreased by US$10.1 million, or 16%, to US$54.4 million in the three months ended 31 March 2016 from US$64.5 million in the three months ended 31 March 2015, primarily due to the ruble devaluation. Selling expenses decreased by US$55.9 million, or 28%, to US$146.8 million in the three months ended 31 March 2016 from US$202.7 million in the three months ended 31 March 2015, primarily due to a decrease in transportation costs and the ruble devaluation. Taxes other than income tax decreased by US$3.9 million, or 19%, to US$16.4 million in the three months ended 31 March 2016 from US$20.3 million in the three months ended 31 March 2015, primarily due to the ruble devaluation. As a percentage of total revenue, general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, increased to 14% in the three months ended 31 March 2016, compared to 13% of total revenue in the three months ended 31 March 2015.

Gain/loss on disposals of property, plant and equipment Gain on disposals of property, plant and equipment was US$0.9 million in the three months ended 31 March 2016, compared to loss of US$1.4 million in the three months ended 31 March 2015, an increase of US$2.3 million, or 164%.

Impairment losses and write-off of assets Impairment losses of US$2.1 million in the three months ended 31 March 2016 and US$0.1 million in the three months ended 31 March 2015 reflected a write-down of work-in-progress and inventories.

55 Share in net losses of associates and other companies accounted for using the equity method Share in net losses of associates and other companies accounted for using the equity method decreased by US$6.9 million, or 30%, to US$16.1 million in the three months ended 31 March 2016 from US$23.0 million in the three months ended 31 March 2015, primarily due to the decline of the Group’s share in NBH from 79.5% to 51% since March 2015. See ‘‘—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’.

Gains on investments, net There were no gains on investments, net in the three months ended 31 March 2016, compared to a net gain of US$59.7 million in the three months ended 31 March 2015. In the three months ended 31 March 2015, the Group reflected a disposal of 28.5% stake in NBH (loss on the disposal amounting to US$21.1 million) and a write-down of options previously included in other long-term liabilities (gain amounting to US$76.0 million) in the total amount of US$54.9 million in ‘‘Gains on investments’’ line of the consolidated statement of profit or loss. See ‘‘—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’.

Finance income Finance income decreased by US$1.3 million, or 11%, to US$10.3 million in the three months ended 31 March 2016 from US$11.6 million in the three months ended 31 March 2015, primarily as a result of the ruble devaluation.

Finance costs Finance costs decreased by US$6.4, or 24%, to US$20.3 million in the three months ended 31 March 2016 from US$26.7 million in the three months ended 31 March 2015 primarily as a result of a decrease in the amount of debt with an average interest rate above 9% and the ruble devaluation. Capitalised finance costs declined to US$8.8 million in the three months ended 31 March 2016 from US$14.0 million in the three months ended 31 March 2015. The decline in capitalized finance costs was primarily due to the ruble strengthening and the absence of foreign exchange losses subject to capitalisation in the three months ended 31 March 2016.

Foreign currency exchange gain, net The Group recorded a net foreign currency exchange loss of US$65.8 million in the three months ended 31 March 2016, compared to a net loss of US$109.1 million in the three months ended 31 March 2015. The net foreign currency exchange loss in the three months ended 31 March 2016 resulted from excess of cash and cash equivalents and financial investments balances over debt financing balance denominated in foreign currency along with the strengthening of Russian ruble.

Other expenses, net Other expenses, net in the three months ended 31 March 2016 was a US$19.0 million expense, as compared with an expense of US$16.2 million in the three months ended 31 March 2015.

Income tax expense Income tax expense in the three months ended 31 March 2016 was US$20.5 million, compared to US$74.8 million in the three months ended 31 March 2015. The effective tax rate for the three months ended 31 March 2016 was 27%, compared to 19% for the three months ended 31 March 2015. The higher effective tax rate for the three months ended 31 March 2016 was primarily due to an increased share of losses, for which no deferred taxes were recognised, in the total amount of profit before income tax.

Profit for the period For the reasons set forth above, net profit decreased by US$264.7 million, or 82%, to US$56.4 million in the three months ended 31 March 2016 from US$321.1 million in the three months ended 31 March 2015.

56 Results of Operations for the Years ended 31 December 2015 and 2014 The following table sets forth a summary of the Group’s consolidated financial results for the years ended 31 December 2015, 2014 and 2013.

Year ended 31 December 2015 2014 2013 (Amounts in millions of US dollars) Consolidated statement of profit or loss Revenue ...... 8,008.3 10,395.7 10,818.4 Cost of sales ...... (5,495.7) (7,389.0) (8,665.9) Gross profit ...... 2,512.6 3,006.7 2,152.5 General and administrative expenses ...... (261.1) (364.3) (456.9) Selling expenses ...... (801.6) (923.1) (945.6) Other operating income/(expenses) ...... 14.1 6.1 (6.6) Taxes, other than income tax ...... (75.7) (137.5) (134.6) Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets ...... 1,388.3 1,587.9 608.8 Loss on disposals of property, plant and equipment ...... (7.6) (11.9) (23.0) Impairment losses and write-off of assets ...... (85.5) (657.2) (21.0) Share in net losses of associates and other companies accounted for using the equity method ...... (103.0) (193.1) (54.0) Result of disposal of subsidiary ...... — — (51.4) Income on change of restructuring provision ...... — — 7.5 Gains on investments ...... 80.3 37.4 2.3 Finance income ...... 51.9 36.5 40.6 Finance expense ...... (95.3) (136.8) (121.9) Foreign currency exchange gain, net ...... 109.5 488.2 85.2 Other expenses, net ...... (17.5) (15.0) (53.9) Profit before income tax ...... 1,321.1 1,136.0 419.2 Income tax expense ...... (352.9) (362.4) (255.0) Profit for the year ...... 968.2 773.6 164.2 Profit attributable to: NLMK shareholders ...... 967.4 772.5 145.4 Non-controlling interests ...... 0.8 1.1 18.8

Revenue Total revenue decreased by US$2,387.4 million, or 23%, to US$8,008.3 million in 2015 from US$10,395.7 million in 2014. This decrease was primarily attributable to a 30% to 40% reduction in prices that was partially offset by a 5% increase in sales volumes.

57 The following tables show a breakdown of revenue and sales volumes from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue Semi-finished ...... 2,207.2 28 2,486.4 24 (279.2) (11) Flat ...... 4,366.4 55 5,651.1 54 (1,284.7) (23) Long...... 808.9 10 1,301.3 13 (492.4) (38) Others(1) ...... 625.8 8 956.9 9 (331.1) (35) Total ...... 8,008.3 100 10,395.7 100 (2,387.4) (23)

(1) Includes sales of iron ore, coke and scrap.

Year ended 31 December 2015 2014 Change Sales (%) Sales (%) (%) (Amounts in thousands of tonnes, except percentages) Sales Volume Semi-finished ...... 6,070 38 4,903 32 1,167 24 Flat ...... 7,704 49 7,887 52 (183) (2) Long...... 2,089 13 2,336 15 (247) (11) Total ...... 15,863 100 15,126 100 737 5 In 2015, sales of flat products declined by 2% to 7.7 million tonnes, and comprised 49% of total volume of sales (52% in 2014). The decrease in sales of flat products included year-on-year decreases in the volume of sales of hot-rolled steel (negative 2%), cold rolled steel (negative 5%), pre-painted steel (negative 27%). The decline in sales was primarily driven by falling Russian steel consumption. The volume of sales of semi-finished products to external customers increased in 2015 by 24% to 6.1 million tonnes due to stable demand of semi-finished products in external markets. In 2015, the average price for steel products decreased to US$463 per tonne, a 27% decrease from US$630 per tonne in 2014, primarily due to increased global surplus of steel supply as a result of the slowdown in steel consumption in China. The following table shows a breakdown of the revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 3,146.0 39 4,434.3 43 (1,288.3) (29) North America ...... 1,356.8 17 2,084.9 20 (728.1) (35) European Union ...... 1,603.0 20 1,819.6 18 (216.6) (12) Middle East, including Turkey ...... 684.1 9 636.5 6 47.6 7 Asia and Oceania ...... 374.4 5 319.3 3 55.1 17 Other regions ...... 844.0 11 1,101.1 11 (257.1) (23) Total ...... 8,008.3 100 10,395.7 100 (2,387.4) (23) In 2015, the Group revenue in its strategically important Russian market declined by 29% to US$3,146 million, or 39% of total revenue denominated in US dollars, as a result of decrease in sales volumes as a result of declining of Russian steel consumption and lower steel prices as a result of weak demand and the devaluation of the Russian ruble.

58 The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) Revenue (%) (Amounts in millions of US dollars, except percentages) Russian flat products(1) ...... 4,718.7 59 5,684.1 55 (965.4) (17) Foreign rolled products ...... 1,441.9 18 2,015.0 19 (573.1) (28) Russian long products ...... 859.0 11 1,446.9 14 (587.9) (41) Mining ...... 184.2 2 345.9 3 (161.7) (47) Investments in associate entity NBH ...... 1,212.7 15 1,462.4 14 (249.7) (17) All other ...... 11.7 0.1 0.1 0.0 11.6 11,600 NBH deconsolidation adjustments ...... (419.9) (5) (558.7) (5) 138.8 (25) Total ...... 8,008.3 100 10,395.7 100 (2,387.4) (23.0)

Russian flat products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the Russian flat products segment for the periods indicated.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 174.6 4 102.5 2 72.1 70 Slabs ...... 1,229.6 26 1,458.5 26 (228.9) (16) Hot-rolled ...... 1,019.1 21 1,291.1 23 (272.0) (21) Cold-rolled ...... 697.1 15 903.7 16 (206.6) (23) Galvanized ...... 371.4 8 448.6 8 (77.2) (17) Pre-painted ...... 296.7 6 516.0 9 (219.3) (43) Transformer ...... 455.5 10 372.1 7 83.4 22 Dynamo ...... 152.9 3 206.4 4 (53.5) (26) Other revenue ...... 321.8 7 385.1 7 (63.3) (16) Total revenue from external customers ...... 4,718.7 100 5,684.1 100 (965.3) (17)

Year ended 31 December 2015 2014 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 683.1 7 264.0 3 419.1 159 Slabs ...... 3,004.9 32 2,419.2 30 585.7 24 Hot-rolled ...... 2,509.7 27 2,379.1 29 130.6 6 Cold-rolled ...... 1,440.4 15 1,506.7 18 (66.3) (4) Galvanized ...... 648.2 7 588.4 7 59.8 10 Pre-painted ...... 375.0 4 513.9 6 (138.9) (27) Transformer ...... 276.6 3 258.8 3 17.8 7 Dynamo ...... 256.0 3 233.2 3 22.8 10 Other segments products(1) ...... 136.3 2 16.7 0.2 119.6 716 Total sales volumes ...... 9,330.2 100 8,180.0 100 1,150.2 14

(1) Includes revenue from sales of long products by the Group’s trading companies.

59 Revenue of the Russian flat products segment, on a consolidated basis, decreased by 17% to US$4,718.7 million in 2015 from US$5,684.1 million in 2014, representing 59% of consolidated revenue in 2015, as compared to 55% in 2014. The decrease in Russian flat products segment revenue in 2015 was primarily due to a 20 to 30% decrease in prices denominated in US dollars, which was partially offset by an increase in the volume of sales. The volume of sales by the Russian flat products segment increased in 2015 by 14% from 2014, mainly due to increased shipments of semi-finished products (mainly slabs and pig iron).

Foreign rolled products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the foreign rolled products segment.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... 2.0 0.1 3.6 0.2 (1.6) (44) Plate ...... 271.5 19 319.7 16 (48.2) (15) Hot-rolled ...... 491.4 34 820.8 41 (329.4) (40) Cold-rolled ...... 343.3 24 467.8 23 (124.5) (27) Coated steel ...... 240.4 17 296.9 15 (56.5) (19) All others ...... 93.2 6 106.2 5 (13.0) (12) Total revenue from external customers ...... 1,441.9 100 2,015.0 100 (573.1) (28)

Year ended 31 December 2015 2014 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 6.9 0.3 9.4 0.4 (2.5) (27) Plate ...... 435.0 20 398.2 17 36.8 9 Hot-rolled ...... 936.2 43 1,139.7 47 (203.5) (18) Cold-rolled ...... 493.5 22 539.1 22 (45.6) (9) Coated steel ...... 327.8 15 330.0 14 (2.2) (1) Total sales volumes ...... 2,199.4 100 2,416.5 100 (217.1) (9) Revenue of the foreign rolled products segment, on a consolidated basis, decreased by 28% to US$1,441.9 million in 2015 from US$2,015.0 million in 2014, representing 18% of consolidated revenue in 2015, compared to 19% in 2014. The decrease in foreign rolled products segment revenue in 2015 was primarily due to a decrease in average sales prices and reduced sales volumes.

60 Russian long products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the Russian long products segment.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 49.9 6 124.9 9 (75) (60) Long products ...... 659.6 77 1,078.5 74 (418.9) (39) Metalware ...... 123.4 14 202.9 14 (79.5) (39) Scrap ...... 23.4 3 29.8 2 (6.4) (22) All others ...... 2.7 0.3 10.9 1 (8.2) (75) Total revenue from external customers ...... 859.0 100 1,446.9 100 (587.9) (41)

Year ended 31 December 2015 2014 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 149.9 7 283.6 11 (133.7) (47) Long products ...... 1,817.6 81 2,004.5 77 (186.9) (9) Metalware ...... 271.3 12 331.3 13 (60.0) (18) Total sales volumes ...... 2,238.9 100 2,619.4 100 (380.5) (15) Revenue of the Russian long products segment, on a consolidated basis, decreased by 41% to US$859.0 million in 2015 from US$1.446.9 million in 2014, representing 11% of consolidated revenue in 2015, compared to 14% in 2014. The decrease in long products segment revenue in 2015 was primarily due to a decrease in sales volumes and reduced prices for long products. In 2015, average prices for the products of the Russian long products segment decreased by approximately 31% on a year-on-year basis, including average price decreases (including delivery fee) of approximately 33% for long products and approximately 26% for metalware. The decrease in sales volume of the Russian long products segment by 15% in 2015 as compared to 2014 was primarily due to lower demand in Russia where long steel consumption fell by 14% year-on-year.

Mining segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the mining segment.

Year ended 31 December 2015 2014 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Iron ore concentrate ...... 141.6 77 263.2 76 (121.6) (46) Sinter ore ...... 24.2 13 48.0 14 (23.8) (50) Limestone ...... 2.2 1 6.2 2 (4.0) (64) Dolomite ...... 4.5 2 9.0 3 (4.5) (50) All others ...... 11.8 6 19.6 6 (7.8) (40) Total revenue from external customers ...... 184.2 100 345.9 100 (161.7) (47)

61 Year ended 31 December 2015 2014 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Iron ore concentrate ...... 3,895.6 60 3,388.3 47 507.3 15 Sinter ore ...... 709.8 11 878.8 12 (169.0) (19) Limestone ...... 1,353.3 21 2,162.2 30 (808.8) (37) Dolomite ...... 534.6 8 729.4 10 (194.8) (27) Revenue of the mining segment, on a consolidated basis, decreased by 47% to US$184.2 million in 2015 from US$345.9 million in 2014, representing 2% of consolidated revenue in 2015, compared to 3% in 2014. The decrease in revenue was primarily due to a significant reduction in global iron ore prices. The volume of iron ore concentrate and sinter ore sales to external customers increased by 15% and 19%, respectively, in 2015 as compared with 2014, largely due to improved equipment productivity. A decrease in limestone sales by 37% compared with 2014 was mainly due to the high base effect in 2014 as a result of sales of limestone stocks accumulated from 2013. A decrease of dolomite sales to external customers by 27% compared with 2014 was mainly due to an increase of dolomite sales to Lipetsk site. Average prices for the mining segment’s products decreased in 2015 by 42%, including decreases in average prices for iron ore concentrate of approximately 53%, sinter ore of approximately 38%, dolomite of approximately 32% and limestone of approximately 41%.

Investments in associate entity NBH segment Revenue of the investments in associate entity NBH segment, on a consolidated basis, decreased by 17% to US$1,212.7 million in 2015 from US$1,462.4 million in 2014, representing 15% of consolidated revenue in 2015, compared to 14% in 2014. The decrease in the investments in associates was primarily due to the decline in NBH revenue driven by lower prices for finished products, which was partially offset by the increase in sales volumes.

Cost of sales and gross margin, depreciation and amortisation Total cost of sales as a percentage of revenue decreased to 69% in 2015 from 71% in 2014, , primarily due to operational efficiency programmes and the ruble devaluation. The gross margin increased to 31% in 2015 from 29% in 2014. In 2015, the slab production cost at the Lipetsk site was US$206 per tonne (a decrease of approximately 27% from 2014), due mostly to the decrease in prices for coking coal denominated in US dollars by 20%, pellets by 28% and scrap by 33%. Billet production costs at the Russian long products segment, and slab production costs at NLMK Indiana, were both impacted by lower prices for ferrous scrap in Russia and the United States. The following tables show the gross profit and gross margin for the steel, foreign rolled products, long products and mining segments and all other operations for the periods indicated, in each case on a standalone segmental basis before giving effect to eliminations on consolidation, as well as any intersegmental adjustments, and other consolidation adjustments.

Year ended 31 December 2015 Russian Foreign Russian Investments Inter- flat rolled long in associate All segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) ...... 4,718.7 1,441.9 859 184.2 1,212.7 11.7 — (419.9) 8,008.3 Intersegmental revenue(2) ...... 1,345.9 — 293.3 405.0 64.9 0.1 (2,044.3) (64.9) — Depreciation and amortisation ...... (384.6) (69.3) (65.4) (40.6) (80.2) (0.1) — 80.2 (560.0) Gross profit ...... 2,064.5 (70.6) 126.2 363.3 156.2 6.8 22.4 (156.2) 2,512.6 Gross margin (%) .... 34 (5) 11 62 12 — — 31

62 Year ended 31 December 2014 Russian Foreign Russian Investments flat rolled long in associate All Inter-segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) . . . 5,684.1 2,015.0 1,446.9 345.9 1,462.4 0.1 — (558.7) 10,395.7 Intersegmental revenue(2) ..... 2,187.9 — 367.7 721.8 54.9 — (3,277.4) (54.9) — Depreciation and amortisation . . . (538.5) (82.7) (106.6) (63.6) (101.1) (2.1) — 101.1 (793.5) Gross profit .... 2,204.8 118.3 236.2 720.2 142.0 — (272.8) (142.0) 3,006.7 Gross margin (%) 28 6 13 67 9 — — 29

(1) Represents sales to external customers. (2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment on a standalone basis before consolidation adjustments decreased to US$2,064.5 million in 2015 from US$2,204.8 million in 2014, while its gross margin increased to 34% in 2015 from 28% in 2014. The increase in gross margin of the Russian flat products segment was primarily due to structural gain from operational efficiency programmes and the devaluation of the Russian ruble, which was partly offset by narrowed spreads between steel and raw material prices. The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2015 2014 Cost of sales of Cost of sales of Russian flat Russian flat products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 821.0 20 1,342.2 24 (39) Coal and coke ...... 874.0 22 1,063.2 19 (18) Scrap ...... 255.4 6 380.3 7 (33) Ferro-alloys ...... 265.0 7 299.0 5 (11) Other materials, including zinc(1) ...... 736.6 18 911.4 16 (19) Electricity (external supplies) ...... 159.3 4 275.9 5 (42) Gas...... 190.0 5 293.5 5 (35) Payroll costs ...... 359.4 9 527.1 9 (32) Depreciation ...... 335.5 8 474.9 8 (29) Other costs ...... 65.0 2 99.7 2 (35) Total cost of sales of Russian flat products segment(2) ...... 4,061.2 100 5,667.2 100 (28)

(1) Also includes costs attributable to spare parts and ongoing maintenance. (2) Results of operations with NBH with respect to slab sales were included in total cost of sales of Russian flat products segment. NBH is accounted using the equity method and presented separately in the Segment Information note to the Financial Statements. Cost of sales of the Russian flat products segment decreased by 28% in 2015 to US$4,061.2 million from US$5,667.2 million in 2014. The decrease in cost of sales was mainly due to structural gain from operational efficiency programmes, the devaluation of the Russian ruble and a decrease in raw material prices.

63 Foreign rolled products segment The foreign rolled products segment made a gross loss on a standalone basis before consolidation adjustments of US$70.6 million in 2015, compared to a US$118.3 million gross profit in 2014. The loss was primarily due to increased costs attributable to the use of expensive slabs accumulated at the end of 2014 and beginning of 2015. The segment had an operating loss of US$165.7 million in 2015, as compared to an operating profit of US$21.4 million in 2014.

Russian long products segment Gross profit of the Russian long products segment on a standalone basis before consolidation adjustments decreased to US$126.2 million in 2015 compared to US$236.2 million in 2014, and its gross margin decreased to 11% in 2015 from 13% in 2014, primarily as a result of the decrease in sales volumes and the narrowing of spreads between long product and scrap prices. The segment had an operating loss of US$16.8 million in 2015, as compared to an operating profit of US$242.3 million in 2014. The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2015 2014 Cost of sales of Cost of sales of Long products Long products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 684.4 67 999.8 63 (32) Ferro-alloys ...... 28.2 3 40.0 3 (29) Other materials ...... 93.4 9 136.3 9 (32) Electricity (external supplies) ...... 59.1 6 107.4 7 (45) Gas...... 12.2 1 20.5 1 (40) Other energy(1) ...... 16.7 2 26.7 2 (38) Payroll costs ...... 82.2 8 132.1 8 (38) Depreciation ...... 63.2 6 102.8 7 (39) Other costs ...... (13.2) (1) 12.7 1 (204) Total cost of sales of Russian long products segment ...... 1,026.1 100 1,578.4 100 (35)

(1) Includes fuels and lubricants. Cost of sales of the Russian long products segment decreased by 35% in 2015 to US$1,026.1 million from US$1,578.4 million in 2014. The decrease in cost of sales was mainly due to the decrease in sales, the effect of operational efficiency programmes and the devaluation of the Russian ruble exchange rate (with over 90% of segment cost of sales denominated in rubles).

Mining segment Gross profit of the mining segment on a standalone basis before consolidation adjustments decreased to US$363.3 million in 2015 from US$720.2 million in 2014, and its gross margin decreased to 62% in 2015 from 67% in 2014, primarily due to a decrease in prices, which was partially offset by the effect of operational efficiency programmes and higher sales volumes of iron ore concentrate.

64 The following table shows, for 2015 and 2014, a cost of sales breakdown for the Group’s mining segment.

Year ended 31 December 2015 2014 Cost of sales of Cost of sales of Mining segmentMining segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 17.4 8 24.3 7 (28) Electricity (external supplies) ...... 47.2 21 77.8 22 (39) Gas...... 1.7 1 3.2 1 (47) Other energy(2) ...... 13.2 6 20.4 6 (35) Payroll costs ...... 58.9 26 86.3 25 (32) Depreciation ...... 38.8 17 60.5 17 (36) Other costs ...... 48.6 22 75.1 22 (35) Total cost of sales of mining ...... 225.9 100 347.5 100 (35)

(1) Includes balls and explosive materials. (2) Includes fuels and lubricants. Cost of sales of the mining segment decreased by 35% in 2015 to US$225.9 million from US$347.5 million in 2014. The decrease in cost of sales was mainly due to effect of operational efficiency programmes and devaluation of Russian ruble exchange rate (with over 90% of segment cost of sales denominated in rubles).

Investments in associate entity NBH segment Gross profit of the investments in associate entity NBH segment, on a standalone basis before consolidation adjustments, increased to US$156.2 million in 2015 from US$142.0 million in 2014, and its gross margin increased to 12% in 2015 from 9% in 2014, primarily due to a widening of spreads between product and slabs prices and structural gains from operational efficiency programmes. Cost of sales of the investments in associate entity NBH segment decreased by 18% in 2015 to US$1,121.5 million from US$1,375.3 million in 2014. The decrease in cost of sales was mainly due to a decrease in slab prices by 30–40% year-on-year (representing 60% of total cost of sales) and structural gains from operational efficiency programmes.

General and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax Total general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, decreased by US$294.7 million, or 21%, to US$1,124.1 million in 2015 from US$1,418.8 million in 2014. The following table shows a breakdown of general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, for the periods indicated.

Year ended 31 December 2015 2014 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (261.1) (364.3) 103.2 (28) Selling expenses ...... (801.6) (923.1) 121.5 (13) Other operating income/(expenses) ...... 14.1 6.1 8.0 131 Taxes, other than income tax ...... (75.5) (137.5) 62.0 (45) Total general and administrative, selling and other operating expenses and taxes, other than income tax ...... (1,124.1) (1,418.8) 294.7 (21) General and administrative expenses decreased by US$103.2 million, or 28%, to US$261.1 million in 2015 from US$364.3 million in 2014, primarily due to the devaluation of Russian ruble.

65 Selling expenses decreased by US$121.5 million, or 13%, to US$801.6 million in 2015 from US$923.1 million in 2014, primarily due to the devaluation of Russian ruble, which was partly offset by an increase in sales volumes by 5% and an increase in sales to external markets. Other operating income increased by US$8.0 million, or 131%, to US$14.1 million in 2015 from US$6.1 million in 2014. Taxes, other than income tax, decreased by US$62 million, or 45%, to US$75.5 million in 2015 from US$137.5 million in 2014. This decrease was primarily due to the devaluation of Russian ruble. As a percentage of total revenue, general and administrative, selling expenses and other operating income/ (expenses) and taxes, other than income tax, increased to 14% in 2015, compared to 13.6% of total revenue in 2014.

Loss on disposals of property, plant and equipment Loss on disposals of property, plant and equipment was US$7.6 million in 2015, compared to US$11.9 million in 2014, a decrease of US$4.3 million, or 36%. The decrease was primarily attributable to the ruble devaluation.

Impairment losses and write-off of assets Impairment losses and write-off of assets of US$85.5 million in 2015 related to the assets of Russian long products segment and goodwill in NLMK Indiana. Impairment losses and write-off of assets of US$657.2 million in 2014 related to the assets of Russian long products segment, NLMK Dansteel and investments in associate entity NBH. Management considered that low level of economic activity combined with a deterioration in the steel market represented a trigger for impairment testing and has performed the tests for impairment of goodwill, property, plant and equipment and intangible assets as at 31 December 2015 and 2014 which resulted in an impairment in consolidated statements of profit or loss. Impairment of the investments in associate entity NBH in 2014 was a result of continuous trend of low prices for steel products in Europe and underperformance of the NBH group companies.

Share in net losses of associates and other companies accounted for using the equity method Share in net losses of associates and other companies accounted for using the equity method decreased by US$90.1 million, or 47%, to US$103.0 million in 2015 from US$193.1 million in 2014, primarily due to the decrease of net losses of associates of NLMK Group (primarily NBH).

Gains on investments Gains on investments was an US$80.3 million gain in 2015, compared to a US$37.4 million in 2014, an increase of US$42.9 million, or 115%. The gain on investments in 2015 was primarily attributable to an income from SOGEPA option write-down (see—‘‘—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’) and a reimbursement of expenses for the litigation with Maxi-Group (see—‘‘Business—Litigation’’), partially offset by loss on disposal of 28.5% of NBH shares.

Finance income Finance income increased by US$15.4 million, or 42%, to US$51.9 million in 2015 from US$36.5 million in 2014, primarily as a result of interest gains on increased deposits.

Finance costs Finance costs decreased by US$41.5 million, or 30%, to US$95.3 million in 2015 from US$136.8 million in 2014, primarily as a result of a decrease in interest expenses due to repayment of a portion of financial debt and a decrease in interest payments of ruble debt due to devaluation of Russian ruble.

Foreign currency exchange gain, net Foreign currency exchange gain, net was US$109.5 million in 2015, compared to US$488.2 million in 2014. The foreign currency exchange gain, net in 2015 resulted from excess of cash and cash equivalents and financial investments balances over debt financing balance denominated in a foreign currency along with the devaluation of Russian ruble.

66 Income tax expense Income tax expense in 2015 was US$352.9 million, compared to US$362.4 million in 2014. The effective tax rate for 2015 was 27%, compared to 32% for 2014. The decrease in effective tax rate was primarily attributable to the decrease of share of losses, for which no deferred taxes were recognised, in the total amount of profit before income tax.

Profit for the year For the reasons set forth above, profit for the year increased by US$194.6 million, or 25%, to US$968.2 million in 2015 from US$773.6 million in 2014.

Results of Operations for the Years Ended 31 December 2014 and 31 December 2013 Revenue Total revenue decreased by US$422.7 million, or 4%, to US$10,395.7 million in 2014 from US$10,818.4 million in 2013. This decrease was primarily the result of a decrease in average sales prices denominated in US dollars, the negative impact of the NBH deconsolidation starting from the fourth quarter of 2013 and an increase of sales volume by 2% year-on-year. The following tables show a breakdown of revenue and sales volume from external customers, on a consolidated basis after intersegmental eliminations, from sales of the Group’s main products for the periods indicated.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue Semi-finished ...... 2,486.4 24 2,202.2 20 284.2 13 Flat ...... 5,651.1 54 6,367.5 59 (716.4) (11) Long...... 1,301.3 13 1,240.6 11 60.7 5 Others ...... 956.9 9 1,008.1 9 (51.2) (5) Total ...... 10,395.7 100 10,818.4 100 (422.7) (4)

Year ended 31 December 2014 2013 Change Sales (%) Sales (%) (%) (Amounts in thousands of tonnes, except percentages) Sales Volume Semi-finished ...... 4,903 32 4,364 29 539 12 Flat ...... 7,887 52 8,482 57 (595) (7) Long...... 2,336 15 1,982 13 353 18 Total ...... 15,126 100 14,828 100 297 2 In 2014, sales volumes of flat products decreased by 7% to 7.9 million tonnes, and comprised 52% of total sales (57% in 2013). The decline in sales volumes of flat products was primarily due to the NBH deconsolidation, since flat products sold by the NBH companies as part of the consolidated Group were no longer included in Group sales while slab sales by the Group to NBH started to be treated as sales to external customers. Long products sales grew by 18% due to growth of sales by NLMK-Kaluga (launched in mid-2013). In 2014, average prices for steel products decreased to US$630 per tonne, a 5% decrease from US$663 per tonne in 2013, which largely followed global market trends. The decrease in prices was also driven by the NBH deconsolidation.

67 The following table shows a breakdown of revenue from external customers, on a consolidated basis after intersegmental eliminations, by geographic region for the periods indicated.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Russia ...... 4,434.3 43 4,373.4 40 60.9 1 European Union ...... 1,819.6 18 1,982.8 18 (163.2) (8) Middle East, including Turkey ...... 636.5 6 875.4 8 (238.9) (27) North America ...... 2,084.9 20 1,558.9 14 526.0 34 Asia and Oceania ...... 319.3 3 794.2 7 (474.9) (60) Other regions ...... 1,101.1 11 1,233.7 11 (132.6) (11) Total ...... 10,395.7 100 10,818.4 100 (422.7) (4) Russian domestic revenue increased by 1% to US$4,434 million, or 43% of total revenue, primarily as a result of the increase in long product sales by NLMK-Kaluga (launched in mid-2013). A gradual recovery in the North American economy, particularly in machine-building, led to redirected sales in this market from other destinations. Revenue from the European Union totalled US$1,820 million (18% of total revenue), a decrease of 8%, while revenue from North America was US$2,085 million (20% of total revenue), representing an increase of 34%. Revenue from the Middle East and Asia and Oceania contracted by 27% and 60%, respectively. The following table shows revenue from external customers for each of the Group’s segments for the periods indicated.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) Revenue (%) (Amounts in millions of US dollars, except percentages) Russian flat products(1) ...... 5,684.1 55 6,240.6 58 (556.5) (9) Foreign rolled products ...... 2,015.0 19 1,693.0 16 322.0 19 Russian long products ...... 1,446.9 14 1,328.2 12 118.7 9 Mining ...... 345.9 3 372.2 3 (26.3) (7) Investments in associate entity NBH ...... 1,462.4 14 1,446.9 13 15.5 1 All other ...... 0.1 0 0.6 0 (0.5) (83) NBH deconsolidation adjustments ...... (558.7) (5) (263.1) (2) (295.6) 112 Total ...... 10,395.7 100 10,818.4 100.0 (422.7) (4)

68 Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Pig iron ...... 102.5 2 66.3 1 36.2 55 Slabs ...... 1,458.5 26 1,650.5 26 (192.0) (12) Hot-rolled ...... 1,291.1 23 1,185.7 19 105.4 9 Cold-rolled ...... 903.7 16 955.5 15 (51.8) (5) Galvanized ...... 448.6 8 493.5 8 (44.9) (9) Pre-painted ...... 516.0 9 541.7 9 (25.7) (5) Transformer ...... 372.1 7 371.6 6 0.5 0 Dynamo ...... 206.4 4 230.1 4 (23.7) (10) Other steel segments products(1) ...... 7.8 0.1 0.0 0 7.8 Other revenue ...... 377.3 7 745.5 12 (368.2) (49) Total revenue from external customers ...... 5,684.1 100 6,240.6 100 (556.5) (9)

(1) Includes revenue from sales of long products by the Group’s trading companies.

Year ended 31 December 2014 2013 Change (%) (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Pig iron ...... 264.0 3 168.9 2 95.1 56 Slabs ...... 2,419.4 30 3,562.2 40 (1142.9) (32) Hot-rolled ...... 2,379.1 29 2,094.0 24 285.1 14 Cold-rolled ...... 1,506.7 18 1,482.0 17 24.7 2 Galvanized ...... 588.4 7 577.8 7 10.7 2 Pre-painted ...... 513.9 6 492.5 6 21.4 4 Transformer ...... 258.8 3 243.6 3 15.2 6 Dynamo ...... 233.2 3 273.2 3 (40.0) (15) Other segments products(1) ...... 16.7 0.2 0.0 0 16.7 Total sales volumes ...... 8,180.2 100.0 8,894.2 100.0 (714.0) (8)

(1) Includes revenue from sales of long products by the Group’s trading companies. Revenue of the Russian flat products segment, on a consolidated basis, decreased by 9% to US$5,684.1 million in 2014 from US$6,240.6 million in 2013, representing 55% of total revenue in 2014, compared to 58% in 2013. The decrease in Russian flat products segment revenue in 2014 was primarily due to a decrease in sales volumes by 8% and a decline in average sales prices. The average price for Russian flat products segment products (including delivery fee) decreased in 2014 by 1% on a year-on-year basis. The volume of sales to external customers by the Russian flat products segment decreased in 2014 by 8% to 8.2 million tonnes from 8.9 million tonnes in 2013, mainly due to an increase of intra-group slab sales to NLMK USA, NBH and NLMK Dansteel.

69 Foreign rolled products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the foreign rolled products segment.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Slabs ...... 3.6 0.2 2.8 0.2 0.8 29 Plate ...... 319.7 16 284.3 17 35.4 12 Hot-rolled ...... 820.8 41 704.9 42 115.9 16 All others ...... 870.9 43 701.0 41 169.9 24 Total revenue from external customers ...... 2,015.0 100 1,693.0 100 322 19

Year ended 31 December 2014 2013 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Slabs ...... 9 0.4 9 0.4 0.1 0.5 Plate ...... 398 17 349 16 49.0 14 Hot-rolled ...... 1,140 47 1,063 49 76.8 7 Cold-rolled ...... 539 22 462 21 77.0 17 Galvanized ...... 330 14 278 13 52.0 19 Total sales volumes ...... 2,416 100 2,162 100 254.7 12 Revenue of the foreign rolled products segment, on a consolidated basis, grew by 19% to US$2,015.0 million in 2014 from US$1,693.0 million in 2013, representing 19% of total revenue in 2014, compared to 16% in 2013. The increase in foreign rolled products segment revenue in 2014 was primarily due to an increase in sales volumes by 12%, growth in high value added products sales and an increase in steel prices. The increase in prices (including delivery fee) on a year-on-year basis included increases for hot-rolled coils (approximately 4%), plates (8%) and slabs (approximately 27%). The 12% increase in plate sales revenue in 2014 was largely attributable to an increase of sales volumes by 14% and plate prices by 8%.

Russian long products segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the Russian long products segment.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Billets ...... 124.9 9 56.9 4 68.0 120 Long products ...... 1,078.5 75 1,009.4 76 69.1 7 Metalware ...... 202.9 14 214.8 16 (11.9) (6) Scrap ...... 29.8 2 29.2 2 0.6 2 All others ...... 10.9 1 18.0 1 (7.1) (39) Total revenue from external customers ...... 1,446.9 100 1,328.2 100 118.7 9

70 Year ended 31 December 2014 2013 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Billets ...... 284 11 120 6 164 137 Long products ...... 2,004 77 1,677 80 327 20 Metalware ...... 331 13 305 15 26 9 Total sales volumes ...... 2,619 100 2,102 100 517.0 25 Revenue of the Russian long products segment, on a consolidated basis, grew by 9% to US$1,446.9 million in 2014 from US$1,328.2 million in 2013, representing 14% of total revenue in 2014, compared to 12% in 2013. The increase in the Russian long products segment revenue in 2014 was attributable to the growth of sales volumes by 25% in 2014 as compared with 2013, largely due to an increase in long products sales, which was partly offset by a decrease in average sales prices year-on-year. In relation to the individual products of the Russian long products segment, revenue from long products sales increased by 7% in 2014 from 2013 and revenue from metalware sales decreased by 6% over the same period. These revenue increases were attributable to an increase in sales volumes which was partially offset by decreasing sales prices.

Mining segment The tables below show a breakdown by product of revenue from external customers and volume of sales to external customers of the mining segment.

Year ended 31 December 2014 2013 Change Revenue (%) Revenue (%) (%) (Amounts in millions of US dollars, except percentages) Revenue from external customers Iron ore concentrate ...... 263.2 76 273.7 74 (10.5) (4) Sinter ore ...... 48.0 14 52.8 14 (4.8) (9) Limestone ...... 6.2 2 6.8 2 (0.6) (9) Dolomite ...... 9.0 3 11.7 3 (2.7) (23) All others ...... 19.6 6 27.2 7 (7.6) (28) Total revenue from external customers ...... 345.9 100 372.2 100 (26.3) (7)

Year ended 31 December 2014 2013 Change Volume (%) Volume (%) (%) (Amounts in thousands of tonnes, except percentages) Sales volumes to external customers Iron ore concentrate ...... 3,388.3 47 2,940.5 52 447.8 15 Sinter ore ...... 878.8 12 853.1 15 25.7 3 Limestone ...... 2,162.2 30 869.9 15 1,292.2 149 Dolomite ...... 715.8 10 1,049.3 19 (333.5) (32) Revenue of the mining segment, on a consolidated basis, decreased by 7% to US$345.9 million in 2014 from US$372.2 million in 2013, representing 3% of total revenue in 2014, compared to 3% in 2013. The decrease in mining segment revenue in 2014 was primarily due to a decrease in iron ore prices. The increase in volumes of sales in 2014 was primarily attributable to an increase in productivity at Stoilensky and sales of stocks of limestone. The decrease in iron ore prices on a year-on-year basis in 2014 corresponds with 2014 global trends. The decrease in fluxes prices was mainly due to devaluation of Russian ruble in the second half of 2014, as prices denominated in rubles were mainly stable. Revenue from sales of iron ore concentrate and sinter ore decreased by 4% and 9%, respectively, in 2014 due to global trends in iron ore prices, which was partly offset by an increase in sales volumes by 15% and 3% supported by increased productivity at Stoilensky.

71 Investments in associate entity NBH segment Revenue of the investments in associate entity NBH segment, on a consolidated basis, increased by 1% to US$1,462.4 million in 2014 from US$1,446.9 million in 2013, representing 14% of consolidated revenue in 2014, compared to 13% in 2013. The increase in the investments in associate entity NBH segment revenue in 2014 was primarily due to an increase in sales volumes by 6%, partially offset by a decrease in average steel prices in the European market by 5–8% year-on-year.

Cost of sales and gross margin, depreciation and amortisation Cost of sales decreased by US$1,276.9 million, or 15%, to US$7,389.0 million in 2014 from US$8,665.9 million in 2013. As a percentage of revenue, cost of sales decreased to 71% in 2014 from 80% in 2013, which resulted in gross margin increasing to 29%. The following tables show the gross profit and gross margin for the steel, foreign rolled products, long products and mining segments and all other operations for the periods indicated, in each case on a standalone segmental basis before giving effect to eliminations on consolidation, as well as intersegmental adjustments, and other consolidation adjustments.

Year ended 31 December 2014 Russian Foreign Russian Investments Inter- flat rolled long in associate All segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) 5,684.1 2,015.0 1,446.9 345.9 1,462.4 0.1 — (558.7) 10,395.7 Intersegmental revenue(2) ...... 2,187.9 — 367.7 721.8 54.9 — (3,277.4) (54.9) — Depreciation and amortisation ...... (538.5) (82.7) (106.6) (63.6) (101.1) (2.1) — (101.1) (793.5) Gross profit ...... 2,204.8 118.3 236.2 720.2 142.0 — (272.8) (142.0) 3,006.7 Gross margin (%) ... 28 6 13 67 9 — — 29

Year ended 31 December 2013 Russian Foreign Russian Investments Inter- flat rolled long in associate All segmental NBH products products products Mining entity NBH other operations deconsolidation Total (Amounts in millions of US dollars, except percentages) Revenue from external customers(1) 6,240.6 1,693.0 1,328.2 372.2 1,446.9 0.6 — (263.1) 10,818.4 Intersegmental revenue(2) ...... 1,623.8 1.7 388.1 978.8 5.8 — (2,992.4) (5.8) — Depreciation and amortisation ...... (553.1) (74.8) (88.0) (71.5) (112.6) — — 28.9 (871.1) Gross profit ...... 1,208.9 (101.0) 208.5 928.0 125.1 0.3 (166.1) (51.2) 2,152.5 Gross margin (%) ... 15 (6) 12 69 9 — — 20

(1) Represents sales to external customers outside of the Group. (2) Represents sales to customers within the Group. Revenues attributable to these sales are eliminated on consolidation.

Russian flat products segment Gross profit of the Russian flat products segment on a standalone basis before consolidation adjustments increased to US$2,204.8 million in 2014 from US$1,208.9 million in 2013, and its gross margin increased to 28% in 2014 from 15% in 2013. The increase in gross margin of the Russian flat products segment was primarily attributable to widening spreads between raw materials and steel prices and a 2% year-on-year increase in sales volumes, as well as the impact of the Group’s operational efficiency programme.

72 The table below shows the components of the cost of sales of the Russian flat products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2014 2013 Cost of sales of Cost of sales of Russian flat Russian flat products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Iron ore ...... 1,342.2 24 1,817.1 27 (26) Coal and coke ...... 1,063.2 19 1,194.1 18 (11) Scrap ...... 380.3 7 419.6 6 (9) Ferro-alloys ...... 299.0 5 316.6 5 (6) Other materials, including zinc(1) ...... 911.4 16 1,047.1 16 (13) Electricity (external supplies) ...... 275.9 5 323.3 5 (15) Gas...... 293.5 5 320.2 5 (8) Payroll costs ...... 527.1 9 624.5 9 (16) Depreciation ...... 474.9 8 519.8 8 (9) Other costs ...... 99.7 2 73.2 1 36 Total cost of sales of Russian flat products segment ...... 5,667.2 100 6,655.5 100 (15)

(1) Also includes costs attributable to spare parts and ongoing maintenance. The decrease in cost of sales of the Russian flat products segment in 2014 as compared with 2013 was mainly attributable to implementation of optimization programmes, decreases in raw materials prices (especially iron ore) and the devaluation of Russian ruble in the second half of 2014 (with over 80% of cost of sales denominated in rubles).

Foreign rolled products segment Gross profit of the foreign rolled products segment on a standalone basis before consolidation adjustments was US$118.3 million in 2014, compared to a US$101.0 million loss in 2013. The change in gross profit was primarily due to an increase in sales volumes by 12%, the effect of optimization programmes and widening steel/slabs spreads. The segment had an operating profit of US$21.4 million in 2014, as compared to an operating loss of US$42.3 million in 2013. The change in operating profit in 2014 was attributable to an increase of gross profit and operating efficiency projects.

Russian long products segment Gross profit of the Russian long products segment on a standalone basis before consolidation adjustments increased to US$236.2 million in 2014 from US$208.5 million in 2013, and its gross margin increased to 13% in 2014 from 12% in 2013. These changes were primarily the result of an increase in sales volumes by 25%, the effect of optimization programmes and widening steel/scrap spreads. The segment had an operating profit of US$242.3 million in 2014, as compared to US$324.8 million in 2013. The decrease of operating profit in 2014 was attributable to asset impairments.

73 The table below shows the components of the cost of sales of the Russian long products segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2014 2013 Cost of sales of Cost of sales of Russian long Russian long products products segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Scrap ...... 999.8 63 966.6 64 3 Ferro-alloys ...... 40.0 3 38.4 3 4 Other materials ...... 136.2 9 125.6 8 9 Electricity (external supplies) ...... 107.4 7 117.5 8 (9) Gas...... 20.5 1 20.1 1 2 Other energy(1) ...... 26.7 2 27.5 2 (3) Payroll costs ...... 132.1 8 127.5 9 4 Depreciation ...... 102.8 7 84.8 6 21 Other costs ...... 12.7 1 (0.3) 0 — Total cost of sales of Russian long products segment ...... 1,578.4 100 1,507.8 100 5

(1) Includes fuels and lubricants. The increase in cost of sales of the Russian long products segment in 2014 as compared with 2013 was mainly attributable to an increase in sales volume at NLMK-Kaluga (launched in mid-2013).

Mining segment Gross profit of the mining segment on a standalone basis before consolidation adjustments decreased to US$720.2 million in 2014 from US$928.0 million in 2013, and its gross margin decreased to 67% in 2014 from 69% in 2013. These decreases were primarily due to to the decline in prices for the segment’s products. The following table shows, for 2014 and 2013, a cost of sales breakdown for the mining segment for the periods indicated on a standalone segmental basis.

Year ended 31 December 2014 2013 Cost of sales Cost of sales of Mining of Mining segment segment Change (%) (%) (%) (Amounts in millions of US dollars, except percentages) Raw materials(1) ...... 24.3 7 31.1 7 (22) Electricity (external supplies) ...... 77.8 22 110.1 26 (29) Gas...... 3.2 1 3.7 1 (12) Other energy(2) ...... 20.4 6 23.4 6 (13) Payroll costs ...... 86.3 25 101.0 24 (15) Depreciation ...... 60.5 17 67.2 16 (10) Other costs ...... 75.1 22 86.6 21 (13) Total cost of sales of mining ...... 347.5 100 423.0 100 (18)

(1) Includes balls and explosive materials. (2) Includes fuels and lubricants. The decrease in cost of sales of the mining segment in 2014 as compared with 2013 was mainly attributable to the effect of operation efficiency programmes and devaluation of Russian ruble in the second half of 2014 (with over 95% cost of sales denominated in Russian rubles).

74 Investments in associate entity NBH segment Gross profit of the investments in associate entity NBH segment, on a standalone basis before consolidation adjustments, increased to US$142.0 million in 2014 from US$125.1 million in 2013, and its gross margin increased to 9.4% in 2014 from 8.6% in 2013, primarily due to the effect of operational efficiency programmes and an increase in sales volumes by 6%. Cost of sales of the investments in associate entity NBH segment increased by 4% in 2014 to US$1,375.3 million from US$1,327.6 million in 2013. The increase in cost of sales was mainly due to an increase in sales volumes by 6%.

General and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax Total general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, decreased by US$124.9 million, or 8%, to US$1,418.8 million in 2014 from US$1,543.7 million in 2013. The following table shows a breakdown of general and administrative, selling expenses and other operating income/(expenses) and taxes, other than income tax, for the periods indicated.

Year ended 31 December 2014 2013 Change (%) (Amounts in millions of US dollars, except percentages) General and administrative expenses ...... (364.3) (456.9) 92.6 (20) Selling expenses ...... (923.1) (945.6) 22.5 (2) Other operating income/(expenses) ...... 6.1 (6.6) 12.7 — Taxes other than income tax ...... (137.5) (134.6) (2.9) 2 Total general and administrative, selling and other operating expenses, and taxes, other than income tax ...... (1,418.8) (1,543.7) 124.9 (8) General and administrative expenses decreased by US$92.6 million, or 20%, to US$364.3 million in 2014 from US$456.9 million in 2013, primarily due to cost optimization initiatives as well as the impact from the devaluation of Russian ruble in the second half of 2014. Selling expenses decreased by US$22.5 million, or 2%, to US$923.1 million in 2014 from US$945.6 million in 2013, primarily due to the ruble devaluation, partially offset by an increase in steel sales by 2%, and an increase in iron ore export sales. Other operating income was US$6.1 million in 2014, compared to operating expenses of US$6.6 million in 2013, primarily due to a write-off of the estimated obligations. Taxes, other than income tax, increased by US$2.9 million, or 2%, to US$137.5 million in 2014 from US$134.6 million in 2013. As a percentage of total revenue, general and administrative, selling expenses and other operating income/ (expenses) and taxes, other than income tax, decreased to 14% in 2014, compared to 14% of total revenue in 2013.

Loss on disposals of property, plant and equipment Loss on disposals of property, plant and equipment was US$11.9 million in 2014, compared to US$23.0 million in 2013, a decrease of US$11.1 million, or 48%. The decrease was primarily attributable to the growth of net realizable value of the assets.

Impairment losses and write-off of assets Impairment losses and write-off of assets of US$657.2 million in 2014 related to assets of the Russian long products segment, NLMK Dansteel and investments in associate entity NBH. Management considered that a low level of economic activity combined with a deterioration in the steel market represented a trigger for impairment testing and has performed the tests for impairment of goodwill, property, plant and equipment and intangible assets as at 31 December 2014 which resulted in an impairment in consolidated statements of profit or loss. Impairment of investments in associate entity NBH in 2014 was a result of a continuous trend of low prices for steel products in Europe and underperformance of NBH holding companies. Impairment losses and write-off of assets of US$21.0 million in 2013 related to write-off of inventory and accounts receivable.

75 Share in net losses of associates and other companies accounted for using the equity method Share in net losses of associates and other companies accounted for using the equity method increased by US$139.1 million, or 258%, to US$193.1 million in 2014 from US$54.0 million in 2013, primarily due to an increase in net losses of associated companies due to the deconsolidation of NBH from the fourth quarter of 2013.

Gains on investments Gains on investments were US$37.4 million in 2014, compared to US$2.3 million in 2013. The gain on investments in 2014 was primarily attributable to the release of the provision due to repayment of a loan provided by NLMK to Maxi-Group companies, which was partially offset by a change in fair value of the SOGEPA option (see ‘‘—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’).

Finance income Finance income decreased by US$4.1 million, or 10%, to US$36.5 million in 2014 from US$40.6 million in 2013, primarily due to a decrease in the average interest rate due to the increase of share deposits in US dollars and Euros.

Finance costs Finance costs were US$136.8 million in 2014, compared to US$121.9 million in 2013. This increase was primarily attributable to a decrease in capitalised interest in 2014 by US$60.3 million primarily due to a decrease in total interest expenses by US$42.6 million and a decrease in the amount of qualified assets.

Foreign currency exchange gain, net Foreign currency exchange gain, net was US$488.2 million in 2014, compared to US$85.2 million in 2013. The foreign currency exchange gain, net in both 2014 and 2013 resulted from an excess of cash and cash equivalents and financial investments balances over debt financing balance denominated in foreign currency along with significant devaluation of Russian ruble.

Income tax expense Income tax expense in 2014 was US$362.4 million, compared to US$255.0 million in 2013. The effective tax rate for 2014 was 32%, compared to 61% for 2013. The decrease in effective tax rate was primarily due to the write-off for non-recoverability of previously accrued deferred tax assets of NLMK’s foreign rolled assets in 2013, the decrease of share of unrecognised tax loss carry forward and the tax effect of non-deductible expenses in 2014 in the total amount of profit before tax.

Profit for the year For the reasons set forth above, profit for the year increased by US$609.4 million, or 371%, to US$773.6 million in 2014 from US$164.2 million in 2013.

Liquidity and Capital Resources Historically, the Group’s major source of cash has been cash provided by operating activities, and NLMK expects that this will continue to be the Group’s principal source of cash in the future. As of 31 March 2016, the Group had cash and cash equivalents and short-term financial investments of US$1,699 million and total debt of US$2,666 million. See ‘‘—Liquidity’’.

Capital requirements The Group’s principal financing requirements have been, and continue to be, to finance production of steel and steel products and mining operations, and to fund capital expenditures, including the purchase of equipment and modernization of facilities, as well as acquisitions. Historically, funding of the Group’s capital requirements has come from cash flows from operating activities. NLMK intends to continue to fund the Group’s capital expenditures primarily from these cash flows, as well as, if necessary, external sources of financing.

76 Capital expenditures The Group’s business is heavily dependent on plant and machinery for the production of steel and steel products and mining. Investments to maintain, expand and increase the efficiency of production facilities are, accordingly, an important priority and have a significant effect on the Group’s cash flows and future results of operations. Following expansion of the scale of the business, the focus of the Group’s strategy has shifted to enhancing operational efficiency. The Group’s capital expenditures in the three months ended 31 March 2016 totalled US$121 million, as compared with US$116 million in the three months ended 31 March 2015. The capital expenditures were primarily invested in the construction of a pelletizing plant at Stoilensky and modernization of the Hot Dip Galvanizing line at the Lipetsk site. In 2015, the Group’s capital expenditures were US$594.7 million, compared to US$562.6 million in 2014. The capital expenditure funds were primarily invested in development and environment investment projects under the Group’s Strategy 2017, including construction of a pelletizing plant and development of beneficiation facilities at Stoilensky and instalment of a PCI facility on blast furnaces 6 and 7 at the Lipetsk site. In 2014, the Group’s capital expenditures were US$562.6 million, compared to US$756.3 million in 2013. The major part of investments in 2013 was allocated to construction of NLMK-Kaluga, launched in mid-2013.

Cash flows The table below sets forth the Group’s summarized cash flows for the periods indicated:

Three months Year ended 31 December ended 31 March 2015 2014 2013 2016 2015 (Amounts in millions of US dollars) Net cash provided by operating activities ...... 1,651.1 1,805.7 1,333.4 421.1 489.0 Net cash used in investing activities ...... (1,399.3) (945.6) (1,015.7) (9.0) (275.4) Net cash used in financing activities ...... (377.8) (1,147.0) (224.2) (231.4) (129.4) Net increase/(decrease) in cash and cash equivalents . . (126.0) (286.9) 93.5 180.7 84.2

Operating activities Cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortisation and other items, and the effect of changes in working capital. Net cash provided by operating activities was US$421.1 million and US$489.0 million in the three months ended 31 March 2016 and 2015, respectively. Net cash provided by operating activities was US$1,651.1 million, US$1,805.7 million and US$1,333.4 million in the years ended 31 December 2015, 2014 and 2013, respectively. The change in net cash provided by operating activities during these periods was primarily due to the change in steel prices and sales volumes, the effect of operational efficiency programmes and movements in working capital. Changes in working capital items from period to period, including as a result of external factors, have had and will continue to have an effect on cash provided by operating activities. For example, increasing prices of purchased raw materials may warrant maintaining higher inventory levels in order to hedge against further price increases. An increase in steel prices and sales volumes can lead to an increase in account receivables. The increasing size of the Group’s business generally has required and will continue to require higher levels of working capital, although this can partially be offset by optimization measures.

Investing activities Net cash used in investing activities for the three months ended 31 March 2016 was US$9.0 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$120.5 million, which was partly offset by withdrawal of bank deposits of US$103.9 million. Net cash used in investing activities for the three months ended 31 March 2015 was US$275.4 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of

77 US$115.6 million, purchases of investments and placement of bank deposits of US$145.6 million and contribution to share capital of NBH of US$22.0 million. Net cash used in investing activities for the year ended 31 December 2015 was US$1,399.3 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$594.7 million, placement of bank deposits of US$641.0 million, purchases of investments and loans given of US$198.8 million. Net cash used in investing activities for the year ended 31 December 2014 was US$945.6 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$562.6 million, purchases of investments and loans given of US$231.6 million and placement of bank deposits of US$197.1 million. Net cash used in investing activities for the year ended 31 December 2013 was US$1,015.7 million and was primarily attributable to net cash used for purchases and construction of property, plant and equipment of US$756.3 million, placement of bank deposits of US$264.4 million, and purchases of investments and loans given of US$87.4 million. See ‘‘—Capital Requirements—Capital expenditures’’.

Financing activities Net cash used in financing activities during the three months ended 31 March 2016 of US$231.4 million was primarily due to payment of dividends in an amount of US$153 million scheduled for the third quarter of 2016, interest payments of US$32 million and net repayment of borrowings by US$47 million. Net cash used in financing activities during the year ended 31 December 2015 of US$377.8 million was primarily due to US$578.8 million in repayment of borrowings and capital lease payments and US$395.2 million in dividends to shareholders, partially offset by US$675.6 million in proceeds from borrowings. Net cash used in financing activities during the year ended 31 December 2014 of US$1,147 million was primarily to US$910.7 million in repayment of borrowings and capital lease payments, US$225.9 million in dividends to shareholders and US$120.6 million in interest paid, partially offset by US$110.2 million in proceeds from borrowings. Net cash used in financing activities during the year ended 31 December 2013 of US$224.2 million was primarily due to US$2,020.2 million in repayment of borrowings, capital lease payments and US$113.6 million in dividends to shareholders, partially offset by US$2,000.7 million in proceeds from borrowings. See ‘‘—Capital Requirements—Recent acquisitions’’.

Liquidity Historically, the Group has relied on cash from operating activities as the main source of liquidity. The Group had cash and cash equivalents of US$545.8 million as of 31 March 2016. This amount included time deposits in a total amount of US$102.1 million, of which US$65.0 million was held in US dollars, US$12.4 million was held in euros and US$24.1 million was held in rubles. A majority of the Group’s cash and cash equivalents are held in several major Russian banks and Russian subsidiaries of foreign banks. As of 31 March 2016, the Group had total borrowings of US$2,665.9 million. A summary of the Group’s principal outstanding borrowings is set out below.

Bank Facilities NLMK USA Collateralized Credit Facility In December 2011, NLMK Pennsylvania Corp., Sharon Coating LLC and NLMK Indiana Corp. (as borrowers) and Top Gun II (as guarantor) entered into a revolving collateralized facility agreement with, amongst others, Bank of America N.A. as facility agent in the principal amount of US$250 million with a maturity period of 5 years. This facility was used for refinancing of the current indebtedness, financing of working capital and general corporate purposes. The amount outstanding under the facility bears an interest at a rate equal to (a) Prime base rate for the relevant interest period plus 0.875% per annum; and (b) US dollar London interbank offered rate (‘‘LIBOR’’) for the relevant interest period plus 1.875% per annum. As of 31 March 2016, the amount outstanding was US$105.1 million. The borrower’s obligations under this facility are secured in favour of the lenders by a pledge over bank accounts and pledges over inventory and receivables.

Export Credit Financing Facility In November 2009, NLMK entered into a master export credit financing facility agreement and a number of facilities within the framework of such master agreement with, amongst others, Deutsche Bank AG as

78 global facility agent for a maximum principal amount of EUR 524.0 million with a maturity period of 10 years, insured by Export Credit Agencies. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus a margin, which, on an average basis, is 1.53% per annum. This facility was used to finance the Group’s Technical Upgrading Program. As of 31 March 2016, the amount outstanding was EUR 187 million (US$ 212.1 million). Under the export credit financing facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1:5; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK’s obligations under this facility are secured in favour of the lenders by a pledge (direct debit rights) over bank accounts.

Kaluga Hermes Facility In December 2010, NLMK-Kaluga (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with, amongst others, Societ´ e´ Gen´ erale´ as facility agent for a loan in the principal amount of EUR 46.5 million with a maturity period of 10 years. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus 0.9% per annum. As of 31 March 2016, the amount outstanding was EUR 21.5 million (US$ 24.4 million). Under the export credit backed facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK-Kaluga’s obligations under this facility are secured in favour of the lenders by a pledge over a bank account.

NLMK Dansteel Hermes Export Credit Facility In October 2011, NLMK Dansteel (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with Societ´ e´ Gen´ erale´ as facility agent and original lender for a principal amount of EUR 90.1 million with a maturity period ending in 2020. This facility was used to finance modernization of a heavy plate mill of NLMK Dansteel. The amount outstanding under the facility bears an interest at a rate equal to EURIBOR for the relevant six-month interest period plus 0.90% per annum. As of 31 March 2016, the amount outstanding was EUR 56.2 million (US$64.0 million). Under the export credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1.

SGOK ECA Facility In July 2012, Stoilensky (as borrower) and NLMK (as guarantor) entered into an export credit backed facility agreement with, amongst others, Societ´ e´ Gen´ erale´ as global facility agent for a loan in the principal amount of EUR 209.5 million with a maturity period ending in 2022. The principal amount outstanding under the facility bears interest at a rate equal to EURIBOR for the relevant six-month interest period plus 0.9% per annum. This facility is used for financing of equipment deliveries for construction of a pelletizing plant in Stary Oskol. As of 31 March 2016, the amount outstanding was EUR 143.9 million (US$163.0 million). Under the export credit backed facility agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK-Kaluga’s obligations under this facility are secured in favour of the lenders by a pledge over a bank account.

NLMK Dansteel Collateralized Credit Facility In March 2013, NLMK Dansteel (as borrower) and NLMK (as guarantor) entered into a revolving collateralized facility agreement with Deutsche Bank AG, Amsterdam Branch as facility agent and collateral agent for a loan in the principal amount of EUR 50 million with a maturity period of four years. This facility was used to finance working capital and general corporate purposes. The amount outstanding under the facility bears an interest at a rate equal to EURIBOR for the relevant three-month interest period plus 1.75% per annum. As of 31 March 2016, the amount outstanding was EUR 50 million (US$56.9 million). Under the collateralised credit facility, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net indebtedness to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net indebtedness to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK Dansteel’s obligations under this facility are secured in favour of the lenders by a pledge over a bank account and pledges over inventory and receivables.

79 Uncommitted Credit Facility Agreement In September 2013, Novex Trading (Suisse) SA (as borrower) and NLMK (as guarantor) entered into an uncommitted revolving credit facility agreement with ING Belgium, Brussels, Geneva Branch as lender, for a loan in the principal amount of US$75 million. This facility was used for working capital purposes of the borrower. The amount outstanding under the facility bears interest at a rate equal to the US dollar London interbank offered rate (‘‘LIBOR’’) for the relevant interest period plus a margin which changes each six months. As of 31 March 2016, the amount outstanding was US$75 million.

PXF Facility In October 2015, NLMK (as borrower) and Novex Trading (Swiss) SA (as trader) entered into a pre-export finance facility agreement with, amongst others, Deutsche Bank AG, Amsterdam Branch as facility agent, for a loan in the maximum principal amount of up to US$400 million with a maturity period of four years. The principal amount outstanding under the facility bears interest at a rate equal to LIBOR for the relevant interest period (which is 3 months or any other period, as may be agreed by the parties) plus 3% per annum. As of 31 March 2016, the amount outstanding was US$400 million. Under the pre-export finance agreement, NLMK must ensure that, in relation to the Group on a consolidated basis, at all times: (i) the ratio of net borrowings to tangible net worth shall not exceed 1.5:1; and (ii) the ratio of net borrowings to Adjusted EBITDA (as defined in the facility agreement) shall not exceed 3.5:1. NLMK’s obligations under this facility are secured in favour of the lenders by an assignment of rights under certain export contracts and a pledge over certain US dollar bank accounts. During the years 2013, 2014 and 2015 and the three months of 2016 NLMK has been in compliance with the covenants under each of the Bank facilities listed above.

US Dollar and Ruble Bonds 2019 Notes On 26 September 2012, NLMK completed its debut Eurobond offering of US$500,000,000 4.95% Loan Participation Notes due 2019. The notes were issued by Steel Funding Limited on a limited recourse basis for the sole purpose of financing a loan to NLMK. Notes in the amount of US$29,286,000 were cancelled on 18 July 2014. As of the date of this Prospectus, an aggregate principal amount of US$470,714,000 of the 2019 Notes remain outstanding without giving effect to the Tender Offer.

2018 Notes On 19 February 2013, NLMK completed its Eurobond offering of US$800,000,000 4.45% Loan Participation Notes due 2018. The notes were issued by Steel Funding Limited on a limited recourse basis for the sole purpose of financing a loan to NLMK. Notes in the amount of US$92,415,000 were cancelled on 18 July 2014. As of the date of this Prospectus, an aggregate principal amount of US$707,585,000 of the 2018 Notes remain outstanding without giving effect to the Tender Offer.

Ruble bonds The following table sets forth a summary of the key terms of all outstanding ruble bond issuances by NLMK as of 31 March 2016.

Nominal Coupon Payment Issue Volume value Total value rate Coupon period Maturity Date of placement Put option date BO-11 ...... 5,000,000 RUB 1,000 RUB 5 billion 8.00% RUB 39.89 182 days 10 years 01 August 2013 28 July 2016 BO-12 ...... 5,000,000 RUB 1,000 RUB 5 billion 8.00% RUB 39.89 182 days 10 years 06 August 2013 2 August 2016 BO-13 ...... 5,000,000 RUB 1,000 RUB 5 billion 8.05% RUB 40.14 182 days 10 years 14 October 2013 11 October 2017 BO-14 ...... 5,000,000 RUB 1,000 RUB 5 billion 11.50% RUB 57.34 182 days 10 years 09 July 2015 12 July 2016 BO-08 ...... 5,000,000 RUB 1,000 RUB 5 billion 11.10% RUB 55.35 182 days 10 years 17 September 2012 30 October 2017 As at 31 March 2016, guarantees issued by the Group for borrowings of NBH group companies amounted to US$274.0 million, which is the maximum potential amount of future payments to be paid on demand of the guarantee.

80 Contractual Obligations, Commercial Commitments and Contingencies The following table sets forth the amount of the Group’s contractual obligations and commercial commitments as of 31 March 2016.

Payments due by period Less than More than Total 1 year 2–3 years 4–5 years 5 years (Amounts in millions of US dollars) Short-term borrowings and current portion of long-term debt ...... 597.0 597.0 — — — Long-term debt obligations, net of current portion ...... 2,068.9 — 1,359.5 682.3 27.1 Interest payable(1) ...... 18.4 18.4 — — — Purchase Obligations ...... — — — — — Short-term finance lease obligations ...... — — — — — Long-term finance lease obligations ...... — — — — — Estimated finance expense(2) ...... 281.5 113.6 167.1 0.8 0.05 Estimated average interest rate(2) ...... 3.92 6.36 3.57 0.98 0.77 Total contractual obligations and commercial commitments ...... 2,965.8 729.0 1,526.6 683.1 27.15

(1) Interest payable as of 31 March 2016 amounted to US$18.4 million for short-term borrowings and current portion of long-term debt. (2) Finance expense is estimated for a five-year period based on (1) estimated cash flows and change of the debt level, (2) forecasted LIBOR rate where applicable and (3) actual long-term contract interest rates and fixed rates, forecasted with reasonable assurance on the basis of historic relations with major banking institutions. As of 31 March 2016 and 31 December 2015, the Group had outstanding guarantees amounting to US274.0 million and US$273.2 million, respectively, which primarily related to NBH group companies (see ‘‘Related Party Transactions’’). The Group does not currently have any other off-balance sheet arrangements.

Critical Accounting Estimates The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as well as disclosures. Management also makes certain judgements, in the process of applying the Group’s accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including forecasts and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, and management’s estimates can be revised in the future, either negatively or positively, based on the facts surrounding each estimate. Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year are reported below.

Consolidation of subsidiaries Management judgement is involved in the assessment of control and the consolidation of subsidiaries in the Group’s consolidated financial statements.

Tax legislation and potential tax gains and losses The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities which are recorded for income tax positions are determined by management based on the interpretation of current tax laws. Liabilities for penalties, interest and taxes, other than income tax, are recognised based on management’s best estimate of the expenditure required to settle tax liabilities at the reporting date.

81 Estimation of remaining useful lives of property, plant and equipment The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may affect future useful lives.

Fair value estimation for acquisitions In accounting for business combinations, the purchase price paid to acquire a business is allocated to its assets and liabilities based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired, net of liabilities, is recorded as goodwill. A significant amount of judgement is involved in estimating the individual fair values of property, plant and equipment and identifiable intangible assets. The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ from the projected results used to determine fair value.

Impairment analysis of property, plant and equipment and goodwill The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a number of significant judgements and estimates to certain variables including volumes of production and extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed for impairment.

Accounting for provisions Accounting for impairment includes provisions against capital construction projects, financial assets and other non-current assets (at least annually).

Accrual of accounts receivable impairment provision The impairment provision for accounts receivable is based on the management’s assessment of the collectability and recoverable amount of specific customer accounts, being the present value of expected cash flows. If there is deterioration in a major customer’s creditworthiness or actual defaults are higher or lower than estimates, the actual results could differ from these estimates.

Control and the consolidation or accounting using equity method of accounting of entities in the Group’s consolidated financial statements Management judgement is involved in the assessment of control and the consolidation or accounting using equity method of accounting of certain entities in the Group’s consolidated financial statements. As at 31 December 2015 and 2014 the Group owned 51.0% and 79.5% of shares in NBH, respectively, however, management had concluded that in the light of giving certain governance rights to the party owing the residual interest in this company, the Group does not control this company, thus the Group’s investment in NBH should be accounted for under the equity method starting 30 September 2013. After the partial disposal of NBH as of 30 September 2013, which the Group executed in the context of the continuing restructuring of its European operations aimed at further enhancing efficiency optimizing costs, the Group retained its presence in Europe and in the rolled products line of business. Therefore management believes that this disposal does not meet the definition of a discontinued operations under IFRS 5.

Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, the Group’s financial position is routinely subject to a variety of market risks. The Group is exposed to market risks associated with interest rates, foreign currency exchange rates and commodity prices.

82 Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with variable interest rates. To manage this risk the Group analyses interest rate risks on a regular basis. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate loans. The interest rate risk profile of the Group is follows:

As at As at As at As at 31 March 31 December 31 December 31 December 2016 2015 2014 2013 Fixed rate instruments Financial assets ...... 2,623.7 2,427.7 2,103.5 2,363.9 Cash and cash equivalents ...... 545.8 343.0 549.2 970.0 Short-term financial investments ...... 1,153.1 1,242.6 621.3 484.6 Trade and other accounts receivable less allowance . . 697.3 622.3 791.7 904.8 Long-term financial investments ...... 227.5 219.8 141.3 4.5 Financial liabilities ...... (1,963.7) (2,065.8) (2,366.9) (3,508.3) Trade, other accounts payable and dividends payable . (404.3) (519.5) (464.7) (712.3) Short term borrowings ...... (233.2) (230.8) (302.5) (525.0) Long-term borrowings ...... (1,326.2) (1,315.5) (1,599.7) (2,271.0) Variable rate instruments ...... (1,106.5) Financial assets ...... — — — 78.4 Short-term financial investments ...... — — — 0.4 Long-term financial investments ...... — — — 78.0 Financial liabilities ...... (1,106.5) (1,129.8) (866.3) (1,394.5) Short-term borrowings ...... (363.8) (329.0) (501.8) (611.7) Long-term borrowings ...... (742.7) (800.8) (364.5) (782.8) A change of 100 basis points in interest rates for variable rate instruments would have insignificantly change profit and equity.

Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The export-oriented companies of the Group are exposed to foreign currency risks. To minimize foreign currency risks the export program is designed taking into account potential (forecast) major foreign currencies’ exchange fluctuations. The Group diversifies its revenues in different currencies. In its export contracts the Group controls the balance of currency positions: payments in foreign currency are settled with export revenues in the same currency. At the same time standard hedging instruments to manage foreign currency risk might be used. The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2015.

US dollar Euro Cash and cash equivalents ...... 196.4 39.6 Trade and other accounts receivable ...... 2.9 303.6 Short-term financial investments ...... 1,079.9 129.4 Long-term financial investments ...... — 222.1 Trade and other accounts payable ...... (42.3) (95.2) Short-term borrowings ...... (19.8) (145.6) Long-term borrowings ...... (1,578.3) (400.8) Net foreign currency position ...... (361.2) 53.1

83 The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2014.

US dollar Euro Cash and cash equivalents ...... 230.4 107.1 Trade and other accounts receivable ...... 7.0 402.1 Short-term financial investments ...... 423.0 164.8 Long-term financial investments ...... — 141.2 Trade and other accounts payable ...... (40.7) (107.2) Short-term borrowings ...... (117.7) (126.9) Long-term borrowings ...... (1,178.3) (494.0) Net foreign currency position ...... (676.3) 87.1 The net foreign currency position presented below is calculated in respect of major currencies by items of the consolidated financial statements as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2013.

US dollar Euro Cash and cash equivalents ...... 460.5 161.2 Trade and other accounts receivable ...... 3.1 418.4 Short-term financial investments ...... 350.3 107.2 Other non-current assets ...... 0.6 — Trade and other accounts payable ...... (51.2) (93.3) Short-term borrowings ...... (169.6) (170.6) Long-term borrowings ...... (1,400.0) (682.8) Net foreign currency position ...... (806.3) (259.9)

Sensitivity analysis Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes. A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2015, 2014 and 2013 would have increased / (decreased) equity by the amounts shown below, however effect on profit for the year would be different, and would amount to US$87.6, US$196.8 and US$105.3, respectively, due to foreign exchange gain from intercompany operations

As at As at As at 31 December 2015 31 December 2014 31 December 2013 US dollar ...... (90.3) (169.1) (201.6) Euro ...... 13.3 21.8 (65.0) A weakening of these currencies against the functional currency would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.

Commodity price risk Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results. The Group minimizes its risks, related to production distribution, by having a wide range of geographical zones for sales, which allows the Group to respond quickly to negative changes in the situation on one or more sales markets on the basis of an analysis of the existing and prospective markets. One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products. To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

84 THE STEEL INDUSTRY Global Steel Industry Overview Steel is one of the most important, multi-functional and adaptable materials in use today, and is considered to be a backbone of industrial development. The versatility of steel is attributable to the fact that it is hot and cold formable, weldable, hard, resistant to corrosion, water and heat, 100% recyclable and has good machinability. Among the myriad industries in which steel is used are the automotive, oil and gas, consumer appliances, construction, transportation, packaging and engineering industries. The global steel industry is cyclical and 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 have fluctuated in response to general and industry-specific economic conditions. Moreover, the global steel industry is highly competitive and has historically been characterized by oversupply. While global steel production has been historically concentrated in the European Union, North America, Japan and the former Soviet Union, steel production in China and the rest of Asia has grown in importance over the past decade, as a result of rising domestic consumption and low manufacturing costs. Europe, Japan and the United States remain significant producers and consumers of steel, particularly the rolling and finishing of semi-finished products. In the recent years, the market has been oversupplied as a result of unprecedented growth in production which has been further aggravated by the global economic downturn. In 2015, excess global steelmaking capacity was eight times the total volume of steel produced in Russia. China made almost as much steel in 2015 as all other countries combined, which, as demand in China dropped for the second consecutive year, led to an unprecedented growth in exports from China (up to 112 million tonnes) resulting in the lowest steel prices in 12 years. As a result, the US and the EU have begun to impose protective import tariffs in a bid to support their steelmakers. Around 20 investigations have been launched into finished steel imports from various countries, including Russia, since the beginning of 2015. The US re-introduced protective tariffs on hot-rolled steel from Russia, and launched an investigation into cold-rolled steel. The EU launched an investigation into cold-rolled steel imports and introduced minimum prices for electrical steel. Russian demand for steel also showed a significant decline in 2015. For example, demand for steel products used in construction fell by 14% in the first nine months of 2015. The slowdown in Russian steel demand in 2015 continued in 2016 in almost all sectors of the Russian economy. In 2015, average prices for standard grades of flat and long products in Russia decreased in US dollar terms by 17–32%, while prices in ruble terms increased by 8–30% on the back of the ruble devaluation. In Europe and the US, prices for steel products in US dollar terms fell in 2015 by 25% and 31%, respectively.

Global Steel Production and Consumption Production According to the Worldsteel Association, world crude steel production reached 1,597.8 million tonnes for the year 2015, a decline of 4% as compared to 2014. China maintained its position as the world’s largest single producer of crude steel at 803.8 million tonnes. China’s steel production in 2015 decreased by 2% as compared to 2014, but still accounted for approximately 50% of global steel production.

85 The following table sets forth estimated crude steel production data by country or region for the years 2011 to 2015.

World Crude Steel Production 2015 2014 2013 2012 2011 (Amounts in millions of tonnes) Europe (including CIS) ...... 301.5 313.7 313.3 319.4 329.5 US...... 78.8 88.2 86.9 88.7 86.4 North America (excluding the US) ...... 32.1 33.0 32.1 32.9 32.3 South America ...... 43.9 45.0 45.8 46.4 48.2 Middle East/Africa ...... 39.7 45.0 42.9 40.3 38.9 China ...... 803.8 822.7 822.0 731.0 702.0 Japan ...... 105.2 110.7 110.6 107.2 107.6 Asia (excluding China and Japan) ...... 187.0 206.4 191.1 188.5 185.9 Oceania ...... 5.7 5.5 5.6 5.8 7.2 World total ...... 1,597.8 1,670.1 1,650.3 1,560.3 1,538.0 Annual change (%) ...... (4.3) 1.2 5.8 1.4 7.3

Source: Worldsteel Association The global industry is currently seeing a shift in demand from ‘‘commodity steel’’ to ‘‘high value added steel’’ or ‘‘specialized steel’’ in developed markets. However, the strategy and product mix of steel producers generally varies between producers in industrial countries and producers in emerging markets. Historically, the steel industry had been dominated by steel producers in industrialized countries. Producers in Western Europe and Japan 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 last century, producers in emerging markets began to compete with industrialized country steel producers as they took advantage of the lower manufacturing costs in their countries to offset high transportation costs. Despite the limitations associated with transportation costs, as well as the restrictive effects of protective tariffs, duties and quotas, global imports and exports increased during the last decade. In response, producers in Western Europe and Japan invested heavily in new technology and capacity to produce high value added (HVA) 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 a build-up of production overcapacities and have put pricing pressures on the value-added segments. More recently, the industry has been characterized by the globalization of the competitive landscape mainly due to the ability of low-cost emerging market producers to overcome entry barriers, including quality thresholds, reliability of supply, transportation costs and quotas. The increasing pressure on manufacturing companies’ costs has also prompted a growing globalization of production towards emerging markets. The globalization of end-customers has led to a reduction in steelmaking capacity in mature markets. Given the high cost of production in these markets due to the lack of available raw materials, the high cost of labour and energy and other factors, liquid steel production in mature markets is becoming increasingly uncompetitive. The increasing bargaining power of raw materials suppliers and growing raw materials prices led many steel producers, including the Group, to seek to acquire mining companies in order to obtain greater control over raw material supplies and retain increased mining profits internally.

86 Consumption The following table sets forth estimated finished steel consumption data by country or region for the years 2011 to 2015.

World Finished Steel Consumption 2015 2014 2013 2012 2011 (Amounts in millions of tonnes) European Union ...... 153.3 149.1 142 140.3 155.5 Other Europe ...... 40.1 37.1 36.9 34.1 32.7 CIS...... 50.0 56.0 58.7 57.7 55.4 US...... 95.7 107 95.7 96.2 89.2 NAFTA (excluding the US) ...... 38.8 39.7 34.2 36.5 34.0 South America ...... 45.4 48.9 51.3 48.7 46.0 Middle East/Africa ...... 92.0 90.9 88.1 83.7 79.9 China ...... 672.3 710.8 735.1 660.1 641.2 Japan ...... 62.9 67.7 65.2 64.0 64.1 Asia (excluding China, India and Japan) ...... 162.8 156.1 146.6 142.9 137.1 India ...... 79.5 76.1 73.7 72.4 69.8 Oceania ...... 7.3 7.4 6.7 7.3 6.9 World total ...... 1,500.1 1,546.9 1,534.2 1,443.7 1,411.8 Annual change (%) ...... (3.0) 0.8 6.3 2.3 —

Source: Worldsteel Association The majority of the consumption of commodity steel is in Asian and other emerging markets. In 2015, China maintained its position as the world’s largest consumer of finished steel at 672.3 million tonnes.

Consolidation of the Global Steel Industry Over the last decade, a number of factors emerged which affected the relative bargaining power of major steel producers and adversely impacted their profit margins. Among such factors were the emergence of China as the world’s largest producer and consumer of steel, high prices for raw materials, coupled with the increasing bargaining power of raw materials suppliers, and the overall globalization of the steel industry. In response, the steel industry itself began a phase of consolidation which included, among others, the merger of Arcelor and Mittal Steel in 2006, Essar Group’s purchase of the Algoma Steel Corporation and Tata Group’s acquisition of Corus Group (both in 2007). The consolidation trend is also apparent in the CIS where, in 2010, Metinvest Group and Ilyich Iron and Steel Works agreed to combine their assets creating a steel producer with a combined production capacity of 20 million tonnes per annum. Consolidation has enabled steel companies to lower their production costs and allowed for more stringent supply-side discipline, including through selective capacity closures which helped enhance the overall efficiency and utilisation rates across the board. However, despite the level of consolidation over the last decade, the steel industry remains highly fragmented. According to Worldsteel Association, in 2015, the five largest crude steel producers (ArcelorMittal, Hesteel Group, Nippon S&M, POSCO and Baosteel) together accounted for approximately 17% of total worldwide crude steel production, with ArcelorMittal (97.14 million tonnes), the world’s largest producer, accounting for approximately 6%.

Russian Steel Industry Overview Following the collapse of the Soviet Union, the Russian steel industry suffered a substantial decline in production from over 77 million tonnes in 1991 to 44 million tonnes in 1998. Since then, output has increased significantly, and in 2015, Russia produced 71.1 million tonnes of crude steel, or 5% of the global production, making it the world’s fifth largest producer of crude steel. Russia’s crude steel output in 2015 decreased by 1% compared to 2014, and its finished steel output decreased by 2% during the same period. According to Metal Expert, in 2015, the Russian steel industry exported over 28.1 million tonnes of finished and semi-finished steel products, or 58% of its total output of finished steel products adjusted for flat steel used in pipes production (as compared to 26.4 million tonnes, or 54% of its total output of finished steel products in 2014), primarily to Asia, the Middle East and the European Union. In 2015, Russian exports of steel products comprised 7% of all global exports for steel products, making Russia the

87 fourth largest exporter of such products globally. Import of steel products into Russia in 2015 fell by 28% to 4.5 million tonnes as compared to 6.2 million tonnes in 2014. Russian steel producers tend to focus on vertical integration, as a result of Russia’s large reserves of natural resources, which enables them to secure a stable supply of certain raw materials, such as iron ore and coking coal for pig iron. For instance, as a result of the Group’s policy of maximising vertical integration, since 2012, all of the Group’s coke, sinter ore, iron ore and flux requirements have been met by its own mining assets. In addition, Russian companies are modernizing former state-owned steel production facilities, achieving significant reductions in manufacturing costs, and placing their costs well below those of global (including Western European and North American) producers, and improving product quality and technology.

Domestic market Domestic consumption of steel in Russia in 2015 amounted to 39.4 million tonnes, representing a decrease of 8% compared to 2014. Construction, machine building and energy sectors were the key drivers of domestic demand. Volumes of steel consumed in Russia are substantially less than in developed countries such as Japan, which consumed 62.9 million tonnes in 2015, and the United States, which consumed approximately 95.7 million tonnes in 2015, according to Worldsteel Association. In 2015, domestic market prices in US dollar terms decreased, on average, by 24% for hot-rolled steel, 17% for cold-rolled steel and 21% for galvanized steel, in each case as compared to 2014. Though being a net exporter of steel (over 50% of production), Russia also imports significant quantities of steel, mainly finished value added products. Imported steel comprised 11–18% of total steel consumed in Russia in 2012–2015.

Export market The total volume of exports of finished rolled steel products represented 27% of overall Russian steel production in 2015. In 2015, Russian producers exported 12.8 million tonnes of finished steel products. Semi-finished products (including slabs and billets) accounted for 54% of exports of steel products, and rolled steel products accounted for the remaining 46%. The majority of exports of rolled steel products in 2015 comprised flat products (31% of total volume of exports and 67% of volume of exports of rolled steel products) and long products (12% of total volume of exports and 25% of volume of exports of rolled steel products). Europe, Asia and the Middle East are the main export destinations for Russian steel producers. The following table sets forth by percentage the export destinations for Russian flat-rolled steel products in 2015.

Region Percentage Europe ...... 39 Asia ...... 9 North and South America ...... 4 Middle East, including Turkey ...... 38 Other ...... 10 Total ...... 100

Source: Metal Expert, Federal Customs Service of the Russian Federation

Producers The Russian steel industry is characterized by a relatively high concentration of production, with the six largest steel companies (the Group, Evraz, Severstal, Magnitogorsk Iron & Steel Works, Holding Company Metalloinvest and Mechel) accounting for 84% of Russia’s total domestic crude steel production in 2015.

EU Steel Industry Overview Domestic consumption of steel in the European Union in 2015 amounted to 153 million tonnes, representing an increase of 3% compared to 2014, and comprising approximately 10% of global consumption of finished steel. The member states of the European Union produced 166.1 million tonnes of crude steel in 2015 (10% of global total crude steel output). Total EU exports of finished and semi-finished steel products in 2015 amounted to 124.7 million tonnes, of which 96.4 million tonnes

88 comprised intra-EU exports, while 28.3 million tonnes (representing 17% of EU steel output) were sold outside the EU Imports of steel into the European Union from outside the European Union in 2015 were 34 million tonnes, representing 22% of EU consumption in that period. (Source: World Steel Association, Eurostat).

US Steel Industry Overview Domestic consumption of steel in the United States in 2015 amounted to 95.7 million tonnes, representing a decrease of 11% compared to 2014, and comprising approximately 6% of global consumption of finished steel. The United States produced 78.9 million tonnes of crude steel in 2015 (approximately 5% of global output). Total US exports of finished and semi-finished steel products in 2015 amounted to 9.05 million tonnes, representing 12% of US steel output, while imports of finished and semi-finished steel products amounted to 35.5 million tonnes, representing 37% of US consumption in that period. (Source: World Steel Association).

Types of Steel Steel products are broadly subdivided into two categories—flat and long products. Flat products include hot and cold-rolled steel, plates, galvanized steel, pre-painted steel, transformer steel and dynamo steel. Long products include blooms, billets, wire, bars and metalware. Flat products have various applications in many industries, including construction, electrical engineering, machine building, automotive, energy, shipbuilding, and tube and pipe production. Long steel is largely used in the construction and infrastructure projects which account for over two-thirds of its total consumption. Long steel is also used in the machine building sector.

Raw Materials: Overview of Iron Ore and Metallurgical Coal Industries Iron Ore Global Iron Ore Industry Overview Iron ores are rocks and minerals from which metal is extracted. The global iron ore industry is characterized by a high degree of consolidation, with BHP Billiton, Vale, and Rio Tinto accounting for approximately 60% of the global seaborne iron ore trade. The major iron ore producing countries are Australia, Brazil, China and India, as well as Russia. The dominance of the major producers in the market has led to significant changes in pricing terms, including a quarterly pricing mechanism based on the spot price over three previous months. According to Steel Business Briefing, spot iron ore concentrate prices have decreased from US$178 per tonne in January 2011 to US$40 per tonne at the end of 2015. Global iron ore production has risen by more than 3 times from 980 million tonnes in 2000 to 3,320 million tonnes in 2015. Historically, Europe, Japan and China have been the major iron ore consumption centers. Since 2002, China and certain countries in the CIS have been showing significant increases in demand as a result of the increases in their domestic steel production. Since that time, global consumption of steel, and, consequently, of iron ore, has significantly increased. China has recently experienced the highest growth in steel consumption, with an increase in demand of more than 50% from 446.9 million tonnes in 2008 to 672.3 million tonnes in 2015, according to Worldsteel.

Russian Iron Ore Industry Overview According to Metal Expert and Worldsteel, in 2015, total iron ore production in Russia was approximately 101 million tonnes. During the same period, total iron ore exports were approximately 21.2 million tonnes (as compared to 22.9 in 2014), and total imports were approximately 8.1 million tonnes (as compared to 10.3 in 2014). Imports to Russia mostly comprise shipments from Kazakhstan and are generally limited by high transportation costs and the lack of port facilities in the Far East and on the Black Sea. Russian iron ore production is highly concentrated, and the four largest producers accounted for approximately 82% of total iron ore production in Russia in 2015, according to Metal Expert and Rudprom. One of the Group’s core mining businesses, Stoilensky, which currently supplies all the Group’s iron ore concentrate requirements, is the third largest iron ore manufacturer in Russia.

89 Coal Global Coal Industry Overview Coal may be divided into steam (thermal) coal and coking (metallurgical) coal. Steam coal is used in electricity generation and for industrial applications, while coking coal is used to manufacture coke for use in blast furnaces and other metallurgical applications. Coke is used as a raw material in the production of pig iron and is obtained by baking a blend of several grades of ground coking coals in coke ovens. Approximately 15% of total hard coal production is currently used by the steel industry, and approximately 70% of total global steel production is dependent on coal according to Worldsteel. In the production of steel, approximately 450 kilograms of coke is used per tonne of hot metal (pig iron). Historically, Australia, China, Indonesia and South Africa have been the largest coal-producing countries, with Russia increasing its share of world supply in recent years. Between 1990 and 2015, world coal production was estimated to have increased from 4,774 million tonnes to 8,298 million tonnes according to Ministry of Energy of Russian Federation.

Russian Coal Industry Overview Russia has the world’s second largest proven coal reserves after the United States. As of the end of 2014 (the latest available data), Russia’s proven coal reserves totaled approximately 157 billion tonnes, accounting for 18% of the world’s proven reserves according to BP Statistical Review of World Energy. In 2015, Russia exported approximately 156 million tonnes of coal, according to Ministry of Energy of Russian Federation. In 2015, approximately 70% of Russia’s coking coal production capacity was owned by, or by entities affiliated with, Russian steel producers according to Metal Expert. Coal production in Russia is concentrated in the Kuznetsk Basin and the Kansko-Achinskii Basin, which are east of the Ural Mountains, and together account for the majority of Russia’s total coal production. In 2015, coking coal production in Russia was approximately 74.7 million tonnes, according to Metal Expert.

90 BUSINESS Overview The Group is a leading and one of the most efficient international steel producers with a high degree of vertical integration and operations throughout all major stages of steel production, from the mining of raw materials to sales of high value added products to end users. With global operations across Europe, North America and Asia, the Group has a high level of self-sufficiency in key raw materials and energy resources, low cost steelmaking operations located in the Central District and Ural region of Russia, and mini-mills and rolling assets located in close proximity to its key customers in Russia, Europe and the United States. The Group has a diversified portfolio of steel products, with a strong presence in many industry sectors in both its Russian and international markets. NLMK is the largest producer of steel in Russia with approximately 22% of total Russian steel production in 2015. The Group’s product range includes slabs, hot-rolled steel, long steel products such as rebar and wire rod and a variety of high value added products, which include a range of hot-rolled thick plates, cold-rolled steel, galvanized and pre-painted steel, electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel and metalware. High value added products represented approximately 29% of the total volume of sales of steel products of the Group in 2015 (27% in the three months ended 31 March 2016). In 2015, the Group had sales revenue of US$8,008.3 million, Adjusted EBITDA of US$1,948.3 million, Adjusted EBITDA margin of 24%, and in the three months ended 31 March 2016 the Group had sales revenue of US$1,576.9 million, Adjusted EBITDA of US$290.2 million and Adjusted EBITDA margin of 18%. The Group’s products are sold to over 70 countries in Europe, North America, Asia, Africa and the Middle East. The diversity of the Group’s products and export strength gives it the flexibility to focus on the most attractive markets and helps to protect it from downturns in a particular customer segment or geography. The Group identifies the most attractive markets using a range of criteria, including market growth potential, supply and demand balance, profitability, lead times and the complexity of the supply chain. In 2015, the Group produced approximately 22% of the overall Russian crude steel output, 15% of the overall Russian hot-rolled steel output, 38% of the overall Russian cold-rolled steel output, 26% of the overall Russian galvanized steel output, 26% of the overall Russian pre-painted steel output and 20% of the overall Russian rebar steel output, according to Metal Expert. The Group’s Russian operations produced 22% of the overall output of high value added products in Russia in 2015. The Group is a steel producer with a high degree of vertical integration and with control over a substantial part of its production chain, from its upstream operations, comprising the mining of raw materials and upstream diversified steelmaking (with a balance between BOF and EAF routes of crude steel production), to downstream steel processing (both flat and long finished steel products) close to the end users of its products and export seaports. The Group’s Russian operations represent 100% of the mining capacity of the Group, approximately 95% of its crude steelmaking capacity and approximately 60% of its downstream (production of rolled steel) processing capacity, including flat and long steel production. The Group’s mining division supplies raw materials, including iron ore concentrate, fluxing materials, coke and scrap to the Group’s Russia-based steelmaking operations. The Group’s core mining business is Stoilensky, an open pit mine with approximately 6 billion tonnes of primary iron ore reserves and one of the lowest cash costs of production (cost of mining and beneficiation per tonne of iron ore concentrate) in the global iron ore industry. Stoilensky supplies all of the Group’s iron ore concentrate and sinter ore requirements. The Group’s other raw material producing subsidiaries include Stagdok and Dolomit, which supply fluxing materials, and Altai-Koks, Russia’s largest non-integrated coke producer, which, together with the Lipetsk site’s coke production facilities, supplies all of the Group’s coke requirements. In addition, over 70% of all scrap consumed by the Group’s sites in Russia in 2015 was supplied by the Group’s captive scrap businesses which collect and process ferrous scrap, making NLMK one of the largest scrap collecting and processing companies in Russia. As part of the ongoing upstream development, the Group is currently seeking to expand the production of iron ore at Stoilensky by approximately 10% while also constructing a pelletizing plant expected to produce over 6 million tonnes per year of iron ore pellets, which management expects to be operational in of 2016. In addition, the Group has licenses to two coal deposits, namely Zhernovskoye-1, including Zhernovski-Gluboki, in the Kemerovo region, Western Siberia, and Usinsky-3 in the Komi Republic. The Group considers these deposits as a long-term option for further development. The Group seeks to control costs throughout the production cycle and believes that it enjoys one of the most competitive production cost structures in the global steel industry. Management believes that the

91 Group’s main production site in Lipetsk, which accounts for approximately 75% of the overall crude steel capacity of the Group, has one of the lowest cash costs of steel production among the world’s steel producers and one of the lowest among its Russian competitors. The Group achieves this by ensuring economies of scale in the production process and by upgrading its production facilities, which management believes include some of the most modern in the global steel industry. The Group also operates a long steel division in Russia comprising electric arc furnace-steel production and rolling mills producing rebar, wire-rod and metalware. The Group enjoys an advantageous geographical position, with production sites located close to its customer base in regions with extensive transportation infrastructure. The Group’s Russian operations benefit from a long-term agreement with Freight One, a transportation company, for the supply of transport and rail logistics services. Freight One is part of UCL Holding, one of the largest railway wagon fleet owners in Russia. UCL Holding is currently an entity under common control. The Group’s main production site in Lipetsk (Novolipetsk) has convenient access to the Black Sea and Baltic Sea ports from where its products are shipped overseas. In addition, iron ore deposits are situated in close proximity to the Group’s main production site in Lipetsk. Most of the Group’s Russian customers are located within 500 kilometers of its main production site in Lipetsk, helping to streamline company logistics. In addition, the Group operates rolling mills in two of its key overseas markets through its subsidiaries and associate companies in the European Union (in Belgium, Denmark, France and Italy), which together form the NLMK Europe business unit, and through its subsidiaries in the United States, which together form the NLMK USA business unit. NLMK Europe and NLMK USA together represent approximately 40% of the downstream processing capacity of the Group (or over 6 million tonnes a year). A substantial part of the feedstock (slabs) used by NLMK Europe and NLMK USA in the manufacturing of high value added products is supplied by the Group’s Russian operations. In February 2014, the Group announced its new strategic goals for the coming three years (‘‘Strategy 2017’’). Strategy 2017 is focused on unlocking significant internal potential of the Group’s businesses by boosting operational and process efficiency across the entire production chain, enhancing vertical integration into key raw materials, increasing sales of high value added (HVA) products, and pursuing environmental, safety and human capital development programmes. Strategy 2017 is centred on gaining leadership in operational efficiency, developing a world-class resource base, and achieving leading positions in strategic markets. Special emphasis is placed on industrial safety, sustainability and human capital development. Strategy 2017 targets net gains of US$1.0 billion per year and envisions overall development capex of US$1.0 billion. In 2014–2015, the Company estimates that the structural net gain for the Group as a result of Strategy 2017 totalled US$477 million per year (using 2015 prices in comparison with 2013 base-level), or 48% of the total Strategy 2017 target the Group plans to achieve by 2018. The Company estimates that over 85% of the savings in 2014–2015 came from operational efficiency programmes that did not require any capital outlay with the remaining 15% coming from investment projects. In 2015, the Company estimates net gains totalled US$256 million (from 2014 base-level).

History and Development The Group’s predecessor, Novolipetsk Iron and Steel Works, a state-owned enterprise, first began construction of an iron and steel plant at the Lipetsk iron ore mine in 1931 and produced its first pig iron in 1934. After the plant was dismantled during World War II, Novolipetsk Iron and Steel Works began reconstruction of the iron and steel plant at Lipetsk in 1947 and, during the next four decades, continued to develop its production facilities and product range, including the introduction of cold-rolled grain- oriented (transformer) steel in 1960 and cold-rolled carbon steel in 1980. In accordance with the Russian government’s program of the privatization of Russian industry in the early 1990s, NLMK was formed as an open joint stock company on 31 December 1992, and was privatized in stages from 1993, initially through a distribution to its employees of vouchers that could be exchanged for shares in NLMK. By the middle of the 1990s, several investors had acquired significant stakes in NLMK. Between 2000 and 2004, the Group’s current beneficial owner, Mr. Vladimir Lisin, had, through a series of transactions, acquired beneficial ownership of NLMK from this group of investors and NLMK management. In December 2005, NLMK obtained admission of global depositary receipts, each evidencing ordinary shares of NLMK, to listing on the Official List of the United Kingdom Listing Authority and to trading on the regulated market of the London Stock Exchange.

92 NLMK is the parent company of the Group and holds the main assets of its steel operations. In addition, the Group has acquired a number of businesses worldwide, including mining assets that produce raw materials used in the Group’s steel production operations. In 1997, the Group acquired Dolomit, which mines and processes metallurgical dolomite and, in 1999, it acquired Stagdok, which mines and processes fluxing limestone. Both of these companies are located in the Lipetsk region. In 2004, the Group acquired Stoilensky, an open pit iron ore mine, located approximately 300 kilometers from Lipetsk, which currently supplies all the iron ore concentrate requirements of the Group’s main steel plant in Lipetsk. In 2005, the Group acquired the license for the exploration and development of the Zhernovskoye-1 coal deposit in the Kemerovo region, Western Siberia. In 2006, the Group acquired Altai-Koks, which currently supplies all the coke requirements of the Group’s main steel plant in Lipetsk. The Group made additional downstream investments in 2006, including the acquisition of DanSteel A/S (now ‘‘NLMK Dansteel’’ and, since the second half of 2011, a part of NLMK Europe Plate business unit), a steel rolling company based in Denmark and VIZ-Steel, the second largest electrical steel producer in Russia, as well as establishing a joint venture with the Duferco Group through the acquisition of a 50% stake in SIF, which consisted of steelmaking assets and five rolling mill companies (together with a network of metal services centers) in Europe and the United States. In 2007, SIF subsequently acquired Sharon Coating LLC (‘‘Sharon Coating’’, currently a part of NLMK USA business unit), a galvanized steel manufacturer located in the United States. In December 2007, NLMK acquired 50% plus one share of OJSC Maxi-Group, which operated a number of scrap collecting and processing facilities as well as two Electric Arc Furnaces (EAF) and long steel production facilities located in the Urals region of Russia. Following a restructuring of the Maxi-Group businesses, these assets became part of the Group’s long steel division. In 2008, the Group acquired Beta Steel LLC (subsequently renamed ‘‘NLMK Indiana LLC’’, currently a part of NLMK USA business unit), a manufacturer of steel (EAF production) and hot-rolled coils in the United States. In 2009, NLMK completed the disposal of its 69.41% shareholding in TMTP (Tuapse Sea Port). In 2010, the Group acquired LLC VMI Recycling Group, which has a ferrous scrap collecting and processing capacity of 500 thousand tonnes per year and is located in the Moscow region. In line with the Group’s strategy of streamlining its asset structure and splitting off non-core assets, in June 2011, the Group sold its 100% interest in NTK (the legal predecessor of Freight One) to UCL Rail B.V., a subsidiary of UCL Holding, a related party, and entered into a long-term agreement (which expires in 2017) with Freight One for the supply of transport and rail logistics services. UCL Holding, one of the largest railway wagon fleet owners in Russia, is a holding company comprised of a number of railway and logistics, seaport and stevedoring, and shipping and other assets. In July 2011, the Group completed the restructuring of SIF, in which it acquired the remaining 50% interest from the Duferco Group and consolidated the rolling assets within the Group, and SIF transferred certain non-core (steelmaking) assets to the Duferco Group. In October 2011, the Group acquired Nippon Transcore Private Limited (subsequently renamed ‘‘NLMK India Service Center Pvt Ltd’’), an electrical steel service center in India. In March 2011, the Group acquired a license for the exploration and extraction of coal in Usinsky-3 expiring in 2031. In April 2013, NLMK-Kaluga, an EAF long steel facility in the central region of Russia, was commissioned. NLMK began construction of the mill in the Vorsino industrial park located 70 km from Moscow in 2008, investing 38 billion rubles in the project. The annual capacity of NLMK-Kaluga amounts to 1.5 million tonnes of steel and 0.9 million tonnes of rolled products. In March 2015, NLMK Group and SOGEPA agreed on changes to NBH’s ownership structure and governance, with SOGEPA’s interest in NBH increasing from 20.5% to 49%. On 21 December 2015, NLMK changed its company type from ‘‘open joint stock company’’ (OJSC) to ‘‘public joint stock company’’ (PJSC), as a result of amendments to the Russian Civil Code which changed the classification of Russian legal entities in 2014.

93 of steel and 0.9 million tonnes of rolled products. The rolling capacity of the mill can potentially be expanded to 1.5 million tonnes. In 2018, the Group plans to start reconstruction of one of blast furnaces of Lipetsk production site. The upgrade will extend the service life of the blast furnace by at least 20 years and boost its productivity by 8% to 3.4 million tonnes of pig iron per year. Pursuing efficient vertical integration remains the Group’s principal means of reducing industry risks. The Group has a high degree of vertical integration comprising a wide range of upstream assets ranging from mining and energy generation to primary steelmaking, processing and distribution. The Group seeks to improve its profitability by enhancing its operational efficiency, increasing self-sufficiency in raw materials and consequentially reducing consumption of expensive resources. The Group has shifted its strategic focus from external expansion to improving efficiency and extending its presence in attractive product niches, industries and regions. Management believes that continuing development of its downstream capacity enables the Group to meet evolving customer requirements and to improve profitability by offering higher value-added products. By producing high value added products, the Group is able to safeguard the value generated at its upstream production facilities and to maximise their capacity utilisation rates. Following the acquisition of the rolling assets in Europe and the United States that now form its International Operations (NLMK Europe and NLMK USA), the Group is able to process up to 90% of its steel mainly produced in Russia into finished product, even after a significant crude steel capacity expansion in 2012–2013. The Group intends to expand its product offering by developing its downstream capabilities, capturing opportunities in both growing markets, like Russia, as well as in mature markets, in each case by offering high value added and premium quality products, including niche products, manufactured in close proximity to the end-user.

Low-cost and efficient operations Efficiency remains the cornerstone of the Group’s strategy. The Group is a cost leader and it strives to secure and maintain cost leadership positions in all of the core markets where it competes. For instance, the cash cost of slabs produced at the Group’s Lipetsk site in 2015 was US$206 per tonne, which was considerably below the global average of US$320 per tonne (according to data published by World Steel Dynamics). The Group produces most of its raw materials and liquid steel in low cost locations combining integrated (BOF) and scrap-based (EAF) production routes, while more than a third of the Group’s finished products are produced in developed markets in close proximity to its diverse customer base. The Group also controls its costs by operating in-house raw materials and energy production, as well as by maintaining lower conversion costs across the entire production chain. The level of in-house generated electric energy self-sufficiency at the Lipetsk site was 57% in 2015. In order to manage the risk related to coking coal prices the Group is implementing alternative technologies (such as tar pitch, which is already rolled out at Altai-Koks, as well as hot stamping and pulverized coal injection) that allow it to replace premium grades of coal with less expensive coal, while maintaining the same quality of coke. The Group also aims to replace the consumption of coke and natural gas with steam coals, also known as PCI coal, with the first of the Group’s blast furnaces transferred to PCI technology in 2013 and 2014. The Group plans to continue implementation of this technology in the remainder of 2016. The increase in productivity in terms of output of steel per employee at the Group’s Lipetsk site (from 420 tonnes in 2013 to 463 tonnes in 2015, representing an increase of 10%) reflects the Group’s commitment to maximising efficiency in its operations. The Group also runs management efficiency initiatives identifying cost reduction opportunities and converting them into cost savings.

94 Location of assets The Group’s business model is based, in part, on leveraging the geographical location of its assets. The Group’s mining and steel production assets (the most material- and resource-intensive part of the integrated process) are located in Russia, a low-cost region, while production of finished products is concentrated in key sales markets in close proximity to its customers in Russia, the United States and Europe.

Rating agency Long-term rating National rating scale Outlook Standard and Poor’s ...... BB+ RuAA+ Stable Moody’s ...... Ba1 — Negative Fitch ...... BBB AA+(rus) Negative

Leadership in operational efficiency The Group intends to make maximum use of its potential to enhance operational efficiency through investment programs and its Group Production System, a methodology developed by the Group which includes a wide range of practices aimed at enhancing the efficiency of key operational, technological and business processes. The following projects and measures are being implemented as part of this strategy: • Extensive development of the Group Production System. The Group has been implementing the Group Production System since 2013. The system includes a wide range of practical tools and methods that provide for increased efficiency of production and business processes. In 2015, the Group increased the number of projects by over 500 to exceed 1,800 by the end of the year. • Improvement of equipment productivity at the Lipetsk production facility. As a result of active implementation of the Group’s Production System, the productivity of steelmaking equipment at the Lipetsk site increased in 2015 by 300,000 tonnes per year. The production capacity of the hot-strip mill increased from 5.9 million tonnes per year to 6.0 million tonnes per year in 2015. The Group has

95 finished hot-testing of its continuous hot-dip galvanizing lines after upgrade, which are expected to reach full capacity in April 2016. This has boosted the productivity of the lines by 30% to 500,000 tonnes per year and increased the Lipetsk site value added manufacturing capacity to produce hot-dip galvanizing steel for the construction, automotive, and ‘‘white goods’’ sectors, as well as for further use in the production of pre-painted steel, by 11% to 1.25 million tonnes. • Increase of productivity of the mining segment. In 2014–2015 the productivity of the Stoilensky beneficiation plant increased by 1.8 million tonnes per year to 15.7 million tonnes per year. The Group plans to further increase its productivity through implementation of high pressure grinding rolls technology in two sections of the plant ending in 2016. The Group believes this technology will facilitate the reduction of production costs while increasing volumes of iron ore that is manufactured. If successful, this technology will be used in other sections of the facility as well.

World-class resource base The Group plans to increase self-sufficiency in iron ore, specifically in iron ore pellets, with a flexible charge structure and consequently reduce consumption of expensive resources. In order to reach this goal, the Group is implementing the following measures: • Construction of a pelletizing plant. In 2014, the construction of the pelletizing plan at Stoilensky entered an active stage. When completed, it will provide the Group with lower cost pellets and ensure its self-sufficiency in iron ore pellets. The plant itself will obtain lower cost iron ore of high quality as a result of increased production capacities of Stoilensky. Launch of the plant is expected in the second half of 2016. • Replacement of expansion with intensification strategy. The Group replaced its plans to construct one more beneficiation plant in Stoilensky (estimated capital expenditures was US$570 million) with a range of efficiency and debottlenecking projects, permitting the addition of 2 million tonnes per year to concentrate capacity with an estimated US$120 million of capital expenditures during 2014–2017 in the aggregate. • Use of advanced raw materials. The Group is testing new types of raw materials to supply its production sites. Among others, PCI technology was rolled out and now covers a third of the Group’s blast furnace capacities with over 4 million tonnes annual capacity. Utilisation of this technology is expected to lead to a reduction in production costs by approximately 5%. The Group plans to further extend the application of PCI and cover more than 90% of blast capacities at the Lipetsk site.

Leading positions in strategic markets The Group plans to enter new or to expand its presence in attractive product niches, industries, and regions. It intends to achieve higher utilisation rates at existing capacities and growth in domestic sales, as well as increase the level of high value added products in the Group’s portfolio.

Leadership in sustainability and safety The Group seeks to operate in a safe, socially and environmentally responsible manner. The Group plans to minimize its environmental footprints. It seeks to ensure that its production processes comply with the strictest environmental and occupational health and safety standards. The Group aims to gain improvements in labour productivity for the sector supported by a motivated staff. It creates conditions for high labour productivity through provision of opportunities for professional training and through fostering of a strong corporate culture. As a result, labour productivity in 2015 grew 10% year-on-year across the Group.

Steel Products The Group’s steel product line includes pig iron, slabs (semi-finished steel products for flat steel production), flat steel and long steel products. Slabs represented 32% of the Group’s total volume of sales of steel products in 2015 (31% in the three months ended 31 March 2016), while flat steel products represented 49% of its total volume of sales of steel products in 2015 (51% in the three months ended 31 March 2016). The Group’s flat steel product range includes hot-rolled steel, thick plates, cold-rolled steel, coated steel (including galvanized and pre-painted steel) and electrical grain-oriented (transformer)

96 and non-grain-oriented (dynamo) steel. The Group also produces long products and metalware (representing 13% of total sales in 2015) which is produced and sold mainly in the Russian market. The Group’s products comply with the main Russian and international quality standards and are sold across various sectors (from construction to energy to machinery building sectors) in over 70 countries. The table below shows the production results of the Group’s principal steel products for the periods indicated.

Three months Year ended ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of tonnes, except for percentages) Product Pig Iron ...... 12.8 12.1 11.8 3.2 3.1 Crude steel ...... 15.9 15.9 15.4 4.0 3.9 NLMK Russia Flat ...... 12.9 12.6 12.4 3.2 3.1 NLMK Russia Long ...... 2.5 2.7 2.2 0.6 0.7 NLMK USA...... 0.5 0.7 0.7 0.2 0.1 Products for sale: Commercial pig iron ...... 0.6 0.3 0.2 0.2 0.1 Semi-finished steel products ...... 5.2 4.6 4.3 1.4 1.3 Slabs ...... 4.9 4.3 4.2 1.2 1.2 Billets ...... 0.3 0.3 0.1 0.2 0.1 Total rolled products ...... 10.0 10.1 10.6 2.5 2.6 Flats ...... 7.8 7.9 8.6 2.0 2.0 Hot-rolled steel ...... 2.8 2.5 2.4 0.8 0.7 Plates ...... 1.1 1.1 1.0 0.3 0.3 Cold-rolled steel ...... 1.5 1.5 1.5 0.4 0.4 Galvanized steel ...... 0.7 0.6 0.6 0.1 0.2 Pre-painted steel ...... 0.4 0.5 0.5 0.1 0.1 Grain-oriented steel ...... 0.1 0.1 0.1 0.0 0.0 Non-grain-oriented steel ...... 0.3 0.2 0.3 0.1 0.1 Long products and metalware ...... 2.2 2.2 2.0 0.5 0.6 Long products ...... 1.9 1.9 1.7 0.4 0.5 Metalware ...... 0.3 0.3 0.3 0.1 0.1 TOTAL STEEL PRODUCTS ...... 15.9 15.1 15.1 4.1 3.9 In 2015, the Group produced 15.9 million tonnes of crude steel (4.0 million tonnes in the three months ended 31 March 2016), 7.8 million tonnes of flats and 2.2 million tonnes of long products and metalware. The Group’s total crude steel production remained at generally the same level as in 2014.

97 The tables below show the sales attributable to the Group’s steel products for the periods indicated.

Three months ended 31 March 2016 2015 Amount % Amount % (Amounts in millions of tonnes, except for percentages) Product Pig iron ...... 0.2 4 0.2 4 Slabs ...... 1.3 32 1.4 36 Plates ...... 0.1 3 0.1 3 Hot-rolled steel ...... 1.0 24 0.8 20 Cold-rolled steel ...... 0.5 13 0.5 12 Galvanized steel ...... 0.2 5 0.2 6 Pre-painted ...... 0.1 2 0.1 2 Grain-oriented (transformer) steel ...... 0.1 2 0.1 2 Non-grain-oriented (dynamo) steel ...... 0.1 1 0.1 1 Billets ...... 0.1 3 0.1 1 Long Products ...... 0.5 11 0.4 11 Metalware ...... 0.1 2 0.1 2 Total ...... 4.1 100 4.0 100

Year ended 31 December 2015 2014 2013 Amount % Amount % Amount % (Amounts in millions of tonnes, except for percentages) Product Pig iron ...... 0.7 4 0.3 2 0.2 1 Slabs ...... 5.1 32 4.3 29 4.1 28 Plates ...... 0.4 3 0.4 3 0.8 5 Hot-rolled steel ...... 3.4 22 3.5 23 3.6 24 Cold-rolled steel ...... 1.9 12 2.0 14 2.0 14 Galvanized steel ...... 1.0 6 0.9 6 1.1 7 Pre-painted ...... 0.4 2 0.5 3 0.5 4 Grain-oriented (transformer) steel ...... 0.3 2 0.3 2 0.2 2 Non-grain-oriented (dynamo) steel ...... 0.3 2 0.2 2 0.3 2 Billets ...... 0.3 2 0.3 2 0.1 1 Long Products ...... 1.8 12 2.0 13 1.7 11 Metalware ...... 0.3 2 0.3 2 0.3 2 Total ...... 15.9 100 15.1 100 14.8 100 In 2015, the Group’s total sales of steel products grew by 5%, to 15.9 million tonnes from 15.1 million tonnes in 2014. Finished flat products accounted for the majority of sales (9.8 million tonnes, or 62%). Sales of semi-finished products in 2015 increased to 6.1 million tonnes, an increase of 33% year-on-year. In 2014, total sales of steel products by the Group was 15.1 million tonnes, an increase of 2% from 14.8 million tonnes in 2013. The increase in sales in 2014 was made possible primarily by higher product sales at NLMK Kaluga. Flats accounted for the majority of the Group’s total sales of steel products (52%).

98 Geographic Operating Divisions The Group’s operations are organized into three geographical operating divisions: NLMK Russia, NLMK Europe and NLMK USA. The following map shows the Group’s operations through these three divisions.

NLMK Group

NLMK Russia

NLMK Russia Flat NLMK Russia Long Raw Materials

Novolipetsk steel NSMMZ Stoilensky VIZ-Steel NLMK-Kaluga Altai-Koks NLMK-Metiz Stagdok Dolomit

Vtorchermet

International production divisions

NLMK USA NLMK Europe

NLMK Indiana Plate Strip

NLMK Pennsylvania NLMK Dansteel NLMK La Louviere Sharon Coating NLMK Verona NLMK Strasbourg NLMK Clabecq NLMK Coating

NBH companies

Service companies

Trading and processing Financing and Other services Novex Trading insurance NLMK IT Novexco NLMK accounting center Planning and construction NLMK India Shans insurance company organisations EU service centers Etc. Cleaning, etc.

26MAY201614072955

NLMK Russia NLMK Russia comprises the Group’s mining, coke, steel producing and rolling assets in Russia. NLMK Russia is the Group’s principal operating division, producing 100% of its raw materials, over 95% of its

99 crude steel production, approximately 75% of its flat steel products and 100% of its long products. NLMK Russia comprises three business units: Flat Steel (including NLMK and its subsidiary VIZ-Steel); Long Steel (including subsidiaries NSMMZ and NLMK Metalware, as well as NLMK-Kaluga, and Raw Materials (including subsidiaries Stoilensky, Altai-Koks, Stagdok, Dolomit and a scrap processing unit, Vtorchermet NLMK).

Products of NLMK Russia NLMK Russia produces saleable pig iron, billets, flat steel products (slabs, hot-rolled steel, cold-rolled steel, galvanized steel, pre-painted steel and electrical steel (transformer and dynamo steel)), long steel products (rebar and wire rod), metalware and raw materials (iron ore concentrate, sinter ore, coke, limestone, dolomite and scrap). NLMK Russia also produces raw materials, including iron ore concentrate, sinter ore, coke, fluxing materials and scrap, which cover almost all of its requirements in these raw materials. The table below shows the production results of NLMK Russia’s principal products for the periods indicated.

Three months Year ended ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of tonnes) Product Raw materials Coke ...... 6.9 6.8 6.3 1.6 1.7 Iron ore concentrate ...... 15.2 14.9 14.0 3.9 3.9 Sinter ore ...... 1.7 1.6 1.5 0.4 0.4 Limestone ...... 1.4 2.2 3.9 0.0 0.0 Dolomite ...... 0.5 0.7 2.3 0.1 0.1 Pig Iron ...... 12.8 12.1 11.8 3.2 3.1 Steel ...... 15.4 15.3 14.6 3.8 3.8 NLMK Russia Flat ...... 12.9 12.6 12.4 3.2 3.1 NLMK Russia Long ...... 2.5 2.7 2.2 0.6 0.7 Commercial pig iron ...... 0.6 0.3 0.2 0.2 0.1 Semi-finished steel products ...... 7.0 6.7 6.7 1.8 1.6 Slabs ...... 6.7 6.4 6.5 1.6 1.5 Billets ...... 0.3 0.3 0.2 0.2 0.1 Total rolled products ...... 8.0 8.0 7.4 1.9 2.1 Flats ...... 5.9 5.7 5.4 1.5 1.5 Hot-rolled steel ...... 2.8 2.5 2.4 0.7 0.7 Cold-rolled steel ...... 1.5 1.5 1.5 0.4 0.4 Galvanized steel ...... 0.7 0.6 0.6 0.1 0.2 Pre-painted steel ...... 0.4 0.5 0.5 0.1 0.1 Grain-oriented steel ...... 0.3 0.3 0.1 0.1 0.1 Non-grain-oriented steel ...... 0.3 0.2 0.3 0.1 0.1 Long products and metalware ...... 2.2 2.3 2.0 0.5 0.6 Long products ...... 1.9 2.0 1.7 0.4 0.5 Metalware ...... 0.3 0.3 0.3 0.1 0.1 TOTAL STEEL PRODUCTS ...... 15.0 14.7 14.3 3.7 3.7

Iron ore concentrate Iron ore concentrate is an ore in the form of powder size fractions which contains between 65% and 68% of iron as well as other valuable minerals. Most of the waste is removed from iron ore concentrate by means of mechanical and electro-magnetic treatment or using the beneficiation processes. Approximately 80% of iron ore concentrate produced at Stoilensky is delivered to the Lipetsk site for further processing and to be subsequently used in the blast furnace process. The remaining iron ore concentrate is sold to third parties, both domestically and internationally. In 2015, NLMK Russia produced 15.2 million tonnes of iron ore concentrate (representing approximately 15% of Russia’s total output of iron ore concentrate) and 1.7 million tonnes of sinter ore.

100 Sinter ore Sinter ore is an ore in the form of larger fractions which contain a high proportion of iron (approximately 52%). Throughout the production process mined iron ore undergoes mechanical processes such as crushing and sorting in order to remove waste and ensure that the fractions are of the required size. Approximately 60% of sinter ore produced at Stoilensky is delivered to the Lipetsk site and is used in the production of sinter and pig iron, while the remaining sinter ore is sold to third parties.

Coke Coke is a processed form of coking coal, which is used in blast furnaces for the smelting of iron. In 2015, NLMK Russia produced 6.9 million tonnes of coke. The coke output of NLMK Russia exceeds the Group’s current coke requirements, and, in 2015, NLMK Russia sold 0.8 million tonnes of coke (dry weight) to third parties.

Scrap NLMK Russia sources scrap both externally, from companies and individuals who collect scrap metal, and internally, by utilizing amortisation scrap and production waste. In 2015, NLMK Russia processed 2.2 million tonnes of ferrous scrap, which was almost entirely consumed by the Group.

Slabs Slabs are used for the production of flat steel at the Lipetsk site and at the Group’s international rolling facilities. In 2015, approximately 3.8 million tonnes of slabs produced by NLMK Russia were processed into flat-rolled products at the Group’s rolling mills in Europe and in the USA. The remaining portion of the slab output was sold to third parties, who process it into other forms of finished steel.

Pig iron NLMK Russia uses the majority of its pig iron output to produce crude steel. A small proportion (up to 8% dependent on demand) of pig iron produced at blast furnace operations in Lipetsk is sold to third parties, primarily in the metallurgy and machine-building sectors, including the automotive industry.

Hot-rolled steel NLMK Russia produces hot-rolled steel for use in various constructions and items, including steel structures, guardrails, ship hulls, machine casings, road-building machinery components and building structures.

Cold-rolled steel NLMK Russia produces cold-rolled steel for the construction, machine-building, automotive and pipes and tubes industries to use in casing components for machinery and installations, frame elements, pipes and tubes, floodlight towers and agricultural machinery.

Galvanized steel NLMK Russia produces galvanized steel for use in the manufacture of casing components for machinery, roofing as well as frame elements for use in corrosive environments.

Pre-painted steel NLMK Russia produces pre-painted steel sheet for use in the construction industry, in particular in the manufacture of roofing and finishing materials, as well as casings for household and commercial goods. NLMK is the largest producer of pre-painted steel in Russia, with a 26% market share in 2015.

Grain-oriented (transformer) steel NLMK Russia produces grain-oriented (transformer) steel for use in the electro-technical industry for the manufacture of transformer cores and stationary components of electric machines. Grain-oriented (transformer) steel is one of the most technically sophisticated types of steel, and NLMK understands that it is produced by less than 20 steel plants worldwide. Approximately 90% of the transformer steel that the Group produces is covered by steel of highest grades and is used in the manufacture of technologically

101 advanced twisted power and distribution transformer cores. In 2011, NLMK Russia produced the first samples of a brand new product, a nanostructured, high-permeability transformer steel, using a process developed specifically by the Group’s engineers. This product is principally used in the production of economically efficient high rate power transformers and heavy duty distribution transformers. The technology is currently being introduced at the Lipetsk site, and after it is tested, it will also be adopted by VIZ-Steel. Management believes that there is a growing demand for this type of steel in emerging and developed markets. In 2015, NLMK Russia had a 9% share of the global transformer steel sales market.

Non-grain-oriented (dynamo) steel NLMK Russia specializes in the production of non-grain-oriented (dynamo) steel for use in electrical equipment such as electric motor components and generators. NLMK Russia produces dynamo steel in different alloying groups, ranging from non-alloyed silicon-free dynamo steel to high-alloyed dynamo steel, to both a fully-processed and semi-processed standard. In 2015, sales by NLMK Russia accounted for 76% of the total sales of electrical steel in Russia (comprising both transformer and dynamo steel).

Billets Billet is a semi-finished product which NLMK Russia produces from scrap through an Electric Arc Furnace steelmaking process at its Russia-based long steel production segment. The bulk of NLMK Russia’s billets are further processed into finished long steel products (rebar, wire rod and metalware). A small portion of the billets are sold to third parties. The key purchasers of billet are rolling mills located internationally, which produce rebar and other downstream products principally used in the construction sector.

Long products (rebar, wire rod and sections) The rebar that NLMK Russia produces is used to strengthen concrete in highway and building construction and as a component in machinery. In 2015, NLMK Russia’s share of the Russian rebar market was 20%. The production of long products by the Group has increased since launch of NLMK Kaluga facility in 2013. This steel is used in the construction of high-rise buildings where advantage can be taken of its high-strength to reduce the amount of steel employed. In addition, NLMK Russia produces wire rod for use in wire products that are applied mainly in the construction industry, as well as in transport machinery.

Metalware NLMK Russia produces metalware for use in the construction industry, including bolts, nails, fixing hardware, nails, mesh, and as a component in transport machinery. Metalware is principally sold in the Russian market.

Steel Production Facilities at NLMK Russia NLMK Russia is the largest member of the Group in terms of product output and is comprised of raw materials, steel production as well as flat and long steel rolling businesses primarily located in the center of the European part of Russia. NLMK Russia’s operations have a combined capacity of approximately 16.3 million tonnes of crude steel per year, including 12.8 million tonnes of basic oxygen furnace (‘‘BOF’’) steel capacity and approximately 3.5 million tonnes of EAF steel capacity. The BOF steel capacity of NLMK Russia is principally located at its Lipetsk site. Its integrated steelmaking facility occupies approximately 28 square kilometers. NLMK Russia owns the facility and the land on which it is constructed. The facility comprises: • a sinter plant (with four agglomerators); • a coke plant (with four coke batteries with a capacity of 2.56 million tonnes); • a blast furnace plant, comprising two blast furnace shops and in total, five blast furnaces (including the newly built Blast Furnace No. 7, which is one of the most advanced blast furnaces in the world and has a capacity of 4.3 million tonnes per year) with overall output capacity of 12.9 million tonnes per year;

102 • a steelmaking plant, comprising two BOF shops (comprising three BOFs, each with a capacity of 300 tonnes and three BOFs, each with a capacity of 160 tonnes, respectively) capable to produce approximately 12.8 million tonnes per year; • nine continuous casting lines (comprising six curvilinear, one radial-curved and two vertical); • one hot strip finishing plant with a total capacity of approximately 6 million tonnes per year; and • three cold-rolling plants (a cold rolling plant, a non-grain-oriented steel plant and a grain-oriented steel plant), including production of galvanized and pre-painted steel. In addition, the Group’s subsidiary, VIZ-Steel, located in Yekaterinburg, has the capacity to produce 180 thousand tonnes of transformer steel per year. The Group’s long product operations are conducted by NSMMZ, NLMK Metalware and NLMK-Kaluga, with a combined capacity of 3.5 million tonnes per year. Both NSMMZ and NLMK Metalware are located in the Urals region of Russia. NSMMZ operates two electric arc furnaces with an aggregate capacity of approximately 2.0 million tonnes of steel per year. The semi-finished products (billets) are then rolled into rebar and wire at its two rolling facilities. NLMK Metalware is one of Russia’s largest metalware manufacturers. NSMMZ supplies re-rolling stock (wire rod) to NLMK Metalware. In addition, in 2013, the Group launched NLMK Kaluga, which has an aggregate design capacity of 1.5 million tonnes of crude steel and 0.9 million tonnes of long products per year and consumes mainly ferrous scrap supplied largely by NLMK’s own scrap collecting facilities.

Sales Division and Marketing at NLMK Russia The Group’s Russian steelmaking operations sell their products primarily pursuant to sales contracts with their customers, typically based on standard terms and conditions, in which they typically agree to provide their customers with an agreed quantity of products during the course of a 12-month period. Prices are determined on a monthly basis in order to allow adjustments in line with its price lists, although, in the case of some of the Group’s major customers, prices may be fixed for a period of three to six months. Prices are established largely by reference to price trends in the international steel market. The Group may, in some circumstances, including, for example, for large purchase orders, offer discounted prices. Generally, the Group requires its Russian customers to pay it in advance of the delivery of its products. The main steel consuming sectors in Russia are the construction and infrastructure sectors (which together account for approximately 70% of total sales), pipe industry (19%) and the machine building sector, including the automotive and the electrical engineering sectors.

Transportation of Products at NLMK Russia Management believes that the advantageous geographic location of the Group’s Russian operations near the Baltic Sea and Black Sea ports and the possibility of transporting finished products by inland waterways provide them with a competitive position as compared to other companies. A specialist transportation company, Freight One manages the Group’s relations with RZD and, in relation to products sold outside of Russia, port authorities. Freight One is owned by UCL Holding, a related party, which holds a number of railway and logistics, seaport and stevedoring, and shipping and other assets. NLMK Russia’s products are shipped from Baltic Sea ports (St. Petersburg and Kaliningrad) for end-customers in Europe and North America and Black Sea ports (Novorossiysk, Tuapse and Port Yuzhny) for end-customers in the Middle East and South-East Asia). The remaining portion of NLMK Russia’s products that are sold to customers outside of Russia is transported by rail, mainly to customers in other CIS countries. For sales within Russia, title to the products normally transfers upon loading of products into railway cars at Lipetsk. NLMK Russia delivers substantially all of its products by rail. Generally, in return for a fee which is determined by reference to market rates, NLMK Russia arranges transportation of these products. NLMK Russia has convenient rail access to the major steel consuming regions located in the center of the European part of Russia and the Volga region. NLMK Russia is implementing various projects aimed at reducing its transportation costs, including seeking to increase the volume of container shipments (instead of using railway cars) and outsourcing the internal logistics in the Urals region sites in cooperation with Freight One.

103 NLMK Europe NLMK Europe comprises the Group’s production and distribution facilities in Europe. NLMK Europe includes two business units: Strip Products (NLMK La Louviere` in Belgium, NLMK Coating in France and NLMK Strasbourg in France), with an aggregate annual capacity of 2.2 million tonnes of flat steel products, including galvanized and pre-painted steel, and Plate Products (NLMK DanSteel in Denmark, NLMK Clabecq in Belgium and NLMK Verona in Italy), with an aggregate annual capacity of 1.5 million tonnes. NLMK Europe is very strongly integrated with NLMK Russia, which supplies almost all of its slab requirements for further re-rolling. In October 2012, the management of NLMK La Louviere, a rolling facility of the NLMK Europe Strip Division in Belgium, announced that, as a result of decreased customer demand and continued losses there was a need for a plant restructuring to decrease high production costs. As a result, in March 2013, an agreement with the trade unions was signed for the reorganisation of the NLMK La Louviere site. This agreement included, among other things, a plan to reduce staff numbers by 30%. These and other efficiency improvement measures have already led to a reduction in fixed costs by almost 30%. By the end of 2015 the cumulative impact of these optimization measures exceeded 30 million Euro.

Products of NLMK Europe NLMK Europe produces strip products (hot-rolled steel, cold-rolled steel, galvanized steel and pre-painted steel) and plate products (thick plates, including several niche grades). The table below shows the production results of NLMK Europe’s principal products for the periods indicated.

Three months Year ended ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of tonnes) Product(1) NLMK Europe Plate Steel ...... 0.2 0.2 0.2 0.0 0.1 Steel products ...... 1.2 1.2 1.0 0.3 0.3 Forged ingots ...... 0.1 0.1 0.1 0.0 0.0 Plates ...... 1.1 1.1 1.0 0.3 0.3 NLMK Europe Strip ...... 1.2 1.0 1.0 0.3 0.3 Hot-rolled steel ...... 0.8 0.6 0.6 0.2 0.2 Cold-rolled and full hard steel ...... 0.1 0.1 0.1 0.0 0.0 Galvanized steel ...... 0.3 0.3 0.3 0.1 0.1 Pre-painted steel ...... 0.1 0.1 0.1 0.0 0.0 Total steel products ...... 2.4 2.2 2.1 0.6 0.6

(1) The production data for NLMK Europe was calculated based on the data for the companies comprising NLMK Europe as at the end of 2015.

Forged ingots Ingots are produced at the steelmaking facilities of NLMK Verona by solidifying liquid steel at the final stage of its production by using a bottom pouring ingot casting system. Ingots are either sold to third parties, in particular to oil and gas, wind power and energy, machinery and general power generation industries, or rolled by the Group’s own thick plates rolling mill.

Thick plates Thick plates are produced in a variety of grades, including medium and heavy plates, as well as forged plates. Thick plates are principally sold to customers in the construction, shipbuilding, energy, transport, lifting, quarrying and mining equipment industries.

104 Quenched and tempered plates Quenched and tempered thick plates produced at the quenching and tempering line at NLMK Clabecq are lighter than ordinary thick plates and have superior mechanical properties. The product is principally sold to customers in the yellow goods (earth moving and mining equipment), lifting and transport industries.

Hot-rolled steel NLMK Europe produces a broad range of high-quality hot-rolled steel (including pickled coils) which complies with European standards, including quality and dimensional standards. Purchasers of hot-rolled steel include the construction industry.

Cold-rolled and full-hard steel The cold-rolled coils complies with European quality standards and with automotive manufactures’ specifications and includes various grades, such as Interstitial Free High Strength steels (Y), micro-alloyed steels (LA) and phosphorus alloyed steels (P). It includes full-hard steel, which has undergone a rolling process to reduce the thickness of the steel by up to 50%. The main consumer of cold-rolled steel is the automotive industry.

Galvanized steel Galvanized steel is intended to protect steel against corrosion and is used in the automotive industry and for other purposes where steel is subjected to deformation.

Pre-painted steel Pre-painted steel is used in the construction and home appliance industries for the manufacture of profiles and panels for cladding and facing, as well as for the manufacture of doors, suspended ceilings and lighting. Pre-painted steel is also used in the manufacture of furniture, air conditioning and cladding for heating appliances.

Steel Production Facilities at NLMK Europe Using semi-finished products (slabs) supplied by the Group’s Russian operations, NLMK Europe produces flat high value added products in close proximity to its customers. NLMK Europe benefits from a network of service and sales centers located in Belgium and France. The service centers specialize in cutting steel coils to size and producing metal systems for building shells with finished products being used in machine building and construction. NLMK Europe’s production facilities include: Plates Division: • a continuous caster at NLMK Verona, which produces ingots with a thickness of up to 500 millimeters; • a rolling mill at NLMK Verona which produces hot-rolled plates (‘‘HRPs’’) with a thickness of between 20 and 200 millimeters and forged plates with a thickness of between 150 and 800 millimeters; • a rolling mill at NLMK Clabecq, which produces thin gauge plate products (60% of products have a thickness of between 3 and 10 millimeters); • a quenching and tempering line at NLMK Clabecq with a production capacity of 150 thousand tonnes per year; and • a rolling mill at NLMK DanSteel for the production of thick plates between 5 and 200 mm in thickness and widths of up to 4,300 mm and with a production capacity of over 500 thousand tonnes per year. Strip Products Division • a hot strip mill at NLMK La Louviere` in Belgium with a hot-rolled steel designed capacity of 2.2 million tonnes per year; • a galvanizing line, which produces coils with width up to 1,520 millimeters at NLMK Strasbourg; and • a pre-painted steel line, which produces coils with a width of up to 1,520 millimeters and thickness of between 0.23 millimeters and 1.25 millimeters at NLMK Strasbourg.

105 Sales Division and Marketing at NLMK Europe NLMK Europe sells its products pursuant to long-term contracts (with a term of 12 months), medium-term contracts (with a term of 6 months) and short-term contracts (with a term of 3 months). The pricing of supply contracts is adjusted quarterly or monthly by reference to Steel Business Briefing’s index or another steel index. In short-term contracts, prices are fixed at the beginning of a specific period, typically at the beginning of each quarter. Export sales are typically project-based and pricing under such contracts is linked to spot prices, with adjustments for longer lead-times to release orders into production, which is a common feature of project-based sales. The key steel consuming sectors in Europe are the machine-building sector (accounting for approximately 75% of total sales in Europe), including the automotive, energy and shipbuilding sectors. NLMK Europe also supplies steel products to the construction and infrastructure sectors.

Transportation at NLMK Europe NLMK Europe generally receives its input materials from the Group’s Lipetsk site. Ships carrying slabs (the main input material used in the manufacture of rolled steel and steel plates) arrive from Russia on a weekly basis and unload slabs in NLMK DanSteel’s own harbor facilities as well as in the ports of Ghent (situated near NLMK La Louviere,` located in close proximity to a variety of transport links, including road, waterway and railway links and NLMK Clabecq) and Marghera (situated near NLMK Verona). Slabs are delivered from the ports to the production facilities (with distances of between 70 and 130 kilometers) by road and railways.

NLMK USA NLMK USA comprises the Group’s flat steel producing assets in the United States. NLMK USA has three production sites: NLMK Indiana in Portage, Indiana; Sharon Coating in Sharon, Pennsylvania; and NLMK Pennsylvania in Farrell, Pennsylvania. The total annual production capacity of NLMK USA includes approximately 0.8 million tonnes of crude steel and approximately 2.9 million tonnes of hot-rolled steel. NLMK USA purchases its supplies of slabs mainly from NLMK Russia.

Products of NLMK USA NLMK USA produces slabs, hot-rolled steel, cold-rolled steel and galvanized steel. The table below shows the production results of NLMK USA’s principal products for the periods indicated.

Three months Year ended ended 31 December 31 March 2015 2014 2013 2016 2015 (Amounts in millions of tonnes) Product(1) Steel ...... 0.5 0.7 0.7 0.2 0.1 Steel products ...... 1.8 2.0 1.8 0.5 0.4 Hot-rolled steel ...... 0.9 1.1 1.1 0.2 0.2 Cold-rolled steel ...... 0.5 0.5 0.5 0.1 0.1 Galvanized steel ...... 0.3 0.3 0.3 0.1 0.1 Slabs ...... 0.0 0.0 0.0 0.0 0.0

(1) The production data for NLMK USA was calculated based on the data for the companies comprising NLMK USA as at the end of 2015.

Slabs Slabs produced at NLMK Indiana using the electric arc furnace process are re-rolled at the plant’s HRC rolling line.

Hot-rolled steel Hot-rolled steel is supplied to service centers, pipe and tube manufacturers and the machine building industry.

106 Cold-rolled steel Cold-rolled steel (including full-hard steel) is supplied to service centers and machine building industries.

Galvanized steel Galvanized steel is manufactured in the form of a number of products, including galvanized coils and Z-mill products. Galvanized steel is supplied to service centers and the construction and machine building industries.

Steel Production Facilities at NLMK USA NLMK USA has a total electric arc furnace steelmaking capacity of 0.8 million tonnes per year and a hot-rolling capacity of 2.9 million tonnes per year. NLMK Indiana is a steel mini-mill specializing in the production and sale of hot-rolled coils. It operates an electric arc furnace with a production capacity of 770 thousand tonnes per year and a hot strip mill with a capacity of 1.1 million tonnes per year. NLMK Pennsylvania produces carbon steel, including hot-rolled, cold-rolled and full hard products, as well as other cold-rolled fully finished product types. The plant has a capacity of 1.8 million tonnes per year of hot-rolled steel. Sharon Coating is a producer of hot dip galvanized steel of various types, as well as bake-hardenable (low carbon) steel. It operates three hot dip galvanizing lines with a total capacity of 800 thousand tonnes per year.

Sales Division and Marketing at NLMK USA NLMK USA predominantly sells its products in the spot market due to the volatility of key input costs such as scrap and slab prices. Most customers’ purchasing requirements vary little from month to month, although NLMK USA typically negotiates the price of its products with the majority of its customers on a monthly basis. Approximately 80% of NLMK USA’s sales are subject to monthly price reviews. The remaining portion of NLMK USA’s sales is represented by contracts ranging from three months to one year. Currently, fixed price contracts are generally limited to three-month contracts, although NLMK USA may utilize six-month contracts under which supplies for the first three months are charged at a fixed price, while the price for the next three months is linked to the CRU index. In respect of such contracts, NLMK USA fixes its own supply costs for the first three months and then, depending on market conditions, either fixes costs for the remaining three months or allows costs and sales price to fluctuate with the market. For annual contracts, NLMK USA offers CRU index-based price adjusted contracts. The key steel consuming sectors in the United States include, among other sectors, the pipe and tube and construction sectors.

Transportation at NLMK USA Due to the geographic location of NLMK USA’s facilities, the majority of outbound shipments are made by road (approximately 97% of shipments from NLMK Pennsylvania and 80% of shipments from NLMK Indiana), with the remainder comprising rail shipments. Occasional barge shipments, representing less than 1% of all shipments, are utilized for shipping to the southern regions of the United States. NLMK USA cooperates with a preferred logistics operator which schedules and secures shipments from all three facilities. This operator handles approximately 76% of Pennsylvania shipments and 25% of Indiana shipments. The remaining shipments are arranged through the customer with their preferred carrier.

Steel Production Process NLMK Russia Sintering The primary process involves the agglomeration, or sintering, of prepared raw materials, including iron ore concentrate, iron-bearing tailings and flux, or limestone, followed by crushing, to produce particles of at least 40 millimeters in size. The finished product is referred to as agglomerate, or sinter, and is one of the main raw materials used in the blast furnace process. In 2015, the Group produced approximately 15.2 million tonnes of sinter (3.9 million tonnes in the first three months of 2016).

107 Production of coke and by-products Coke is obtained from coal concentrate and is one of the main raw materials used in the blast furnace process as a source of heat and as a reducing agent. The primary process involves non-oxidation heating of a prepared coal mixture to a temperature of 900C to 1100C for a period of 15 to 17 hours. The coking distillation process is integrated with a by-product plant, which uses coal screenings and other by-products for the production of different types of chemicals, including ammonium sulphate, crude benzol, and coke pitch. Four of the Group’s nine operational coking batteries are equipped with dry quenching units, while the remaining five coking batteries are equipped with wet quenching units (which the Group has no current plans to replace). Dry quenching technology is used to regenerate a portion of the heat, improve coke quality and reduce pollution. After quenching, coke is fed via conveyor to coke screening, where it is sorted into fractions using roll screens. Metallurgical coke (above +25 mm size) is transported to blast furnace hoppers via conveyors or coke cars. Altai-Koks and the coke batteries at the Lipetsk site meet all of the Group’s requirement in metallurgical coke used in the blast furnaces to produce pig iron. In 2015, the Group produced approximately 6.9 million tonnes of coke (1.6 million tonnes of coke in the first three months of 2016).

Blast furnace process To smelt pig iron, iron ore products, principally comprising sinter and pellets, and also coke, natural gas and other fuels, are fed in the blast furnaces. In the resulting combination, the charge is smelted and produces pig iron and slag (a by-product of the blast furnace process, which is typically granulated or processed into crushed stone used for road construction). The smelted product is released from the furnace between 12 and 20 times per day. The pig iron is poured into hot-metal ladle cars and taken to the oxygen converter plant for making into steel, while the slag is poured into slag ladle cars and taken to the slag plant for processing. In 2015, the Group produced approximately 12.8 million tonnes of pig iron (3.2 million tonnes in the first three months of 2016).

NLMK Russia Flat—Lipetsk site production flow chart

27MAY201607284375

Steelmaking—BOF route Molten pig iron is the main component of the metal charge used in the production of steel in the Group’s basic oxygen converters, which are also referred to simply as oxygen converters. The molten pig iron is transported to the basic oxygen converter shop in hot-metal ladle caps. The pig iron is poured into charging ladles and then into the converter. In addition to pig iron, the metal charge consists of scrap

108 metal. The basic oxygen steelmaking process is exothermic, which requires the use of scrap as a cooling agent. Oxygen, in a form which is over 99.5% pure, is blown into the oxygen converter. This oxidizes the carbon and silicon contained in the molten pig iron. The combustion of carbon monoxide (CO) as it exits the oxygen converter vessel also transmits heat. During this melting process, impurities, including sulfur and phosphorus, are removed from the charge. The finished product at this stage is crude steel, ready for further processing at the refining stands. During this processing stage, relatively small quantities of deoxidizers and ferroalloys (for example, aluminum, vanadium and molybdenum) may be added to the crude steel to adjust the quality of the liquid steel to the specific grades required by customers. Depending on the targeted content of carbon, the liquid steel may undergo a further processing stage, referred to as vacuum degassing, before casting. Vacuum degassing is used to achieve ultra-low carbon grades, which are particularly useful for automotive applications. Molten steel is delivered to the continuous casting machines, where it is cast via a tundish (a refractory- lined distributer which receives steel from the ladle), providing for the continuity of the process due to the possibility of ladle turning, into the mold of the required width, where the solid shell of a future slab is formed. After the primary cooling in the mold the liquid core strand passes secondary air mist (or water) cooling, where it solidifies completely, after which it is cut to length, and the slabs obtained are transferred either to the slab yard for gradual cooling or to the hot-rolling shop (a workshop specializing in hot flat steel). Following this stage of the process, the slabs may be sold or processed further, initially by being rolled into sheets (plates) or coils at the hot-rolling plant, to produce the required dimensions or physical properties in accordance with one or more of the methods described below. In 2015, the Group’s Russian flat assets produced approximately 12.6 million tonnes of crude steel (3.2 million tonnes in the first three months of 2016).

Hot-rolled production In order to produce hot-rolled steel, slabs from the steelmaking plant at the Lipetsk site are re-heated in a methodical furnace to a temperature of around 1250C and rolled in a steel rolling mill. Slabs are reduced in a set of 12 consecutive stands to a thickness of 1.5 to 16 millimeters. Part of the product is sent to the finishing plant for cutting and dispatch, while the rest is further processed into cold-rolled product. In 2015, the Group’s Russian flat assets produced approximately 6.0 million tonnes of hot-rolled steel, of which 2.8 million tonnes was salable hot-rolled steel, as compared with 5.8 million tonnes of hot-rolled steel in 2014, of which 2.5 million tonnes was salable hot-rolled steel. In the first three months ended 31 March 2016, the Group’s Russian flat assets produced approximately 1.6 million tonnes of hot-rolled steel, of which 0.7 million tonnes was finished hot-rolled steel.

Cold-rolled production In the cold-rolling plant, the hot-rolled product is de-scaled by acid pickling and then rolled with no preheating. The rolled metal is then annealed to obtain the required mechanical and exploitative characteristics (depending on the type of steel). At the final stage, the metal is then cut into the required size and packed. In 2015, the Group’s Russian flat assets produced approximately 2.5 million tonnes of cold-rolled steel, of which 1.4 million tonnes was salable cold-rolled steel, which represents the same level as in 2014. In the first three months ended 31 March 2016, the Group’s Russian flat assets produced approximately 0.6 million tonnes of cold-rolled steel, of which 0.4 million tonnes was salable cold-rolled steel.

Galvanizing Galvanizing of cold-rolled (or hot-rolled) strip results in higher steel resistance to corrosion. Galvanized flats are consumed in large quantities by automotive, construction and home appliance industries. There are two ways of steel strip galvanizing: electrolytic and hot-dip galvanizing. In the process of electrolytic galvanizing, zinc ions are transferred by means of applying electric current from a soluble anode to the strip placed in an electrolyte solution. In the process of hot-dip galvanizing the strip passes through the line, where it is first heat-treated in the annealing furnace, then is dipped into the pot with molten zinc, after which the required thickness of zinc coating is obtained using air knives. Finished galvanized strip is coiled. In 2015, the Group’s Russian flat assets produced approximately 1.0 million tonnes of galvanized steel, of which 0.7 million tonnes was salable galvanized steel, representing an increase of 17% in salable galvanized production as compared with 2014, during which the Group’s Russian flat assets produced

109 0.6 million tonnes of salable galvanized steel. In the three months ended 31 March 2016, the Group’s Russian flat assets produced approximately 0.2 million tonnes of galvanized steel, of which 0.1 million tonnes was salable galvanized steel.

Pre-painting During the organic coating process, steel passes first through a unit of chemical preparation, then through a paint application appliance and then receives a heat treatment to set the color and give a uniform coating to the sheet. This process presents the technological challenge of ensuring a perfect application of paint during a short painting process, a uniformity of sheet surface and the required thinness of the applied layer. In 2015, the Group’s Russian flat assets produced approximately 0.4 million tonnes of pre-painted steel (0.1 million tonnes in the first three months of 2016).

Grain-oriented (GO, or transformer) steel The production process for grain-oriented (transformer) steel involves the pickling of hot-rolled strip, followed by a first cold-rolling stage, decarburizing annealing, a second cold-rolling stage, the application of heat resistant coating, high temperature annealing, the application of electric insulation coating, thermo-flattening and a final stage of annealing. In 2015, the Group’s Russian flat assets produced approximately 0.3 million tonnes of transformer steel (0.1 million tonnes in the first three months of 2016).

Non-grain-oriented (NGO, or dynamo steel) The production process for non-grain-oriented (dynamo) steel involves the pickling of hot-rolled strip, followed by cold-rolling, decarburizing annealing and the application of electric insulation coating. In 2015, the Group’s Russian flat assets produced approximately 0.3 million tonnes of dynamo steel (0.1 million tonnes in the first three months of 2016).

NLMK Russia Long production flowchart

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Steelmaking—EAF An Electric Arc Furnace (EAF) is a steelmaking furnace that heats charged materials by means of an electric arc. A typical alternating current furnace has three electrodes. The arc forms between the charged material and the electrode, and the charge is heated both by a current passing through the charge and by the radiant energy evolved by the arc. Scrap is a raw material for EAF production. Scrap is melted to a liquid steel condition in electric-arc furnaces. Then liquid steel is refined in ladle furnaces to the specified chemical composition (through the addition of deoxidizers and additives). After that liquid steel is cast at a continuous casting machine with simultaneous solidification to a solid square billet. Carbon and low-alloyed square concast steel billets with 125 125 mm cross section and length between 8,000 and 12,000 mm are the final products of EAF production. The major portion of billets is rolled at the next production stage and the remaining portion is sold to customers.

110 In 2015, the Group’s Russian long assets produced approximately 2.5 million tonnes of crude steel (0.6 million tonnes in the first three months of 2016).

Long products Long products are processed through heating billets and re-rolling them using bar-rolling mills. In 2015, the Group’s Russian long assets produced approximately 2.5 million tonnes of long products, of which 2.2 million tonnes was finished long products (0.6 and 0.5 million tonnes in the first three months of 2016 respectively).

Metalware Metalware products are processed using special machines, including drawing mills and nail makers. Finished products are treated with chemicals and heat, galvanized and bonderized. In 2015, the NLMK Russia Long assets produced approximately 0.3 million tonnes of metalware products (0.1 million tonnes in the first three months of 2016).

Steel Production at NLMK Europe and NLMK USA Steelmaking—EAF At NLMK Indiana scrap metal is delivered to a scrap bay, and comes in two main grades: shred (home appliance, cars and other objects made of similar light-gauge steel) and heavy melt (large slabs and beams), along with some direct reduced iron or pig iron for chemical balance. Following loading, the electrodes are lowered onto the scrap, an arc is struck, and the electrodes are set to bore into the layer of shred at the top of the furnace. Once the scrap has completely melted down and the temperature and chemistry are correct, the steel is tapped out into a preheated ladle through tilting the furnace. During tapping some alloy additions are introduced into the metal stream, and more lime is added on top of the ladle to begin building a new slag layer. At NLMK Verona the scrap is melted in EAF and refined in a ladle furnace. The vacuum degassing (VD) is an important step in the process to ensure quality steel with low gas content. The liquid steel is solidified by the bottom pouring ingot casting system. Ingots are sold to forging companies or rolled by rolling mill. In 2015, the Group’s international assets produced approximately 0.7 million tonnes of crude steel (0.2 million tonnes in the first three months of 2016).

Hot-rolled production Slabs are heated and subsequently reduced in the roughing mill to a transfer bar which is coiled in a coil box. This coiled transfer bar is rolled in a finishing train (the part of the mill used to impart the desired finish to the steel) to produce a hot-rolled coil. In 2015, the Group’s international assets produced approximately 3.0 million tonnes of hot-rolled steel, of which 1.7 million tonnes was finished hot-rolled steel. In the first three months of 2016, the Group’s international assets produced approximately 0.8 million tonnes of hot-rolled steel, of which 0.5 million tonnes was finished hot-rolled steel.

Plate production NLMK DanSteel In order to produce HRPs, slabs are re-heated in one of two reheating furnaces to a temperature of between 1150–1250C, and subsequently rolled in new 4300 mm heavy plate rolling stand. A number of passes—typically between 12 to 20—deliver plate thicknesses between 5–200 mm. A major part of production is normalized in one of two normalizing furnaces, before being cut to size and dispatched. Some part of the finished plates are also delivered shot blast and primed.

NLMK Clabecq NLMK Clabecq produces heavy plates from 3 to 120 mm (maximum final width 2730 mm) through a Quarto mill and a finishing mill. Slab work pieces are reheated in one of two reheating furnaces to a temperature between 1180 and 1320C. Plates between 25.4 and 120 mm are rolled at a Quarto reversing

111 mill in 9 to 21 passes. The rolling of thinner plates from 3 to 25.4 mm is finalized in a finishing mill which incorporates 4 Quarto non-reversing stands.

NLMK Verona NLMK Verona produces HRPs from 20 to 200 mm thick, and forged plates from 150 to 800 mm thick. Plates are rolled on the plates rolling mill from slabs supplied by third parties (mainly by NLMK) and from slab ingots that it produces on site using EAF. In 2015, the Group’s international assets produced approximately 1.1 million tonnes of finished plates. In the first three months of 2016, the Group’s international assets produced approximately 0.3 million tonnes of finished plates.

Cold-rolled production The hot-rolled coils are cooled and then dispatched to customers or the pickling and skin-passing area. Pickling phase consists of removing the oxide coat from hot-rolled coils by making them pass through various baths of hydrochloric acid. The reversible cold-rolling mill reduces the thickness of pickled coils by several passes and the skin pass (a steel rolling process which used to achieve a smooth steel surface) gives the mechanical properties and the surface condition required by customers. In 2015, the Group’s international assets produced approximately 1.3 million tonnes of cold-rolled steel, of which 0.6 million tonnes of finished cold-rolled steel (0.3 and 0.2 million tonnes in the first three months of 2016 respectively).

Galvanizing Galvanizing of cold-rolled (or hot-rolled) strip results in higher steel resistance to corrosion. Galvanized flats are consumed in large quantities by automotive, construction and home appliance industries. There are two ways of steel strip galvanizing: electrolytic and hot-dip galvanizing. In the process of hot-dip galvanizing the strip passes through the line, where it is first heat-treated in the annealing furnace, then is dipped into the pot with molten zinc, after which the required thickness of zinc coating is obtained using air knives. Finished galvanized strip is coiled. In 2015, the Group’s international assets produced approximately 0.7 million tonnes of galvanized steel, of which 0.6 million tonnes was finished galvanized steel. In the first three months of 2016, the Group’s international assets produced approximately 0.2 million tonnes of galvanized steel, of which 0.2 million tonnes was finished galvanized steel.

Pre-painting During the organic coating process, steel passes first through a unit of chemical preparation, then through a paint application appliance and then receives a heat treatment to set the color and give a uniform coating to the sheet. This process presents the technological challenge of ensuring a perfect application of paint during a short painting process, a uniformity of sheet surface and the required thinness of the applied layer. The Group’s international assets produced approximately 0.1 million tonnes of pre-painted steel in 2015 and 0.0 million tonnes in the first three months of 2016.

Sales and Transportation of Products The Group’s products are sold in over 70 countries in Asia and Oceania, Europe, the Middle East and North America, in addition to customers in a range of industrial sectors in Russia. In 2015, non-Russian markets accounted for 61% of sales revenue (64% in the three months ended 31 March 2016).

112 The following table shows, as a percentage of the Group’s total sales revenue and the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Region Russia ...... 39 43 40 37 European Union(1) ...... 21 18 18 20 North America ...... 17 20 14 18 Middle East, including Turkey(2) ...... 9 6 8 8 Asia and Oceania ...... 5 3 7 5 Other regions(3) ...... 10 11 11 12 The following table shows, as a percentage of the Group’s total sales volume, the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Region Russia ...... 39 44 39 37 European Union(1) ...... 22 19 17 24 North America ...... 15 19 14 15 Middle East, including Turkey(2) ...... 9 7 10 9 Asia and Oceania ...... 4 3 10 4 Other regions(3) ...... 11 9 10 12

(1) Comprises the member states of the European Union only. (2) Includes sales to third parties which NLMK understands are sold to end customers in Iran (approximately 0.03% of total volume of sales of steel products in the three months ended 31 March 2016). The Group does not engage in any direct sales to any person or entity in Iran. (3) Includes sales to customers in European states which are not a member of the European Union.

Non-Russian sales Non-Russian sales generated US$4,862.3 million of revenue, or 61% of total revenue, in 2015 and US$988.8 million of revenue, or 63% of total revenue, for the three months ended 31 March 2016. In 2015, slabs accounted for 22% of the Group’s international sales in terms of volume, hot-rolled steel for 30% and high value added products for 40%. A substantial proportion of the slab production manufactured at the Group’s main Russian production site in Lipetsk was processed into high value added products at the Group’s rolling mills in Europe and the United States (approximately 0.8 million tonnes in the three months ended 31 March 2016).

113 The table below shows the proportion of the Group’s total non-Russian sales volume attributable to its principal products for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Product Pig iron ...... 7 3 2 5 Slabs ...... 43 42 39 41 Billets ...... 1 0.3 0.4 4 Plates ...... 5 5 9 5 Hot-rolled steel ...... 21 24 26 21 Cold-rolled steel ...... 13 15 13 14 Galvanized steel ...... 4 4 6 3 Pre-painted steel ...... 0 0.1 1 0 Long products and metalware ...... 2 2 1 3 Non-grain-oriented (dynamo) steel ...... 2 2 2 2 Grain-oriented (transformer) steel ...... 2 3 2 2 Billets ...... 100 100 100 100 The European Union remained the Group’s key market outside of Russia in 2015. The volume of sales to the European Union among total non-Russian sales increased to 34% in 2015 as compared to 31% in 2014, as result of growth of export operations of NLMK Russia due to stable demand in the international markets and recovery of demand for steel in the EU. In 2015, the volume of sales of steel products to North America and the Middle East, as a percentage of total non-Russian sales, were 25% and 15%, respectively (and 23% and 14%, respectively, in the first three months of 2016). The following table shows, as a percentage of the Group’s total non-Russian sales volume, the regions in which the Group’s steel products were sold for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Region European Union ...... 34 31 28 38 North America ...... 25 34 23 23 Middle East. including Turkey ...... 15 12 16 14 Asia and Oceania ...... 7 6 16 6 Other regions ...... 20 18 17 19

Russian sales Russian sales generated US$3,146 million of revenue, or 39% of total revenue, in 2015 and US$588.1 million of revenue, or 37% of total revenue, for the three months ended 31 March 2016. The Group believes that it was the largest supplier in Russia, in terms of volume, of cold-rolled coil, pre-painted steel and galvanized steel in 2015 (with a market share of 30%, 19% and 20%, respectively).

114 The table below shows the percentage of total volume of Russian sales that the Group derived from each of its principal products for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Product Pig iron ...... 1 0.5 0.5 1 Slabs ...... 15 11 10 16 Billets ...... 3 4 2 0 Hot-rolled steel ...... 23 22 21 29 Cold-rolled steel ...... 11 12 14 11 Galvanized steel ...... 10 9 10 7 Pre-painted steel ...... 6 8 8 6 Grain-oriented (transformer) steel ...... 1 1 1 1 Non-grain-oriented (dynamo) steel ...... 1 1 1 1 Long products ...... 27 28 28 26 Metalware ...... 4 4 5 3 The following table shows, as a percentage of total volume of Russian sales, a breakdown of the Group’s sales by industry in Russia for the periods indicated.

Year ended Three months 31 December ended 2015 2014 2013 31 March 2016 (%) Industry Automotive industry ...... 2 3 4 2 Household appliances ...... 1 1 2 1 Metal traders ...... 42 44 43 46 Machine building ...... 1 2 2 1 Metallurgical complex ...... 7 6 6 7 Construction ...... 18 19 22 14 Tube and pipe ...... 26 21 17 27 Electric and instrument engineering ...... 1 2 2 1 Others ...... 2 4 2 2 The majority of Russian sales are made to customers located in the European part of Russia, including the Central region, the Volga region, the North Caucasian region, Black Earth and the Urals region, to which the Group made 37%, 23%, 12%, 8% and 7%, respectively, of its total volume of Russian sales in 2015 (38%, 24%, 11%, 7% and 9%, respectively, in the three months ended 31 March 2016).

Quality Control The Group has implemented a comprehensive set of measures to enhance the quality of its products, which it continually develops in order to meet the requirements of its customers. The Group’s quality control system extends from management level to its production plant floor. The Group’s products have been certified by leading Russian and international authorities. For example, in the first quarter of 2016 the Lipetsk site successfully passed an audit for compliance with the criteria of the Total Toyota Production System. In addition, NLMK Dansteel confirmed compliance with ISO 9001, ISO 50001, ISO 14001 and OHSAS 18001 standards and received new three-year certificates. The Group’s Lipetsk site also confirmed the compliance of its Quality Management System with international standard ISO 9001:2008, the European Council Directives 97/23/EC (the Pressure Equipment Directive) and 89/106/EEC (the Construction Products Directive) and was granted the right to use the ‘‘CA’’ mark on steel produced for the construction industry.

115 Raw Materials and Energy The principal raw materials which the Group uses to produce steel include iron ore concentrate, pellets, coking coal, limestone and dolomite, non-ferrous metal and ferro-alloys and scrap metal. The Group’s production operations also require water, gas, electricity, heat power and ancillary raw materials. Vertical integration is a key strategic priority of the Group to better control its cost base through access to raw materials and energy supply, thereby decreasing its dependence on volatile raw material markets and further increasing its share of high value added products. The Group’s subsidiary Stoilensky, an open pit mine with approximately 6 billion tonnes of iron ore reserves, has a total iron ore concentrate production capacity of 14 million tonnes per year and sinter ore production capacity of up to 1.7 million tonnes per year. Management believes that this asset has one of the lowest cash costs of production in the global industry at US$11 per tonne of 65% iron content ore concentrate. Stoilensky is conveniently located approximately 300 kilometers from the main production site of NLMK Russia in the Central District of Russia. In 2015, Stoilensky fully met the Group’s iron ore concentrate and sinter ore requirements. Management expects to launch a pelletizing plant, with a capacity of 6 million tonnes of pellets per year, in the second half of 2016. Following this launch, the Group will be fully self-sufficient in iron ore pellets which are currently supplied pursuant to a long-term agreement (effective until the end of 2016) by a third party. The Group also internally supplies other raw material and energy requirements, including covering in 2015 57% of the electricity needs of the Lipetsk site (62% in the three months ended 31 March 2016). The Group pursues a policy of diversifying its supplier base. Currently all purchases of raw materials, supplies and equipment are based on market analysis, tenders and negotiations with suppliers for long-term contracts and fixed purchase prices or formula-based prices (where price depends on market indices). NLMK Trading House, which is responsible for consolidated supplies of some raw materials and inputs to the Group, in part centralizes the commercial functions for the Group’s business. In this way, the Group is able to minimize its purchasing costs and to streamline its transportation expenses.

Iron ore concentrate and pellets Stoilensky supplied all of the Group’s iron ore concentrate requirements in 2015 and in the three months ended 31 March 2016. In addition, Stoilensky also supplies iron ore concentrate and sinter ore to third parties, with sales to third parties accounting for approximately 26% of total sales of iron ore concentrate and 42% of total sales sinter ore in 2015 (23% and 32%, respectively, in the three months ended 31 March 2016). Stoilensky’s external consumers in 2015 and the first three months of 2016 included steelmakers in Russia, Eastern Europe and China. The table below shows the raw materials sold by Stoilensky for the periods indicated.

Three months Year ended 31 December ended 2015 2014 2013 31 March 2016 (Amounts in thousands of tonnes) Sinter ore ...... 1,777 1,503 1,453 150 Iron ore concentrate ...... 15,238 14,706 13,981 895 Total ...... 17,015 16,209 15,434 1,045 Stoilensky is one of Russia’s largest mining companies, specializing in the extraction and processing of iron ore and located in the Belgorod region in Central Russia, 300 kilometers from the Group’s main production site in Lipetsk. It is a conventional open-pit operation. Following a drilling and blasting stage, ore is hauled via rail to the concentrator plant. At the concentrator, the ore is crushed and ground to a fine particle size, then separated into an iron concentrate slurry and a waste stream using wet magnetic separators. The iron ore is upgraded from approximately 34% iron to a concentrate that contains approximately 66.5% iron. The current production facilities comprise an iron ore concentrate plant and a sinter ore plant. In 2015, Stoilensky increased its sales of iron ore concentrate by 4% to 15.2 million tonnes. Sales of sinter ore increased by 18% in 2015 as compared with 2015 and totaled 1.7 million tonnes. In the three months ended 31 March 2016, Stoilensky sold 0.9 million tonnes of iron ore concentrate and 0.2 million tonnes of sinter ore. NLMK estimates that Stoilensky has reserves of approximately 6 billion tonnes, which is sufficient to maintain production at current levels for approximately 120 years.

116 In 2015, the Group completed reconstruction of two obsolete conveyors at the ore crushing unit which resulted in a 40% increase in throughout capacity. Further investments were made to complete the construction of the pelletizing plant, expected in 2016. NLMK expects that, upon completion, the pelletizing plant will provide all the Group’s pellet requirements for its main steel production plant in Lipetsk.

Coal and coke The Group purchased approximately 8.5 million tonnes, 8.8 million tonnes and 8.5 million tonnes of coking coal in each of 2013, 2014 and 2015, respectively (2.0 million tonnes in the three months ended 31 March 2016). The Group purchases coking coal at market prices that largely correlate with the steel market dynamics. CJSC Sibuglemet, OJSC Kuzbassrazrezugol, JSC VorkutaUgol and PTK Ugol LLC are the main suppliers of coal concentrate. In accordance with the Group’s policy of vertical integration, in 2005, the Group obtained a prospecting and development license to the Zhernovskoye-1 coal deposit in the Kemerovo region, Western Siberia. In 2011, the Group acquired a license for the exploration and extraction of coal in the Zhernovski-Gluboki deposit, located below the Zhernovskoye-1 deposit. The Zhernovskoye-1 deposit, including Zhernovski- Gluboki, has approximately 236 million tonnes of reserves of high-quality hard and semi-soft coking coal (grade GZh, Zh and GZhO according to Russian standards). In 2011, the Group also acquired a license for US$27.2 million for the exploration and extraction of coal in Usinsky-3, the third mining area in the Usinsky coal deposit in the Komi Republic, North-West Russia. The Usinsky-3 deposit has approximately 227 million tonnes of reserves of high-quality hard coking coal (grades Zh and KZh, Russian categories of reserves C1+C2). The Group is currently conducting geological exploration and feasibility studies at the Usinsky-3 deposit. The Group has been revising its plans in respect of these deposits to reduce costs and improve productivity and has decided to put their exploration on hold as market conditions are not yet supportive of developing greenfield coal deposits. The Group currently produces metallurgical coke in excess of its total requirements at its coke batteries at Altai-Koks and the Lipetsk site, which have capacities of up to 4.4 and 2.4 million tonnes per year of coke, respectively. Altai-Koks is Russia’s largest non-integrated coke producer, accounting for 14% of gross coke supplies in Russia. It is located in the Altai Region, in close proximity to the Kuznetsk coal basin mining companies. In 2015, Altai-Koks produced 4.0 million tonnes of coke, which is approximately at the same level as in 2014 (0.9 million tonnes in the three months ended 31 March 2016). Coke sales in 2015 totalled 4.0 million tonnes dry weight (0.9 million tonnes in the three months ended 31 March 2016), of which 0.8 million tonnes, or 20%, were sold to third parties (0.2 million tonnes, or 22%, in the three months ended 31 March 2016). External consumers in 2015 included Russian, Kazakh, European and Asian steelmakers, non-ferrous metal and petrochemical companies. The table below shows the coke produced by Altai-Koks and the Lipetsk site in the periods indicated.

Three months Year ended 31 December ended 2015 2014 2013 31 March 2016 (Amounts in thousands of tonnes) Altai-Koks ...... 4,030 4,067 3,910 871 Novolipetsk ...... 2,418 2,354 2,378 613 Total ...... 6,448 6,421 6,287 1,484

Scrap In 2015, the Group’s ferrous scrap collecting and processing business, Vtorchermet NLMK, supplied over 80% of the Group’s scrap requirements. In 2015, Vtorchermet NLMK processed 2.2 million tonnes of scrap, a decrease of 6% from 2.3 million tonnes in 2014 (0.3 million tonnes in the three months ended 31 March 2016). Vtorchermet NLMK has a scrap processing capacity of 2.8 million tonnes per year. The Vtorchermet NLMK facilities include special cutting and packaging lines for processing scrap so that it is ready for use in the smelting process. Scrap is sourced both externally from companies and individuals who collect scrap metal and internally, by utilizing amortisation scrap and production waste. The Group uses scrap in all steel melting processes. The average proportion of scrap metal in the metal charge used in the smelting process is approximately 98.6%.

117 In respect of the operations of NLMK USA, NLMK Indiana’s facility is located in the American Midwest, a region which accounts for approximately 40% of scrap generation in the United States.

Other raw materials The Group obtains limestone from its wholly owned subsidiary, Stagdok, whose production facilities are located within 20 kilometers of Lipetsk. Stagdok sold 3.92 million tonnes of limestone in 2015, of which 3.33 million tonnes was sold to entities within the Group. In the three months ended 31 March 2016, Stagdok sold 0.81 million tonnes of limestone, of which 0.76 million tonnes was sold to entities within the Group. Assuming that the current levels of production are maintained, management estimates that these reserves should be sufficient to meet the Group’s limestone needs for approximately 30 years. The license under which Stagdok mines the limestone deposit is scheduled to expire in 2028. The Group obtains flux dolomite from its wholly-owned subsidiary, Dolomit, whose operations are located in Dankov, close to Lipetsk. Dolomit sold 2.44 million tonnes of dolomite in 2015 and 0.48 million tonnes in the three months ended 31 March 2016, of which 2% and 1%, respectively was sold to entities within the Group. Assuming that the current levels of production are maintained, management estimates that the reserves of Dolomit (approximately 380 million tonnes) should be sufficient to meet the Group’s limestone needs for over 100 years (based on Dolomit’s current output of approximately 2.5 million tonnes of limestone per year). Dolomit mines the deposit under a license which is scheduled to expire in 2029. Dolomit is continuing to implement a technical upgrade and development program, comprising the renovation and reconstruction of equipment. The Group also requires a wide range of ferro-alloys for its steelmaking process. The Group purchases most of its ferro-alloy requirements from third-party suppliers based both in Russia and overseas, generally under flexible annual contracts. The Group also requires a range of non-ferrous metals, including zinc, manganese and aluminium, for use primarily in its production of high value added steel products, including, for example, galvanized sheet. The Group purchases all of its non-ferrous metal requirements from third-party suppliers in Russia.

Energy The steelmaking process which the Group operates requires significant amounts of electricity and fuel gases to power the blast furnaces, steel melting and rolling facilities. During 2015, the Group’s Russian companies consumed 10 billion kilowatt-hours of power energy (2.8 billion kilowatt hours in the first three months of 2016). In 2015, the Group’s electricity generating facilities provided 57% of the electricity requirements of the Lipetsk site (approximately 62% in the three months ended 31 March 2016). These facilities generate electricity by burning natural gas and waste by-product gasses, including blast-furnace gas and coke oven gas, as well as gas pressure energy. Power for Lipetsk site is produced by the Cogeneration Plant with 332 MW capacity, the Recovery Cogeneration Plant with 150 MW capacity and the Top-pressure Recovery Turbine Plant with a 20 MW one top-pressure recovery turbine. The Group plans to put into operation one more top-pressure recovery turbine in 2016, which will increase its electricity self-sufficiency to 59%. The Group does not use coal to generate electricity. The Group purchases the remainder of its electricity requirements for its Russian operations from the electricity market. The Group estimates that the cost of electricity which the Group produces is approximately 28% less than that of electricity purchased from external suppliers. The Group uses blast furnace gas, coke oven gas and natural gas as a heat source in its blast furnaces, reheating lines and power plants. In 2015, the Group purchased all of its natural gas, including those which it uses in its electricity generation plants, from Gazprom, the national gas supplier of Russia, and other suppliers. In 2015, the Group signed long-term contracts with NOVATEK for supply of natural gas to all facilities of NLMK Russia for five years starting from 1 January 2016. The agreements provide for the supply of an annual volume of 2.8 billion cubic meters of natural gas to NLMK Russia production facilities which will cover 100% of their natural gas needs. In 2015, the Group’s Russian companies purchased 2.8 billion cubic meters of natural gas (0.8 billion cubic meters in the three months ended 31 March 2016). The Group has sought to reduce its energy and natural gas consumption by implementing innovative technologies and utilizing secondary energy. In 2015, these initiatives resulted in a 1% year-on-year improvement in the energy intensity of its products. In October 2012, the Group became the first major Russian steel producer to successfully complete a TUV¨ SUD¨ certification audit for compliance of the energy management system used at the Lipetsk site with the ISO 50001:2011 international standard. All main Russian entities of the Group have passed certification for compliance with ISO 50001.

118 Transportation of raw materials In 2015, the Group received substantially all its raw materials by rail. The Group’s principal supplier of rail transportation services is Freight One, a subsidiary of UCL Holding, a related party. NLMK has signed a long-term agreement (expiring in 2017) with Freight One for transport and rail logistics services for the Group. NLMK expects that the Group’s transportation needs will be fully met by the arrangements with Freight One in the foreseeable future.

Technical Upgrading Program The Group’s technical upgrading program is a key component of its Strategy 2017. The table below shows details of the key projects of the Group’s technical upgrading program completed in 2013–2015.

Year of Completion Key Projects 2013 ...... Revamping of the central dedusting system of sintering machine No. 3 at the Lipetsk site Reconstruction of thermal treatment and coating line No. 5 for production of nitrided electrical anisotropic steel at the Lipetsk site Construction of the basic oxygen furnace complex with gas exhaust ducts at the Lipetsk site Construction and commissioning of pulverized coal injection system at Blast furnace No. 5 at the Lipetsk site Construction and commissioning of NLMK-Kaluga Commissioning of Podolsk and Vorsino site at NLMK Vtorchetmet in Moscow and Kaluga regions Mine expansion at Stoilensky to 32 million tonnes per annum of run-of-mine iron ore 2014 ...... Construction and commissioning of pulverized coal injection system at Blast furnace No. 4 at the Lipetsk site Installation of a waste water biochemical treatment facility at the Lipetsk site Technical upgrade of Mill 2000 roll-out table with a roll drive control system and an accelerated cooling system (Stage 1) at the Lipetsk site Replacement of 50 MW turbogenerator No. 4 at the Cogeneration plant at the Lipetsk site Reconstruction of bell-type furnaces (Stage 1 of 8 furnaces) at the Lipetsk site Construction of air separation unit No. 16 at the Lipetsk site Reconstruction of gas purification system at EAF shops 1,2 (Stage 1) at NSMMZ Modernization of hydrogen production with installation of a reforming unit at VIZ-Steel Construction and commissioning of iron tails-thickening system (Stage 1) at Stoilensky 2015 ...... Replacement of out-dated GST-81 screens with Schenck screens to improve sinter quality at ore sintering plant at the Lipetsk site Construction of new blast furnace slag handling area at the Lipetsk site Construction and commissioning of gas-turbine extension station at Blast furnace No.7 to generate power from blast-furnace gas at the Lipetsk site Construction of air separation unit No. 17 at the Lipetsk site Revamping of the dust suppression system of a non-covered area at the bulk material warehouse of section No. 1 at the Lipetsk site Replacement of main conveyors S`I-19, S`I-20 at ore beneficiation plant at Stoilensky

Corporate Responsibility Management regards sustainable development as one of the Group’s key objectives. In 2002, the Group (at its Lipetsk site) first obtained certification of its environmental management system (‘‘EMS’’) for compliance with ISO 14001:1996 (2004) standards by the German certification agency, TUV¨ CERT. It recertified its compliance with the standard in 2014 with British Standard Institution and passed a compliance audit in 2015. The Group’s EMS monitors current Russian and international environmental

119 regulations, in order to enable the Group to comply with applicable regulations and implement any necessary remedial actions. The Group seeks to anticipate potential issues, and, if it concludes that action is necessary, it is generally able to implement measures to address the problem at a relatively early stage. The Group also regularly engages international experts and auditing firms to assist it at various stages in this process. In 2016, the Group began developing programmes to implement the new version of ISO 14001 standard (ISO 14001:2015). Since 2001, the Group has invested approximately US$1.1 billion in environmental programs. The Group has implemented programs to reduce the impact of its operations on the environment. For example, it has reduced discharges into water to less than 2% of the 2007 level, eliminating them altogether at most of the facilities. The Lipetsk site, Altai-Koks, Stoilensky, NLMK Kaluga and VIZ-Steel have deployed a closed loop water system, which eliminates liquid discharge. In 2014, air emissions from the Lipetsk site fell by 68 tonnes in comparison with the 2013 level, a period in which steel production increased. In May 2014 the Group announced the start of the third stage of its environmental program, which is scheduled to run until 2020. It aims at achieving compliance with all environmental regulations for all the Group companies; reducing specific emissions by NLMK Russia from 22.6 to the steelmaking industry’s best available technology levels; eliminating waste water at all production sites; increasing recycling rate from 5 to 25%; and completely recycling accumulated waste including the slag heap in Lipetsk resulting from more than 80 years of operation and the 40-year-old sludge reservoir at NSMMZ in Revda. Total investments in the program are expected to exceed US$152 million. The Group recognises that the long-term sustainability of its operations depends greatly upon the economic state of the communities surrounding its production facilities. For this reason, it pursues a number of social programs, including mandatory and voluntary medical coverage for its employees, participation in a private pension benefit program and other activities. The Group reinforces its social work with a strong commitment to charity work promoting health and fitness, sports, science, culture and the arts.

Research and Development The Group 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 its end customers’ requirements, new product and equipment development and increasing production efficiency. The Group’s research and development departments employed, in aggregate, 750 staff as of 31 December 2015. As a result of these programs and policies, the Group’s research and development staff hold 217 patents with 5 new patent applications submitted in 2015, 4 of which are international patents. The Group invested approximately RUB 2.8 billion (US$42 million) in its research and development activities during 2013 to 2015 (approximately US$15 million in the three months ended 31 March 2016).

Employees and Health and Safety The Group considers its employees to be one of the most important assets of the organisation and has implemented a personnel policy which incorporates mutual accountability for results, a performance-based wage structure, equal opportunities for all employees and the provision of safe working environments. The table below shows the average number of employees of the Group for the periods indicated.

Year ended 31 December 2015 2014 2013 (thousands of employees) NLMK Russia ...... 53.1 56.4 58.1 NLMK Europe ...... 2.2 2.5 2.5 NLMK USA...... 1.1 1.0 1.1 Group total ...... 56.4 60.1 62.7 As at 31 March 2016, 94% of the Group’s personnel were employed at the Group’s Russian operations, with the remainder in the Group’s European and US operations as well as in other countries where the Group’s assets are located.

120 From 2013 to 2015, the productivity per employee at the Group’s Lipetsk site increased, in terms of output of steel per employee in its steel operations, to 463 in 2015 from 420 tonnes in 2013, an increase of 10%. The Group’s staff remuneration structure consists of a base component, calculated according to the qualifications of the employee, and a performance-related bonus. The remuneration package that NLMK Russia offers its employees also includes voluntary medical insurance, dental care and membership of a non-state pension fund scheme. Within the Group’s Russian businesses, average monthly salaries were RUB 47,300 (US$775) in 2015. Since 2007, the Group’s Occupational Health and Industrial Safety Management System at the Lipetsk site has been certified by Bureau Veritas Certification as in compliance with OHSAS 18001:2007, the internationally recognised standard for occupational health and safety management systems. In 2013, auditors from the British Standards Institution confirmed that NLMK’s OHS management system met international standards. In 2015, the Group invested approximately US$24.57 million in its occupational health and safety program. As at 31 March 2016, to the Group’s knowledge, approximately 90% of employees of the Group’s Lipetsk and approximately 30% of employees of Stoilensky were members of a trade union (80% and 73% of employees in NLMK Europe and NLMK USA, respectively). The number of industrial accidents at the Group’s facilities was 38, 50 and 80 in 2015, 2014 and 2013, respectively (9 in the first three months of 2016). The number of industrial accidents which resulted in serious injury or death was 4 in 2015 (1 in the first three months of 2016). NLMK Russia has established its non-state pension fund program, Sotsialnoye Razvitie NPF, in cooperation with various other organisations and enterprises. As of 31 March 2016, 22,156 of the employees of NLMK Russia were members of the pension fund. In 2015 and in the three months ended 31 March 2016, NLMK Russia paid US$2.21 million and US$0.5million, respectively, into the fund. In addition, the Group maintains defined benefit pension and defined contribution plans for the majority of its employees at its operations in the European Union.

Insurance One of the most important ways in which the Group manages its risk exposure is by developing and managing its insurance program. NLMK Russia has a unified insurance program, with the principal component companies of that division maintaining insurance policies with similar terms. Its insurance protection consists of property damage and business interruption, voluntary health, credit insurance, directors’ and officers’ liability and general liability insurance, as well as the insurance policies it is required to maintain by Russian law (including third-party liability insurance for hazardous facilities). NLMK Europe and NLMK USA have insurance programs which cover potential risks of loss to the Group, its employees, assets, operations, customers and reputation. All risks of direct physical loss or damage to property, including Business Interruption and Boiler & Machinery risks, are covered under a unified property insurance program. NLMK Europe and NLMK USA also have insurance in respect of workers’ compensation and employee healthcare, as well as vehicle, management, strict liability and environmental liability insurance.

Litigation NLMK is party to various proceedings in connection with the share purchase agreement dated 22 November 2007 between NLMK and Mr. Nikolay Maximov for the acquisition by NLMK of a controlling interest in OJSC Maxi-Group from Mr. Maximov. Following an action brought by NLMK in March 2011, on 7 April 2014 the Moscow Arbitrazh Court declared the 22 November 2007 agreement void, and ordered Mr. Maximov to pay NLMK RUB 7.3 billion (US$205 million) in restitution. This judgment was confirmed by the 9th Arbitrazh Appellate Court on 10 July 2014 and further by the Arbitrazh court of the Moscow circuit on 17 December 2014. On 9 April 2015 a judge of the Supreme Court of the Russian Federation dismissed a further appeal sought by Mr. Maximov and refused to refer the case to the Court Bench for Economic Disputes of the Supreme Court of the Russian Federation for hearings and review. An appeal brought by Mr. Maximov on 16 April 2015 to the Chairman (Deputy Chairman) of the Supreme Court of the Russian Federation with respect to this was also dismissed. NLMK intends to seek to enforce the Moscow Arbitrazh Court judgment in Russia and other jurisdictions.

121 In addition, Mr. Maximov has sought to enforce an arbitral award made by the International Commercial Arbitration Court (ICAC) of the Chamber of Commerce and Industry of the Russian Federation against NLMK in the amount of RUB 9.6 billion ($ 338 million), representing the remainder of the purchase price alleged to be due under the 22 November 2007 agreement, plus accrued interest (the ‘‘ICAC Award’’). The ICAC Award was set aside by the Moscow Arbitrazh Court in June 2011, a decision which was upheld on appeal. Mr. Maximov has sought to enforce the ICAC award against NLMK’s assets located in various jurisdictions outside Russia, including the Netherlands, Luxembourg, France and the United Kingdom. Previous attachment proceedings against property of Novexco (Cyprus), NLMK’s affiliated trading company, in Cyprus were dismissed. In the Netherlands, the Amsterdam District Court on 17 November 2012 rejected Mr. Maximov’s action seeking to enforce the ICAC Award, and an appeal brought by Mr. Maximov is pending. On June 20, 2012, the Court of Luxembourg dismissed an appeal by Mr. Maximov that sought to freeze the shares of SIF, and a case on the merits of claims made by Mr. Maximov against NLMK International in Luxembourg was dismissed on procedural grounds. In France, the Paris Court of First Instance authorised the enforcement of the ICAC award in a judgment delivered on 16 May 2012 and on 1 April 2014 an appeal brought by NLMK with the Appeals Court of Paris was dismissed. NLMK filed a cassation appeal against this decision in December 2014. In September 2014 Mr. Maximov filed two claims to the UK High Court of Justice for the recognition and enforcement of the ICAC Award and seeking recovery of the sums awarded in the ICAC Award, together with accrued interest in an amount of RUB 2.9 billion (approximately US$102 million). A trial has been listed to commence on 17 June 2017. There can be no assurance that Mr. Maximov will not continue to seek to enforce the ICAC Award against NLMK’s assets located outside of Russia. The parties have brought other claims and actions in relation to this dispute and it is likely that further actions will be brought in the future. Save as disclosed above, there are no governmental, legal or arbitration proceedings nor, so far as NLMK is aware, are any governmental, legal or arbitration proceedings pending or threatened, which may have, or have had in the 12 months preceding the date of this document, significant effects on NLMK’s or the Group’s financial position or profitability.

122 MANAGEMENT AND CORPORATE GOVERNANCE Board of Directors The Board of Directors is responsible for general management matters, with the exception of those matters designated by law and NLMK’s charter as being the exclusive responsibility of the General Meeting of Shareholders. The Board of Directors currently consists of nine members. Four members of the Board of Directors are independent directors in accordance with the criteria set out in the Russian Federal Law ‘‘On Joint Stock Companies’’ No. 208-FZ dated 26 December 1995, as amended (the ‘‘Joint Stock Companies Law’’) and NLMK’s Regulations on the Board of Directors, which differ in certain respects from the criteria for independent directors that are set out in the U.K. Corporate Governance Code. Those directors are referred to as independent directors. The table below shows the current members of the Board of Directors. All of the current directors were elected on 3 June 2016 and their terms expire on the date of the next annual general shareholders’ meeting. The business address for all directors is Pl. Metallurgov 2, Lipetsk 398040, Russian Federation.

Name Year of Birth Position Mr. Vladimir Lisin .... 1956 Chairman of the Board of Directors, Chairman of the Strategic Planning Committee Mr. Oleg Bagrin ...... 1974 Director Mr. Nikolai Gagarin . . . 1950 Director Mr. Karen Sarkisov .... 1963 Director Mr. Benedict Sciortino . 1950 Director (Independent) and Chairman of the Audit Committee Mr. Stanislav Shekshnya 1964 Director (Independent) and Chairman of the Human Resources, Remuneration and Social Policies Committee Mr. Franz Struzl ...... 1942 Director (Independent) Mr. Tomas Veraszto . . . 1962 Director (Independent) Mr. Helmut Wieser .... 1953 Director (Independent) Mr. Vladimir Lisin Chairman of the Board of Directors since 1998. Member of the Board of Directors since 1996. Graduated from the Siberian Metallurgical Institute. In 1990 graduated from the Moscow Higher School of Commerce. In 1992 graduated from the Academy of National Economy under the Russian Government, Moscow in Economics and Management. Holds a PhD in Technology and Economics. Winner of the USSR Council of Ministers Prize for Science and Technology. Honorary Metallurgist of the Russian Federation. Knight of the Order of Honor. Started career in 1975. Worked at Tulachermet, rising from assistant steelmaker to shop manager. Since 1986 worked as Deputy Chief Engineer, and Deputy CEO of the Karaganda Steel Plant. Member of the Boards of Directors of several leading Russian steel companies since 1993. Mr. Oleg Bagrin Member of the Board of Directors since 2004. Holds a graduate degree in Operations Research and a post-graduate degree in Economics from State Management University, Moscow and a degree in Business Administration from the University of Cambridge. Member of the Strategic Planning Committee and President (Chairman of the Management Board). Board member of a number of NLMK subsidiary companies, including NLMK International B.V. (Netherlands), NLMK Pennsylvania LLC, NLMK Indiana LLC, and Sharon Coating LLC. (USA). Chairman of the Board of Management Company Libra Capital CJSC and Investment Company Libra Capital, Moscow-based investment and management companies. Board member of Freight One, a railroad transportation company. Mr. Nikolai Gagarin Member of the Board of Directors since 2001. Graduated from Moscow State University, majored in Law. Professional experience: Chairman of the Board at Reznik, Gagarin and Partners Law Offices since 2003. Managing Partner since 2009. Honorary Lawyer of Russia. Mr. Karen Sarkisov Member of the Board of Directors since 2010. Graduated from Tashkent State University in 1986, majored in Oriental History. From the early 1990s to 2008, held various executive offices in metals trading companies. In 2006 to 2007, Chairman of VIZ-Steel steel mill, Russia. Adviser to the Chairman of the Board of Directors since 2009. Mr. Benedict Sciortino Member of the Board of Directors since 2012. Graduated from Queens College, New York and received JD and LLM degrees from New England School of Law, Boston, MA, and New York University Law School, New York, respectively. From 1977 to 1995, worked as an attorney-at-law and a

123 partner with Baker & McKenzie, New York. Joined the Duferco Group in 1995. Member of the Board of Directors of Duferco S.A. responsible for Duferco Group North American and South African business, as well as trading operations, finance and legal matters, mergers and acquisitions. Mr. Stanislav Shekshnya Member of the Board of Directors since 2015. Has a Master’s Degree in Economics, a Ph.D. from Moscow State University, and an MBA from Northeastern University in Boston. Affiliate Professor of Entrepreneurship at INSEAD. Held the positions of Director of Human Resources for Otis Elevator in Central and Eastern Europe, President and CEO of Millicom International Cellular in Russia and CIS, Chief Operating Officer of VimpelCom, and CEO of Alfa-Telecom. Served as Chairman of SUEK, Vimpelcom-R, as an independent director at DTEK BV, Ilim Timber Industry and Ener1 and as Director of a number of Russian and Ukrainian companies. Currently is an independent director at Naftna Industria Srbie and the Chairman of the Board of Directors of Russian Fishery LLC. Senior Partner of Vektor Liderstva consulting company, Talent Equity Consulting practice group. Works as a personal coach of business owners and senior managers. Mr. Franz Struzl Member of the Board of Directors since 2011. Graduated from the University of Economics, Vienna in 1964. Joined Alpine Steelgroup, later Voestalpine AG, Austria, in 1967. In 1981, appointed as CFO before becoming CEO of Voestalpine Long Products Group and a member of the Executive Board in 1991. From 1995 until 2001, served as Vice Chief Executive Officer of the Group. In 2001, appointed as CEO and Chairman of Voestalpine Group. Held those positions until 2004, when became CEO of Voestalpine, Brazil—Villares Metals, remaining there until 2010. Since 2011, he has been General Director of RHI AG. Mr. Tomas Veraszto Member of the Board of Directors since 2016. Received a Dr. jur. in Law and Mag. Phil. in Slavic languages in 1984 and 1985, respectively, both from the University of Graz, Austria. In 1988, received a Diploma from the Bologna Center of the School of Advanced International Studies, Johns Hopkins University, USA. Held senior management positions in large industrial and consulting companies, worked for McKinsey & Company for 15 years. In 2014–2015, was a Partner and a Managing Director of the Boston Consulting Group, serving primarily clients in the industrial goods sector on strategy, organisational development and operational improvement. Currently, is a Senior Advisor of the Boston Consulting Group in the same area. Mr. Helmut Wieser Member of the Board of Directors since 2011. Received a Master’s degree in Mechanical Engineering and Economics from the University of Graz in 1981. Professional experience: serves on the Board of Governors of the International Graduate University in Washington D.C. Until 2011, was an Executive Vice President and President of Alcoa Group engaged in production and sales on the world market of rolled products and firm packages and oversaw Alcoa’s businesses in the Asia Pacific region. Prior to that, worked for Austria Metal Group for 10 years, including as executive board member and COO. Earlier, held several senior positions with Voestalpine, including President of Voestalpine, Venezuela. Starting from March 2014 has been a member of the Management Board and starting from April 2014 Chief Executive Officer of AMAG Austria Metall AG. Starting from 2014, has been a member of the Board of Directors (independent director) of Rain Carbon Inc.

Management Board The Management Board is NLMK’s collective executive body and is appointed by the Board of Directors. The Management Board is principally responsible for the day-to-day management of the Group’s business. The President (Chairman of the Management Board) exercises executive authority over all activities, except for issues assigned to the exclusive competence of the General Meeting of Shareholders or the Board of Directors. An annual general shareholders’ meeting of NLMK was held on 3 June 2016 at which Mr. Oleg Bagrin was elected as the President (Chairman of the Management Board).

124 The table below shows the current members of the Management Board. The business address for all members of the Management Board is Pl. Metallurgov, 2, Lipetsk 398040, Russian Federation.

Name Year of Birth Position Mr. Oleg Bagrin ..... 1974 President (Chairman of the Management Board) Mr. Brijesh Garg .... 1964 Vice President, Procurement Mr. Ilya Guschin .... 1976 Vice President, Sales Mr. Yuri Larin ...... 1952 Vice-President, Technology Development & Operational Efficiency Mr. Sergey Likharev . . 1964 Vice President, Logistics Mr. Barend De Vos . . 1967 CEO of NLMK Europe Strip Mr. Stanislav Tsyrlin . . 1968 Vice-President, HR and Management System Mr. Grigory Fedorishin 1979 Vice-President, Finance Mr. Sergey Filatov . . . 1959 Managing Director Mr. Oleg Bagrin Member of the Board of Directors since 2004. Holds a graduate degree in Operations Research and a post-graduate degree in Economics from State Management University, Moscow and a degree in Business Administration from the University of Cambridge. Board member of a number of NLMK subsidiary companies, including NLMK International B.V. (Netherlands), NLMK Pennsylvania LLC, NLMK Indiana LLC, and Sharon Coating LLC (USA). Chairman of the Board of Chairman of the Board of Management Company Libra Capital CJSC and Investment Company Libra Capital, Moscow-based investment and management companies. Board member of Freight One, a railroad transportation company. Mr. Brijesh Garg Vice President, Procurement. Started his career in 1985 with Tata Steel, India as an Industrial Engineer and moved through various positions within the company. Worked at other steel plants, including New Zealand Steel and ArcelorMittal in Kazakhstan and Ukraine. Has 14 years of experience in supply chain management and business processes re-engineering in the steel industry and 13 years of experience in industrial engineering. Holds a Bachelor of Engineering degree with a major in Industrial Engineering and a CPIM certification from the American Production and Inventory Control Society (APICS). Certified SAP Solution Consultant. Mr. Ilya Guschin Vice President, Sales. Prior to joining NLMK in 2013, worked for SIBUR Group, including as head of SIBUR International, the group’s export division. Served as Financial Director at Skolkovo School of Management, Moscow, from 2008 to 2009. From 2002 to 2007, held various positions at Microsoft. Holds a PhD in Economics, and is a graduate of the Faculty of Economics, Moscow State University. Mr. Yuri Larin Vice-President, Technology Development & Operational Efficiency. Graduated from Voronezh Polytechnic Institute. Holds a PhD in Technology. From 2006 to 2013, was NLMK Vice-President for Technology and Environment and Vice President for Development & Environment. Prior to that, served as Director of the NLMK Engineering Center from 1999 to 2006, and, from 1996 to 1999, worked as Deputy Director of NLMK’s Central Laboratory in charge of technology. Mr. Sergey Likharev Vice President, Logistics. Prior to joining NLMK in 2013, was Aviation Business Director at Russian Machines Group and Chairman of the Board of Directors of the Aviacor aviation plant. Served as CEO of Aviacor Aviation Plant in Samara from 2004 to 2007 and of the Basel Aero airport group from 2008 to 2012. From 1993 to 2004, held senior positions at Interros, Ostankino Meat Processing Plant, Golden Telecom, Cannon Associates and Coopers & Lybrand. From 1990 to 1993, worked as a researcher at Moscow State University. Holds a PhD in Physics and Mathematics and a Masters of Business Administration from Cornell University. Mr. Barend De Vos From 2011 President/CEO of NLMK Europe Strip Products and a Director of NBH, as well as a number of its subsidiaries. Joined Duferco La Louviere` in Belgium in 2004 and was appointed a management board member of SIF between 2007 and 2011. After starting his career as production and development engineer in 1990, held various management positions at Iscor and Saldanha Steel (now ArcelorMittal South Africa) between 1995 and 2003, ending with export sales. Holds a B.Eng (Hons) Electrical and M.Eng (industrial) from the University of Pretoria. Mr. Stanislav Tsyrlin Vice-President, HR and Management System. Graduated from the Moscow Institute of Physics and Technology and from Stanford University. Professional experience: from 2004 to 2006, served as Director for Strategy and Management Systems, having previously worked for LLC Rumelco from 2003 to 2004. Prior to that, Mr. Tsyrlin worked for the Boston Consulting Group from 1996 to 2003, serving initially as a consultant, then as a project manager before being appointed Deputy Director.

125 Mr. Grigory Fedorishin Vice-President, Finance. From 2011 to 2013 he served as NLMK Director of Strategy and Business Development. Between 2009 and 2011, worked as an investment manager at Libra Capital, a Moscow-based investment management company. Between 2001 and 2009, worked for PricewaterhouseCoopers consulting company where he held various positions, including as a director of its business restructuring practice. Graduated from the Academy of Finance, Moscow. Holds a master’s degree in Business Administration from INSEAD Business School (France & Singapore). Member of the Association of Certified Financial Analysts (CFA). Mr. Sergey Filatov Managing Director. Graduated from the Moscow Institute of Steel and Alloys, holds a Ph.D. in Technology, and is an Honorary Metallurgist of Russia. From 2009 to 2012, he served as Chief Engineer at NTMK. He has been with NLMK since October 2012, serving as Deputy Senior Vice President—General Director for Production and Technology prior to his appointment as Managing Director in January 2013.

Remuneration of Directors and Management The aggregate amount of remuneration paid by NLMK to the Directors and members of the Management Board as a group for services as Directors of NLMK and Management, respectively, during the year ended 31 December 2015 was approximately US$2,192,000 and US$9,804,000, respectively, in salary and bonuses.

Interests of Directors and Management As of the date of this Prospectus, Mr. Vladimir Lisin, the Chairman of the Board of Directors, is the beneficial owner of 85.5% of NLMK’s share capital. See ‘‘Principal Shareholders’’. In addition, members of the Management hold in aggregate approximately 0.00083% of NLMK’s share capital.

Corporate Governance As a public company, NLMK consistently strives to improve its standards of corporate governance, to improve management efficiency and to support the sustainability of its business model and long-term economic growth. As part of NLMK’s corporate governance measures, the Board of Directors has established the following three committees:

Audit Committee The Audit Committee is chaired by one of the independent Directors, Mr. Benedict Sciortino, and also includes two other independent Directors, Mr. Stanislav Shekshnya and Mr. Franz Struzl, and Directors Mr Karen Sarkisov, Mr. Nikolai Gagarin and Mr. Karl Doering. This Committee drafts and submits to the Board of Directors recommendations regarding the efficient supervision of the financial and business activities of NLMK, including annual external audits of financial statements, the quality of services provided by the external auditor and compliance with the requirements for external auditor independence. In addition to the Audit Committee, NLMK maintains an Internal Audit Commission in accordance with the requirements of the Joint Stock Companies Law.

Strategic Planning Committee The Strategic Planning Committee is chaired by the Chairman of the Board of Directors, Mr. Vladimir Lisin and includes the President (Chairman of the Management Board), Mr. Oleg Bagrin, the three independent Directors, Mr. Benedict Sciortino, Mr. Franz Struzl and Mr. Helmut Wieser, and Directors, Mr. Karl Doering and Mr. Karen Sarkisov. This Committee drafts and submits recommendations to the Board of Directors regarding NLMK’s long-term development strategy, areas of activity and projects that ensure the achievement of strategic objectives.

Human Resources, Remuneration and Social Policies Committee The Human Resources, Remuneration and Social Policies Committee is chaired by independent Director Mr. Stanislav Shekshnya, and includes the Chairman of the Board of Directors, Mr. Vladimir Lisin, and independent Director Mr. Helmut Wieser. This Committee is charged with the preliminary review of issues connected with the establishment of an effective and transparent remuneration policy, personnel planning (planning of continuity), staffing and efficiency of work of the Board of Directors. Its main aim is to support the effectiveness of the Board in respect of appointment of members of management bodies and key employees, their assessment and remuneration, as well as the Group’s social policy.

126 PRINCIPAL SHAREHOLDERS The following table shows the name and shareholding of each registered shareholder of NLMK holding over 5% of its share capital as of the date of this Prospectus based on the information received from NLMK’s share registrar and as notified by those shareholders.

Percentage share in share Name of the registered shareholder capital (%) Fletcher Group Holdings Limited(1) ...... 85.5 Other ...... 14.5 Total ...... 100

(1) Mr. Vladimir Lisin, Chairman of the Board of Directors of NLMK, is the beneficial owner of Fletcher Group Holdings Limited. See ‘‘Management and Corporate Governance’’. Mr. Vladimir Lisin is the beneficial owner of NLMK. NLMK is not aware of any arrangements in existence as of the date of this Prospectus which could reasonably be expected to result in a change of control of NLMK.

127 RELATED PARTY TRANSACTIONS The following is a summary of the Group’s transactions with related parties for the three months ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. Related parties relationships are determined with reference to IAS 24 (Related Party Disclosures). For further details, see Note 23 to the Annual Financial Statements and Note 16 to the Interim Financial Statements included in this Prospectus.

Sales to and Purchases from Related Parties Sales Sales to NBH group companies were US$731.8 million, US$985.7 million and US$227.7 million in the years ended 31 December 2015, 2014 and 2013, respectively (US$123.5 million and US$182.9 million in the three months ended 31 March 2016 and 2015). NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013. See ‘‘Operating and Financial Review—Significant Factors Affecting the Group’s Results of Operations—Acquisitions and Disposals’’. Sales to other related parties were US$0.4 million and US$0.7 million in the three months ended 31 March 2016 and 2015, respectively, and US$4.7 million, US$7.7 million and US$9.1 million in the years ended 31 December 2015, 2014 and 2013, respectively.

Purchases Purchases from the UCL Holding group companies under common control providing transportation services to the Group were US$324.9 million, US$375.9 million and US$411.3 million in the years ended 31 December 2015, 2014 and 2013, respectively (US$60.8 million and US$63 million in the three months ended 31 March 2016 and 2015). Purchases from other related parties were US$64.4 million, US$60.6 million and US$16.3 million in the years ended 31 December 2015, 2014 and 2013, respectively (US$9.3 million and US$24.0 million in the three months ended 31 March 2016 and 2015).

Accounts Receivable from and Accounts Payable to Related Parties Accounts receivable from and advances given to NBH group companies were US$220.8 million, US$300.9 million and US$294.2 million as at 31 December 2015, 2014 and 2013, respectively (US$207.3 million as at 31 March 2016). Accounts receivable from and advances given to other related parties were US$27.3 million, US$17.5 million and US$36.8 million as at 31 December 2015, 2014 and 2013, respectively (US$34.1 million as at 31 March 2016). Accounts payable to UCL Holding group companies were US$5.8 million, US$2.3 million and US$15.2 million as at 31 December 2015, 2014 and 2013, respectively (US$6.8 million as at 31 March 2016). Accounts payable to other related parties were US$18.9 million, US$25.2 million and US$6.3 million as at 31 December 2015, 2014 and 2013, respectively (US$17.0 million as at 31 March 2016).

Financial Transactions Deposits and current accounts of Group companies in banks under significant influence of the Group’s beneficial owner (PJSC Bank ZENIT and PJSC Lipetskcombank) amounted to US$17.7 million and US$24.2 million as of 31 March 2016 and 2015, respectively and US$24.2 million, US$36.5 million and US$92.4 million as of 31 December 2015, 2014 and 2013, respectively. Related interest income from these deposits and current accounts was US$0.3 million and US$0.9 million for the three months ended 31 March 2016 and 2015, respectively, and US$2.4 million, US$3.5 million and US$3.3 million for the years ended 31 December 2015, 2014 and 2013, respectively. The carrying amount of loans to NBH group companies, including interest accrued, was US$298.1 million and US$285.1 million as of 31 March 2016 and 2015, respectively, and US$285.1 million, US$209.6 million and US$185.6 million as of 31 December 2015, 2014 and 2013, respectively. Guarantees issued by the Group for borrowings of NBH group companies’ amounted to US$273.2 million, US$611.6 million and US$790.6 million as of 31 December 2015, 2014 and 2013, respectively (US$274.0 million and US$528.8 million in the three months ended 31 March 2016 and 2015), which is the

128 maximum potential amount of future payments, paid on demand of the guarantee. No amount has been accrued in the Financial Statements for the Group’s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low.

Contributions to Non-Governmental Pension Fund and Charity Fund Total contributions to a non-governmental pension fund and charity fund amounted to US$6.5 million, US$9.1 million and US$6.5 million in 2015, 2014 and 2013, respectively (US$1.0 million and US$0.98 million in the three months ended 31 March 2016 and 2015). The Group has no long-term commitments to provide funding, guarantees, or other support to the abovementioned funds.

Common Control Transfers and Disposal of Investments In September 2015, NLMK completed the sale of its full controlling interest in OJSC North Oil and Gas Company (51.0%) to a company under common control for cash consideration of US$10.1 million. Disposal of OJSC North Oil and Gas Company resulted in deconsolidation of assets amounting to US$20.4 million and liabilities amounting to US$20.1 million. This transaction was carried out in line with the Group’s management of its portfolio of none-core assets.

129 REGULATORY MATTERS Regulation of the Russian Steel Industry The Russian Federation has not enacted any specific legislation governing the operation of the steel industry and the business of steel-manufacturing companies. The production, sale and distribution of steel in the Russian Federation is regulated by general civil legislation and administrative and special legislation relating to quality standards, industrial safety, environmental, employment and other rules. The Ministry of Industry and Trade of the Russian Federation on 5 May 2014 approved the Strategy for the Development of the Ferrous Metal Manufacturing Industry of the Russian Federation for the Period from 2014 until 2020 and until 2030 in perspective and the Strategy for the Development of the Non-Ferrous Metal Manufacturing Industry of the Russian Federation for the Period from 2014 until 2020 and until 2030 in perspective (the ‘‘Strategies’’). The Strategies supersede the Strategy for the Development of the Metal Manufacturing Industry of the Russian Federation for the Period until 2020 dated 18 March 2009. The Strategies, among other things, outlined the key trends and factors relevant for the development of national ferrous and non-ferrous metallurgy, set out four stages for the development of Russian metallurgy (2014–2016, 2017–2020, 2021–2025 and 2026–2030) and determined that promotion of investments and development of innovation technologies would be the state priorities in the sphere of metal manufacturing industry. Other targets for development of Russian steel industry (including, among others, import substitution, promotion of internal demand for metal products and protection of Russian exporters on foreign markets) are set forth in the Subprogram ‘‘Metal Industry’’ of the State Program for Development of Industry and Increase of Its Competitive Abilities approved by the Government of the Russian Federation on 15 April 2014 and the Industrial Plan of Measures for Import Substitution in Steel Industry approved by the Ministry of Industry and Trade of the Russian Federation.

Federal, regional and local regulatory authorities governing the steel industry At the federal level, regulatory authority over the steel industry is divided primarily between the Ministry of Industry and Trade of the Russian Federation and the Ministry of Natural Resources and Ecology of the Russian Federation. The Ministry of Industry and Trade of the Russian Federation is responsible for the development of governmental policy in respect of, and regulation of, the steel industry. In addition, it regulates certain aspects of the export from and import into Russia of steel products. The Ministry of Natural Resources and Ecology of the Russian Federation is responsible for the development of governmental policy in respect of, and regulation of, natural resources, including subsoil. In particular, the Ministry of Natural Resources and Ecology of the Russian Federation passes regulations, among other things, setting: • the rules for determining the amounts of regular payments for subsoil use; • the order of re-issuance and transfer of subsoil licenses; • the procedure for filing ‘‘pay-to-pollute’’ declarations; and • the accounting rules in respect of on-balance sheet natural resources belonging to the state and classification and evaluation of natural resources. The federal ministries in Russia are generally not responsible for compliance control or management of state property and provision of services, which are exercised by the federal services and the federal agencies, respectively. The federal services and agencies that are relevant to the Group’s activities include: • the Federal Service for Environmental, Technological and Nuclear Supervision (‘‘Rostekhnadzor’’), which sets procedures for, and oversees compliance with, industrial safety and environmental rules and issues licenses for certain industrial activities and activities relating to safety and environmental protection; • Rosnedra, which organizes auctions and issues licenses for subsoil use and approves design documentation for subsoil geological research activities; • the Federal Agency for Technical Regulation and Metrology, which determines and oversees levels of compliance with obligatory state standards and technical regulations; and • the Federal Service for the Supervision of the Use of Natural Resources (‘‘Rosprirodnadzor’’), which exercises supervision over the observance of environmental legislation (including legislation relating to handling of hazardous wastes), geological exploration, the rational use and protection of subsoil

130 (including compliance with the relevant terms and conditions of subsoil licenses) and exercises the land control. Aside from the above-mentioned federal executive bodies, which are directly involved in regulating and supervising the steel sector in Russia, there are a number of other federal regulators that, together with their structural subdivisions, have authority over general issues relevant to the Russian steel industry, such as defense, internal affairs, security, border services, justice, tax enforcement, rail transport and other matters. Generally, regional and municipal authorities with jurisdiction over the specific territory in which a steel- producing enterprise is located have authority in certain matters, in particular with regard to land-use allocations with fresh ground water production volume less than 500 cubic meters per day.

Technical regulation The Federal Law on Technical Regulation No. 184-FZ dated 27 December 2002, as amended (the ‘‘Technical Regulation Law’’), introduced a new regime for the development, enactment, application and enforcement of mandatory rules applicable to products, manufacturing, storage, transportation, sales and certain other operations and processes, as well as new regulations relating to the quality of products and processes, including technical regulations, standards and certification. In the absence of technical regulations adopted under the Technical Regulation Law, the existing federal laws and regulations, including the previously adopted state standards (the so-called ‘‘GOSTs’’), that prescribe rules for different products and processes, remain in force and are mandatory to the extent that they protect health, property, the environment or consumers. In any event, the State Committee on Standardization and Metrology (a predecessor of the Federal Agency for Technical Regulation and Metrology) has declared GOSTs and interstate standards adopted before 1 July 2003 to be the applicable national standards. In those cases where the Technical Regulation Law provides for mandatory confirmation of product conformity to the established technical regulations (standards), certain Group companies are obliged to obtain certificates of compliance evidencing that their products meet the requirements of the technical regulations, standards, codes of practice or terms and conditions of contracts. Where Russian laws and regulations relating to industrial safety provide for mandatory issuance of permits to use technical equipment at hazardous production facilities, certain Group companies are obliged to obtain the required permits which prove that their products meet the relevant industrial safety requirements. Where certification is not mandatory, a company may elect for voluntary certification by applying for a compliance certificate from the relevant authorities. Following the issuance of that certificate, the applicant has the right to use the relevant compliance mark on its products. Mandatory rules applicable to products and product-related operations and processes are also established by the current technical regulations of the Customs Union which were adopted under the Agreement on Common Principles and Rules of Technical Regulation in the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation dated 18 November 2010 and replace the relevant national regulations. Moreover, the adoption of common technical regulations related to specific products is also envisaged by the Treaty on the Eurasian Economic Union dated 29 May 2014 which became effective on 1 January 2015 (such regulations have not been adopted yet).

Licensing of Operations The Group is required to obtain numerous licenses, authorisations and permits from Russian governmental authorities for its operations. The Federal Law on Licensing of Certain Types of Activities No. 99-FZ dated 4 May 2011, as amended (the ‘‘Licensing Law’’), as well as other laws and regulations, set forth the activities which are subject to license and establishes the procedures for issuing licenses. In particular, some of the Group’s Russian companies need to obtain licenses, permits and approvals of executive authorities to carry out certain activities, including, among others: • the exploitation of chemically hazardous, explosive and flammable industrial facilities classes I to III; • the gathering, transportation, processing, utilisation, deactivation and disposal of waste of hazard classes I to IV; and • the collection, storage, processing and sale of ferrous and non-ferrous scrap. Under the Licensing Law, licenses are issued for an unlimited term. Licenses issued prior to, and valid as at the date of, the Licensing Law entering into force, also have unlimited duration. Nevertheless, licenses

131 can be suspended by the licensing authority and/or revoked by court order for non-compliance. Licensing regulations and the terms of licenses and permits require compliance with numerous industrial standards. In particular, the Group must employ qualified personnel, provide training, maintain certain equipment and a system of quality controls, monitor operations, maintain and make appropriate filings and, upon request, submit specified information to the licensing authorities that control and inspect their activities.

Subsoil Licensing In Russia, the mining of minerals requires a subsoil license with respect to an identified mineral deposit, as well as the right (through ownership, lease or other right) to use the land where such licensed mineral deposit is located. In addition, as discussed above, operating permits are required for all types of operations associated with subsoil use. The licensing regime for the use of subsoil for geological research, exploration and production of mineral resources is established primarily by the Federal Law of the Russian Federation on Subsoil No. 2395-1 dated February 21, 1992, as amended (the ‘‘Subsoil Law’’). The procedure for subsoil use licensing, as well as certain rules in respect of the exploration and production of mineral resources, was established by the Resolution of the Supreme Soviet of the Russian Federation on July 15, 1992, as amended (the ‘‘Licensing Regulation’’). The Subsoil Law provides for several types of subsoil licenses granted in relation to geological research and exploration and production of natural resources, including: (i) licenses for geological research and exploration of a subsoil plot (‘‘exploration licenses’’); (ii) licenses for production of natural resources (‘‘production licenses’’); and (iii) so-called combined licenses for geological research, exploration and production of natural resources (‘‘exploration and production licenses’’). Pursuant to the Subsoil Law, the payment system for the use of subsoil currently consists of the following payment obligations: • one-off payments in cases specified in the license; • regular payments for subsoil use; • fees for the right to participate in tenders and auctions; and • other payments and fees set forth by the legislation of the Russian Federation on taxes and duties. The Subsoil Law contains a range of minimum and maximum rates of regular payments for the use of subsoil and the federal authorities have authority to set the rate for any particular license. The Russian Tax Code contains the relevant rates of mineral extraction tax and water extraction tax.

Issuance of licenses Subsoil licenses are generally issued by Rosnedra. Most of the currently existing production licenses owned by companies derive from (i) pre-existing rights granted during the Soviet era and up to the enactment of the Subsoil Law to state-owned enterprises that were subsequently reorganised in the course of post-Soviet privatizations; or (ii) tender or auction procedures held in the post-Soviet period. The Subsoil Law and the Licensing Regulation contain the major requirements relating to tenders and auctions. In general, production licenses and combined licenses are currently issued by auction. The tenders (auctions) for licenses in respect of subsoil deposits are conducted by special commissions of Rosnedra. While the auction or tender commission formed by Rosnedra must include a representative of the relevant region, the Subsoil Law no longer requires the separate approval of regional authorities in order to issue subsoil licenses. The Subsoil Law provides that, in a tender, the license should be awarded to the bidder which has submitted the most technically competent, financially attractive and socially and environmentally sound proposal that meets the relevant, published tender terms and conditions; and, in an auction, to the bidder which has offered the largest one-off payment for the use of the subsoil plot. In limited circumstances defined by law, production licenses may also be issued without holding an auction, including, for instance, to holders of exploration licenses that discover natural resource deposits through exploration work at their own expense. Regional authorities may also issue production licenses for ‘‘common’’ mineral resources, such as clay, sand or limestone. An auction in respect of subsoil plots of federal importance (as defined by Article 2.1 of the Subsoil Law) and in certain other cases is arranged by the Russian Government, and the Russian Government may impose restrictions on the right of a Russian entity with direct or indirect foreign participation to participate in any auction for the right of subsoil use in respect of

132 a subsoil plot of federal importance. In the interests of national defence and security a Russian legal entity with foreign participation may also be denied by the Russian Government the right to conduct exploration and production if geological research conducted at a subsoil site has identified a deposit falling under the classification of a subsoil plot of federal importance (even if a combined license has already been issued to such subsoil user, which would entail the revocation of the license subject to payment of compensation to the subsoil user for expenses incurred in conducting the geological research and reimbursement of the lump sum payment upon issue of the license). Exploration licenses are generally awarded, without a tender or auction process, by a special commission formed by Rosnedra, which includes representatives of the relevant regional executive authority. The Ministry of Natural Resources and Ecology of the Russian Federation maintains an official list of deposits in respect of which exploration licenses can be issued. A company may obtain a license for geological research (to be conducted at the company’s own expense) of a deposit included in the above-mentioned list by filing an application with Rosnedra (or its regional department). The special commission decides whether to grant the license based upon the merits of the application, unless there is more than one application with respect to the same deposit (in which case Rosnedra sets up an auction for an exploration and production license for the deposit). In respect of subsoil plots of federal importance, only production licenses and combined licenses may be issued. A license for subsoil plot of federal importance can be issued by Rosnedra only on the basis of a relevant decision of the Russian Government taken either upon the results of a tender or auction, or upon the discovery of natural resources within such subsoil plot or subsoil plot deemed as of federal importance as a result of discovery of such natural resources. Under a combined license, advanced exploration and production of natural resources on a subsoil plot of federal importance by a foreign investor or entity controlled by a foreign investor may only commence after the geological research of the subsoil plot is fully completed, in contrast to the general rule applicable to combined licenses, in accordance with which advanced exploration and mining operations may be conducted simultaneously with geological research.

Extension of licenses In accordance with the current Subsoil Law subsoil plots are provided for use for a certain period or an unlimited period. For a specified period subsoil plots are provided for use for the following purposes: geological research— up to 5 years or up to 7 years for geological research of subsoil plots fully or partially located in the Republic of Sakha (Yakutia), the Kamchatka Krai, the Krasnoyarsk Krai, the Khabarovsk Krai, the Irkutsk Region, the Magadan Region, the Sakhalin Region, the Nenets Autonomous District, the Chukotka Autonomous District, the Yamalo-Nenets Autonomous District, or for up to 10 years for the geological research of subsoil plots under inland sea waters, territorial waters and continental shelf of the Russian Federation; production of natural resources—for the useful life of a mineral reserves field, calculated on the basis of a feasibility study for exploration and production that ensures rational use and protection of the subsoil; ground water production—for up to 25 years; production of natural resources based on a short-term right for subsoil use—up to 1 year. Subsoil plots may be provided for an unlimited period for construction and operation of underground facilities not related to the production of natural resources, construction and operation of underground facilities related to landfilling, construction and operation of oil and gas holders, disposal in rock formations of associated waters and waters used by subsoil users for their own production and process requirements in exploration and production of raw hydrocarbons, as well as for the set up of specially protected geological sites and other purposes. The period of subsoil plot use shall be extended upon initiative of a subsoil user if necessary to complete search and evaluation or development of a mineral deposit or winding up of operations provided that no license terms are violated by this subsoil user. The extension procedure for the period of subsoil plot use on the terms of production-sharing agreement shall be determined by the said agreement. Subsoil plot use period shall be calculated from the date of state registration of licenses for those subsoil plots. The Subsoil Law permits a subsoil licensee to request an extension of a production license in order to complete production or vacate the land once the use of the subsoil is complete. In order to amend any condition of a subsoil license, including extension of its term, a company should file a relevant application with the federal authorities.

133 In practice, the factors that may affect a company’s ability to obtain approval for the amendment of a license include its compliance with the terms and conditions of the license and its management’s experience and expertise relating to subsoil issues, including experience in amending licenses.

Maintenance of licenses A license granted under the Subsoil Law is generally accompanied by a licensing agreement. The licensing agreement sets out the terms and conditions for the use of the subsoil license. Currently, Rosnedra and the licensee are the only parties to license agreements. Licensing agreements for subsoil use identify the terms and conditions for the use of the subsoil, the rights and obligations of the licensee and the manager of the subsoil plot and the amounts of payments to be made by the licensee on the terms of the license. Although most of the conditions set out in a license are based on mandatory rules, the parties may negotiate a number of provisions in a licensing agreement. Under a licensing agreement, the licensee makes certain environmental, safety and production commitments, including (i) extracting an agreed target amount of reserves per annum; (ii) conducting agreed mining and other exploratory and development activities; (iii) protecting the environment in the license areas from damage; (iv) providing geological information and data to the relevant authorities; (v) submitting on a regular basis formal progress reports to regional authorities; (vi) making all obligatory payments when due and (vii) participating in social and economic development of the region. If the license holder fails to fulfill the license conditions, upon notice, the license may be terminated by the governmental authorities that issued the license. However, if a license holder cannot meet certain deadlines or achieve certain volumes of exploration work or production output as set forth in the license due to material changes in circumstances, it may apply to amend the relevant license conditions. Moreover, pursuant to instructions of the President of the Russian Federation No. Pr-254 dated 12 February 2015 and the order established by the Regulations on One-off Updating of Subsoil Licenses approved by Order of Rosnedra No. 427 dated 25 June 2015, each subsoil user shall be entitled to apply to a territorial authority of Rosnedra for license updating and make justified amendments to the license.

Termination of licenses Governmental authorities may undertake periodic reviews for ensuring compliance by subsoil users with the terms of their licenses and applicable legislation. The Subsoil Law contains extensive provisions for license termination. A licensee can be fined or the license can be limited, suspended or terminated for a number of reasons, including repeated breaches of the law, the occurrence of a direct threat to the lives or health of people working or residing in the local area, or the occurrence of certain emergency situations. A license may also be limited, suspended or terminated for violations of ‘‘material’’ license terms. Although the Subsoil Law does not specify which terms are material, failure to pay subsoil taxes and failure to commence operations in a timely manner have been common grounds for suspension or termination of licenses. Consistent underproduction and failure to meet obligations to finance a project or to submit data reports (as required by law) would also likely constitute violations of material license terms. In addition, certain licenses provide that the violation by a subsoil licensee of any of its obligations may constitute grounds for limiting, suspending or terminating the license. If the licensee does not agree with a decision of the licensing authorities, including a decision relating to a license limitation, suspension or termination or the refusal to reissue an existing license, the licensee may appeal the decision through administrative or judicial proceedings. In certain cases of termination, the licensee has the right to attempt to cure the violation within three months of its receipt of notice of the violation. If the issue has been resolved within such a three-month period, the licensing authorities may decide not to terminate the license but may still take other action against the licensee. For the violation of license terms, the subsoil user can also be held administratively or criminally liable.

Transfer of licenses Licenses may be transferred only under certain limited circumstances that are identified in the Subsoil Law, including the reorganisation of the license holder or in the event that an initial license holder transfers its license to a legal entity that has been established for the purpose of continuing operations at the relevant subsoil site and in which the initial license holder has an ownership interest of at least 50%. Licenses can also be transferred from a parent company to its subsidiary, from a subsidiary to its parent company, between two subsidiaries of the same parent company (provided that a transferee is a Russian

134 company), as well as in the case of the acquisition of the property complex of the previous subsoil user in the course of bankruptcy proceedings. In any of the above instances, a license may be transferred (by way of cancellation and reissuance by Rosnedra) only if the transferee possesses the equipment and authorisations necessary to conduct the exploration or production activity that is covered by the transferred license. A subsoil license may also be transferred in the event of a reorganisation of the relevant license holder to a successor of such license holder. Generally, the Subsoil Law prohibits the transfer of rights of subsoil use over the subsoil plots of federal importance to a Russian legal entity in which a foreign investor or a group of persons including a foreign investor hold an interest if such foreign investor or such group of persons including a foreign investor: (i) directly or indirectly possess more than 10% of the total number of votes conferred by voting shares in the share capital of that entity; or (ii) have the right, on the basis of a contract or another ground, to issue binding instructions to that entity, including control over the business operations; or (iii) have the right to appoint chief executive officer and/or more than 10% of the members of the collective executive body, and/or have an unconditional right to elect more than 10% of the board of directors or another collective management body of that entity. Such entities may obtain a subsoil use right over the subsoil plots of federal importance in exceptional cases at the discretion of the Russian Government.

Mining allotments Pursuant to the Subsoil Law, a subsoil plot is provided to a subsoil user as a ‘‘mining allotment’’, i.e., a geometric block of subsoil. The Rosnedra determines preliminary mining allotment boundaries at the time it issues the license, which is subject to approval of the territorial bodies of Rostekhnadzor. Following the preparation of a development plan by the licensee, which the state mining supervision authorities and an environmental examination committee must approve, Rostekhnadzor approves the exact mining allotment boundaries based on the report and certifies such boundaries in a mining allotment act, which it issues to the license holder. The license will then incorporate the exact mining allotment boundaries.

Land Use Rights Land use rights are generally needed and obtained for only the portions of the license area actually being used, including the plot being mined, access areas, and areas where other mining-related activity is occurring. Under the Land Code of the Russian Federation No. 136-FZ of 25 October 2001, as amended (the ‘‘Land Code’’), companies may have ownership or lease rights with regard to land in the Russian Federation. In addition, rights of perpetual (unlimited) use are granted to a limited number of entities, including governmental and municipal institutions and federal public enterprises. Those companies that had obtained a right of perpetual use over land prior to the enactment of the Land Code were required, by 1 July 2012, either to purchase the land from, or to enter into a land lease agreement with, the relevant federal, regional or municipal authority owning the land. Companies that have a right of perpetual use over land containing linear facilities (such as power transmission lines, communication lines, pipelines, railway lines, etc.) may either (i) purchase such land or (ii) enter into a land lease agreement or (iii) establish a servitude over such land, by 1 January 2016. Russian law currently categorises all land as having a particular designated purpose, for example: agricultural land, industry land, settlement lands, lands under specially protected territories and objects. Land should be used in accordance with the purpose designated by the relevant category. However, in March 2014, a draft federal law prepared by the Ministry of Economic Development of the Russian Federation and aimed primarily at simplifying the existing rules of use of land was submitted to the Russian State Duma and was adopted in the first reading in December 2014. If the draft is adopted, as from 1 January 2018, the land categories will be abolished, and all land plots (save for the most valuable agriculture land) will be divided into certain functional zones. Most land in the Russian Federation is owned by federal, regional or municipal authorities, which can sell, lease or grant other rights of use to third parties, including through auctions or tenders. Under Russian law, land that is owned by state or municipal authorities and is required for subsoil use is leased to subsoil users without holding an auction or a tender. Generally, a lessee has no pre-emptive right as to entering into a new land lease agreement with a lessor upon the expiration of the lease of the land owned by federal, regional or municipal authorities. However, a new lease agreement can be concluded without holding an auction when the following criteria have been met: (i) a lessee applies for conclusion of a new agreement before the expiration of lease, (ii) no one has an exclusive right to obtain the relevant land plot,

135 (iii) previous lease agreement had not been terminated on any of the grounds provided by the Civil Code or the Land Code (improper use of the land plot and etc.) and (iv) as of the date of entering into a new lease agreement the legal grounds for provision of the land plot to the lessee without conducting a public auction remain. Any lease agreement of a land plot for a period of one year or more must be registered with Rosreestr. Recently, two more ways of granting a land plot owned by state or municipal authorities to a private investor have been introduced. Since 1 March 2015 an agreement on servitude can be made and there also is an option to use a land plot without servitude (there is an exhaustive list of situations when such option is available, which includes geological research of a subsoil land plot). The particular usage of a land plot depends on activity the land plot is to be granted for. The Group’s mining subsidiaries generally have a property right to their land plots or a long-term lease. The Russian Federal Service for State Registration, Cadastre and Cartography (‘‘Rosreestr’’) records details of land plots, including their measurements and boundaries, in a unified register, or ‘‘cadastre’’. As a general rule, a landowner must obtain a state cadastre number for a land plot as a condition to selling, leasing or otherwise transferring interests in that plot. Rosreestr also maintains the Unified State Register of Rights to Immovable Property and Transactions Therewith (the ‘‘Register of Rights’’), a separate register for the registration of all real estate and transactions relating to that real estate. Generally, under the Civil Code, the right of ownership and the other rights to real estate property (such as buildings, facilities, land plots and other real estate items), the restriction of these rights, their arising, transfer and cessation shall be registered with the Register of Rights. The Federal Law on State Registration of Rights to Immovable Property and Transactions Therewith No. 122-FZ dated 21 July 1997, as amended, regulates the procedure for the state registration of rights and transactions. A person acquires the right to the real estate property only upon the state registration of such right in the Register of Rights. A person, whose right has been registered earlier in the Register of Rights, has a right to register an objection note with respect to the subsequently registered right of another person. However, if the person who registered the objection has not pursued such challenge in the court within three months, the objection note must be cancelled and further objection by the same person will not be allowed.

Environmental Considerations The Group is subject to laws, regulations and other legal requirements relating to the protection of the environment, including those governing the discharge of polluting substances into the air and water, the management and disposal of hazardous substances and wastes (including their neutralization, where applicable), the rehabilitation of the contaminated areas on the production sites, as well as the protection of natural environment. Issues of environmental protection in Russia are regulated primarily by the Federal Law on Environmental Protection No. 7-FZ dated 10 January 2002, as amended (the ‘‘Environmental Protection Law’’), as well as by a number of other federal and regional legal acts.

Payments for negative impact on the environment The Environmental Protection Law establishes a ‘‘pay-to-pollute’’ regime administered by federal and local authorities. The Ministry of Natural Resources and Ecology of the Russian Federation adopts regulatory documents governing the permissible impact on the environment and the extraction of resources, while Rosprirodnadzor establishes limits on emissions and disposals of substances and waste. A company may obtain approval for exceeding these statutory limits from the federal or regional authorities depending on the type and scale of the environmental impact. As a condition for such approval, a plan for the reduction of emissions or disposals must be developed by the company and cleared with an appropriate governmental authority. Fees, as set forth in the Decree of the Russian Government on Rates of Payments for Pollutant Emissions into the Air by Stationary and Mobile Sources, Pollutant Disposals into Surface and Underground Waters, including through Centralized Water Disposal System, Disposal of Production and Consumption Waste No. 344 dated 12 June 2003, are assessed on a sliding scale for both the statutory and individually approved limits on emissions and effluents and for pollution in excess of these limits. Under this sliding scale, the lowest fees are imposed for pollution within the statutory limits, higher fees are imposed for pollution within the individually approved limits and the highest fees are imposed for pollution exceeding such limits. Payments for negative impact on the environment do not relieve a company from its responsibility to take environmental protection measures and undertake restoration of the territory after the activities are completed.

136 Ecological approval The Federal Law on Ecological Expert Examination No. 174-FZ dated November 23, 1995, as amended (the ‘‘Ecological Examination Law’’), provides for mandatory ecological approval by a state ecological expert of certain documentation required for the implementation of certain types of business activities in order to prevent the negative impact of such activities on the environment. The receipt of a positive conclusion of the state ecological expert examination, which is conducted by federal and regional authorities, comprises one of the key preconditions for financing and implementation of a relevant project. Violation of the requirements of the Ecological Examination Law may result in administrative fines, civil liability (to compensate for damages and losses) and criminal liability as described below in ‘‘Environmental liability’’.

Environmental protection authorities Rosprirodnadzor, Rostekhnadzor, the Russian Federal Service for Hydrometrology and Environmental Monitoring, Rosnedra, the Russian Federal Agency on Forestry and the Russian Federal Agency on Water Resources (along with their regional branches) are primarily responsible for environmental control, and the monitoring, implementation and enforcement of the relevant laws and regulations. The Russian Government and the Ministry of Natural Resources and Ecology of the Russian Federation are responsible for the development of regulatory documents in the sphere of environmental protection and for the coordination of activities of the regulatory authorities in this area. Such regulatory authorities, along with other state authorities, individuals and public and non-governmental authorities also have the right to initiate lawsuits for the compensation of damage caused to the environment. The statute of limitations for such lawsuits is 20 years.

Environmental liability If the operations of a company violate environmental requirements or cause harm to the environment or any individual or legal entity, the environmental authorities may suspend these operations (for up to 90 days) or a court action may be brought to suspend or terminate these operations and require the company to remedy the effects of the violation. Any company that fails to comply with environmental regulations may incur administrative or civil liability, and its employees may be held disciplinary, administratively or criminally liable. A court may impose an obligation to conduct reclamation measures pursuant to a plan of restorative works. The Group has, in the past, been subject to fines and, in some cases, court actions in relation to breaches of environmental regulations. Although none of these court actions and fines have had, individually or in aggregate, a material adverse effect on the business and performance results of the Group, its business and results of operations, there can be no assurance that any such court actions or fines will not have a material adverse effect on the Group in the future.

Reclamation Reclamation activities such as re-cultivation, restoration, regeneration and other methods of rehabilitation are prescribed in the Basic Regulations on Land Reclamation, Removal, Preservation, and Rational Use of the Fertile Soil Layer, approved by Order No. 525/67 of December 22, 1995 of the Ministry of Natural Resources and Ecology of the Russian Federation and the Russian Committee for Land Resources and Land Use. In general, reclamation activities of the Group involve both a technical stage and a biological stage. In the first, technical stage, the Group performs landscaping operations (backfilling of the pits, grades and terraces mound slopes, leveling of the surface of the mounds, and adding clay rock on top for greater adaptability of young plants). In the second, biological stage, the Group plants conifers, such as pine, larch or cedar, on horizontal and gently sloping surfaces, as well as shrubs and bushes to reinforce inclines. The stipulations of the Russian environmental regulations do not require the reclaimed sites to achieve the approximate original contour of the property as is required, for example, in the United States.

Environmental protection programs The Group has been developing and implementing environmental protection programs. The Group’s programs include measures to achieve compliance with limits imposed on water pollution and storage of industrial waste, in particular the introduction of environmentally friendly industrial technologies, the construction of purification and filtering facilities, the repair and reconstruction of industrial water supply systems, the installation of metering systems, reforestation and the treatment of water and industrial waste recycling.

137 As a result of recent amendments to the Environmental Protection Law, the scope of state support for business activities carried out by companies and individual entrepreneurs in order to protect the environment has been significantly extended. State support is provided by way of tax benefits, benefits with respect to payments for negative impact on the environment and funding from federal and regional budgets. It is also provided that other measures of state support can be established in federal and regional legislation.

Health and Safety Due to the nature of the Group’s business, much of its activity is conducted at industrial sites by large numbers of workers, and workplace safety issues are of significant importance to the operation of these sites. The principal law regulating industrial safety is the Federal Law on Industrial Safety of Dangerous Industrial Facilities No. 116-FZ dated July 21, 1997, as amended (the ‘‘Safety Law’’). The Safety Law applies, in particular, to industrial facilities and sites where companies undertake certain activities, including activities related to the usage, production, processing, storage, transportation or utilisation of fuels and explosive, toxic and environmentally dangerous substances, as well as usage of lifting machines, production of alloys of ferrous and non-ferrous metals, and conduct certain types of mining. The Safety Law also contains a list of dangerous substances, and, in the event of critical concentration of these dangerous substances at the industrial facility or site, a company is obliged to adopt an industrial safety declaration. Dangerous industrial facilities under the Safety Law are divided in four categories based on the level of hazard that varies from level one (extremely dangerous industrial sites) to level four (least dangerous industrial sites). Dangerous industrial facilities are classified at the time of their state registration, which is done by the Rostekhnadzor and some other services in accordance with the rules adopted by the Russian Government. For the purposes of state registration companies are to file the information regarding the facilities with relevant authority within 10 days after they start to operate the facility. Other Russian regulations address safety rules for coal mines, the production and processing of ore and alloy production. Additional safety rules also apply to certain industries, including metallurgical and coke chemical enterprises, and the foundry industry. Any construction, reconstruction, liquidation or other activity in relation to regulated industrial facilities is subject to an industrial safety review. Any deviation from project documentation in the process of construction, reconstruction and liquidation of industrial sites is prohibited, unless the revised documentation is examined by an expert and approved by Rostekhnadzor.

Maintenance of Industrial Safety Companies that operate regulated industrial sites have a wide range of obligations under the Safety Law and the Labour Code of the Russian Federation No. 197-FZ dated 30 December 2001, as amended (the ‘‘Labour Code’’). In particular, they must limit access to such sites to qualified specialists, maintain industrial safety controls and carry mandatory civil liability insurance for damage resulting from accidents occurred as a result of emergency at a hazardous industrial facility. The Safety Law also requires these companies to enter into contracts with professional accident-rescue service companies or create their own accident- rescue services in certain cases, conduct personnel training programs, create systems to cope with and inform Rostekhnadzor of accidents and maintain these systems in good working order. In certain cases, companies operating regulated industrial sites must also prepare declarations of industrial safety that summarise the risks associated with operating such sites and the measures that the company has taken and will take to mitigate such risks. Such declarations must be adopted by the chief executive officer of the company, who is personally responsible for the completeness and accuracy of the data contained therein. Declarations of industrial safety are filed with Rostekhnadzor or its territorial body for further submission to the register of declarations of industrial safety. An industrial safety declaration and various other documents, including an industrial safety expert review, are required for the issuance of a license permitting the operation of a dangerous industrial facility (in cases when such license is required).

State Oversight of Industrial Safety Rostekhnadzor has broad authority in the area of industrial safety. In the case of an accident, a special commission led by a representative of Rostekhnadzor conducts a technical investigation of the causes of

138 the accidents in cases envisaged by the Labour Code of the Russian Federation. The company operating the industrial facility where the accident took place bears all costs of such investigation. Rostekhnadzor has the right to access industrial sites and may inspect documents to ensure a company’s compliance with safety rules. Rostekhnadzor may also impose administrative liability on a company or its officials, as well as suspend a company’s operations for failure to comply with health and safety legislation.

Liability Any company or individual violating industrial safety rules may incur administrative and/or civil liability and individuals may also incur criminal liability. A company that violates safety rules in a way that negatively impacts the health of an individual may also be liable to compensate the individual for lost earnings and health-related damages and, in certain cases, its activity may be suspended.

Regulation of Competition The antimonopoly regulation of the Russian Federation is based primarily on the Federal Law on Protection of Competition No. 135-FZ dated 26 July 2006, as amended (the ‘‘Competition Law’’), and other federal laws and regulations governing antimonopoly issues. Compliance with antimonopoly legislation in the Russian Federation is monitored by the Russian Federal Antimonopoly Service (‘‘FAS’’). Under the current Russian competition law, companies having a dominant position in a particular goods market are prohibited from, among other things, entering into agreements which have the effect of limiting competition, including artificially limiting the supply of goods, maintaining high or low monopolistic prices and refusing without justification to sell goods to third parties. Under recent amendments to the Competition Law, the FAS no longer keeps a register of companies which have more than a 35% share or a dominant position in a particular goods market. Therefore, a company will be deemed to have a dominant position if the criteria set forth by the Competition Law are met (generally, if its share exceeds 50% although in some circumstances its market share may be below 35%). Prior anti-monopoly clearance from the FAS is required in respect of any acquisition of: (i) more than 25% of the voting shares in a Russian joint stock company (or a one-third interest in a Russian limited liability company) and any subsequent increase of that stake to more than 50% or more than 75% of the voting shares (or a one-half and two-third interest in a Russian limited liability company); (ii) subject to certain exceptions, fixed production assets or goodwill of a company located in Russia in an amount exceeding 20% of the aggregate balance sheet value of all fixed production assets and goodwill of such company; (iii) the right to control the business activities of another Russian company or perform the functions of its executive body; or (iv) more than 50% of the voting shares (or a 50% interest) in, or other right to control the business activities or perform the functions of the executive body of, a company registered outside Russia, which, during the previous year, delivered or provided goods or services into Russia for an aggregate total amount exceeding RUB 1 billion. Certain other transactions are also subject to a prior anti-monopoly clearance from the FAS. Any of the above acquisition transactions would require prior approval by the FAS if according to the latest balance sheet: (i) the aggregate asset value of a purchaser (and its group) together with the target (and its group) exceeds RUB 7 billion, or the total revenues of such persons for the preceding calendar year exceed RUB 10 billion and (ii) the total asset value of the target (and its group) exceeds RUB 250 million. The obligation to obtain a prior approval by the FAS due to appearance of either a target or a purchaser on the register maintained by the FAS was abolished under the recent amendments to the Competition Law. Transactions within the same group are exempt from pre-transactional clearance by the FAS, subject to compliance with certain reporting requirements. The Competition Law expressly provides for extraterritorial application to transactions which are made outside of the Russian Federation but lead, or may lead, to the restriction of competition in the Russian Federation and which relate to assets located in the Russian Federation or to the shares (or participation interests) in Russian companies or rights in relation to such companies. Under the Competition Law, if an acquirer has acted in violation of the merger control rules and acquired, for example, shares without obtaining the prior approval of the FAS, the transaction may be invalidated by a court order initiated by the FAS, provided that such transaction has led or may lead to the restriction of competition, for example, by means of strengthening of a dominant position in the relevant market. More generally, Russian legislation provides for civil, administrative and criminal liability for the violation of antimonopoly legislation.

139 Regulation of Natural Monopolies Federal Law on Natural Monopolies No. 147-FZ dated 17 August 1995, as amended (the ‘‘Natural Monopolies Law’’) defines a ‘‘natural monopoly’’ as a condition of the commodities market where demand for particular products or services is satisfied more effectively in the absence of competition and where the monopoly product or service cannot be easily replaced. NLMK is entered on the list of natural monopolies in respect of gas pipeline transportation in Lipetsk. Consequently, NLMK’s operation of this facility is subject to the terms of the Natural Monopolies Law, Federal Law on Gas Supply in the Russian Federation No. 69-FZ dated 31 March 1999, as amended, and Resolution of the Government of the Russian Federation on State Regulation of Gas Prices and Tariffs for Gas Transportation within the Territory of the Russian Federation No. 1021 dated 29 December 2000, as amended. Pursuant to these laws and resolution, NLMK is obliged, inter alia, to accept offers to enter into a gas transportation agreement with particular customers, submit on-going reports on its activities and drafts of capital investment plans and disclose additional information about its pipeline operation. Furthermore, NLMK is subject to additional regulatory measures, including determination of tariffs for use of the gas pipeline by the Federal Tariff Service of Russia. Under recent amendments to the Natural Monopolies Law, prior regulatory approval of particular transactions (certain investments that exceed 10% of a natural monopoly equity capital) is required only when such transactions relate to production of goods not governed by the Natural Monopolies Law and the revenue obtained by a natural monopoly from its activities in the sphere of natural monopolies exceeds 1% of its total revenue. The competent supervising authority can adopt binding decisions in the case of a breach of the Natural Monopolies Law and issue binding instructions to a natural monopoly to remedy the breach or cease or refrain from conduct in breach of the Natural Monopolies Law, including instructions on eliminating the consequences of a breach.

Investments in Russian Companies of Strategic Importance The Federal Law on the Procedure for Making Foreign Investments in the Companies of Strategic Importance for the Defense and Security of the State No. 57-FZ, as amended (the ‘‘Strategic Investments Law’’) came into force in May 2008. The Strategic Investments Law establishes certain restrictions for foreign investments into Russian companies involved in certain types of activities that, pursuant to the Strategic Investments Law, are deemed to be of strategic importance for national defense and national security. The Strategic Investments Law establishes an exhaustive list of such strategic activities, including operations of companies included in the register of natural monopolies (with certain exceptions), geological exploration and/or production on subsoil plots of federal importance. The Strategic Investments Law sets forth a general prohibition on transactions resulting in the acquisition of control over strategic companies by foreign states and international organisations or an organisation controlled by any foreign state or international organisation; and requires other foreign investors to obtain prior approval of competent Russian state authorities for the acquisition of control over a strategic company. The Strategic Investments Law contains special rules for obtaining control over and regulating strategic companies engaged in the geological exploration of subsoil plots and/or production of natural resources on subsoil plots of federal importance (‘‘Strategic Subsoil User’’). A person is deemed to control a strategic company if such person: (i) (directly or indirectly) holds more than 50% (25% or more in the case of a Strategic Subsoil User) of the total number of votes attributable to the voting shares or stakes making up the share capital of a strategic company; (ii) has the right (on the basis of an agreement or otherwise) to direct decisions of a strategic company, including the terms of its business operations; (iii) has the right to appoint the sole executive body of a strategic company and/or more than 50% (25% or more in the case of a Strategic Subsoil User) of the members of its collective executive body; (iv) has an unconditional ability to procure the election of more than 50% (25% or more in the case of a Strategic Subsoil User) of the members of a strategic company’s board of directors or other management body; or (v) acts as a management company for a strategic company. Also, a strategic company is deemed to be controlled by a foreign entity if the controlling foreign entity controls (directly or indirectly) less than 50% of the total number of votes attributable to the voting shares or stakes making up the share capital of a strategic company, provided that the proportion between the number of votes available to the foreign entity and the number of votes available to other shareholders provides the foreign entity with an opportunity to determine the decisions of the strategic company. Finally, a strategic company is deemed to be controlled by foreign investors, if more than 50% of the total number of votes

140 attributable to the voting shares or stakes making up the share capital of a strategic company, or, in the case described above, less than 50% of the total number of votes attributable to the voting shares or stakes making up the share capital of a strategic company, belong in aggregate to foreign investors which are not included in one group of persons and are under the control of foreign states, international organisations, organisations controlled by foreign states, international organisations, and/or are foreign states, international organisations and/or organisations controlled by foreign states, international organisations. If the proportion of votes available to a foreign entity changes as a result of: (i) a buyback of or transfer to the strategic company of its own shares and, consequently, the formation of a block of treasury shares; (ii) the distribution of treasury shares among the strategic company’s shareholders; (iii) the conversion of preferred stock into ordinary stock; or (iv) any other reason provided by law; and the foreign entity subsequently obtains control over the strategic company, such foreign entity is obliged under the Strategic Investments Law to file an application to the Governmental Commission on Foreign Investments of the Russian Federation (the ‘‘Governmental Commission’’) within three months upon obtaining control over the strategic company. Prior approval of the Governmental Commission is also required if a foreign state, international organisation or an organisation controlled by either a foreign state or an international organisation acquires direct or indirect control over more than 25% (more than 5% in the case of a Strategic Subsoil User) of the votes represented by shares in a strategic company or other ability to block decisions of the management bodies of such strategic company. In addition, foreign investors are required to notify the Governmental Commission of any transaction resulting in the acquisition of 5% or more of the charter capital of a strategic company. The Strategic Investments Law provides for certain exceptions to the general rules described above. No prior approval or post-closing notification is required for transactions in respect of strategic companies, if the acquirer under such transactions is an organisation controlled by the Russian Federation or by the constituent entity of the Russian Federation, or by the Russian citizen who is, in accordance with the legislation of the Russian Federation on taxes and fees, a tax resident of the Russian Federation (except for the citizens of the Russian Federation having also a citizenship of another country). It is also not required for making foreign investments in the Russian Federation, if such investment is an activity governed by other federal laws or international treaties ratified by the Russian Federation, including treaties on military and technical cooperation. The Strategic Investments Law governs the procedure for review by the Governmental Commission of an application by a foreign investor seeking to obtain control over a strategic company. A foreign investor initiates this process by filing an application with the FAS. The term for review of such an application is three months and may be extended for a further three months. The FAS will issue its approval upon confirmation from the Russian Federal Security Service and the Governmental Commission that the acquisition of control does not threaten the national defense or national security of the Russian Federation. Transactions which are subject to review under the Strategic Investments Law and are not subsequently approved by the Governmental Commission are void, and the foreign investor, by order of the Russian courts, may be denied its right to vote at shareholders meetings of the strategic company.

Trade Barriers and Anti-Dumping Regulations Steel-producing countries generally view their steel industries as strategically important and therefore as requiring protection from foreign competition. In addition, the governments of some emerging economies use non-market methods for the protection and development of their steel industries, and, while those governments seek to achieve the desired balance in their economies between production levels and product mix and consumption, they may resort to protectionist measures against steel imports. Currently export from and import of steel to the Russian Federation are regulated by the Agreement on the Eurasian Economic Union and its implementing regulations. Following the Russian Federation’s accession to the WTO on 22 August 2012, exports of steel from the Russian Federation are also subject to the relevant WTO agreements, including the Accession Protocol of Russia and the GATT 1994. In general, the recent trend worldwide has been for the increase of protection measures and for expansion of trade investigations. The largest importers of the Group’s products are Asia and Oceania, the European Union countries, the Middle East and North America. Restrictive measures on imported steel introduced by certain Latin American countries have not affected the Group’s business adversely, as the Group’s

141 exports have, for geographical reasons, been principally directed at markets in Asia and Oceania, the European Union, the Middle East and North America. NLMK believes that, due to the Russian Federation being granted ‘‘market economy’’ status by the European Union and the United States (both in 2002), as well as by South Africa and Brazil and other countries, it has become relatively easier for Russian steel producers to defend their interests in anti-dumping and other trade proceedings. Moreover, following the Russian Federation’s formal accession to the WTO on 22 August 2012, Russian steel exporters have obtained improved legal status to challenge the application of anti-dumping duties and are now generally able to export steel products into overseas markets of WTO members without quantitative restrictions (subject to the existing trading limitations in the United States, as discussed below).

United States Exports of hot-rolled products by Russian steel producers to the US market are subject to a suspension agreement on hot-rolled cut-to-length steel plate, which establishes minimum prices without quotas based on information about the costs and expenses of Russian exporters. Russian exporters concluded this market economy cost-based agreement with the US Department of Commerce (the ‘‘US Department’’) on 20 December 2002, replacing the non-market economy agreement that had been in force since 1997, although the Group is not a party to this agreement. In relation to other steel products such as cold-rolled, galvanized and semi-finished steel and long products, Russian exporters have been operating in the US market without any restrictions on the import of these products since the expiry of the Comprehensive Steel Agreement on 11 July 2004. NLMK expects that this trend will continue following the Russian Federation’s recent accession to the WTO (which took place on 22 August 2012).

European Union Starting from the date of the Russian Federation’s formal accession to the WTO, 22 August 2012, Russian steel exporters have been able to operate in the European Union market without any restrictions. Before then Russian steel producers operated in the European Union market in accordance with the agreement between the European Union and the Russian Federation, dated 26 October 2007, regulating trade in certain steel products. This agreement established a quota for the export of Russian metals into the European Union and superseded the previous quota system for the export of Russian metals, which had been in place since December 1, 1997 in the form of a bilateral agreement. Pursuant to clause 10.4 of the October 2007 EU/Russian Federation agreement and Regulation (EU) No. 529/2012 of the European Parliament and of the Council, dated 13 June 2012, the October 2007 EU/Russian Federation agreement and associated European Council Regulation implementing the agreement terminated on the date when the Russian Federation became an official member of the WTO, and, as a result, Russian steel exporters are now able to operate in the European Union market without quota restrictions.

Anti-Dumping proceedings As of January 2015, 13 non-tariff protective measures against Russian steel producers were introduced, eight of which were imposed as a result of anti-dumping investigations. In October 2015, the EU completed its anti-dumping investigation in respect of transformer steel imports. The investigation resulted in the imposition of a 21.6% import duty for all Russian steel producers. However, NLMK and VIZ-Steel preserved the right to export their products to the EU without any duties if they sell steel at a price that does not exceed 1,536 Euro per tonne. In addition, the EU commenced in May 2015 a new investigation targeting cold-rolled flat steel products. As a result of this investigation, EU authorities introduced preliminary anti-dumping duties ranging from 19.8% to 26.2% in February 2016. In December 2015, the United States initiated a countervailing duty investigation of the Group’s cold-rolled steel products. On 22 December 2015, it imposed a 6.3% preliminary duty calculated on the basis of NLMK purchases of gas from Gazprom at allegedly undervalued prices. It is expected that this investigation will end in the second half of 2016. In addition, in February 2016 the United States adopted anti-dumping preliminary duties targeting cold-rolled flat steel products ranging from 12.3%–16.8%. Currently, India is conducting anti-dumping investigations against six countries, including Russia, in respect of the hot-rolled steel market, and may start investigating the cold-rolled steel market as well.

142 Employment and Labour The Labour Code is the key law in Russia which governs labour matters. In addition to this core legislation, various federal laws, such as the Law on Employment of Population in the Russian Federation No. 1032-1 dated April 19, 1991, as amended, regulate relationships between employers and employees.

Employment contracts As a general rule, employers must conclude employment contracts for an indefinite term with all employees. Russian labour legislation expressly limits the possibility of entering into fixed term employment contracts. However, employers and employees may enter into an employment contract for a fixed term in certain cases where it is not possible to establish labour relations for an indefinite term due to the nature of the duties or the conditions of the performance of such duties, as well as in other cases expressly identified by federal law. An employer may terminate an employment contract only on the basis of the specific grounds stated in the Labour Code, including, among others: • the liquidation of the enterprise or downsizing of staff; • the failure of the employee to comply with the position’s requirements due to incompetence; • the systematic failure of the employee to fulfill his or her labour duties if he or she was the subject of disciplinary measures; • a gross violation by the employee of labour duties; and • the provision by the employee of false documents upon entering into the employment contract. The Labour Code provides an employee with certain minimum rights, which an employer may extend by an employment contract, including the right to a working environment that complies with health and safety requirements, the right to receive a salary on a timely basis and the right to participate in the management of the authorised entity, whether directly or through an authorised party, including in connection with the approval of any collective agreements, resolution of labour disputes or electing representatives to the employer’s labour disputes committee (if applicable). An employee dismissed from an enterprise due to downsizing or liquidation is entitled to receive compensation from his or her employer, including a severance payment and, depending on the circumstances, payments equal to his or her average salary for between one to three months. The Labour Code also provides protections for specified categories of employees. For example, except in limited circumstances, an employer cannot dismiss minors, expectant mothers, mothers with a child under the age of three, single mothers with a child under the age of 14 (or with a disabled child under the age of 18) or other persons caring for a child under the age of 14 without a mother. Any termination by an employer that is inconsistent with the Labour Code requirements may be invalidated by a court which may require the employer to reinstate such employee. Lawsuits resulting in the reinstatement of illegally dismissed employees and the payment of damages for wrongful dismissal are increasingly frequent and Russian courts tend to support employees’ rights in most cases. Where a court reinstates an employee, the employer must compensate the employee for unpaid salary for the period between the wrongful termination and reinstatement, as well as for any mental distress.

Work time The Labour Code sets the regular working week at 40 hours. In general, an employer must compensate an employee for any time worked beyond 40 hours per week, as well as work on public holidays and weekends, at a higher rate. Annual paid vacation leave under the law is generally 28 calendar days. The Group’s employees who perform open-pit mining works or other work in harmful conditions are entitled to additional paid vacation of at least seven calendar days. Employees required to work non-standardized working hours are entitled to additional paid vacation of at least three calendar days. The retirement age in the Russian Federation is generally 60 years for males and 55 years for females. However, the retirement ages of males who have worked in arduous working conditions for at least 12 years and six months and females who have worked in arduous working conditions for at least 10 years

143 are 55 years and 50 years, respectively. In the case of work involving underground operations, hazardous conditions or hot workshops, the retirement age is 50 years for males who have worked in such conditions for at least 10 years and 45 years for females who have worked in such conditions for at least 7 years and six months. Persons who have worked as miners in open-pit mines or underground mines for at least 25 years, and, in specified circumstances, for at least 20 years, may also retire, regardless of age.

Salary The minimum monthly salary in Russia is established by federal law from time to time. Starting from 1 January 2016, the minimum monthly salary is set at an amount of RUB 6,204. Although the law requires that the minimum wage be at or above a minimum subsistence level, the current statutory minimum monthly salary is generally considered to be less than the minimum subsistence level. Salaries of the Group’s employees are higher than the statutory minimum in the region and none are below such minimum.

Strikes The Labour Code defines a strike as the temporary and voluntary refusal of workers to fulfill their work duties with the intention of settling a collective labour dispute. Russian legislation contains several requirements which must be met for strikes to be legal. An employer may not use an employee’s participation in a legal strike as grounds for terminating an employment contract, although Russian law generally does not require employers to pay wages to striking employees for the duration of the strike. Conversely, an employee’s participation in an illegal strike may provide adequate grounds for termination of his or her employment contract.

Trade unions Trade unions are defined by the Federal Law on Trade Unions, Their Rights and Guaranties of Their Activity No. 10-FZ dated January 12, 1996, as amended (the ‘‘Trade Union Law’’), as voluntary unions of individuals with common professional interests which are created for the purposes of representing and protecting social and labour rights and interests of their members. Russian law also permits national trade union associations, which coordinate activities of trade unions throughout Russia. Although Russian labour regulations have curtailed the authority of trade unions, they still retain significant influence over employees and, as such, may affect the operations of large industrial companies in Russia. The Group’s management routinely interacts with trade unions in order to ensure the appropriate treatment of its employees and the stability of the Group’s business. The activities of trade unions are generally governed by the Trade Union Law and applicable legal acts including the Labour Code. As part of their activities, trade unions may: • negotiate collective contracts and agreements such as those between the trade unions and employers, federal, regional and local governmental authorities and other entities; • monitor compliance with labour laws, collective contracts and other agreements; • access work sites and offices, and request information relating to labour issues from the management of companies and state and municipal authorities; • represent their members and other employees in individual and collective labour disputes with management; • participate in strikes, meetings to protect social and labour rights of employees; and • monitor the redundancy of employees and seek action by municipal authorities to delay or suspend mass redundancies. Russian laws require that companies cooperate with trade unions and do not interfere with their activities. Trade unions and their members enjoy certain guarantees as well, such as: • the retention of job positions for those employees who stop working due to their election to the management of trade unions;

144 • protection from dismissal for employees who previously served in the management of a trade union for two years after the termination of the office term; and • the provision of the necessary equipment, premises and transportation vehicles by the employer for use by the trade union free of charge, if provided for by a collective bargaining contract or other agreement. If a trade union discovers any violation of work conditions requirements, notification is sent to the employer with a request to cure the violation and to suspend work if there is an immediate threat to the lives or health of employees. The trade union may receive information on social and labour issues from an employer (or employers’ unions) and state and local authorities, as well as cooperate with state authorities for the purposes of supervision of compliance with Russian labour laws. Trade unions may also initiate collective labour disputes, which may lead to strikes. To initiate a collective labour dispute, trade unions must present their demands to the employer. The employer is then obliged to consider the demands and notify the trade union of its decision. If the dispute remains unresolved, a reconciliation commission attempts to end the dispute. If this proves unsuccessful, collective labour disputes are generally referred to mediation or labour arbitration. The Trade Union Law provides that those who violate the rights and guarantees of trade unions and their officers may be subject to disciplinary, administrative and criminal liability. The Russian Code on Administrative Offences No. 195-FZ dated 30 December 2001, as amended, specifies that such violations may lead to imposition of an administrative fine or, in certain circumstances, administrative suspension of activities for up to 90 days. Although the Russian Criminal Code No. 63-FZ dated June 13, 1996, as amended, currently has no provisions specifically relating to these violations, general provisions and sanctions may be applicable.

145 DESCRIPTION OF THE ISSUER The Issuer The Issuer was incorporated in Ireland as a private limited company on 14 August 2012, registered number 516421 under the name Steel Funding Limited, under the Companies Acts 1963–2012 (as amended) of Ireland. The registered office of the Issuer is Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland and phone number +353 1 680 6000. The authorised share capital of the Issuer is EUR 100 divided into 100 ordinary shares of par value EUR 1 each (the ‘‘Shares’’). The Issuer has issued one Share, which is fully paid and is held on trust by Deutsche International Finance (Ireland) Limited (the ‘‘Share Trustee’’) under the terms of a declaration of trust (the ‘‘Declaration of Trust’’) dated 22 August 2012, under which the Share Trustee holds the Shares on trust for charity. The Share Trustee has no beneficial interest in and derives no benefit (other than any fees for acting as Share Trustee) from its holding of the Shares. The Share Trustee will apply any income derived from the Issuer solely for the above purposes. Deutsche International Corporate Services (Ireland) Limited (the ‘‘Corporate Services Provider’’), an Irish company, acts as the corporate services provider for the Issuer. The office of the Corporate Services Provider serves as the general business office of the Issuer. Through the office and pursuant to the terms of the corporate services agreement entered into on 24 September 2012 between the Issuer and the Corporate Services Provider (the ‘‘Corporate Services Agreement’’), the Corporate Services Provider performs various management functions on behalf of the Issuer, including the provision of certain clerical, reporting, accounting, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Services Provider receives various fees and other charges payable by the Issuer at rates agreed upon from time to time plus expenses. The terms of the Corporate Services Agreement provide that either party may terminate the Corporate Services Agreement upon the occurrence of certain stated events, including any material breach by the other party of its obligations under the Corporate Services Agreement which is either incapable of remedy or which is not cured within 30 days from the date on which it was notified of such breach. In addition, either party may terminate the Corporate Services Agreement at any time by giving at least 90 days written notice to the other party. The Corporate Services Provider’s principal office is Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland.

Change in Form As a result of new provisions included in the Companies Act 2014 of Ireland (the ‘‘Companies Act’’), the Issuer will be required, as a matter of Irish law, and intends, to convert to a different form of private limited company, a designated activity company, prior to 30 November 2016 (the deadline in the Companies Act). This change in form, which is procedural, will require the Issuer to change its name to Steel Funding Designated Activity Company, but the Issuer does not believe this change will be material for Noteholders in any respect. The Issuer will inform the Irish Stock Exchange of this change.

Business The principal objects of the Issuer are set forth in clause 2 of its Memorandum of Association (as currently in effect) and permit the Issuer, inter alia, to lend money and give credit, secured or unsecured, to issue debentures, enter into derivatives and otherwise to borrow or raise money and to grant security over its property for the performance of its obligations or the payment of money. The Issuer is organized as a special purpose company. The Issuer was established to raise capital by the issue of debt securities and to use an amount equal to the proceeds of each such issuance to advance a loan to NLMK. Since its incorporation the Issuer has not engaged in any material activities other than those incidental to its registration as a private company under the Companies Acts and those related to the issue of the 2019 Notes, the 2018 Notes, and the Notes. The Issuer has no employees.

Directors and Company Secretary The Issuer’s Articles of Association provide that the Board of Directors of the Issuer will consist of at least two Directors.

146 The Directors of the Issuer and their business addresses are as follows:

Bianca Schwarze ...... Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland. Eimir McGrath ...... Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland. The Company Secretary is Deutsche International Corporate Services (Ireland) Limited.

Financial Statements The financial year of the Issuer ends on 31 December in each year. The audited financial statements of the Issuer as at and for the years ended 31 December 2015 and 2014 together with the audit reports thereon, have been filed with the Central Bank of Ireland. The Issuer does not prepare interim financial statements. The profit and loss account and balance sheet can be obtained free of charge from the registered office of the Issuer. The auditors of the Issuer are PricewaterhouseCoopers of 1 Spencer Dock, North Wall Quay, Dublin 1, Ireland who are chartered accountants and are members of the Institute of Chartered Accountants and registered auditors qualified to practice in Ireland.

147 OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY The following summary description should be read in conjunction with, and is qualified in its entirety by, ‘‘Terms and Conditions of the Notes’’ and the form of the Loan Agreement.

Principal and Interest on the Loan Issuer NLMK

Loan

Payment of amounts Proceeds of received the Notes under the Loan

Noteholders

26MAY201614072795 The transaction will be structured around the Loan from the Issuer to NLMK. The Issuer will issue the Notes, which will be limited recourse secured loan participation notes issued for the sole purpose of funding the Loan to NLMK. The Notes will be constituted by, be subject to, and have the benefit of, the Trust Deed. The obligations of the Issuer to make payments under the Notes shall constitute an obligation only to account to the Noteholders for an amount equal to the sums of principal, interest and/or additional amounts (if any) due under the Loan and actually received and retained (net of tax) by or for the account of the Issuer from NLMK pursuant to the Loan Agreement less any amount in respect of the Reserved Rights (as defined in the Trust Deed). In the event that the amount due and payable by the Issuer under such Notes exceeds the sums so received or recovered and retained (net of tax), the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts. As provided in the Trust Deed, the Issuer, with full title guarantee and as continuing security for the payment of all sums under the Trust Deed and the Notes, will charge by way of first fixed charge in favour of the Trustee (the ‘‘Charge’’): • all its rights to principal, interest and other amounts now or hereafter payable to the Issuer by NLMK under the Loan Agreement; • the right to receive all sums which may be or become payable by NLMK under any claim, award or judgment relating to the Loan Agreement, as the case may be; and • all the rights, title and interest in and to all sums of money now or in the future deposited in an account with the Principal Paying Agent in the name of the Issuer (the ‘‘Account’’) and the debts represented thereby (including interest from time to time earned on the Account, if any), provided that, for the avoidance of doubt, the Issuer shall remain the legal and beneficial owner of the property subject to the Charge following the granting of the Charge and that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge. In addition, the Issuer with full title guarantee will assign to the Trustee for the benefit of the Trustee and the Noteholders all the rights, interest and benefits, both present and future, which have accrued or may accrue to the Issuer as lender under or pursuant to the Loan Agreement (including, without limitation, all moneys payable to the Issuer and any claims, awards and judgments in favour of the Issuer in connection with the Loan Agreement and the right to declare the Loan immediately due and payable in certain circumstances and to take proceedings to enforce the obligations of NLMK thereunder) other than any rights, title, interests and benefits which are subject to the Charge and other than the Reserved Rights and any amounts relating to the Reserved Rights. As a consequence of such assignment, the Trustee will

148 assume the rights of the Issuer under the Loan Agreement as set out in the relevant provisions of the Trust Deed. Formal notice of the Charge and assignment will be given to NLMK, who will be required to acknowledge the same. The Issuer will covenant not to agree to any amendments to, or any modification, recession, cancellation, termination or waiver of, or authorise any breach by any counterparty or proposed breach by any counterparty of, the terms of the Loan Agreement unless the Trustee has given its prior written consent or unless authorised to do so by an Extraordinary Resolution (as defined in the Trust Deed) or Written Resolution (as defined in the Trust Deed) of the Noteholders (except in relation to Reserved Rights). The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, save as otherwise provided in the Trust Deed or the Loan Agreement. Any amendments, modifications, waivers, recession, cancellation, termination or authorisations made with the Trustee’s consent shall be notified to the Noteholders in accordance with Condition 13 of the Terms and Conditions relating to the Notes.

149 LOAN AGREEMENT The following is the text of the Loan Agreement to be entered into between NLMK and the Issuer. This Agreement is made on 10 June 2016 between: (1) NOVOLIPETSK STEEL (‘‘NLMK’’); and (2) STEEL FUNDING LIMITED (the ‘‘Lender’’).

Whereas: The Lender has at the request of NLMK agreed to make available to NLMK a loan facility in the amount of US$700,000,000 on the terms and subject to the conditions of this Agreement. Now it is hereby agreed as follows:

1 Definitions and Interpretation 1.1 Definitions In this Agreement (including the recitals), the following terms shall have the meanings indicated: ‘‘Account’’ means the account in the name of the Lender with the Principal Paying Agent, account number 20402102 (or such other account as may from time to time be agreed by the Lender with the Trustee and NLMK pursuant to the Trust Deed and notified to NLMK in writing at least five Business Days in advance of such change); ‘‘Accounting Standards’’ means, with respect to a person, as applicable, US GAAP, or, to the extent that such person has elected to prepare its consolidated financial statements on the basis of IFRS or other generally accepted accounting standards within the European Union (each an ‘‘EU Accounting Standard’’) and has commenced generating financial data on such alternative basis, IFRS or such EU Accounting Standard; ‘‘Advance’’ means the advance to be made under Clause 3 of the sum equal to the amount of the Facility; ‘‘Agency’’ means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not) of, or of the government of, any state or supra-national body; ‘‘Agreement’’ means this Agreement as originally executed or as it may be amended from time to time; ‘‘Business Day’’ means a day on which (a) the London interbank market is open for dealings between banks generally and (b) if on that day a payment is to be made hereunder, commercial banks generally are open for business in New York City, Moscow and in the city where the specified office of the Principal Paying Agent is located; ‘‘Closing Date’’ means 15 June 2016; ‘‘Consolidated Assets’’ means the total amount of assets appearing on the consolidated balance sheet of NLMK, prepared in accordance with the Accounting Standards, as of the date of the most recently prepared consolidated financial statements; ‘‘Default’’ means an Event of Default or a Potential Event of Default; ‘‘Definitive Certificate’’ means the definitive certificates in registered form representing the Notes, to be issued in limited circumstances pursuant to the Trust Deed; ‘‘Dollars’’, ‘‘US$’’ and ‘‘US Dollars’’ means the lawful currency of the United States of America; ‘‘Domestic Relevant Indebtedness’’ means any Relevant Indebtedness which is not quoted, listed or ordinarily dealt in or traded on any stock exchange or any public or institutional securities market, in each case outside the Russian Federation; ‘‘Event of Default’’ has the meaning assigned to such term in sub-clause 11.1 hereof; ‘‘Facility’’ means the facility specified in Clause 2;

150 ‘‘Global Certificate’’ means the Regulation S Global Certificate and the Rule 144A Global Certificate; ‘‘Group’’ means NLMK and its Subsidiaries for the time being; ‘‘IFRS’’ means International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board (‘‘IASB’’) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (as amended, supplemented or re-issued from time to time); ‘‘Indebtedness’’ means, in respect of any person, any indebtedness for, or in respect of (without duplication): (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) any amount of money raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; (e) the amount of any liability in respect of a capital lease that would be required to be capitalised on a balance sheet in accordance with the Accounting Standards and (without double counting) the amount of any liability in respect of any guarantee or indemnity (whether on or off balance sheet) for any of the items referred to above; provided that, for the avoidance of doubt, Indebtedness shall not include moneys raised by way of the issue of share capital (whether or not for cash consideration) and any premium on such share capital; and provided further that Indebtedness shall not include Indebtedness among NLMK and Subsidiaries or among Subsidiaries; and provided further that Indebtedness shall not include any trade credit extended to such person in connection with the acquisition of goods and/or services on arm’s length terms and in the ordinary course of trading of that person; ‘‘Interest Payment Date’’ means 15 June and 15 December of each year, commencing on 15 December 2016; ‘‘Loan’’ means, at any time, an amount equal to the aggregate principal amount of the Facility granted by the Lender pursuant to this Agreement or the principal amount outstanding for the time being under the Facility; ‘‘Material Adverse Effect’’ means a material adverse effect on (a) the financial condition or operations of NLMK or the Group, or (b) NLMK’s ability to perform its payment or other material obligations under this Agreement or (c) the validity, legality or enforceability of this Agreement or the rights or remedies of the Lender under this Agreement; ‘‘Material Subsidiary’’ means any Subsidiary of NLMK: (a) whose gross assets constitute ten per cent (10%) of the total consolidated gross assets of the Group; or (b) whose gross revenue constitutes ten per cent (10%) or more of the total consolidated gross revenue of the Group, determined by reference to the most recent annual consolidated financial statements of the Group and the most recent annual stand-alone reporting forms of the relevant Subsidiary, which were used for the purposes of preparing the Group’s consolidated financial statements and, for the avoidance of doubt, excluding intra-Group items, in each case taking into account, on a pro-forma basis, any subsequent consolidation, amalgamation or merger referred to in Clause 9.2; ‘‘Noteholder’’ means, in relation to a Note, the person in whose name such Note is for the time being registered in the register of Noteholders (or, in the case of a joint holding, the first named holder thereof); ‘‘Notes’’ means the loan participation notes proposed to be issued by the Lender;

151 ‘‘Officers’ Certificate’’ means a certificate signed by two authorised signatories of NLMK, one of whom shall be the principal executive officer, a member of the management board, principal accounting officer or principal financial officer of NLMK; ‘‘Opinion of Counsel’’ means a written opinion from international legal counsel who is acceptable to the Lender and the Trustee, each acting reasonably; ‘‘Paying Agency Agreement’’ means the paying agency agreement to be dated on or about 10 June 2016, as amended, varied, novated, supplemented, extended or restated relating to the Notes; ‘‘Paying Agent’’ shall have the meaning attributed to it in the Paying Agency Agreement; ‘‘Permitted Security Interest’’ means: (a) any Security Interests: (i) existing on the Closing Date; or (ii) securing Refinancing Indebtedness in respect of Indebtedness existing on the Closing Date, provided that such Security Interests are limited to all or part of the assets, undertaking, property or revenues that secured the original Indebtedness and that the aggregate principal amount of such Refinancing Indebtedness secured over such assets does not exceed the sum of (x) the aggregate principal amount of the Indebtedness being refinanced; (y) accrued and unpaid interest on such Refinancing Indebtedness and (z) fees, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness; (b) any Security Interest created or existing in respect of Domestic Relevant Indebtedness; (c) any Security Interests: (i) existing on any undertaking, property, assets or revenues of any person at the time such person becomes a Subsidiary (as defined below) or such undertaking property, assets or revenues are acquired by NLMK or any Subsidiary provided that such Security Interest was not created in contemplation of such event and that no such Security Interest shall extend to other undertaking property, assets or revenues of such person or the Group; or (ii) securing Refinancing Indebtedness in respect of the Indebtedness specified in paragraph (c)(i) above provided that such Security Interests are limited to all or part of the undertaking, assets, property or revenues that secured the original Indebtedness and that the aggregate principal amount of such Refinancing Indebtedness secured over such assets does not exceed the sum of (x) the aggregate principal amount of the Indebtedness being refinanced; (y) accrued and unpaid interest on such Refinancing Indebtedness and (z) fees, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness; (d) any Security Interest on the undertaking, property, assets or revenues of NLMK or any Subsidiary created or existing in respect of Relevant Indebtedness the principal amount of which (when aggregated with the principal amount of any other Relevant Indebtedness which then has the benefit of a Security Interest on the undertaking, property, assets or revenues of NLMK or any Subsidiary) does not exceed 20 per cent. of Consolidated Assets, as determined by reference to the most recently available consolidated financial statements prepared in accordance with the Accounting Standards; or (e) any Security Interest created or existing in respect of any Indebtedness or other obligation or liability that is not Relevant Indebtedness; ‘‘person’’ means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organisation, limited liability company or government or other entity; ‘‘Potential Event of Default’’ means an event or circumstance which could, with the giving of notice, and/or the lapse of time, or the making of any determination under this Agreement, become an Event of Default; ‘‘Principal Paying Agent’’ means Deutsche Bank AG, London Branch;

152 ‘‘Prospectus’’ means the prospectus of even date herewith prepared in connection with the issue of the Notes; ‘‘Rate of Interest’’ has the meaning assigned to such term in Clause 4.1; ‘‘Refinance’’ means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. ‘‘Refinanced’’ and ‘‘Refinancing’’ shall have correlative meanings; ‘‘Refinancing Indebtedness’’ means Indebtedness that is incurred to Refinance any existing Indebtedness, including Indebtedness that Refinances Refinancing Indebtedness; ‘‘Regulation S Global Certificate’’ means the single, permanent global certificate in fully registered form without interest coupons representing the Notes to be issued pursuant to Clause 3.1 of the Trust Deed outside the United States to non-US persons in reliance on Regulation S under the Securities Act; ‘‘Relevant Indebtedness’’ means any present or future Indebtedness in the form of, or represented by, notes, debentures, bonds or other debt securities (but for the avoidance of doubt, excluding term or revolving loans (whether syndicated or unsyndicated), credit facilities, credit agreements and other similar facilities and evidence of indebtedness under such loans, facilities or credit agreements) which either are by their terms payable, or confer a right to receive payment, in any currency and are for the time being, or ordinarily are quoted, listed or ordinarily dealt in or traded on any stock exchange or any public or institutional securities market; ‘‘Repayment Date’’ means 15 June 2023; ‘‘Reserved Rights’’ has the meaning specified in the Trust Deed; ‘‘Rule 144A Global Certificate’’ means the single, permanent global certificate in fully registered form without interest coupons representing the Notes to be issued pursuant to Clause 3.1 of the Trust Deed to qualified institutional buyers (as defined in Rule 144A under the Securities Act) that are also qualified purchasers (as defined in Section 2(a)(51)(A) of the US Investment Company Act of 1940) in reliance on the exemption from registration under the Securities Act provided by Rule 144A thereunder; ‘‘Same-Day Funds’’ means Dollar funds settled through the New York Clearing House Interbank Payments System or such other funds for payment in Dollars as the Lender may at any time determine to be customary for the settlement of international transactions in New York City of the type contemplated hereby; ‘‘Securities Act’’ means the US Securities Act of 1933, as amended; ‘‘Security Interest’’ means any mortgage, charge, pledge, lien or other form of encumbrance or security interest securing any obligation of any person; ‘‘Subscription Agreement’’ means the agreement between NLMK, the Lender and the Joint Lead Managers (as defined therein) dated on or about 10 June 2016 providing for the issuance of the Notes; ‘‘Subsidiary’’ means any corporation or other business entity of which NLMK owns or controls (either directly or through one or more Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect a majority of the directors, managers or trustees of such corporation or other business entity; ‘‘Taxes’’ means any present or future taxes, levies, imposts or duties (including interest or penalties thereon) imposed, assessed, charged, collected, demanded, withheld or claimed by the Russian Federation, Ireland or any tax authority thereof or therein provided, however, that for the purposes of this definition the references to Ireland shall, upon the occurrence of a Relevant Event (as this term is defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term ‘‘Taxation’’ shall be construed accordingly; ‘‘Trust Deed’’ means the trust deed between the Lender and the Trustee to be dated on or about the Closing Date as amended, varied, novated, supplemented, extended or restated from time to time;

153 ‘‘Trustee’’ means Deutsche Trustee Company Limited as trustee under the Trust Deed and any successor thereto as provided thereunder; ‘‘US Dollar Equivalent’’ means with respect to any amount denominated in a currency other than US Dollars, at any time for the determination thereof, the amount of US Dollars obtained by converting such other currency involved into US Dollars at the spot rate for the purchase of US Dollars with such other currency as most recently published under ‘‘Currency Rates’’ in the section of the Financial Times entitled ‘‘Currencies, Bonds & Interest Rates’’ (or, if the Financial Times is no longer published, or if such information is no longer available in the Financial Times, such other source as may be selected in good faith by NLMK); and ‘‘US GAAP’’ means generally accepted accounting principles set forth as of the relevant date in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the US accounting profession), which are in effect and applicable to the circumstances as of the date of determination. 1.2 Other Definitions Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement shall have the meanings assigned to such terms therein, provided that in the case of terms defined or references herein to documents to which NLMK is not a party, NLMK has been sent an up-to-date copy of such documents by the Lender as soon as reasonably practicable (including any amendments thereto that may affect the meaning or interpretation of any such term or reference). 1.3 Interpretation Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement: 1.3.1 all references to ‘‘Clause’’ or ‘‘sub-clause’’ are references to a Clause or sub-clause of this Agreement. 1.3.2 the terms ‘‘hereof’’, ‘‘herein’’ and ‘‘hereunder’’ and other words of similar import shall mean this Agreement as a whole and not any particular part hereof. 1.3.3 words importing the singular number include the plural and vice versa. 1.3.4 the table of contents and the headings are for convenience only and shall not affect the construction hereof. 1.3.5 a reference to ‘‘this agreement’’ or to any other agreement or document referred to in this agreement is a reference to this agreement or such other document or agreement as varied, amended, novated, supplemented, extended or restated (in each case, other than in breach of the provisions of this agreement) from time to time. 1.3.6 a reference to a statute or statutory provision shall include all subordinate legislation under that statute or statutory provision, or replacement or substitution of such legislation, made from time to time. 1.3.7 a Default is ‘‘continuing’’ if has not been remedied or waived.

2 Facility 2.1 Facility On the terms and subject to the conditions set forth herein, the Lender hereby agrees to lend NLMK, and NLMK hereby agrees to borrow from the Lender, US$700,000,000. 2.2 Purpose The proceeds of the Advance will be used for the purposes set out in the Prospectus, but the Lender shall not be concerned with the application thereof.

154 2.3 Facility Fee NLMK shall pay a fee to the Lender in consideration of the arrangement of the Facility of US$3,806,489.85 (the ‘‘Facility Fee’’).

3 Drawdown 3.1 Drawdown On the terms and subject to the conditions set forth herein, on the Closing Date the Lender shall make the Advance to NLMK and NLMK shall make a single drawing in the full amount of the Facility. 3.2 Payment of the Facility Fee NLMK agrees to pay the Facility Fee to the Lender in Same-Day Funds by 2:30pm (London time) (or such earlier time as the Lender and NLMK may otherwise agree) one Business Day prior to the Closing Date to such account as the Lender and NLMK may agree in writing. 3.3 Disbursement Subject to the conditions set forth herein, on the Closing Date the Lender shall transfer in Same Day Funds (unless the Lender and NLMK agree otherwise) the amount of the Advance to such account as the Lender and NLMK may agree in writing. 3.4 Ongoing Fees and Expenses In consideration of the Lender (i) making the Loan available to NLMK; and (ii) supporting such a continuing facility, NLMK shall pay in one or more instalments within 10 Business Days of demand to the Lender each year an additional amount equating to all documented ongoing costs and expenses of the Lender properly incurred in connection with this Agreement or the Notes (including, without limitation, any taxes and any properly incurred and documented corporate service provider fees, legal fees, listing fees, audit fees and any expenses incurred in order to maintain the Lender as a validly incorporated company and any expenses required to cover the Lender’s anticipated winding-up expenses) as set forth in an invoice from the Lender to NLMK. Before such payment is made by NLMK, the Lender shall submit an invoice providing, in reasonable detail, the nature and calculation of the invoiced amount, and shall provide NLMK with an executed act of acceptance (an ‘‘Act of Acceptance’’), the form of which NLMK shall provide to the Lender in advance.

4 Interest 4.1 Rate of Interest NLMK will pay interest in US Dollars to the Lender on the outstanding principal amount of the Loan from time to time hereunder at the rate of 4.50 per cent. per annum (the ‘‘Rate of Interest’’). 4.2 Payment Interest at the Rate of Interest shall accrue from day to day, starting from (and including) the Closing Date and shall be paid in respect of each Interest Period in arrear not later than 2:30pm (London time) one Business Day prior to each Interest Payment Date to the Account. Interest on the Loan will cease to accrue from (and excluding) the due date for repayment thereof unless payment of principal is improperly withheld or refused, in which event interest will continue to accrue (before or after any judgment) at the Rate of Interest to but excluding the date on which payment in full of the principal thereof is made. The amount of interest payable in respect of the Loan for any Interest Period shall be calculated by applying the Rate of Interest to the Loan, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). If interest is required to be calculated for any other period, it will be calculated 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 actual days elapsed. ‘‘Interest Period’’ means each period beginning on (and including) the Closing Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date.

155 5 Repayment and Prepayment 5.1 Repayment Except as otherwise provided herein, NLMK shall repay the Loan not later than 2:30pm (London time) one Business Day prior to the Repayment Date. 5.2 Special Prepayment If, (i) either (a) as a result of the application of any amendments or clarifications to, or change in, the double tax treaty between the Russian Federation and Ireland or the laws or regulations of the Russian Federation or Ireland or of any political sub-division thereof or any authority having power to tax therein (including as a result of a judgment of a court of competent jurisdiction) or a change in, or the clarification of, the application or official interpretation of such double tax treaty, such laws or regulations which in each case becomes effective (or enacted, adopted or made) on or after the date of this Agreement or as a result of the application of Russian withholding tax, or (b) as a result of the enforcement of the security provided for in the Trust Deed, NLMK would thereby be required to make or increase any payment due hereunder as provided in sub-clauses 6.2 or 6.3, or (ii) (for whatever reason) NLMK would have to or has been required to pay additional amounts pursuant to Clause 8, then NLMK may (without premium or penalty), upon not less than 30 days’ notice to the Lender (which notice shall be irrevocable), prepay the Loan in whole (but not in part). 5.3 Illegality If, at any time, by reason of the introduction of any change after the date of this Agreement in any applicable law, regulation, regulatory requirement or directive of any Agency the Lender reasonably determines (setting out in reasonable detail the nature and extent of the relevant circumstances) (following receipt of such determination NLMK may request from the Lender an Opinion of Counsel with the cost of such Opinion of Counsel being borne solely by NLMK) that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive for the Lender to allow all or part of the Loan or the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes, then upon notice by the Lender to NLMK in writing, NLMK and the Lender shall consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 days of the date on which it so notified NLMK. If such a basis has not been determined within the 30 days, then upon notice by the Lender to NLMK in writing, NLMK shall prepay the Loan in whole (but not in part) without premium on the next Interest Payment Date or on such earlier date as the Lender shall certify on not less than 15 days notice to be necessary to comply with the requirements of such law, regulation, regulatory requirement or directive (in any event being not earlier than the last Business Day of any grace period allowed by applicable laws or regulations). 5.4 Reduction of Loan Upon Cancellation of Notes The Lender, NLMK or any member of the Group may from time to time, in accordance with the terms and conditions of the Notes, purchase Notes in the open market or by tender or by a private agreement at any price. The Lender, NLMK or any such member of the Group may, at its option, hold, reissue, resell or, in the case of NLMK or such member of the Group, from time to time deliver to the Lender Notes together with a request (a ‘‘Request’’) for the Lender to present such Notes to the Registrar for cancellation or from time to time procure the delivery to the Registrar of instructions (‘‘Instructions’’) to redeem and thereafter cancel a specified aggregate principal amount of Notes represented by a Global Certificate in each case upon not less than 30 days’ notice. Any Instructions shall be accompanied by evidence reasonably satisfactory to the Issuer and Registrar that the Lender, NLMK or any such member of the Group is entitled to give such Instructions or Request (or, in the case of Notes represented by a Global Certificate, request that the account entries in the records of the relevant clearing system reflecting the Lender’s, NLMK’s or any such member of the Group’s beneficial interest in such part of the relevant Global Certificate be updated to reflect such cancellation) on the date specified in the Instructions or Request (as the case may be) whereupon the Register shall be updated accordingly to reflect such cancellation. On and with effect from the date specified in any Request or, as the case may be,

156 Instructions, the Loan shall be deemed to be prepaid for all purposes in an amount as corresponds to the aggregate principal amount of Notes so cancelled and no further interest shall be payable with respect thereto. 5.5 Payment If the Loan is to be prepaid by NLMK pursuant to any of the provisions of Clauses 5.2 or 5.3: 5.5.1 no later than one Business Day prior to the due date for such prepayment, NLMK shall deposit in the Account an amount in cash equal to the amount required to be paid on such due date; and 5.5.2 NLMK shall, simultaneously with such prepayment, pay to the Lender (by deposit in the Account) accrued but unpaid interest thereon to (but excluding) the date of such prepayment and all other sums then payable by NLMK pursuant to this Agreement in relation to the amount to be prepaid. 5.6 Provisions Exclusive NLMK may not voluntarily prepay the Loan except in accordance with the express terms of this Agreement. Any amount prepaid may not be re-borrowed.

6 Payments 6.1 Making of Payments All payments of principal and interest and other amounts payable under Clause 6.2 hereof (other than those in respect of Reserved Rights) to be made by NLMK under this Agreement shall be made unconditionally by credit transfer to the Lender not later than 2:30pm (London time) one Business Day prior to each Interest Payment Date, the Repayment Date or any other due date for redemption (as the case may be) in Same-Day Funds to the Account, or as the Trustee may otherwise direct following the occurrence of a Relevant Event (as defined in the Trust Deed). The Lender agrees with NLMK that the Lender will not deposit any other monies into the Account and that no withdrawals shall be made from the Account other than for payments to be made in accordance with the Trust Deed and Paying Agency Agreement. 6.2 No Set-Off, Counterclaim or Withholding; Gross-Up All payments to be made by NLMK under this Agreement (including any amounts payable under Clause 6.3) shall be (i) made in full without set-off or counterclaim and (except to the extent required by law) without deduction or withholding for or on account of any Taxes and (ii) made only from the Russian Federation, Ireland or such other jurisdiction which would not require any deductions or withholding from any such payment. If NLMK shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of any such Taxes, it shall, on the due date of such payment, increase any payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in Dollars equal to the full amount which it would have received had payment not been made subject to such Taxes, it shall account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and it shall deliver to the Lender without undue delay evidence reasonably satisfactory to the Lender of such deduction or withholding and of the accounting therefor to the relevant taxing authority. If the Lender pays any amount in respect of any Taxes, including penalties or interest, NLMK shall reimburse the Lender in Dollars, for such payment within 5 Business Days of demand. Any notification by the Lender to NLMK in connection with this Clause 6.2 shall be given as soon as reasonably practicable after the Lender becomes aware of any obligation on it to make any such withholding or deduction or pay any Taxes. The Lender shall, as soon as reasonably practicable following request by NLMK, provide NLMK (at NLMK’s expense) with reasonable detail in writing as to the reasons for such withholding or deduction or payment of Taxes. Nothing in this paragraph shall prejudice in any way the obligation to gross up contained in this Clause 6.2. 6.3 Withholding on the Notes If the Lender notifies NLMK (setting out in reasonable detail the nature and extent of the obligation and providing, upon the request of NLMK, an Opinion of Counsel in respect of the

157 existence of such obligation, with the cost of such Opinion of Counsel to be borne solely by NLMK) that it has become obliged to make any withholding or deduction for or on account of any Taxes imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax from any payment which it is obliged to make, or would otherwise be obliged to make but for the imposition of any such withholding or deduction for or on account of any such Taxes, under or in respect of the Notes, NLMK agrees to pay into the Account for the benefit of the Lender, not later than 2.30pm (London time) one Business Day prior to the date on which payment is due to the Noteholders in Same-Day Funds, such additional amounts as are equal to the additional amounts which the Lender would be required to pay in order for the net amounts received by the Noteholders after such withholding or deduction to equal the respective amounts which would have been received by the Noteholders in the absence of such withholding or deduction; provided, however, that the Lender shall immediately upon receipt from any Paying Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Noteholders, as the case may be, are not entitled to such additional amounts pursuant to the terms and conditions of the Notes, pay such additional amounts to NLMK (it being understood that neither the Lender, nor the Principal Paying Agent nor any Paying Agent shall have any obligation to determine whether any Noteholder is entitled to such additional amounts). 6.4 Reimbursement To the extent that the Lender subsequently obtains and uses any tax credit or allowance or obtains any other reimbursements or refunds relating to a deduction or withholding or payment of Taxes with respect to which NLMK has made a payment pursuant to this Clause 6, the Lender shall promptly pay to NLMK so much of the benefit or refund it received as will leave the Lender, to the maximum extent possible, in the same position as it would have been had no additional amount been required to be paid by NLMK pursuant to this Clause 6; provided, however, that the question of whether any such benefit or refund has been received, and accordingly, whether any payment should be made to NLMK, the amount of any such payment and the timing of any such payment, shall be determined reasonably by the Lender, in consultation with NLMK, and the Lender shall notify NLMK promptly upon determination that it has received any such benefit or refund. 6.5 Mitigation and Substitution 6.5.1 If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of NLMK to make any deduction, withholding or payment as described in sub-clauses 6.2 or 6.3, then, without in any way limiting, reducing or otherwise qualifying the Lender’s rights, or NLMK’s obligations, under such sub-clauses, such party shall as soon as reasonably practicable upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of such party would have any adverse effect upon its business, operations or financial condition or would be in breach of any provision of the NLMK Agreements, take such reasonable steps as may be available to it to avoid such obligation or mitigate the effect of such circumstances. NLMK agrees to reimburse the Lender upon receipt of an original demand for payment for all reasonable, properly incurred and documented costs and expenses (including but not limited to legal fees) incurred by the Lender in connection with this sub-clause. 6.5.2 If the Lender ceases, as a result of the Lender’s actions, to be tax resident in Ireland for the purposes of a double taxation treaty between the Russian Federation and Ireland, and such cessation results in NLMK being required to make payments pursuant to sub-clauses 6.2 or 6.3 or Clause 8 then, except in circumstances where the Lender has ceased to be tax resident in Ireland by reason of any change of law (as described in sub-clause 5.2) (including without limitation, a change in a double taxation treaty or in such law or treaty’s application or interpretation), NLMK may require the Lender to seek the substitution of the Lender as obligor under the Notes and as lender under any Loan. NLMK shall bear all costs and expenses relating to or arising out of such substitution.

158 6.6 Tax Treaty Relief 6.6.1 The Lender shall once in each calendar year, no later than 10 Business Days prior to the first date on which any payment by NLMK is due hereunder in that calendar year, deliver to NLMK, at the expense of NLMK (provided that the incurred expenses are reasonable and documented), a notarised tax residency certificate issued or certified by (as applicable) the competent authorities of Ireland confirming that the Lender is resident in Ireland for the purposes of the agreement between Ireland and the Russian Federation for the avoidance of double taxation with respect to income in that calendar year. At the cost of NLMK (provided that the incurred expenses are reasonable and documented), the residency certificate shall be apostilled at the Irish Department of Foreign Affairs, or otherwise approved by the competent authority in Ireland as contemplated by applicable law or regulations. The Lender shall not be responsible for any failure to provide, or any delays in providing, such tax residency certificate as a result of any action or inaction of any authority of Ireland, but shall notify NLMK promptly about any such failure or delay with a detailed description of the actions taken by the Lender to obtain such tax residency certificate. 6.6.2 If Russian legislation regulating the procedures for obtaining an exemption from Russian withholding tax on income changes, the Lender shall use its reasonable and timely efforts to assist NLMK to obtain relief from such tax pursuant to the double taxation treaty between the Russian Federation and Ireland. In all other cases, the Lender shall, subject to being fully indemnified by NLMK for all documented costs it incurs in so doing, co-operate with NLMK in completing any procedural formalities necessary for NLMK to obtain authorisation to make any payment without any deduction or withholding on account of any Taxes. 6.6.3 Notwithstanding Clause 6.4, if NLMK makes a withholding or deduction for or on account of Taxes from a payment under or in respect of this Agreement, NLMK may apply on behalf of the Lender to the relevant taxing authority of the Russian Federation (the ‘‘Russian Taxing Authority’’) for a payment to be made by such authority to the Lender with respect to such Tax. If, whether following a claim made on its behalf by NLMK or otherwise, the Lender receives such a payment (‘‘Russian Tax Payment’’) from the Russian Taxing Authority with respect to such Taxes, it will as soon as reasonably possible notify NLMK that it has received that payment (and the amount of such payment); whereupon, provided that NLMK has notified the Lender in writing of the details of an account (the ‘‘Borrower Account’’) to which a payment or transfer should be made, and that the Lender is able to make a payment or transfer under applicable laws and regulations, the Lender will, as soon as reasonably practicable, pay or transfer an amount equal to the Russian Tax Payment to the Borrower Account. 6.6.4 The Lender agrees promptly, upon becoming aware thereof, to notify NLMK if it ceases to be resident in Ireland for tax purposes. 6.6.5 Subject to Clauses 6.5 and 8.2, the Lender agrees that it shall maintain its residency for tax purposes only in Ireland. 6.6.6 The Lender represents and warrants to NLMK as of the Closing Date as follows: (i) the Lender is a resident of Ireland for taxation purposes and is subject to taxation in Ireland not merely on the basis of the source of its income or location of its property but on the basis of its registration as a legal entity, location of its management body or other similar criteria. The Lender will be able to receive certification to the effect that it is resident in Ireland for taxation purposes and, in particular, for the purposes of the Agreement between Ireland and the Russian Federation for the avoidance of double taxation with respect to taxes on income from the relevant Irish authority; (ii) at the date hereof, the Lender does not have a permanent establishment or presence outside Ireland, including in particular in the Russian Federation; (iii) the Lender does not have a branch, representation, division, bureau, office, agency or any other economically autonomous subdivision or other place of business in any other country than Ireland through which the business of the Lender is wholly or partially carried out;

159 (iv) the Lender did not explicitly grant authority to and is not aware of an implied authority for NLMK or any other person located outside Ireland to negotiate key parameters of any contracts or sign any contracts on behalf of the Lender, bind the Lender to any contracts by other means or otherwise represent the Lender in dealings with third parties; (v) the Lender has its central management and control in Ireland. The Lender’s place of effective management is only in Ireland; (vi) the directors of the Lender are Irish nationals and reside in Ireland and shall at all times act independently and exercise their authority from and within Ireland by taking all key decisions relating to the Lender in the Ireland; (vii) the Notes and the Loan will be fully accounted for by the Lender on its balance sheet, meaning that the Loan will be treated as an asset of the Lender under generally accepted accounting practice applicable in Ireland, while the Notes will be treated as a liability of the Lender under generally accepted accounting practices applicable in Ireland; (viii) the Lender does not own, either directly or indirectly, any shares of NLMK; (ix) there is no reference to the territory of Russia as the actual place of the Lender’s activity in the memorandum or articles of association of the Lender; and (x) the board of directors of the Lender is located in Ireland.

7 Conditions Precedent The obligation of the Lender to make the Advance shall be subject to the further conditions precedent that as of the Closing Date (a) the Lender shall have received the proceeds of the issue of the Notes pursuant to the Subscription Agreement and (b) the Lender shall have received the Facility Fee.

8 Change in Law; Increase in Cost 8.1 Compensation In the event that after the date of this Agreement there is any change in or introduction of any tax, law, regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) or in the official interpretation or application thereof by any Agency and/or any compliance by the Lender in respect of the Loan or the Facility with any request, policy or guideline (whether or not having the force of law but, if not having the force of law, the observances of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) made or issued after the date of this Agreement from or of any Agency, which: 8.1.1 subjects or will subject the Lender to any Taxes with respect to payments of principal of or interest on the Loan or any other amount payable under this Agreement (other than any Taxes payable by the Lender on its overall net income or any Taxes referred to in sub-clauses 6.2 or 6.3); or 8.1.2 increases or will increase the taxation of or changes or will change the basis of taxation of payments to the Lender of principal of or interest on the Loan or any other amount payable under this Agreement (other than any such increase or change which arises by reason of any increase in the rate of tax payable by the Lender on its overall net income or as a result of any Taxes referred to in sub-clauses 6.2 or 6.3); or 8.1.3 imposes or will impose on the Lender any other condition affecting this Agreement, the Facility or the Loan, and if as a result of any of the foregoing: (i) the cost to the Lender of making, funding or maintaining the Loan or the Facility is increased; or

160 (ii) the amount of principal, interest or other amount payable to or received by the Lender hereunder is reduced; or (iii) the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from NLMK hereunder or makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of the Loan, then subject to the following, and in each such case: (a) the Lender shall, as soon as practicable after becoming aware of such increased cost, reduced amount or payment made or foregone, give written notice to NLMK, together with a certificate signed by one authorised officer of the Lender describing in reasonable detail the introduction or change or request which has occurred and the country or jurisdiction concerned and the nature and date thereof and demonstrating the connection between such introduction, change or request and such increased cost, reduced amount or payment made or foregone, and setting out in reasonable detail the basis on which such amount has been calculated, and enclosing all relevant supporting documents evidencing the matters set out in such certificate; and (b) NLMK, in the case of Clauses (i) and (iii) above, shall promptly on demand by the Lender, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such increased cost, and, in the case of Clause (ii) above, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, payment or foregone interest or other return; provided, however, the amount of such increased cost, reduced amount or payment made or foregone shall be deemed not to exceed an amount equal to the proportion thereof which is directly attributable to this Agreement and provided that the Lender shall not be entitled to such additional amount where such increased cost arises as a result of the negligence or wilful default of the Lender, provided that this sub-clause 8.1 will not apply to or in respect of any matter for which the Lender has already been compensated under sub-clauses 6.2 or 6.3. 8.2 Mitigation In the event that the Lender becomes entitled to make a claim pursuant to sub-clause 8.1, the Lender shall consult in good faith with NLMK and shall use reasonable efforts (based on the Lender’s reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, NLMK’s obligations to pay any additional amount pursuant to such sub-clause, except that nothing in this sub-clause 8.2 shall obligate the Lender to incur any costs or expenses in taking any action (other than minor costs of an administrative or similar nature) which, in the reasonable opinion of the Lender, is prejudicial to its interests, unless NLMK agrees to reimburse the Lender for such costs and expenses.

9 Covenants The covenants in this Clause 9 shall remain in force from the date of this Agreement for so long as the Loan or any other sum owing to the Lender hereunder remains outstanding. 9.1 Negative Pledge NLMK will: (a) not, and will procure that no Material Subsidiary will, create or permit to subsist any Security Interest other than a Permitted Security Interest upon the whole or any part of its respective undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any Relevant Indebtedness: (i) payment of any sum due in respect of any such Relevant Indebtedness; (ii) any payment under any guarantee of any such Relevant Indebtedness; or

161 (iii) any payment under any indemnity or other like obligation relating to any such Relevant Indebtedness; (b) procure that no Material Subsidiary gives any guarantee of, or indemnity in respect of, any of NLMK’s Relevant Indebtedness (other than Domestic Relevant Indebtedness) to the holders thereof, without in any such case at the same time or prior thereto procuring that the Loan (x) is secured at least equally and rateably with such Relevant Indebtedness for so long as such Relevant Indebtedness is so secured or (y) has the benefit of such other guarantee, indemnity or other like obligations or such other security (in each case) as the Lender in its absolute discretion shall deem to be not materially less beneficial to it or as otherwise shall be approved by the Lender (for as long as such Relevant Indebtedness has the benefit of such other guarantee, indemnity, other like obligation or other security). 9.2 Mergers NLMK shall not enter into or become subject to, and shall not permit any Material Subsidiary to enter into or become subject to, any reorganisation (as such term is construed by applicable legislation, including, without limitation and where applicable, any amalgamation, demerger, merger or corporate reconstruction) or other analogous event (as determined by the legislation of the relevant jurisdiction) if such reorganisation or other analogous event would have a Material Adverse Effect. 9.3 Payment of Taxes NLMK shall, and shall ensure that its Subsidiaries shall, pay or discharge or cause to be paid or discharged, before the same shall become overdue, all taxes, levies, imposts or duties levied or imposed upon, or upon the income, profits or assets of NLMK or any Subsidiary (a ‘‘Relevant Tax’’), provided, however, that none of NLMK nor any of its Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any Relevant Tax (x) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with the Accounting Standards or other appropriate provision has been made or (y) where such non-payment or failure to discharge, together with non-payment or failure to discharge any other unpaid or undischarged Relevant Taxes, does not have in the aggregate a Material Adverse Effect, and provided further that in the case of either (x) or (y) above if any Relevant Tax (including any applicable penalties) is paid or discharged after becoming overdue, such payment or discharge shall be deemed to remedy any breach of this Clause 9.3 with respect to such Relevant Tax. 9.4 Delivery of Information 9.4.1 NLMK will (i) make available on its website and (ii) deliver to the Lender and the Trustee as soon as they become available, but in any event within 150 days after the end of each of its financial years, copies of consolidated financial statements of the Group for such financial year audited and prepared in accordance with the Accounting Standards. 9.4.2 NLMK will (i) make available on its website and (ii) deliver to the Lender and the Trustee 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, copies of consolidated financial statements of the Group for such period reviewed and prepared in accordance with the Accounting Standards. 9.4.3 NLMK will ensure that each set of consolidated financial statements delivered by it pursuant to this Clause 9.4 is accompanied by a report or review thereon by or of its auditors (including any accompanying notes). 9.4.4 NLMK will deliver to the Lender and the Trustee on each Interest Payment Date (or if such Interest Payment Date is not a Business Day, on the first succeeding Business Day) or within 14 days of any request of the Lender or the Trustee an Officers’ Certificate stating that, to the best of the knowledge, information and belief of the signatories to such Officers’ Certificate, having made all reasonable enquiries, no Default is continuing as at a date (the ‘‘Certification Date’’) not more than 5 Business Days before the date of such certificate, or, if any Default are, to the knowledge, information and belief of such signatories, continuing as at the Certification Date, specifying such Default.

162 9.4.5 Subject to any restrictions under applicable law or regulations (including without limitation regarding insider dealing or market abuse), NLMK hereby undertakes that it will deliver to the Lender and the Trustee, without undue delay, such additional information as it or the Trustee reasonably requires for the purposes of the discharge of the duties and discretions vested in it under this Loan Agreement or the Trust Deed, including providing, without limitation (a) an Officers’ Certificate certifying (i) those Subsidiaries which are Material Subsidiaries and (ii) as to the Notes held by or on behalf of NLMK or any member of the Group as at the date of such certificate, such Officers’ Certificate to be provided within 14 days of NLMK’s audited and consolidated annual accounts being made available pursuant to Clause 9.4.1 above, and (b) a notification whenever it or any member of the Group purchases and retains Notes for its own account. 9.4.6 NLMK undertakes to furnish to the Lender such information as the Irish Stock Exchange Plc (or any other or further stock exchange or stock exchanges on which the Notes may, from time to time, be listed or admitted to trading) may require in respect of NLMK or the Group as necessary in connection with the listing or admission to trading on such stock exchange of such instruments. 9.4.7 NLMK agrees that any information provided to the Lender pursuant to this Clause 9.4 may also be provided to the Trustee, if so requested by the Trustee, without violating any duty of confidentiality or secrecy that the Lender may owe to NLMK under the laws of Ireland.

10 FATCA Information and Compliance Each party to this Agreement shall, reasonably promptly following a reasonable request by another party, provide such other party with such information or assistance reasonably requested by the other party so as to enable such other party to comply with its obligation under Section 1471(b) of the US Internal Revenue Code of 1986, as amended (the ‘‘Code’’) or otherwise imposed pursuant to Section 1471 through 1474 of the Code and any regulations or agreements thereunder, any intergovernmental agreement between the US and any other jurisdiction which facilitates the implementation of any such law, regulation or interpretation, official interpretations thereof or law implementing an intergovernmental approach thereto, and any legislation, regulations or guidance enacted in any jurisdiction that seeks to implement a similar reporting or withholding regime.

11 Events of Default 11.1 Events of Default If one or more of the following events shall occur and be continuing (each, an ‘‘Event of Default’’), the Lender shall be entitled to exercise the remedies set forth in sub-clause 11.3: 11.1.1 NLMK fails to pay any amount of principal, interest or other amounts payable hereunder within seven Business Days (in the case of principal) or fourteen Business Days (in the case of interest or other amounts) of when the same were due hereunder; 11.1.2 NLMK fails to perform or observe any of its other obligations under this Agreement and except where such default is not capable of remedy, such default remains unremedied for the period of 45 calendar days after written notice thereof, addressed to NLMK by the Lender, has been delivered to NLMK; or 11.1.3 any present or future Indebtedness of NLMK or any Material Subsidiary (i) is not paid upon the later of (a) when due upon final maturity or (b) if there is an originally applicable grace period in respect of such Indebtedness at final maturity, upon the expiration of such originally applicable grace period or (ii) becomes due and payable prior to its specified maturity as a result of an event of default (however described); provided that, either, (x) the individual amount of such Indebtedness that is not so paid (after the expiration of any such originally applicable grace period) or so due and payable equals or exceeds US$50,000,000 or (y) the aggregate amount of such Indebtedness that is not so paid (after the expiration of any such originally applicable grace period) or so due and payable equals or exceeds US$150,000,000 or, in the case of an amount specified in (i) or (ii) above, its US Dollar Equivalent; or

163 11.1.4 an effective resolution is passed by NLMK or an order of a court of competent jurisdiction is made (and has come into force) that NLMK be wound-up or dissolved, in each case otherwise than for the purposes of or pursuant to a reorganisation, consolidation, amalgamation, merger or reconstruction permitted by this Agreement or the terms of which shall have previously been approved in writing by the Lender; or 11.1.5 an effective resolution is passed by a Material Subsidiary or an order of a court of competent jurisdiction is made (and has come into force) for the winding-up or dissolution of any Material Subsidiary except (i) for the purposes of or pursuant to a consolidation or amalgamation with or merger into NLMK or any other Subsidiary (provided such Subsidiary will be a Material Subsidiary following such consolidation, amalgamation or merger), (ii) for the purposes of or pursuant to a reorganisation, consolidation, amalgamation, merger or reconstruction permitted by this Agreement or the terms of which shall have previously been approved in writing by the Lender or (iii) by way of a voluntary winding-up or dissolution and there are surplus assets in any Material Subsidiary and any such surplus assets attributable to NLMK and/or any Material Subsidiary are distributed to NLMK and/or any other Subsidiary (provided such Subsidiary will be a Material Subsidiary following such winding-up or dissolution); or 11.1.6 an encumbrancer takes possession or a receiver is appointed of the whole or a material part of the assets or undertaking of NLMK or any Material Subsidiary and the same has a Material Adverse Effect, if such possession or appointment is not discharged or rescinded within 120 days thereof (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned); or 11.1.7 a distress, execution or seizure before judgment is levied or enforced upon the whole or a material part of the property of NLMK or any Material Subsidiary and the same has a Material Adverse Effect, unless such distress, execution or seizure is stayed or discharged within 120 days of its commencement (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned); or 11.1.8 NLMK or any Material Subsidiary through an official action of the board of directors of NLMK or such Material Subsidiary (as the case may be) announces its inability to pay, or is unable to pay its debts generally as and when they fall due; or 11.1.9 proceedings shall have been initiated against NLMK or any Material Subsidiary for its liquidation, insolvency, bankruptcy or dissolution under any applicable bankruptcy or insolvency law and, in respect of a Material Subsidiary only, such liquidation, insolvency, bankruptcy or dissolution would have a Material Adverse Effect, and such proceedings shall not have been discharged or stayed within a period of 120 days (or such longer period as the Lender, acting reasonably, may consider appropriate in relation to the jurisdiction concerned) unless, and for so long as, the Lender, acting reasonably, is satisfied that it is being contested in good faith; or 11.1.10 NLMK or any Material Subsidiary shall initiate or consent to proceedings for its liquidation, insolvency, bankruptcy or dissolution relating to itself under any applicable bankruptcy, or insolvency law or make a general assignment for the benefit of, or enters into any general composition with, its creditors generally, unless, in respect of a Material Subsidiary only, such liquidation, insolvency, bankruptcy or dissolution would not have a Material Adverse Effect; or 11.1.11 a moratorium is agreed or declared in respect of any Indebtedness of NLMK or any Material Subsidiary and the same has a Material Adverse Effect, or any governmental authority or agency condemns, seizes, compulsorily purchases, transfers or expropriates all or (in the reasonable opinion of the Lender) a material part of the assets, licences or shares of NLMK or any Material Subsidiary and, in respect of a Material Subsidiary only, the same has a Material Adverse Effect; or 11.1.12 any event occurs which under the laws of Ireland, the Russian Federation or, in the case of a Material Subsidiary, the jurisdiction of its incorporation (if different), has an analogous effect to any of the events referred to in Clauses 11.1.4 to 11.1.11 above.

164 11.2 Notice of Default NLMK shall deliver to the Lender and the Trustee, promptly after becoming aware thereof, written notice in the form of an Officers’ Certificate of any event which is a Default, its status and what action, if any, NLMK is taking or proposes to take with respect thereto. 11.3 Default Remedies If any Event of Default shall occur and be continuing, the Lender may, by notice in writing to NLMK, (a) declare the obligations of the Lender hereunder to be immediately terminated, whereupon such obligations shall terminate, and (b) declare the principal outstanding amount of the Loan, together with accrued interest to such date, to be immediately due and payable, whereupon all such amounts shall become immediately due and payable, all without diligence, presentment, demand of payment or protest of any kind, which are expressly waived by NLMK. 11.4 Rights Not Exclusive The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law. 11.5 Right of Set-off If any Event of Default shall occur and be continuing, NLMK authorises the Lender to proceed, to the fullest extent permitted by applicable law, without prior notice, by right of set-off, banker’s lien, counterclaim or otherwise, against any assets of NLMK in any currency that may at any time be in the possession of the Lender, at any branch or office, to the full extent of all amounts due and payable to the Lender hereunder.

12 Indemnity 12.1 Indemnification NLMK undertakes to the Lender, that if the Lender, or any director, officer, employee or agent of the Lender (each an ‘‘indemnified party’’) incurs any loss, liability, claim, demand or damage, charge or expense (including without limitation reasonable legal fees, costs and expenses) (a ‘‘Loss’’) as a result of or in connection with the Loan or this Agreement (or enforcement thereof) (excluding any Loss that is the subject of the undertakings contained in Clauses 8 and 13.8 of this Agreement (it being understood that the Lender may not recover twice in respect of the same Loss) and excluding any taxes (which exclusion shall, for the avoidance of doubt, be without prejudice to the provisions of Clause 13.4 below)), and/or the issue, constitution, sale, listing and/or enforcement of the Notes and/or the Notes being outstanding, NLMK shall pay to the Lender within 5 Business Days of demand an amount equal to such Loss and (without duplication) all documented costs, charges and expenses which it or any indemnified party has reasonably incurred or may reasonably incur in connection with investigating, disputing or defending any such action or claim as such costs, charges and expenses are incurred unless such Loss, cost, charge or expense was either caused by any indemnified party’s gross negligence, bad faith, fraud or wilful misconduct or arises out of a breach of the representations, warranties or undertakings of the Lender contained in this Agreement, the Trust Deed, the Paying Agency Agreement or the Subscription Agreement. The Lender shall not have any duty or obligation whether as fiduciary or trustee for any indemnified party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause. The indemnity set out in this Clause 12.1 shall not apply to: (a) any indirect Loss, or special or punitive damages, or (b) any loss of profits, suffered or incurred by any indemnified party, whether any claim for such loss or damage is based on tort (including negligence), strict liability, contract (including breach of or failure to perform the agreement or the breach of any representation or warranty hereunder, whether express or implied) or otherwise, other than any such indirect Loss, special or punitive damages or loss of profits of a person that is not an indemnified party and which have been awarded against an indemnified party where the indemnified party has complied in full with any requirements imposed upon it by Clause 12.2

165 12.2 Conduct of Claims 12.2.1 NLMK agrees that: (i) if it becomes aware of any claims, actions, suits, proceedings (including any government or regulatory investigation), demands, judgments and awards, joint or several (each a ‘‘Claim’’) relevant for the purpose of Clause 12.1 or any matter which may give rise to a Claim, NLMK shall notify the Lender, on behalf of the indemnified parties thereof and shall provide them with such information and copies of such documents relating to the Claim as the Lender, on behalf of the indemnified parties may reasonably request; and (ii) it will not, without the prior written consent of the Lender, on behalf of the indemnified parties, settle or compromise or consent to the entry into of any judgment with respect to any pending or threatened Claim in respect of which indemnification may be sought under Clause 12.1 (whether or not any indemnified party is an actual or potential party to such Claim) unless such settlement, compromise or consent includes an unconditional release of the indemnified party from all liability arising out of such Claim and does not include a statement as to, or an admission of, fault, culpability or failure to act by or on behalf of any indemnified party. 12.2.2 Promptly after it becomes aware of any Claim made or threatened within the scope of the indemnity set out above, the Lender shall, in strict confidence, notify NLMK of the relevant Claim (indicating the nature of the allegations being made), provided that any failure to so notify shall not relieve NLMK of its obligation to indemnify under Clause 12.1 unless and to the extent that NLMK did not otherwise learn of such action and such failure results in NLMK being materially prejudiced. 12.2.3 Subject to this Clause 12.2.3 NLMK may elect to participate in the defence of any Claim. If it so elects after receipt of the notice referred to in Clause 12.2.2, NLMK may assume the defence of the Claim at its own expense with legal advisers chosen by it and reasonably satisfactory to the indemnified party. Notwithstanding such election, the indemnified parties may employ separate legal advisers and NLMK shall bear the reasonable fees and expenses of such separate legal advisers if (i) NLMK has failed within a reasonable time to retain legal advisers reasonably satisfactory to the Lender; (ii) the Lender shall have reasonably concluded that there may be legal defences available to them that are different from or in addition to those available to NLMK; or (iii) the parties in any such Claim include both NLMK and an indemnified party and representation of all parties by the same legal advisers would be inappropriate due to actual or potential differing interests between them, provided that (unless it would be inappropriate due to actual or potential differing interests among indemnified parties) NLMK shall not be responsible for the fees and expenses of more than one counsel (including local counsel) with respect to all indemnified parties in a Claim for which indemnification is sought without the consent of NLMK. If NLMK assumes the defence of the Claim, NLMK shall not be liable for any fees or expenses of legal advisers of the indemnified parties incurred thereafter in connection with the Claim, except as stated above. 12.2.4 NLMK shall not be liable in respect of any settlement or any action effected without its prior written consent, such consent not to be unreasonably withheld or delayed. 12.2.5 Save as provided in Clause 12.1 and 12.2, indemnified parties other than the Lender will not be entitled directly to enforce their rights against NLMK under this Agreement, under the Contracts (Rights of Third Parties) Act 1999 or otherwise. The Lender (without obligation) has the right to enforce any rights of the indemnified parties on their behalf. NLMK and the Lender may agree to terminate this Agreement or vary any of its terms without the consent of any indemnified party and the Lender will have no responsibility to any indemnified party under or as a result of this Agreement.

166 12.3 Independent Obligation Sub-clause 12.1 constitutes a separate and independent obligation of NLMK from its other obligations under or in connection with this Agreement and shall not affect, or be construed to affect, any other provision of this Agreement. 12.4 Evidence of Loss A certificate of the Lender setting forth the amount of Loss described in Clause 12.1 and specifying in full detail the basis therefor shall, in the absence of manifest error be prima facie evidence of the amount of such losses, expenses and liabilities. 12.5 Survival The obligations of NLMK pursuant to Clause 12.1 shall survive the execution and delivery of this Agreement, the drawdown of the Facility and the repayment of the Loan and all payments due thereunder, in each case by NLMK.

13 General 13.1 Evidence of Debt The entries made by the Lender in the accounts maintained by the Lender in accordance with its usual practice and evidencing the amounts from time to time lent by and owing to it hereunder shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of NLMK’s obligations recorded herein. 13.2 Stamp Duties NLMK shall pay all stamp, registration and documentary taxes or duties (if any) imposed on or payable by NLMK or the Lender in the United Kingdom, the Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement or admissibility in evidence of this Agreement. NLMK shall indemnify the Lender against any and all costs and expenses which may be incurred or suffered by the Lender with respect to, or resulting from, delay or failure by NLMK to comply with its obligation under this Clause 13.2 to pay such taxes or similar charges. 13.3 VAT Where a sum is payable under this Agreement to the Lender, NLMK will, in addition, pay in respect of VAT: 13.3.1 where the payment (or any part of it) constitutes the consideration (or any part thereof) for any supply of services made to NLMK, such amounts as equal any VAT properly chargeable thereon on receipt of a valid VAT invoice; 13.3.2 where the payment is to reimburse or indemnify the Lender for any cost, charge or expense incurred by it (except where the payment falls within sub-clause 13.3.3 below), such amount as equals any VAT, which the Lender represents in good faith is not recoverable by it or by the representative member of any VAT group of which it is a member, charged to or incurred by the Lender in respect of any cost, charge or expense which gives rise to or is reflected in the payment on production of relevant invoices or equivalent evidence of such payment having been made; and 13.3.3 where the payment is in respect of costs or expenses incurred by the Lender as agent for NLMK and except where section 47(3) of the United Kingdom Value Added Tax Act 1994 (or any equivalent legislation in a jurisdiction outside the United Kingdom) applies, such amount as equals the amount included in the costs or expenses in respect of VAT and in such case the Lender shall use reasonable efforts to procure that the actual supplier of goods or services which the Lender received as agent issues a valid VAT invoice directly to NLMK in respect of the relevant supply. 13.4 Payment Gross-Up Where any payment is made under this Agreement to the Lender pursuant to an indemnity, compensation or reimbursement provision, the sum payable shall take into account (i) any charge to Taxation in the hands of the Lender in respect of such payment and (ii) any tax relief available to

167 the Lender in respect of the matter giving rise to the payment and which may be offset against the charge to Taxation, such that the Lender shall be left with a sum equal to the sum that it would have retained in the absence of such a charge to Taxation and such tax relief. 13.5 Waivers No failure to exercise and no delay in exercising, on the part of the Lender or NLMK, any right, power or privilege hereunder and no course of dealing between NLMK and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights, or remedies provided by applicable law. 13.6 Notices 13.6.1 Method Each communication under this Agreement shall be made by fax or otherwise in writing (by hand, courier or pre-paid express delivery service). Each communication or document to be delivered to any party under this Agreement shall be sent to that party at the fax number or postal address, and marked for the attention of the person (if any), from time to time designated by that party to each other party for the purpose of this Agreement. The initial fax number, postal address and person so designated by the parties under this Agreement are set out below: if to NLMK: Address 2, pl. Metallurgov, Lipetsk 348040, Russia Fax: +7 4742 44 40 80 Attention: Nelly Mescheryakova, Director for Corporate Finance Ksenia Sergeeva, Head of Debt Financing Alexander Kravchenko, Head of Legal Department E-mail: [email protected] [email protected] [email protected] if to the Lender: Address Pinnacle 2 EastPoint Business Park Dublin 3 Ireland Fax: +353 (1) 680 6050 Attention: The Directors E-mail: [email protected] or to such other address or fax number as any party may hereafter specify in writing to the other. 13.6.2 Deemed Receipt Any communication from any party to any other under this Agreement shall be effective, (if by fax) when the relevant delivery receipt is received by the sender and, (if in writing) when delivered; provided that any communication which is received (or deemed to take effect in accordance with the foregoing) outside business hours or on a non-business day in the place of receipt shall be deemed to take effect at the opening of business on the next following business day in such place. Any communication delivered to any party under this Agreement which is to be sent by fax will be written legal evidence.

168 13.7 Assignment 13.7.1 Subject to Clauses 13.7.2 and 13.7.3, this Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a party’s rights under this Agreement. Any reference in this Agreement to any party shall be construed accordingly and, in particular, references to the exercise of any rights, benefits and discretions or the making of any determination (including forming an opinion) by, and the delivery of notices, certificates and information to, the Lender, shall include references to the exercise of any such rights, benefits or discretions by or the making of such determination (including forming an opinion) by the Trustee (as Trustee). Notwithstanding the foregoing, the Trustee shall not be entitled to participate in any determinations by, and the delivery of notices, certificates and information to, the Lender or any discussions between the Lender and NLMK or any agreements of the Lender or NLMK, pursuant to Clauses 6.4, 6.5 or 8. 13.7.2 NLMK shall not assign or transfer all or any part of its rights or obligations hereunder to any other party or person. 13.7.3 Subject to the provisions of Clause 17 of the Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights, obligations and benefits under this Agreement other than the Reserved Rights except that the Lender may charge by way of first fixed charge in favour of the Trustee (as Trustee) certain of the Lender’s rights and benefits under this Agreement and assign to the Trustee certain rights, interests and benefits under this Agreement, in each case, as set out in Clause 4 of the Trust Deed. 13.8 Currency Indemnity To the fullest extent permitted by law, the obligation of NLMK in respect of any amount due in Dollars under this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in Dollars that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any reasonable premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in Dollars that may be so purchased for any reason falls short of the amount originally due (the ‘‘Due Amount’’), NLMK hereby agrees to indemnify and hold harmless the Lender against any deficiency in Dollars. Any obligation of NLMK not discharged by payment in Dollars shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect. If the amount in Dollars that may be purchased exceeds that Due Amount the Lender shall promptly pay the amount of the excess to NLMK. 13.9 Contracts (Rights of Third Parties) Act 1999 Except as otherwise specifically provided herein and other than in the case of the Trustee who shall have rights under the Contracts (Rights of Third Parties) Act 1999 under this Agreement, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. This Agreement may be terminated and any term may be amended or waived without the consent of any such person so expressly provided for under this Agreement. 13.10 Governing Law This Agreement and any non-contractual obligations arising out of or in connection with it are governed by and shall be construed in accordance with English law. 13.11 Jurisdiction The parties irrevocably agree that any dispute arising out of or in connection with this Agreement, including a dispute as to the formation, validity, existence breach, enforceability, applicability or termination of this Agreement and/or this Clause 13.11 or the consequences of its or their nullity (a ‘‘Dispute’’), shall be referred to and finally resolved by arbitration seated in London, England. The arbitration shall be conducted in the English language by three arbitrators, in accordance with the rules set down by the LCIA (formerly the London Court of International Arbitration (‘‘LCIA Rules’’) in effect at the time of the arbitration, except as they may be modified herein of by mutual

169 agreement of the parties. The LCIA Rules are deemed to be incorporated by reference into this Clause. The claimant shall nominate an arbitrator in its request for arbitration, and the respondent shall nominate an arbitrator within 30 days of receipt of the request for arbitration. The two arbitrators so nominated shall jointly nominate a third arbitrator within 30 days of the nomination of the second arbitrator. The third arbitrator shall be the Chairman of the tribunal. If any of the three arbitrators is not nominated within the time periods prescribed above, any party may request that the LCIA chooses and appoints that arbitrator. The arbitration award shall be final and binding on the parties. The parties agree to exclude the jurisdiction of the English court under Sections 45 and 69 of the Arbitration Act 1996. 13.12 Waiver of Immunity To the extent that NLMK or the Lender may now or hereafter be entitled, in any jurisdiction in which any legal action or proceeding may at any time be commenced with respect to this Agreement, to claim for itself or any of its undertaking, properties, assets or revenues present or future any immunity (sovereign or otherwise) from suit, jurisdiction of any court, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or award or from set-off, banker’s lien, counterclaim or any other legal process or remedy with respect to its obligations under this Agreement and/or to the extent that in any such jurisdiction there may be attributed to NLMK or the Lender any such immunity (whether or not claimed), NLMK and the Lender hereby irrevocably agree not to claim, and hereby waive, any such immunity. 13.13 Severability In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 13.14 Counterparts This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement. 13.15 Language The language which governs the interpretation of this Agreement is the English language. 13.16 Amendments Except as otherwise provided by its terms, this Agreement may not be varied except by an agreement in writing signed by the parties. 13.17 Partial Invalidity The illegality, invalidity or unenforceability to any extent of any provision of this Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision. 13.18 Prescription In the event that any Notes become void pursuant to Condition 10 of the Notes, the Lender shall forthwith repay to NLMK the principal amount of such Notes subject to the Lender having previously received from NLMK, and being in possession of, a corresponding amount in respect of principal pursuant to this Agreement. 13.19 Limited Recourse and Non-Petition NLMK hereby agrees that, notwithstanding any other provisions hereof, it shall have recourse in respect of any claim against the Lender only to sums in respect of principal, interest or other amounts (if any), as the case may be, received by or for the account of the Lender pursuant to this Agreement (after deduction or withholding of such taxes as may be required to be made by the Lender by law in respect of each such sum or in respect of the Notes and for which the Lender has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Lender) in respect thereof pursuant to this Agreement) (the ‘‘Lender Assets’’), subject always to (i) the Security Interests and (ii) to the fact that any claims of the

170 Managers (as defined in the Subscription Agreement) shall rank in priority to any claims of NLMK hereunder and that any such claim by any and all such Managers or NLMK shall be reduced pro rata so that the total of all such claims does not exceed the aggregate value of the Lender Assets after meeting claims secured on them. Neither NLMK nor any person acting on behalf of it shall be entitled to take any further steps against the Lender to recover any further sums and no debt shall be owed by the Lender to NLMK in respect of any such further sum. In particular, neither NLMK nor any other person acting on behalf of it shall be entitled at any time to institute against the Lender, or join in any institution against the Lender of any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Lender relating to the Notes or otherwise owed to the Lender’s creditors, save for lodging a claim in the liquidation of the Lender which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Lender. No party to this Agreement shall have any recourse against any director, shareholder, or officer of the Lender in respect of any obligations, covenants or agreement entered into or made by the Lender in respect of this Agreement, except to the extent that any such person acts in bad faith or is negligent or is wilfully in default in the context of its obligations. The provisions of this Clause 13.19 shall survive the termination of this Agreement.

171 TERMS AND CONDITIONS OF THE NOTES The following is the text of the Terms and Conditions of the Notes, which contains summaries of certain provisions of the Trust Deed and which (subject to completion and amendment) will be attached to the Notes in definitive form (if any) and (subject to the provisions thereof) will apply to the Global Certificates. The US$700,000,000 4.50 per cent. Loan Participation Notes due 2023 (the ‘‘Notes’’ which expression includes any further Notes issued pursuant to Condition 14 and forming a single series herewith), without coupons, of Steel Funding Limited (the ‘‘Issuer’’ which expression shall include any entity substituted for the Issuer in accordance with the Trust Deed) are constituted by, are subject to, and have the benefit of a trust deed (the ‘‘Trust Deed’’, which expression includes such trust deed as from time to time modified in accordance with the provisions therein contained and any deed or other document expressed to be supplemental thereto, as from time to time so modified) dated 15 June 2016 and made between the Issuer and Deutsche Trustee Company Limited (the ‘‘Trustee’’, which expression shall include any successor as trustee) as trustee for the Noteholders (as defined below). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing a US$700,000,000 loan (the ‘‘Loan’’) to Novolipetsk Steel (‘‘NLMK’’). The terms of the Loan are set forth in a loan agreement (the ‘‘Loan Agreement’’) dated 10 June 2016 between the Issuer and NLMK. In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligations of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amounts in respect of the Reserved Rights (as defined in the Trust Deed). Noteholders must therefore rely on the covenant to pay under the Loan Agreement and the credit and financial standing of NLMK. Noteholders shall have no recourse (direct or indirect) to any other asset of the Issuer. The Issuer has charged, by way of first fixed charge in favour of the Trustee for the benefit of itself and the Noteholders, certain of its rights and interests as lender under the Loan Agreement and under the Account (as defined in the Trust Deed) as security for its payment obligations in respect of the Notes and under the Trust Deed (the ‘‘Charge’’) and has assigned certain other rights under the Loan Agreement to the Trustee (the ‘‘Assigned Rights’’ and, together with the Charge, the ‘‘Security Interests’’), in each case excluding the Reserved Rights. In certain circumstances, the Trustee can (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) be required by Noteholders holding in aggregate at least 25 per cent. of the principal amount of the Notes outstanding (as defined in the Trust Deed) or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising under the Security Interests). Payments in respect of the Notes will be made (subject to the receipt of the relevant funds from NLMK under the Loan Agreement) pursuant to a paying agency agreement (the ‘‘Paying Agency Agreement’’) dated 10 June 2016 and made between the Issuer, NLMK, Deutsche Bank AG, London Branch as the principal paying agent, and a transfer agent (the ‘‘Principal Paying Agent’’, the ‘‘Regulation S Transfer Agent’’, which expressions shall include any successors), Deutsche Bank Luxembourg S.A. as the Regulation S registrar (the ‘‘Regulation S Registrar’’, which expression shall include any successors), Deutsche Bank Trust Company Americas as the Rule 144A registrar, the US paying agent and a transfer agent (the ‘‘Rule 144A Registrar’’ (and together with the Regulation S Registrar, the ‘‘Registrars’’ and each a ‘‘Registrar’’)), the ‘‘US Paying Agent’’ and the ‘‘Rule 144A Transfer Agent’’ (and together with the Regulation S Transfer Agent, the ‘‘Transfer Agents’’ and each a ‘‘Transfer Agent’’), which expressions shall include any successors, and the U.S Paying Agent together with the Principal Paying Agent, the ‘‘Paying Agents’’) and the Trustee. References herein to the ‘‘Agents’’ are to the Registrars, the Paying Agents and the Transfer Agents and any reference to an ‘‘Agent’’ is to any one of them. Copies of the Trust Deed, the Loan Agreement and the Paying Agency Agreement are available for inspection during normal business hours at (i) the registered office of the Trustee being, at the date hereof, at Winchester House, 1 Great Winchester Street, London EC2N 2DB; (ii) the registered office of the Issuer being, at the date hereof, Pinnacle 2, Eastpoint Business Park, Dublin 3, Ireland; and (iii) at the specified office of the Principal Paying Agent, the initial specified office of which is set out below.

172 Certain provisions of these terms and conditions (the ‘‘Conditions’’) are summaries or restatements of, and are subject to, the detailed provisions of the Trust Deed, the Loan Agreement (the form of which is scheduled to and incorporated in the Trust Deed) and the Paying Agency Agreement. 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 are deemed to have notice of all the provisions of the Loan Agreement and the Paying Agency Agreement that are applicable to them. Unless otherwise stated, terms not defined herein shall have the meanings given to them in the Trust Deed.

1 Status The Notes are limited recourse secured obligations of the Issuer. The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum to the extent that the Issuer has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Issuer) in respect thereof) by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of the Reserved Rights. The Trust Deed provides that payments in respect of the Notes equal to the sums actually received by or for the account of the Issuer by way of principal, interest or additional amounts (if any) pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights will be made pro rata among all Noteholders (subject to Condition 7), on the Business Day following the date of, and in the currency of, and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. As provided therein, the Issuer shall be under no obligation to exercise in favour of the Noteholders any rights of set-off or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and NLMK. Noteholders have notice of, and have accepted, these Conditions and the contents of the Trust Deed, the Paying Agency Agreement and the Loan Agreement. It is hereby expressly provided that, and Noteholders are deemed to have accepted that: (a) neither the Issuer nor the Trustee makes any representation or warranty in respect of, or shall at any time have any responsibility for, or, (in the case of the Issuer) save as otherwise expressly provided in the Trust Deed, in Condition 1(f) below or in the Loan Agreement (in the case of the Issuer), any liability or obligation in respect of the performance and observance by NLMK of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest (or any additional amounts) due or to become due from NLMK under the Loan Agreement save that nothing in this Condition shall absolve the Trustee from responsibility and liability for performance of its trusts, duties and obligations pursuant to, and subject to the terms of, the Trust Deed; (b) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial or otherwise), creditworthiness, affairs, status, nature or prospects of NLMK; (c) neither the Issuer nor the Trustee shall at any time be liable for any representation or warranty or any act, default or omission of NLMK under or in respect of the Loan Agreement; (d) neither the Issuer nor the Trustee shall at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Agents of their respective obligations under the Paying Agency Agreement; (e) the payment of principal, interest and other amounts, if any, under, and performance of the terms of, the Notes depend upon performance by NLMK of its obligations under the Loan Agreement, and NLMK’s credit and financial standing; (f) the Issuer and the Trustee shall be entitled to rely on delivery to them of Officers’ Certificates (as defined in the Trust Deed) and/or any other certificates (whether or not addressed to the Issuer

173 or the Trustee) from NLMK as a means of monitoring whether NLMK is complying with its obligations under the Loan Agreement or as to the identity of NLMK’s Material Subsidiaries (as defined in the Loan Agreement) and shall not otherwise be responsible for investigating any aspect of NLMK’s performance in relation thereto and, (in the case of the Issuer) subject as further provided in the Trust Deed, neither the Issuer as lender under the Loan Agreement nor the Trustee will be liable for any failure to make the usual or any investigations which might be made by a lender or a security holder (as applicable) in relation to the property which is subject to the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the property which is subject to the Security Interests whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will the Trustee have any liability for the enforceability of the security created by the Security Interests whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security; the Trustee has no responsibility for the value of such security; (g) neither the Trustee nor the Issuer shall at any time be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its obligations or duties or the exercise of any right, power, authority or discretion pursuant to these Conditions until the Issuer, or the Trustee, as the case may be, has received an indemnity and/or security to its satisfaction and/or the funds that are necessary to cover the costs and expenses in connection with such performance or exercise, or has been (in its sole discretion) sufficiently assured that it will receive such funds; and (h) the Issuer will not be liable to make any payments to compensate for any withholding or deduction required to be made by or on behalf of the Issuer in respect of any payment relating to the Notes, or for any payment for or on account of tax required to be made by the Issuer on or in relation to any sum received by it under the Loan Agreement, save to the extent that it has received additional amounts under the Loan Agreement in respect of such withholding or deduction or payment. The Issuer shall not be obliged to take any actions or measures as regards such deduction or withholding or payment, other than those set out in this context in the Loan Agreement. The Trustee shall have no liability in respect of any such deduction, withholding or payment. Under the Trust Deed, the obligations of the Issuer in respect of the Notes rank pari passu and rateably without any preference among themselves. In the event that the payments under the Loan Agreement are made by NLMK to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent, they will pro tanto, to the extent of such payment, satisfy the obligations of the Issuer in respect of the Notes, unless, upon the due presentation of a Note, payment is improperly withheld or refused. Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer’s right under or in respect of the Loan Agreement or the Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce the Loan Agreement or direct recourse to NLMK except through action by the Trustee pursuant to the relevant Security Interests granted to the Trustee in the Trust Deed. Neither the Issuer nor, following the enforcement of the Security Interests created in the Trust Deed, the Trustee shall be required to take any steps, actions or proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured and/or prefunded by the Noteholders to its satisfaction. As provided in the Trust Deed, and notwithstanding any other provision hereof, the obligations of the Issuer are solely to make payments of amounts in aggregate equal to each sum actually received by or for the account of the Issuer pursuant to the Loan Agreement from NLMK in respect of principal, interest, additional amounts (if any), as the case may be, (less any amount in respect of the Reserved Rights) (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum or in respect of the Notes), the right to which will be subject to the Security Interests as provided in the Trust Deed. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received or recovered by or on behalf of the Issuer or the Trustee (following a Relevant Event (as defined in the Trust Deed) or (if applicable) an Event of Default (as defined in the Loan Agreement)). Noteholders shall look solely

174 to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer’s other assets (other than those subject to the Security Interests) in respect thereof. Noteholders must therefore rely upon the covenant to pay under the Loan Agreement and the credit and financial standing of NLMK and no other assets of the Issuer (other than those subject to the Security Interests) will be available to the Noteholders. Notwithstanding any other provisions of these Conditions and the provisions in the Trust Deed, the Trustee and the Noteholders shall have recourse only to the Security Interests in accordance with Clause 4 of the Trust Deed. After realisation of the security which has become enforceable and distribution of the proceeds in accordance with Clause 8 of the Trust Deed, the obligations of the Issuer with respect to the Trustee and the Noteholders in respect of the Notes shall be satisfied and none of the foregoing parties may take any further steps against the Issuer to recover any further sums in respect thereof and the right to receive any such sums shall be extinguished. In particular, none of the Noteholders, the Trustee, nor any other person acting on behalf of any of them shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors or the Trustee, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer. Neither the Noteholders nor the Trustee shall have any recourse against any director, shareholder, or officer of the Issuer in respect of any representations, warranties, obligations, covenants or agreements entered into or made by the Issuer in respect of the Notes except to the extent that any such person acts in bad faith or is negligent or is wilfully in default in the context of its obligations.

2 Form, Denomination, Register and Transfers 2.1 Form and denomination: Notes are in registered form, in the denominations of US$200,000 or integral multiples of US$1,000 in excess thereof (each an ‘‘Authorised Holding’’), without coupons attached. The Notes will be initially issued in global, fully registered form, and represented by (i) a Rule 144A Global Certificate (the ‘‘Rule 144A Global Certificate’’), interests in which are to be sold to qualified institutional buyers (each a ‘‘QIB’’) within the meaning of, and pursuant to, Rule 144A (‘‘Rule 144A’’) under the Securities Act and (ii) a Regulation S Global Certificate (the ‘‘Regulation S Global Certificate’’ and, together with the Rule 144A Global Certificate, the ‘‘Global Certificates’’), interests in which are to be offered outside the United States to non-US persons within the meaning of, and pursuant to, Regulation S under the Securities Act (‘‘Regulation S’’) which will each be exchangeable for Notes in definitive, fully registered form in the limited circumstances specified in the Global Certificates and the Paying Agency Agreement. 2.2 Register, Title and Transfers: (a) Register The Registrar will maintain a register (the ‘‘Register’’) in respect of the Notes in accordance with the provisions of the Paying 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. A definitive certificate (a ‘‘Definitive Certificate’’) will be issued to each Noteholder in respect of its registered holding of Notes. (b) Title Title to the Notes will pass by and upon registration in the Register. The holder of each Note shall (except as otherwise required by law or as ordered by a court of competent jurisdiction) 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 Definitive Certificate relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Definitive Certificate) and no person shall be liable for so treating such holder.

175 (c) Transfers Subject to the terms of the Paying Agency Agreement and paragraphs (d), (e), (f) and (g) of this Condition 2.2, a Note may be transferred upon surrender of the relevant Definitive Certificate, with the endorsed form of transfer duly completed, at the specified office of the Registrar or at the specified office of the Transfer Agent, together with such evidence as the Registrar or the Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided however, that a Note may not be transferred unless the principal amount of the Notes transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of the Notes not transferred are Authorised Holdings. Where not all the Notes represented by the surrendered Definitive Certificates are the subject of the transfer, a new Definitive Certificate in respect of the balance of the Notes not transferred will be issued to the transferor. (d) Registration and delivery of Definitive Certificates Subject to paragraph (e) of this Condition 2.2, within five business days of the surrender of a Definitive Certificate in accordance with paragraph (c) above, the Registrar will register the transfer in question and deliver a new Definitive Certificate to each relevant holder at its specified office or (at the request and risk of 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 commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar has its specified office. In the case of the transfer of only a part of the Notes, a new Definitive Certificate in respect of the balance of the Notes not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor. (e) No charge The transfer of Notes will be effected without charge to the holder or transferee thereof but against such indemnity as the Registrar or the Transfer Agent, as applicable, may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. (f) Closed periods Noteholders may not require transfers to be registered (i) during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes and (ii) after any Note has been called for redemption. (g) 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 Paying 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 to any Noteholder who requests in writing a copy of such regulations and who can confirm they are a Noteholder to the satisfaction of the Registrar and a copy of such regulations will also be available at the specified office of the Registrar.

3 Restrictive Covenant As provided in the Trust Deed, so long as any of the Notes remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution or a Written Resolution (each as defined in the Trust Deed), agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, or agree any novation, assignment, rescission, cancellation or termination of the terms of the Loan Agreement (other than in respect of Reserved Rights) and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement, as the case may be. Any such amendment, modification, waiver, authorisation, novation, assignment, recission, cancellation or termination made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition 13.

176 Save as provided above, so long as any Note remains outstanding, the Issuer, without the prior written consent of the Trustee or an Extraordinary Resolution or a Written Resolution, shall not, inter alia, incur any other indebtedness for borrowed money other than the issue of Notes and any further notes in accordance with Condition 14 or the issue of notes on a limited recourse basis, provided that such notes are not secured on assets of the Issuer over which the Security Interests have been created or the Issuer’s share capital, engage in any business (other than entering into any agreements related to the Notes or any other issue of notes as aforesaid (including any repurchase or exchange thereof), activities reasonably required to maintain its existence or comply with any applicable law, regulation, judgment or its constitutional documents and performing any acts incidental to or necessary in connection with the Notes or any other issue of notes as aforesaid or such related agreements (including the holding of any security in connection with any of the foregoing), making the Loan to NLMK pursuant to the Loan Agreement or any future loans to NLMK in connection with the issue of notes as aforesaid and performing any act or executing any document incidental to or necessary in connection therewith), declare any dividends, have any subsidiaries or employees, purchase, own, lease or otherwise acquire any real property, consolidate or merge with any other person or convey or transfer its properties or assets substantially as an entirety (to the extent the same is within the control of the Issuer) to any person (otherwise than as contemplated in these Conditions and the Trust Deed), issue any further shares (other than those required to convert the Issuer’s status to that of a public limited company or as are in issue as at the date of the Trust Deed) (to the extent the same is within the control of the Issuer) or make any distribution to its shareholders, give any guarantee or assume any other liability (other than in connection with any act or agreement permitted pursuant to this Condition 3), or, unless required under the laws of Ireland, petition for any winding-up or bankruptcy.

4 Interest On each Interest Payment Date (or such later date as amounts equivalent to amounts of interest due on such date are received) the Issuer shall account to the Noteholders for an amount equal to the amount of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement which interest under the Loan is payable at a rate of 4.50 per cent. per annum calculated on the outstanding principal amount of the Loan from time to time as set out in Clause 4 of the Loan Agreement. Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall accrue (after as well as before judgment) at the rate of interest and until the time set out in Clause 4 of the Loan Agreement. In these Conditions, ‘‘Interest Payment Date’’ means 15 June and 15 December of each year commencing on 15 December 2016.

5 Redemption and Purchase (a) Final Redemption Unless previously prepaid or repaid pursuant to the terms of the Loan Agreement, NLMK will be required to repay the Loan on 15 June 2023 (the ‘‘Repayment Date’’) and, subject to such repayment, as set forth in the Loan Agreement, all the Notes then outstanding will on the Repayment Date be redeemed or repaid by the Issuer at 100 per cent. of the principal amount thereof together with accrued interest. (b) Early Redemption Under the Loan Agreement: (i) NLMK may, in the circumstances set out in Clause 5.2 of the Loan Agreement prepay the Loan in whole but not in part; or (ii) NLMK may be required to prepay the Loan in whole but not in part in the circumstances set out in Clause 5.3 of the Loan Agreement. If the Loan should become repayable pursuant to the terms of the Loan Agreement prior to the Repayment Date, as set forth in the Loan Agreement, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at 100 per cent. of the principal amount together with accrued interest and (subject to the Loan being repaid together with accrued interest and such

177 amounts actually being received by the Issuer) shall be redeemed or repaid by the Issuer on the date specified pursuant to the Loan Agreement and the Issuer will endeavour to give not less than 14 days’ notice thereof to the Trustee and the Noteholders in accordance with Condition 13. (c) Purchases The Loan Agreement provides that the Issuer, NLMK or any member of the Group (as defined in the Loan Agreement) may, among other things, purchase Notes from time to time, in the open market or by tender or by private agreement at any price. Such Notes may, at the option of the Issuer, NLMK or such member of the Group, be held, reissued, resold or, in the case of NLMK or such member of the Group, delivered to the Issuer together with a request for the Issuer to present such Notes to the Registrar for cancellation on not less than 30 days notice, whereupon the Issuer shall, pursuant to the Paying Agency Agreement, instruct the Registrar, subject to the satisfaction of certain conditions set out in the Loan Agreement, to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by NLMK in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon, and no further payment shall be made or required to be made by the Issuer in respect of such Notes. The Issuer may compel any beneficial owner of Rule 144A Certificates to certify that it is a qualified institutional buyer (as defined in Rule 144A under the Securities Act) and a qualified purchaser (as defined in Section 2(a)(51)(A) of the US Investment Company Act of 1940) and may compel any such beneficial owner to sell its interest in such Rule 144A Certificates, or may sell such interest on behalf of such holder, if such holder is a US person that is not a qualified institutional buyer (as defined in Rule 144A under the Securities Act) and a qualified purchaser (as defined in Section 2(a)(51)(A) of the US Investment Company Act of 1940).

6 Payments (a) Principal and interest Payment of principal and interest in respect of the Notes will be made to the person(s) shown as the holder in the Register at the opening of business on the Record Date (as defined below). Payments of all amounts other than as provided in this Condition 6(a) will be made as provided in these Conditions. (b) Payments Each payment in respect of the Notes pursuant to Condition 6(a) shall be made by US Dollar cheque drawn on, or , upon request by a Noteholder to the specified office of the Principal Paying Agent not later than the relevant Record Date, by transfer to a US dollar account maintained by or on behalf of the payee with a bank in New York City and (in the case of interest payable on redemption) upon surrender of the relevant Definitive Certificates at the specified office of the Principal Paying Agent or at the specified office of a Transfer Agent. Payment instructions or US Dollar cheque, as the case may be, (for value on the due date or, if that is not a business day (as defined in (d) below), for value the first following day which is a business day) will be initiated or drawn, as the case may be, on the business day preceding the due date for payment (for value the next business day). Where payment in respect of a Note is to be made by cheque, the cheque will be, at the expense of the Issuer, mailed to the address shown as the address of the Noteholder in the Register at the opening of business on the relevant Record Date. (c) Payments subject to fiscal law 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. (d) Payments on business day A Note may only be presented for payment on a day which is a business day in the place of presentation. If the due date for payment of interest or principal is not a business day, the holder of a Note shall not be entitled to payment of the amount due until the next following business day and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, ‘‘business day’’ means a day on which (i) the London interbank market is open for dealings between banks generally and (ii) if on that day a payment is to be made hereunder,

178 commercial banks generally are open for business in Dublin, New York City and in the city where the specified office of the Principal Paying Agent is located. (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 each payment (the ‘‘Record Date’’). (f) Agents The Paying Agency Agreement provides that the Issuer may at any time, with the prior written approval of the Trustee appoint a successor Registrar or Principal Paying Agent and/or additional or successor paying agents or transfer agents provided that for so long as the Notes are listed on the Irish Stock Exchange Limited (the ‘‘Stock Exchange’’), the Issuer will use its best efforts to ensure that it maintains (i) a Principal Paying Agent, (ii) a Registrar, (iii) a Transfer Agent, and (iv) such other agents as may be required by any stock exchange on which the Notes may be listed. Any such appointment of successor or other Agents shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 days’ and not less than 30 days’ notice thereof shall have been given to the continuing Agents, NLMK, the Trustee and to the Noteholders in accordance with Condition 13. In acting under the Paying Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders. (g) Payments by NLMK Save as directed by the Trustee at any time after the Security Interests created under the Trust Deed become enforceable, the Issuer will require NLMK to make all payments of principal, interest and additional amounts (if any) to be made pursuant to the Loan Agreement to an account in the name of the Issuer with the Principal Paying Agent. Pursuant to the Charge, the Issuer will charge by way of first fixed charge, all its rights, title and interest in and to all sums of money (with the exception of sums relating to the Reserved Rights) then or in the future so deposited in such account and the debts represented thereby to the Trustee for the benefit of the Trustee and the Noteholders. (h) Currency other than US Dollars In respect of the Issuer’s obligations under Conditions 4, 5, 6 and 7, and subject to the following sentence, if the Issuer receives any amount under the Loan Agreement in a currency other than US Dollars, the Issuer’s obligation under the relevant Condition shall be fully satisfied by paying such sum (after deducting any costs of exchange) as the Issuer receives upon conversion of such sum into US Dollars in accordance with customary banking practice in the spot market on the business day immediately following the day on which such sum is received by the Issuer, provided that the Issuer shall use its best efforts to procure payment of any amounts due from NLMK pursuant to Clause 12.8 of the Loan Agreement. If the Issuer receives any payment from NLMK pursuant to Clause 12.8 of the Loan Agreement with respect to amounts due under the Notes, the Issuer shall pay such sum to the Noteholders in accordance with this Condition 6.

7 Taxation All payments in respect of the Notes by or on behalf of the Issuer shall be made without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied, collected, withheld or assessed by or on behalf of any authority having the power to tax, unless the deduction or withholding of such taxes or duties is required by law or regulation. In the event any such taxes, duties, assessments or governmental charges of whatever nature are imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax, the Issuer shall, except as provided below, make such additional payments as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required. However, the Issuer shall only be required to make such additional payments to the extent and at such time as it shall receive equivalent sums from NLMK under the Loan Agreement. To the

179 extent that the Issuer does not receive any such equivalent sum, the Issuer shall account to the relevant Noteholder for an additional amount equivalent to a pro rata proportion of such additional amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement on the date of, in the currency of, and subject to any conditions attaching to the payment of such additional amount to the Issuer provided that no such additional amount will be payable: (i) to a Noteholder who (A) is liable for such taxes or duties by reason of his having some connection with Ireland other than the mere holding of such Notes or the receipt of payments in respect thereof or (B) is able to avoid such withholding or deduction by satisfying any statutory requirements or by making a declaration of non-residence or other claim for exemption to the tax authority; (ii) in respect of a Note presented for payment of principal more than 30 days after the Relevant Date except to the extent that such additional payment would have been payable if such Note had been presented for payment on such thirtieth day; (iii) in respect of a Note held by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying Agent in a Member State of the European Union; (iv) where such withholding or deduction is required pursuant to Section 1471(b) of the US Internal Revenue Code of 1986, as amended (the ‘‘Code’’) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version), any current or future regulations or agreements (including any intergovernmental agreements) thereunder, official interpretations thereof or any law, regulation or official interpretation implementing any of the foregoing; or (v) any combination of the above. As used herein, ‘‘Relevant Date’’ means the later of (i) the date on which the equivalent payment under the Loan Agreement first becomes due and (ii) if the full amount payable by NLMK corresponding to such payment has not been received by, or for the account of, the Issuer pursuant to the Loan Agreement on or prior to such date, the date on which such full amount shall have been so received and notice to that effect shall have been duly given to the Noteholders by or on behalf of the Issuer in accordance with Condition 13. Any reference herein or in the Trust Deed to payments in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable in accordance with the Trust Deed and this Condition 7 or any undertaking given in addition thereto or in substitution therefor pursuant to the Trust Deed. If the Issuer becomes subject to any taxing jurisdiction other than or in addition to Ireland, references in these Conditions to Ireland shall be construed as references to Ireland and/or such other jurisdiction.

8 Enforcement The Trust Deed provides that only the Trustee may pursue the remedies under the general law, the Trust Deed or the Notes to enforce the rights of the Noteholders and no Noteholder will be entitled to pursue such remedies unless the Trustee (having become bound to do so in accordance with the terms of the Trust Deed) fails to do so within a reasonable period and such failure is continuing. The Trust Deed also provides that, in the case of an Event of Default that is continuing, or of a Relevant Event, the Trustee may, and shall, if requested in writing to do so by Noteholders holding at least 25 per cent. in principal amount of the Notes outstanding, or if directed to do so by an Extraordinary Resolution, and, in any such case, subject to it being secured and/or indemnified and/or prefunded to its satisfaction, institute such steps (subject to the non-petition covenant in Condition 1), actions or proceedings as it may think fit to enforce the rights of the Noteholders and the provisions of the Trust Deed, including to declare all amounts payable under the Loan Agreement by NLMK to be immediately due and payable in certain circumstances (in the case of an Event of Default), or exercise any rights under the Security Interests created in the Trust Deed in favour of the Trustee (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default and a declaration as provided herein, the Notes will be redeemed or repaid at their principal amount together with accrued interest thereon and thereupon shall cease to be outstanding.

180 9 Meetings of Noteholders; Modification of Notes, Trust Deed and Loan Agreement; Waiver; Substitution of the Issuer (a) Meeting of Noteholders The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes, the Loan Agreement or the Trust Deed. Noteholders will be entitled to one vote per US$1,000 in principal amount of Notes held by them. Such a meeting may be convened by the Issuer, NLMK or the Trustee and shall be convened by the Issuer or by the Trustee, subject to its being indemnified and/or secured and/or prefunded to its satisfaction, upon the request in writing of holders of the Notes holding not less than one tenth of the principal amount of the outstanding Notes. The Trust Deed provides that special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and currency of payment under the Loan Agreement. Under the terms of the Trust Deed, an Extraordinary Resolution means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions contained therein by (i) the affirmative vote of holders of outstanding (as defined in the Trust Deed) Notes present in person or represented by proxy or representative owning in the aggregate more than half in principal amount of the outstanding Notes owned by the Noteholders who are so present or represented at the meeting or (ii) in respect of an Extraordinary Resolution the business of which includes the modification of certain terms, conditions and provisions as listed in the proviso to paragraph 5 (Powers of Meetings) of Schedule 4 (Provisions for Meetings of the Noteholders) of the Trust Deed the affirmative vote of holders of outstanding Notes present in person or represented by proxy or representative owning in aggregate not less than two-thirds in principal amount of the outstanding Notes owned by the Noteholders who are present or represented at the meeting. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders, whether present or not. The Trust Deed provides that a Written Resolution signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the 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. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders. (b) Modification and Waiver The Trustee may agree, without the consent of the Noteholders, to any modification of the Notes and the Trust Deed, the Paying Agency Agreement or the Loan Agreement which, in each case, in the sole opinion of the Trustee is of a formal, minor or technical nature, is made to correct a manifest error or (other than as mentioned in the Trust Deed) in the opinion of the Trustee is not materially prejudicial to the interests of the Noteholders. The Trustee may also waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of the Conditions or the Trust Deed or, following the creation of the Security Interests, by NLMK of the terms of the Loan Agreement or determine that any event which would or might otherwise give rise to a right of acceleration under the Loan Agreement or any Relevant Event shall not be treated as such, if in the sole opinion of the Trustee, to do so would not be materially prejudicial to the interests of the Noteholders, provided always that the Trustee may not exercise such power of waiver in contravention of a written request given by holders of 25 per cent. in aggregate principal amount of the Notes then outstanding or any express direction by Extraordinary Resolution. Any such modification, waiver, authorisation or determination shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be promptly notified to the Noteholders in accordance with Condition 13. (c) Substitution The Trust Deed contains provisions to the effect that the Issuer may, with the consent of NLMK, and further provided certain conditions have been met (as further set out in the Trust Deed), and subject to having complied with the requirements set out in the Trust Deed and such requirements as the Trustee may direct (without obtaining the consent of the Noteholders) in the interest of Noteholders, substitute any entity in place of the Issuer as creditor under the Loan Agreement, as issuer and principal obligor in respect of the Notes and as obligor under the Trust Deed, subject to the

181 substitute’s entity’s rights under the Loan Agreement being charged and assigned to the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. Not later than 14 days after compliance with the aforementioned requirements, notice thereof shall be given by the Issuer to the Noteholders in accordance with Condition 13, failing which the Issuer shall use its best endeavours to ensure that the substitute obligor does so. (d) Exercise of powers In connection with the exercise of any of its powers, trusts, authorities or discretions, the Trustee shall have regard to the interests of the Noteholders as a class and, in particular, shall not have regard to the consequences of such exercise for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder is entitled to claim from the Issuer, NLMK or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders.

10 Prescription Notes will become void unless presented for payment within 10 years (in the case of principal) or five years (in the case of interest) from the due date for payment in respect thereof.

11 Indemnification and Removal of the Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility in certain circumstances, including provisions relieving it from taking steps, actions or proceedings to enforce payment unless indemnified and/or secured and/or prefunded to its satisfaction, and to be paid its costs and expenses in priority to any claims of Noteholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer and/or NLMK and any entity relating to the Issuer and/or NLMK without accounting for any profit. The Trustee’s responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or by NLMK in respect of the Loan Agreement. The Trustee is entitled to assume that NLMK is performing all of its obligations pursuant to the Loan Agreement and that the Issuer is performing its obligations under the Notes, the Loan Agreement and the Trust Deed (and shall have no liability for doing so) until it has actual knowledge to the contrary. The Trustee shall have no liability to any Noteholder or any other person for any shortfall such Noteholder or other person may suffer if such Noteholder or other person is liable for tax in respect of any payments received by such Noteholder or other person or as a result of the Security Interests being enforced by the Trustee. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a Trustee in office after such removal.

12 Replacement of Notes If a Definitive Certificate shall become mutilated, defaced, lost, stolen or destroyed it may, subject to all applicable laws and regulations and requirements of the Stock Exchange (or any other stock exchange on which the Notes are listed or quoted from time to time), be replaced at the specified offices of the Transfer Agents in London on payment of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, security and indemnity and otherwise as may reasonably be required by or on behalf of the Issuer and/or the Transfer Agents. Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.

13 Notices All notices to Noteholders shall be deemed to have been validly given if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) or, if in

182 the opinion of the Trustee such publication shall not be practicable, in an English language newspaper of general circulation in Europe. 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 such publication is made. The Issuer shall also ensure that all notices are duly published (if such publication is required) in a manner which complies with the rules and regulations of the Stock Exchange or any other stock exchange on which the Notes are for the time being listed and/or admitted to trading. Any such notice shall be deemed to have been given on the date of such notice. In case by reason of any other cause it shall be impracticable to publish any notice to Noteholders as provided above, then such notification to such Noteholders as shall be given with the approval of the Trustee in accordance with the rules of the Stock Exchange (or any other stock exchange on which the Notes are listed or quoted from time to time) shall constitute sufficient notice to such Noteholders for every purpose hereunder.

14 Further Issues The Issuer may from time to time, with the consent of NLMK but without the consent of the Noteholders, create and issue further securities 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, the date of issue and the amount of principal) so as to be consolidated and form a single series with the Notes. Such further notes shall be issued under a deed supplemental to the Trust Deed containing such provisions as the Trustee may reasonably require. In relation to any further issue which is to be consolidated and form a single series with the Notes, the Issuer will enter into a loan agreement with NLMK on the same terms as the Loan Agreement (or the same terms except for the date of the first payment of interest, the provisions relating to the fees payable by NLMK to the Issuer (whether payable as a lump sum payment, additional interest or otherwise) and the amount of principal) and supplemental to the Loan Agreement, or may amend and restate the same with NLMK on substantially the same terms as the Loan Agreement (except for the date of the first payment of interest, the provisions relating to the fees payable by NLMK to the Issuer (whether payable as a lump sum payment, additional interest or otherwise) and the amount of principal). The Issuer will provide a first fixed charge in favour of the Trustee in respect of certain of its rights and interests under such loan agreement and will assign absolutely to the Trustee certain of its rights under such loan agreement, which will secure both the Notes and such further securities and which will supplement the Security Interests in relation to the existing Notes or may amend and supplement the Security Interests for such purpose. 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. Application will be made for such further securities to be listed and admitted to trading on the stock exchange on which the Notes are from time to time listed or quoted.

15 Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Notes or the Trust Deed under the Contracts (Rights of Third Parties) Act 1999.

16 Governing Law The Notes, these Conditions, the Trust Deed and any non-contractual obligations arising out of or in connection therewith, are governed by, and shall be construed in accordance with, English law. The Issuer has submitted in the Trust Deed to the jurisdiction of the courts of England and has appointed an agent for the service of process in England.

183 SUMMARY OF THE PROVISIONS RELATING TO THE NOTES IN GLOBAL 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 depository 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 ‘‘Clearing and Settlement— 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 not a US person, that it is located outside the United States and that, if it determines to transfer such beneficial interest prior to the expiration of the ‘‘distribution compliance period’’ (as such term is defined in Rule 902 of Regulation S), it will transfer such interest only (a) to a non-US person in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (b) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB that is also a QP purchasing for its own account or the account of a QIB that is also a QP, in each case in accordance with any applicable securities laws of any state of the United States. See ‘‘Transfer Restrictions’’. 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 ‘‘Clearing and Settlement— 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 ‘‘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 ‘‘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 a Paying Agency Agreement relating to the Notes (the ‘‘Paying 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 Paying 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.

184 Exchange For Definitive Certificates Exchange Subject to receipt by the Issuer of the funds necessary to cover the cost realized from NLMK, each Global Note Certificate will be exchangeable, free of charge to the holder, on or after its Exchange Date (as defined below), in whole but not in part, for Notes in definitive form if: (i) 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 depository 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, as the case may be, and Euroclear or Clearstream, Luxembourg, 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 to permanently cease business or does in fact do so, by the holder giving notice to the Registrar or any Transfer Agent and the Issuer or (ii) the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 7 which would not be suffered were the Notes in definitive form and a note to such effect signed by the requisite number of signatories of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Registrar or any Transfer Agent and the Noteholders of its intention to exchange the relevant Global Note Certificate for Definitive Certificates on or after the Exchange Date (as defined below) specified in the notice or (iii) the Trustee has instituted or has been directed to institute any judicial proceeding in a court to enforce the rights of the Noteholders under the Notes and the Trustee has been advised by counsel that in connection with such proceeding it is necessary or appropriate for the Trustee to obtain possession of the Notes, by the Trustee giving notice to the Registrar or any Transfer Agent and the Noteholders. The Registrar will not register the transfer of, or exchange of interests in, a Global Note Certificate for Definitive Certificates for a period of 15 calendar days ending on the date for any payment of principal or interest in respect of the 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. ‘‘Exchange Date’’ means a day falling not later than 90 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Registrar and any Transfer Agent is located.

Delivery In such circumstances, the relevant Global Note Certificate shall be exchanged in full for Definitive Certificates and the Issuer will, at the cost of the Issuer (and against such indemnity as the Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Definitive Certificates to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders. A person having an interest in a Global Note Certificate must provide the Registrar with (a) a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such Notes and (b) in the case of the Rule 144A Global Note Certificate only, a fully completed, signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of simultaneous sale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule 144A to a QIB that is also a QP. Definitive Certificates issued in exchange for a beneficial interest in the Rule 144A Global Note Certificate shall bear the legend applicable to transfer pursuant to Rule 144A, as set forth under ‘‘Transfer Restrictions’’.

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

185 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 ‘‘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 and the Investment Company Act. In addition, each Global Note Certificate will contain provisions which modify 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 these provisions:

Payments Payments of principal and interest in respect of Notes evidenced by a Global Certificate shall be made to the person who appears at the relevant time on the register of Noteholders as holder of the relevant Global Certificate against presentation and (if no further payment falls to be made on it) surrender thereof to or to the order of the Principal Paying Agent (or to or to the order of such other Paying Agent as shall have been notified to the Noteholders for this purpose) which shall endorse such payment or cause such payment to be endorsed in Schedule A to the relevant Global Certificate (such endorsement being prima facie evidence that the payment in question has been made). No person shall however be entitled to receive any payment on the relevant Global Certificate falling due after the Exchange Date, unless the exchange of the relevant Global Certificate for the relevant Definitive Certificates is improperly withheld or refused by or on behalf of the Issuer.

Notices Notwithstanding Condition 13, so long as the Global Note Certificate is held by or on behalf of DTC, Euroclear, Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative Clearing System’’), notices to Noteholders represented by the Global Note Certificate may be given by delivery of the relevant notice to DTC, Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System provided that, for so long as the Notes are listed, all notices will also be given in accordance with the rules of the relevant stock exchange.

Record Date All payments in respect of Notes represented by a Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where ‘‘Clearing System Business Day’’ means (i) in respect of the Regulation S Global Note Certificate, held on behalf of Euroclear or Clearstream, Luxembourg, a day when Euroclear or Clearstream, Luxembourg is open for business and (ii) in respect of a the Rule 144A Global Note Certificate held on behalf of DTC, a day when DTC is open for business.

Meetings The holder of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as having one vote in respect of each US$1,000 in principal amount of Notes represented by the relevant Global Certificate.

Trustee’s Powers In considering the interests of Noteholders whilst the Global Certificate is held on behalf of a clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Certificate and may consider such interests as if such accountholders were the holders of the Global Certificate.

186 Cancellation Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the Global Certificate by a record made in the Register.

Prescription Claims in respect of principal, interest and other amounts payable in respect of the Global Certificates will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest or any other amounts) from the due date for payment in respect thereof.

Benefit of the Conditions Unless a Global Certificate has been exchanged or cancelled the holder hereof shall, except as provided in the relevant Global Certificate, be entitled to the same rights and benefits and subject to the Conditions as if such holder were the holder of the relevant Definitive Certificates for which the Global Certificate may be exchanged. Each Global Certificate shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the Registrar. The Global Certificates and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law.

187 TRANSFER RESTRICTIONS Because of the following restrictions, you are advised to consult legal counsel prior to making any offer, resale or other transfer of the Notes offered hereby.

Rule 144A Notes Each purchaser of Rule 144A Notes, by accepting delivery of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is (a) a QIB that is also a QP, (b) not a broker-dealer that owns and invests on a discretionary basis less than US$25 million in securities of unaffiliated issuers, (c) not a participant-directed employee plan, such as a 401(k) plan, (d) acquiring such Notes for its own account, or for the account of one or more QIBs each of which is also a QP, (e) not formed for the purpose of investing in the Notes or the Issuer, and (f) aware, and each beneficial owner of such Notes has been advised, that the seller of such Notes to it may be relying on Rule 144A. 2. It will (a) along with each account for which it is purchasing, hold and transfer beneficial interests in the Rule 144A Notes in a principal amount that is not less than US$200,000 and (b) provide notice of these transfer restrictions to any subsequent transferees. In addition, it understands that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositories. 3. 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 that is also a QP purchasing for its own account or for the account of one or more QIBs that are also QPs each of which is purchasing not less than US$200,000 principal amount of Notes or (b) in an offshore transactions to a person, that is not a US person in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, and in each case in accordance with any applicable securities laws of any State of the United States. 4. It understands that the Issuer has the power under the Trust Deed to compel any beneficial owner of Rule 144A Notes that is not a QIB and also a QP to sell its interest in the Rule 144A Notes, or may sell such interest on behalf of, or purchase such interest from, such owner at a price equal to the least of (x) the purchase price therefor paid by the beneficial owner, (y) 100 percent of the principal amount thereof or (z) the fair market value thereof. The Issuer has the right to refuse to honor the transfer of an interest in the Rule 144A Notes to a US person who is not a QIB and also a QP. 5. 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 AND THE LOAN IN RESPECT THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933 (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 UNDER THE SECURITIES ACT (A ‘‘QIB’’) THAT IS ALSO A QUALIFIED PURCHASER (A ‘‘QP’’) WITHIN THE MEANING OF SECTION 2(a)(51) OF THE US INVESTMENT COMPANY ACT OF 1940 (THE ‘‘INVESTMENT COMPANY ACT’’) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB THAT IS ALSO A QP WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, AND IN AN AMOUNT FOR EACH ACCOUNT OF NOT LESS THAN US$200,000 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’’), AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES IN RESPECT HEREOF OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. TRANSFER

188 IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE OR EFFECT, WILL BE VOID AB INITIO AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER OF THIS NOTE, THE TRUSTEE OR ANY INTERMEDIARY. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. EACH BENEFICIAL OWNER HEREOF REPRESENTS THAT (1) IT IS A QIB THAT IS ALSO A QP; (2) IT IS NOT A BROKER-DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN US$25,000,000 IN SECURITIES OF UNAFFILIATED ISSUERS; (3) IT IS NOT A PARTICIPANT-DIRECTED EMPLOYEE PLAN, SUCH AS A 401 (k) PLAN; (4) IT IS HOLDING THIS NOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER QIB THAT IS ALSO A QP; (5) IT WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE ISSUER OR THIS NOTE; (6) IT, AND EACH ACCOUNT FOR WHICH IT HOLDS NOTES, WILL HOLD AND TRANSFER AT LEAST US$200,000 IN PRINCIPAL AMOUNT OF NOTES; (7) IT UNDERSTANDS THAT THE ISSUER MAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOK-ENTRY DEPOSITORIES AND (8) IT WILL PROVIDE NOTICE OF THE FOREGOING TRANSFER RESTRICTIONS TO ITS SUBSEQUENT TRANSFEREES. THE BENEFICIAL OWNER HEREOF HEREBY ACKNOWLEDGES THAT, IF AT ANY TIME WHILE IT HOLDS AN INTEREST IN THIS NOTE IT IS A PERSON WHO IS NOT A QIB THAT IS ALSO A QP, THE ISSUER MAY (A) COMPEL IT TO SELL ITS INTEREST IN THIS NOTE TO A PERSON (1) WHO IS ALSO A QIB THAT IS ALSO A QP AND WHO IS OTHERWISE QUALIFIED TO PURCHASE THIS NOTE IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) IN AN OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A US PERSON IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S OR (B) COMPEL THE BENEFICIAL OWNER TO SELL ITS INTEREST IN THIS NOTE TO THE ISSUER OR AN AFFILIATE OF THE ISSUER OR TRANSFER ITS INTEREST IN THIS NOTE TO A PERSON DESIGNATED BY OR ACCEPTABLE TO THE ISSUER AT A PRICE EQUAL TO THE LEAST OF (X) THE PURCHASE PRICE THEREFOR PAID BY THE BENEFICIAL OWNER, (Y) 100 PERCENT OF THE PRINCIPAL AMOUNT THEREOF OR (Z) THE FAIR MARKET VALUE THEREOF. THE ISSUER HAS THE RIGHT TO REFUSE TO HONOR A TRANSFER OF AN INTEREST IN THIS NOTE TO A PERSON WHO IS NOT A QIB AND ALSO A QP. THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. BY ACCEPTING THIS NOTE (OR ANY INTEREST IN THE NOTES REPRESENTED HEREBY) EACH BENEFICIAL OWNER HEREOF, AND EACH FIDUCIARY ACTING ON BEHALF OF THE BENEFICIAL OWNER (BOTH IN ITS INDIVIDUAL AND CORPORATE CAPACITY), WILL BE DEEMED TO REPRESENT, WARRANT AND AGREE THAT, DURING THE PERIOD IT HOLDS ANY INTEREST IN THIS NOTE (1) EITHER (A) IT IS NOT, AND IT IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS THIS NOTE (OR ANY INTEREST THEREIN) WILL NOT BE, OR BE ACTING ON BEHALF OF) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (‘‘ERISA’’) SUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, A PLAN TO WHICH SECTION 4975 OF THE US INTERNAL REVENUE CODE OF 1986, AS AMENDED (‘‘CODE’’), APPLIES, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ‘‘PLAN ASSETS’’ UNDER SECTION 3(42) Of ERISA, 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE BY REASON OF SUCH AN EMPLOYEE BENEFIT PLAN’S OR PLAN’S INVESTMENT IN SUCH ENTITY (EACH, A ‘‘BENEFIT PLAN INVESTOR’’) OR A GOVERNMENTAL, CHURCH OR NON US PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL, NON US OR OTHER LAWS OR REGULATIONS THAT ARE SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY AND/OR THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND/OR SECTION 4975 OF THE CODE (‘‘SIMILAR LAWS’’) AND/OR LAWS OR REGULATIONS THAT PROVIDE THAT THE ASSETS OF THE ISSUER COULD BE DEEMED TO INCLUDE ‘‘PLAN ASSETS’’ OF SUCH PLAN UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE, AND NO PART OF THE ASSETS TO BE USED BY IT TO PURCHASE OR HOLD SUCH NOTES OR ANY INTEREST HEREIN

189 CONSTITUTES THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR SUCH A GOVERNMENTAL, CHURCH OR NON US PLAN OR (B) IT IS, OR IS ACTING ON BEHALF OF A GOVERNMENTAL, CHURCH OR NON US PLAN, AND SUCH ACQUISITION DOES NOT AND WILL NOT RESULT IN A NON EXEMPT VIOLATION OF ANY SIMILAR LAWS AND WILL NOT SUBJECT THE ISSUER TO ANY LAWS, RULES OR REGULATIONS APPLICABLE TO SUCH PLAN SOLELY AS A RESULT OF THE INVESTMENT IN THE ISSUER BY SUCH PLAN; AND (2) IT WILL NOT SELL OR OTHERWISE TRANSFER THIS NOTE OR ANY INTEREST HEREIN OTHERWISE THAN TO A PURCHASER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE. NO PURCHASE BY OR TRANSFER TO A BENEFIT PLAN INVESTOR OF THIS NOTE, OR ANY INTEREST HEREIN, WILL BE EFFECTIVE, AND NEITHER THE ISSUER NOR THE TRUSTEE WILL RECOGNISE ANY SUCH ACQUISITION OR TRANSFER. IN THE EVENT THAT THE ISSUER DETERMINES THAT THIS NOTE IS HELD BY A BENEFIT PLAN INVESTOR, THE ISSUER MAY CAUSE A SALE OR TRANSFER IN THE MANNER DESCRIBED IN THIS PROSPECTUS. THE ISSUER MAY COMPEL EACH BENEFICIAL OWNER HEREOF TO CERTIFY PERIODICALLY THAT SUCH OWNER IS A QIB AND ALSO A QP. 6. It understands and acknowledges that its purchase, holding and disposition of such Notes constitutes a representation and agreement by it that at the time of purchase and throughout the period it holds such Notes or any interest therein (1) either (i) it is not, and is not acting on behalf of (and for so long as it holds such Notes (or any interest therein) will not be, or be acting on behalf of), a Benefit Plan Investor or a governmental, church or non US plan which is subject to any Similar Laws and/or laws or regulations that provide that the assets of the Issuer could be deemed to include ‘‘plan assets’’ of such plan under Section 3(42) of ERISA, the Plan Assets Regulation or otherwise, and no part of the assets used by it to purchase or hold such Note or any interest therein constitutes the assets of such Benefit Plan Investor or such plan, or (ii) it is, or is acting on behalf of, a governmental, church or non US plan, and such purchase or holding of such Note does not and will not result in a non-exempt violation of any Similar Laws, and will not subject the Issuer to any laws, rules or regulations applicable to such plan solely as a result of the investment in the Issuer by such plan; and (2) it will not sell or otherwise transfer any note or interest therein to any person without first obtaining these same foregoing representations, warranties and covenants from that person with respect to its acquisition, holding and disposition of such Note. 7. It acknowledges that the Issuer, NLMK, the Registrars, the Joint Lead Managers and their respective affiliates, and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements and agrees that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer, NLMK and the Joint Lead Managers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts who are QIBs that are also QPs, it represents that it has sole investment discretion with respect to each such account, and that it has full power to make the above acknowledgements, representations and agreements on behalf of each such account. 8. 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 Paying 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, by accepting delivery of this Prospectus and the Regulation S Notes, will be deemed to have represented, agreed and acknowledged that: 1. It is, or at the time Regulation S Notes are purchased will be, the beneficial owner of such Regulation S Notes and (a) it is not a US person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Issuer, NLMK or a person acting on behalf of such an affiliate.

190 2. It understands that the Regulation S Notes have not been and will not be registered under the Securities Act and that, prior to the expiration of the ‘‘distribution compliance period’’ (as such term is defined in Rule 902 of Regulation S), it will not offer, sell, pledge or otherwise transfer such Notes except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believes is a QIB that is also a QP purchasing for its own account or for the account of a QIB that is also a QP or (b) in an offshore transaction to a person that is not a US person in accordance with Rule 903 or Rule 904 of Regulation S, in the case of (a) and (b), in accordance with any applicable securities laws of any state of the United States. 3. It understands that the Regulation S Notes will be evidenced by the Regulation S Global Note Certificate. Before any interest in the Regulation S 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 Rule 144A Global Note Certificate, it will be required to provide a Transfer Agent with a written certification (in the form provided in the Paying Agency Agreement) as to compliance with applicable securities laws. 4. It understands and acknowledges that its purchase, holding and disposition of such Notes constitutes a representation and agreement by it that (1) either (i) it is not, and is not acting on behalf of (and for so long as it holds such Notes or any interest therein will not be, or be acting on behalf of), a Benefit Plan Investor or a governmental, church or non US plan which is subject to any Similar Laws and/or laws or regulations that provide that the assets of the Issuer could be deemed to include ‘‘plan assets’’ of such plan under Section 3(42) of ERISA, the Plan Assets Regulation or otherwise, and no part of the assets used by it to purchase or hold such Note or any interest therein constitutes the assets of such Benefit Plan Investor or such plan, or (ii) it is, or is acting on behalf of, a governmental, church or non US plan, and such purchase or holding of such Note does not and will not result in a non-exempt violation of any Similar Laws, and will not subject the Issuer to any laws, rules or regulations applicable to such plan solely as a result of the investment in the Issuer by such plan; and (2) it will not sell or otherwise transfer any Note or interest therein otherwise than to any person without first obtaining these same foregoing representations, warranties and covenants from that person with respect to its acquisition, holding and disposition of such Note.

191 CERTAIN ERISA CONSIDERATIONS ERISA imposes fiduciary standards and certain other requirements on employee benefit plans subject thereto (collectively ‘‘ERISA Plans’’), including collective investment funds, separate accounts, and other entities or accounts whose underlying assets are treated as assets of such plans pursuant to the US Department of Labor ‘‘plan assets’’ regulation, 29 CFR Section 2510.3-101 (as modified by Section 3(42) of ERISA, the ‘‘Plan Asset Regulation’’) and on those persons who are fiduciaries with respect to ERISA Plans. Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986 (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 (together with ERISA Plans, ‘‘Plans’’)) and certain persons (referred to as ‘‘parties in interest’’ or ‘‘disqualified persons’’) having certain relationships to such Plans, unless a statutory or administrative exemption applies to the transaction. In particular, an extension of credit between a Plan and a ‘‘party in interest’’ or ‘‘disqualified person’’ may constitute a prohibited transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes or other liabilities under ERISA and the Code. The Issuer or the Trustee, directly or through affiliates, may be considered a party in interest or disqualified person with respect to many Plans. Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if the Notes are acquired by a Plan with respect to which the Issuer or the Trustee or any of their respective affiliates is a party in interest or a disqualified person, unless the Notes are acquired pursuant to and in accordance with an applicable exemption. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may apply depending in part on the type of Plan fiduciary making the decision to acquire a Note and the circumstances under which that decision is made. Under a ‘‘look-through rule’’ set forth in the Plan Assets Regulation, if a Plan invests in an ‘‘equity interest’’ of an entity and no other exception applies, the Plan’s assets include both the equity interest and an undivided interest in each of the entity’s underlying assets. This rule will only apply where equity participation in an entity by benefit plan investors is ‘‘significant.’’ Equity participation by benefit plan investors is significant if 25 per cent. or more of the value of any class of equity interest in the entity is held by benefit plan investors. The term ‘‘benefit plan investor’’ includes (a) an employee benefit plan (as defined in Section 3(3) of ERISA), that is subject to Title I of ERISA; (b) a plan defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code; or (c) any entity whose underlying assets include ‘‘plan assets’’ by reason of any such plan’s investment in the entity. The Plan Asset Regulation defines the term ‘‘equity interest’’ as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and which has no substantial equity features, and specifically includes a beneficial interest in a trust. Where the value of an equity interest in an entity relates solely to identified property of the entity, that property is treated as the sole property of a separate entity. Because the Notes do not represent an interest in any property of the Issuer other than the Loan, they may be regarded for ERISA purposes as equity interests in a separate entity whose sole asset is the Loan. Furthermore, neither the Trustee nor the Issuer will be able to monitor the Noteholders’ possible status as benefit plan investors. Accordingly, the Notes may not be purchased or held by any benefit plan investor. While not subject to ERISA, the Code or the Plan Assets Regulation, a governmental, church or non US plan may be subject to federal, state, local, non US or other laws or regulations that are substantially similar to the fiduciary responsibility and/or the prohibited transaction provisions of ERISA (‘‘Similar Laws’’) and/or laws or regulations that provide that the assets of the Issuer could be deemed to include ‘‘plan assets’’ of such plan under Section 3(42) of ERISA, 29 C.F.R. Section 2510.3-101 or otherwise. Accordingly, the Notes either (a) may not be purchased or held by any such a governmental, church or non US plan or (b) may be purchased or held by any such governmental, church or non US plan where such acquisition, holding and subsequent disposition does not and will not result in a non-exempt violation of any Similar Laws and will not subject the Issuer to any laws, rules or regulations applicable to such plan solely as a result of the investment in the Issuer by such plan. BY ITS ACQUISITION, HOLDING OR DISPOSITION OF THE NOTES (OR ANY INTEREST THEREIN) PURCHASER OR TRANSFEREE, AND EACH FIDUCIARY ACTING ON BEHALF OF SUCH PURCHASER OR TRANSFEREE (BOTH IN ITS INDIVIDUAL AND CORPORATE CAPACITY), WILL BE DEEMED TO REPRESENT, WARRANT AND AGREE THAT, DURING THE PERIOD SUCH PURCHASER OR TRANSFEREE HOLDS ANY INTEREST IN THE NOTES

192 (1) EITHER (A) IT IS NOT, AND IT IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS THE NOTES (OR ANY INTEREST THEREIN) WILL NOT BE, OR BE ACTING ON BEHALF OF) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA) SUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, A PLAN TO WHICH SECTION 4975 OF THE CODE APPLIES, OR ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ‘‘PLAN ASSETS’’ UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE BY REASON OF A BENEFIT PLAN INVESTOR OR A GOVERNMENTAL, CHURCH OR NON US PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL, NON US OR OTHER LAWS OR REGULATIONS THAT ARE SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY AND/OR THE PROHIBITED TRANSACTION PROVISIONS OF ERISA (‘‘SIMILAR LAWS’’) AND/OR LAWS OR REGULATIONS THAT PROVIDE THAT THE ASSETS OF THE ISSUER COULD BE DEEMED TO INCLUDE ‘‘PLAN ASSETS’’ OF SUCH PLAN UNDER SECTION 3(42) OF ERISA, 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE, AND NO PART OF THE ASSETS TO BE USED BY IT TO PURCHASE OR HOLD SUCH NOTES OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR SUCH A GOVERNMENTAL, CHURCH OR NON US PLAN OR (B) SUCH PURCHASER OR TRANSFEREE IS, OR IS ACTING ON BEHALF OF, A GOVERNMENTAL, CHURCH OR NON US PLAN, AND SUCH ACQUISITION DOES NOT AND WILL NOT RESULT IN A NON EXEMPT VIOLATION OF ANY SIMILAR LAWS AND WILL NOT SUBJECT THE ISSUER TO ANY LAWS, RULES OR REGULATIONS APPLICABLE TO SUCH PLAN SOLELY AS A RESULT OF THE INVESTMENT IN THE ISSUER BY SUCH PLAN; AND (2) IT WILL NOT SELL OR OTHERWISE TRANSFER THE NOTES OR ANY INTEREST HEREIN OTHERWISE THAN TO A PURCHASER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAME REPRESENTATIONS, WARRANTIES AND AGREEMENTS WITH RESPECT TO ITS ACQUISITION, HOLDING AND DISPOSITION OF THIS NOTE. NO PURCHASE BY OR TRANSFER TO A BENEFIT PLAN INVESTOR OF THE NOTES, OR ANY INTEREST HEREIN, WILL BE EFFECTIVE, AND NEITHER THE ISSUER NOR THE TRUSTEE WILL RECOGNISE ANY SUCH ACQUISITION OR TRANSFER. IN THE EVENT THAT THE ISSUER DETERMINES THAT THIS NOTE IS HELD BY A BENEFIT PLAN INVESTOR, THE ISSUER MAY CAUSE A SALE OR TRANSFER IN THE MANNER DESCRIBED HEREIN.

193 CLEARING AND SETTLEMENT Book-Entry Procedures for the Global Note Certificates Custodial and depository links are to be established among 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’’ and ‘‘—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 depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an 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 the Regulation S Global Note Certificate 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 organized 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 US 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 computerized 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 Certificate as to which such DTC Participant or DTC Participants has or have given such direction.

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, an ISIN and a Common Code and will be deposited with a custodian (the ‘‘Custodian’’) for, and registered in the name of a nominee of, DTC.

194 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 that Global Note Certificate, subject to and in 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 such 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’, Indirect Participants’ or DTC Participants’ records (as the case may be). 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, Indirect Participant or DTC Participant (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, Indirect 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 individual note 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 the 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 the Global Note Certificates to such persons may be limited. In particular, 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.

195 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 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 US corporate debt obligations in DTC’s Same-Day Funds Settlement system in same-day funds, if payment is effected in US dollars, or free of payment, if payment is not effected in US dollars. Where payment is not effected in US dollars, separate payment arrangements outside DTC; are required to he 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 Paying Agency Agreement), the DTC Participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12:00 p.m., 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 (1) 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 (2) increase the amount of Notes registered in the name of the nominee of the common depository 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 Paying Agency Agreement), the Euroclear or Clearstream, Luxembourg participant must send to Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7:45 p.m., 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 depository 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 (1) decrease the amount of Notes registered in the name of the nominee of the common depository for Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Note Certificate; and (2) 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

196 Participants, as the case may be, of their respective obligations under the rules and procedures governing their operations.

Pre-issue Trades Settlement It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which could be more than three business days following the date of pricing. Settlement procedures in different countries will vary. Purchasers of Notes may be affected by such local settlement practices, and purchasers of Notes between the relevant date of pricing and the Closing Date should consult their own advisors.

197 TAXATION The following is a general description of certain tax considerations relating to the Notes and does not purport to be a comprehensive discussion of the tax treatment of the Notes. Prospective investors in the Notes should consult their own tax advisors as to the tax consequences of the purchase, ownership and disposition of the Notes in light of their particular circumstances, including but not limited to the consequences of receipt of interest and sale or redemption of the Notes.

CERTAIN RUSSIAN TAX CONSIDERATIONS Taxation of the Notes General The following is an overview of certain Russian tax considerations relevant to the purchase, ownership and disposal of the Notes as well as the taxation of interest income on the Loan. This overview is based on the laws of the Russian Federation in effect on the date of this Prospectus, which are subject to potential change (possibly with retroactive effect). This overview does not seek to address the applicability of, or procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of the Russian Federation, nor does it seek to address the availability of double tax treaty relief in respect of income payable on the Notes, or practical difficulties connected with claiming such double tax treaty relief. Prospective investors should consult their own tax advisers regarding the tax consequences of investing in the Notes that may arise in their own particular circumstances. No representation with respect to the Russian tax consequences of purchasing, owning or disposing of the Notes pertinent to any particular Noteholder is made hereby. Many aspects of the Russian tax laws are subject to significant uncertainty and lack of interpretive guidance, resulting in inconsistent interpretations and application thereof. Further, provisions of the Russian Tax Code applicable to financial instruments and the interpretation and application of those provisions by the Russian tax authorities may be subject to more rapid and unpredictable changes (possibly with retroactive effect) and inconsistent interpretation than in jurisdictions with more developed capital markets or more developed taxation systems. In particular, the interpretation and application of such provisions will in practice rest substantially with local tax inspectorates and relevant interpretations may constantly change. In practice, interpretation by different tax inspectorates may be inconsistent or contradictory, and may result in the imposition of conditions, requirements or restrictions that are not explicitly stated in the Russian Tax Code. Similarly, in the absence of binding precedents, court rulings on tax or other related matters taken by different Russian courts relating to the same or similar facts and circumstances may also be inconsistent or contradictory. For the purposes of this overview, the term ‘‘Resident Noteholder’’ means: • a Noteholder which is a legal entity or an organisation and is: • a Russian legal entity; • a foreign legal entity or organisation recognised as a Russian tax resident based on the provisions of an applicable double tax treaty (for the purposes of application of such double tax treaty); • a foreign legal entity or organisation recognised as a Russian tax resident based on Russian domestic law (generally, in cases where the Russian Federation is recognised as the place of management of such legal entity or organisation as determined under the Russian Tax Code; • a foreign legal entity or organisation which holds and/ or disposes of the Notes through its permanent establishment in the Russian Federation, (a ‘‘Resident Noteholder—Legal Entity’’), and • a Noteholder who is an individual and is actually present in Russia in total 183 calendar days or more in any period comprised of 12 consecutive months (a ‘‘Resident Noteholder—Individual’’). Presence in the Russian Federation is not considered interrupted if an individual departs for short periods (less than six months) from the Russian Federation for medical treatment or education purposes as well as for the employment or other duties related to the performance of works (services) on offshore hydrocarbons fields. The interpretation of this definition by the Ministry of Finance of the Russian Federation states that, for tax withholding purposes, an individual’s tax residence status should be determined on the date of the income payment (based on the number of days in the Russian

198 Federation in the 12-month period preceding the date of the payment). An individual’s final tax liability in the Russian Federation for any reporting calendar year should be determined based on the number of days spent in the Russian Federation in such calendar year. For the purposes of this overview, the term ‘‘Non-Resident Noteholder’’ means any Noteholder (including any individual (a ‘‘Non-Resident Noteholder—Individual’’) and any legal entity or an organisation (a ‘‘Non-Resident Noteholder—Legal Entity’’)) that does not qualify as a Resident Noteholder. The Russian tax treatment of interest payments made by NLMK to the Issuer under the Loan Agreement may affect the holders of the Notes. See ‘‘—Taxation of Interest Income on the Loan’’ below. Noteholders should seek professional advice on their tax status in Russia.

Non-Resident Noteholders Legal entities and organisations Acquisition of the Notes The acquisition of the Notes by a Non-Resident Noteholder—Legal Entity (whether upon issuance or in the secondary market) should not constitute a taxable event under Russian tax law. Consequently, the acquisition of the Notes should not trigger any Russian tax implications for a Non-Resident Noteholder— Legal Entity.

Interest and repayment of principal on the Notes Non-Resident Noteholders—Legal Entities generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer subject to the conditions and requirements described in ‘‘Taxation of Interest Income on the Loan’’.

Disposal of the Notes A Non-Resident Noteholder—Legal Entity generally should not be subject to any Russian taxes in respect of gain or other income realised on sale, redemption or a disposal of the Notes, provided that no portion of proceeds from such sale, redemption or other disposal of the Notes is received from either a source within the Russian Federation or from a Russian tax resident which is a legal entity and no portion thereof is attributable to accrued interest. However, there is a risk that any portion of such proceeds received from either a source within the Russian Federation or from a Russian tax resident which is a legal entity attributable to accrued interest may be subject to Russian withholding tax at a rate of 20% subject to any available double tax treaty relief and subject to applicability of such double tax treaty relief under the Russian Tax Code requirements (i.e. the ‘‘beneficial ownership’’ concept), even if the sale, redemption or disposal itself results in a capital loss. In order to enjoy the benefits of an applicable double tax treaty, documentary evidence is required prior to payment being made to confirm the applicability of the double tax treaty under which benefits are claimed (including the above Russian Tax Code requirements under the ‘‘beneficial ownership’’ concept). Non-Resident Noteholders—Legal Entities should consult their own tax advisers with respect to the tax consequences of the sale, redemption or other disposal of the Notes.

Individuals Acquisition of the Notes Under the Russian tax laws, the taxation of income of Non-Resident Noteholders—Individuals will depend on whether the income would be characterized as received from a Russian or non-Russian source. In certain circumstances, the acquisition of the Notes by Non-Resident Noteholders—Individuals (either at original issuance if the Notes are not issued at par or in the secondary market) may constitute a taxable event for Russian personal income tax purposes. In particular, if Non-Resident Noteholders—Individuals acquire the Notes in the Russian Federation or from a Russian tax resident which is a legal entity and the acquisition price of the Notes is below fair market value (calculated under a specific procedure for the determination of market prices of securities for Russian personal income tax purposes), this may constitute a taxable event pursuant to the provisions of the Russian Tax Code relating to material benefit (deemed income) received by individuals as a result of acquiring securities. Although the Russian Tax Code does not contain any provisions as to how the source of the related material benefit should be determined, in

199 practice the Russian tax authorities may infer that such income should be considered as Russian source income if the Notes are purchased ‘‘in the Russian Federation’’. In the absence of any additional guidance as to what should be considered as a purchase of securities in the Russian Federation, the Russian tax authorities may apply various criteria, including looking at the place of conclusion of the acquisition transaction, the location of the seller, or other similar criteria. In such a case, the Non-Resident Noteholders—Individuals may be subject to the Russian personal income tax at a rate of 30% on an amount equal to the difference between the fair market value (calculated under the Russian Tax Code) and the purchase price of the Notes. The tax may be withheld at source of payment or, if the tax is not withheld, the Non-Resident Noteholder—Individual may be required to declare its income in the Russian Federation by filing a tax return and paying the tax.

Interest and repayment of principal on the Notes Non-Resident Noteholders—Individuals generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer.

Disposal of the Notes If proceeds from the sale, redemption or other disposal of the Notes, including any portion of such proceeds attributable to accrued interest income under the Notes, are received from a Russian source, a Non-Resident Noteholder—Individual will generally be subject to Russian personal income tax at a rate of 30%, subject to any available double tax treaty relief (as discussed below in ‘‘Double Tax Treaty Relief’’), in respect of the gross proceeds from such sale, redemption or other disposal less any available cost deduction (which includes the purchase price of the Notes). Under the Russian tax laws, income received from a sale, redemption or disposal of securities should be treated as having been received from a Russian source if such sale, redemption or disposal occurs in the Russian Federation. In absence of any guidance as to what should be considered as a sale, redemption or other disposal of securities ‘‘in the Russian Federation’’, the Russian tax authorities may apply various criteria in order to determine the source of the sale, redemption or other disposal, including looking at the place of conclusion of the transaction, the location of the buyer, or other similar criteria. There is no assurance, therefore, that proceeds received by Non-Resident Noteholders—Individuals from a sale, redemption or disposal of the Notes will not become subject to tax in the Russian Federation. Further, there is a risk that, if the documentation supporting the cost deductions (which includes the purchase price of the Notes) is deemed insufficient by the Russian tax authorities or by the person remitting the proceeds to a Non-Resident Noteholder—Individual (where such person is considered the tax agent, obliged to calculate and withhold Russian personal income tax and remit it to the Russian budget), the cost deductions may be disallowed and the tax will apply to the gross amount of the sales, redemption or disposal proceeds. In certain circumstances, if the sales, redemptions or disposal proceeds (including accrued interest on the Notes) are paid to a Non-Resident Noteholder—Individual by a licensed broker or an asset manager, who carries out operations in the Russian Federation in the interest of a Non-Resident Noteholder—Individual under an asset management agreement, a brokerage service agreement, an agency agreement or a commission agreement, the applicable Russian personal income tax at the rate of 30% (or such other tax rate as may be effective at the time of payment) should be withheld at source by such person who will be considered as the tax agent. The withholding tax rate should be applied to the difference between the proceeds paid to the Non-Resident Noteholder—Individual and the amount of duly documented deductions relating to the original purchase cost and related expenses on the purchase, holding and sale of the Notes to the extent that such deductions and expenses can be determined by the entity making the payment. The entity making the payment would be required to report to the Russian tax authorities the income received by the Non-Resident Noteholder—Individual and tax withheld upon the sale, redemption or other disposal of the Notes. If a Russian personal income tax obligation arises as a result of the sale, redemption or other disposal of the Notes but the tax has not been withheld in the absence of a tax agent, a Non-Resident Noteholder— Individual is required to file a personal income tax return in the Russian Federation to report the amount of income received to the Russian tax authorities and apply for a deduction in the amount of the acquisition cost and other expenses related to the acquisition, holding, sale or other disposal of the Notes,

200 based on the provision of supporting documentation. The applicable personal income tax will then have to be paid by the individual on the basis of the filed personal income tax return. If a Russian personal income tax obligation arises as a result of the sale, redemption or other disposal of the Notes but the tax agent was not able to withhold the tax and reported this fact to the Russian tax authorities, the tax is payable by the Non-Resident Noteholder—Individual based on a tax assessment issued by the Russian tax authorities. Under certain circumstances, gains received and losses incurred by a Non-Resident Noteholder— Individual as a result of the sale, redemption or other disposal of the Notes and other securities of the same category (i.e., securities qualified as traded or non-traded for Russian personal income tax purposes) occurring within the same tax year may be aggregated for Russian personal income tax purposes, which would affect the total amount of personal income of a Non-Resident Noteholder—Individual subject to taxation in the Russian Federation. Since the sales, redemption or other disposal proceeds and deductible expenses for Russian tax purposes are calculated in rubles, the taxable base may be affected by fluctuations in the exchange rates between the currency in which the Notes were acquired, the currency in which the Notes were sold and rubles, i.e. there could be a loss or no gain in the currency of the Notes but a gain in rubles which could be potentially subject to taxation. Non-resident Noteholders—Individuals should consult their own tax advisers with respect to the tax consequences of the purchase, ownership and disposal of the Notes.

Resident Noteholders A Resident Noteholder will generally be subject to all applicable Russian taxes and responsible for complying with any documentation requirements that may be established by law or practice in respect of gain from the sale, redemption or other disposal of the Notes and interest income received on the Notes. Resident Noteholders should consult their own tax advisors with respect to the effect that the acquisition, holding and disposal of the Notes may have on their tax position.

Legal entities and organisations A Resident Noteholder—Legal Entity should, prima facie, be subject to Russian profits tax at the rate of up to 20% on interest (coupon) income on the Notes as well as on the capital gain from the sale, redemption or other disposal of the Notes. Generally, Resident Noteholders—Legal Entities are required to submit Russian profits tax returns, and assess and pay tax on capital gains and interest (coupon) income.

Individuals A Resident Noteholder—Individual should generally be subject to personal income tax at a rate of 13% on (i) deemed income resulting from the acquisition of the Notes at a price below fair market value, (ii) interest (coupon) income on the Notes and (iii) income received from the sale, redemption or other disposal of the Notes. If such income is paid to a Resident Noteholder—Individual by a tax agent, the applicable Russian personal income tax of 13% (or such other tax rate as may be effective at the time of payment) should be withheld at source by such person. For the purposes of interest (coupon) income and proceeds received from sale, redemption and/or other disposal of the Notes, a tax agent is a licensed broker or an asset manager who carries out operations in the interest of a Resident Noteholder— Individual under an asset management agreement, a brokerage service agreement, an agency agreement or a commission agreement. If the Russian personal income tax has not been withheld (if there was no tax agent) Resident Noteholders—Individuals are required to submit annual personal income tax returns, assess and pay the tax. If the tax agent in Russia was not able to withhold the tax and reported this fact to the Russian tax authorities, the tax is payable by the Non-Resident Noteholder—Individual based on a tax assessment issued by the Russian tax authorities. Resident Noteholders should consult their own tax advisers with respect to their tax position regarding the Notes.

Double Tax Treaty Relief The Russian Federation has concluded double tax treaties with a number of countries. These double tax treaties may contain provisions that allow for the reduction or elimination of Russian withholding taxes

201 with respect to income or proceeds received by Non-Resident Noteholders from a source within Russia, including income or proceeds from the sale, redemption or other disposal of the Notes. To the extent double tax treaty relief is available, a Non-Resident Noteholder must comply with the information, documentation and reporting requirements which are then in force in the Russian Federation in order to obtain such relief. A Non-Resident Noteholder—Legal Entity who is the beneficial owner of income or proceeds (the concept of beneficial ownership for Russian tax purposes is discussed in ‘‘Risks relating to taxation’’ section) would need to provide the payor of the income or proceeds with a certificate of tax residence issued by the competent tax authority of the relevant treaty country in advance of payment of income or proceeds in order to obtain a relief from Russian withholding taxes under a double tax treaty. This certificate should confirm that the respective Non-Resident Noteholder—Legal Entity is a tax resident of the relevant double tax treaty country in the particular calendar year during which the income or proceeds is paid. This certificate should be apostilled or legalised and needs to be renewed on an annual basis. A notarised Russian translation of the certificate may be required. However, the payor of the income or proceeds in practice may request additional documents confirming the eligibility of the Non-Resident Noteholder—Legal Entity for the benefits of the double tax treaty. There can be no assurance, however, that the advance double tax treaty relief will be available in practice. Currently, in order to obtain a full or partial exemption from taxation in Russia under an applicable double tax treaty at source, a Non-Resident Noteholder—Individual should confirm to a tax agent that he or she is a tax resident in a relevant foreign jurisdiction having a double tax treaty with the Russian Federation by providing the tax agent with (i) a passport of a foreign resident, or (ii) another document envisaged by an applicable federal law or recognised as a personal identity document of a foreign resident in accordance with an international treaty, and (iii) if such passport/document does not confirm tax resident status in a foreign country, upon request of the tax agent, an official confirmation issued by the competent authorities evidencing his or her status of a tax resident in the respective country. A notarised Russian translation of such official confirmation is required. The above provisions are intended to provide a tax agent with the opportunity of applying reduced (or zero) withholding tax rates under an applicable double tax treaty at source. In addition, in order to enjoy benefits under an applicable double tax treaty, the person claiming such benefits must be the beneficial owner of the relevant income or proceeds. Starting from 1 January 2015, in addition to a certificate of tax residency, the Russian Tax Code allows and starting from 1 January 2017 will oblige the tax agent to require a confirmation from a Non-Resident Noteholder—Legal Entity that it is the beneficial owner of the relevant income or proceeds. As of the date of this Prospectus, there has been no guidance on the form of such confirmation and it is at the moment unclear how these measures will be applied in practice. Due to introduction of these changes, there can be no assurance that the treaty relief at source will be available in practice. Non-Resident Noteholders should consult their own tax advisers with respect to the applicability of any double tax treaty relief and the relevant procedures required in Russia.

Refund of Tax Withheld If (i) Russian withholding tax on income or proceeds derived from either Russian sources or from a Russian tax resident which is a legal entity by a Non-Resident Noteholder has been withheld at source or (ii) tax on such income or proceeds has been paid by a Non-Resident Noteholder on the basis of a tax return, and such Non-Resident Noteholder is entitled to relief from tax on such income or proceeds under an applicable double tax treaty allowing it not to pay the tax or to pay the tax at a reduced rate, a claim for a refund of such tax that was excessively withheld at source or paid by the Non-Resident Noteholder can be filed within three years from the end of the tax period in which the tax was withheld or paid (subject to limitations described below). In order to obtain a refund, a Non-Resident Noteholder—Legal Entity would need to file with the Russian tax authorities a duly notarised, apostilled and translated certificate of tax residence issued by the competent tax authority of the relevant double tax treaty country and other documents confirming the right for a refund under the Russian Tax Code (including the above Russian Tax Code requirements under the ‘‘beneficial ownership’’ concept).

202 If a Non-Resident Noteholder—Individual wishes to obtain a refund, he/she should provide a claim for a refund of the tax withheld and documents confirming the right for a refund to the tax agent (if the tax was withheld by the agent). If there is no tax agent, on the date of receipt by the individual of confirmation of its tax residence status in a relevant foreign jurisdiction having an applicable double tax treaty with the Russian Federation, the individual can file a claim for a refund and documents confirming the right for a refund directly with the Russian tax authorities. Obtaining a refund of Russian taxes withheld may be a time-consuming process and can involve considerable practical difficulties, including the possibility that a tax refund may be denied for various reasons. Non-Resident Noteholders should consult their own tax advisors regarding the procedures required to be fulfilled in order to obtain a refund of Russian income tax which was excessively withheld at source.

Taxation of Interest Income on the Loan In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity or organisation having no permanent establishment in the Russian Federation are subject to Russian withholding income tax at a rate of 20% (or 30% in respect of non-resident individuals), subject to reduction or elimination pursuant to the terms of an applicable double tax treaty and applicable provisions of the Russian Tax Code (i.e. the ‘‘beneficial ownership’’ concept and the concept of ‘‘tax residency’’). However, the Russian Tax Code provides a specific release from the withholding tax obligation for interest income payable by a Russian legal entity on debt obligations arising in connection with the issuance of quoted bonds by foreign organisations resident in jurisdictions that have double tax treaties with the Russian Federation, provided that: (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer; and (2) the issuer duly confirms its tax residence. A debt obligation is treated as connected with the issuance of quoted bonds by a foreign organisation if this is explicitly stated in the agreement governing the relevant debt obligation, including the terms and conditions, and/or prospectus of issuance of quoted bonds, or if this fact is confirmed by the actual transfer of funds upon the issuance of the quoted bonds. For the purpose of the above exemption, the term ‘‘quoted bonds’’ mean bonds and other debt obligations which (1) passed the listing procedure and/or (2) were admitted to circulation on one or more foreign stock exchanges and/or (3) rights to which are recorded by a foreign depositary-clearing organisation, provided such foreign stock exchanges and depositary-clearing organisations are specified in the list of foreign financial intermediaries (the ‘‘List’’). The List, which became effective on 30 December 2012, includes the Irish Stock Exchange amongst the recognised foreign stock exchanges and Euroclear Bank SA/NV (‘‘Euroclear’’), Clearstream and the Depository Trust & Clearing Corporation (‘‘DTCC’’) amongst the recognised foreign depositary-clearing organisations. While Clearstream and DTCC are mentioned in the List, the List does not explicitly mention Clearstream Banking, societ´ e´ anonyme (‘‘Clearstream, Luxembourg’’) and the Depository Trust Company (‘‘DTC’’). According to the shareholding structure of Clearstream and DTCC groups, Clearstream, Luxembourg and DTC are member entities of Clearstream and DTCC groups respectively, and, therefore, Clearstream, Luxembourg and DTC are parts of Clearstream and DTCC respectively. However, there is a residual risk that the Russian tax authorities may apply a formalistic approach and take a position that Clearstream, Luxembourg and DTC are not included in the List based on the fact that they are not explicitly mentioned in the List. Criteria (1) and (2) should be satisfied in this case as the Notes will be listed on the Irish Stock Exchange. The Notes should also satisfy criterion (3) because the rights to the Notes will be held in Euroclear and Clearstream, Luxembourg and/ or DTC, which for the purposes of the Russian Tax Code essentially should mean that the rights to the Notes are ‘‘recorded’’ with one of the above foreign depositary-clearing organisations. According to the Russian Tax Code, in order to be treated as ‘‘quoted bonds’’ fulfilment of one of the above criteria is sufficient. Therefore, the Notes should be recognised as ‘‘quoted bonds’’ for purposes of the Russian Tax Code. NLMK, based on professional advice received, believes that it should not be obligated to withhold Russian withholding tax from interest payments made to the Issuer under the Loan Agreement because: (i) the Notes should be considered ‘‘quoted bonds’’ as described above; and (ii) the Loan is financed from the funds received from the issue of the Notes; provided the Issuer duly confirms its Irish tax residence. If the Notes are (i) delisted from the Irish Stock Exchange and (ii) exchanged for duly executed and authenticated registered Notes in definitive form in the limited circumstances specified in the Global Note

203 Certificate, the above exemption will not apply and NLMK will be required to withhold Russian withholding income tax from interest payments made by NLMK to the Issuer. In addition, if the Notes are delisted from the Irish Stock Exchange and deposited with a common depository for, and registered in the name of a nominee of, Clearstream, Luxembourg and/ or DTC only, then the Notes may potentially not fall within the definition of quoted bonds under the Russian Tax Code (as Clearstream, Luxembourg and DTC are not explicitly mentioned in the List), and therefore, there is a residual risk that NLMK may potentially be required to withhold Russian withholding tax from interest payments made by NLMK to the Issuer. Release from the tax agent duty effectively means that, in practice, income tax on interest payments under the Loan should not arise in the Russian Federation, because currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay the tax (provided that such legal entities are neither Russian tax residents, nor foreign entities, which are recognised as controlled by the Russian tax residents under the Russian CFC Rules). However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities would not seek to collect the tax from foreign income recipients. In addition, in the event that (a) until 31 December 2016 interest paid to the Issuer under the Loan Agreement and any other loans extended by the Issuer to fund other loan participation notes represent less than 90% of the total income of the Issuer and (b) starting from 1 January 2017, the Issuer’s interest expenses on the Notes (and on any other ‘‘quoted bonds’’ issued by the Issuer) represent less than 90% of the total expense of the Issuer in any financial year, there is a risk that tax residence rules established by the Russian Tax Code may be applied to the Issuer and the Issuer may be treated as a tax resident of the Russian Federation for Russian tax law purposes in case the Issuer is recognised as managed from the Russian Federation under applicable Russian tax law. In that case, payments of interest under the Notes made by the Issuer to the Noteholders could be recognised by Russian tax authorities as subject to Russian withholding tax at a rate of 20% (or 30% with respect to Non-Resident Noteholders—Individuals). However, the Russian Tax Code provides an exemption from the obligation to withhold tax from interest paid by a Russian organisation under ‘‘quoted bonds’’ issued in accordance with the legislation of the foreign jurisdiction (this exemption is also applicable to the foreign organisations, which are either recognised as Russian tax residents, or as those organisations, which activities are leading to creation of a permanent establishment in Russia). Based on the above, the Issuer should be released from the obligation to withhold Russian withholding tax from interest payments made to the Noteholders under the Notes provided that the Notes continue to be recognised as ‘‘quoted bonds’’ for the purposes of the Russian Tax Code as outlined above. If the payments under the Loan are subject to Russian withholding tax for any reason (as a result of which the Issuer may reduce payments made under the Notes by the amount of such withholding taxes), NLMK is required (subject to certain conditions) to increase payments under the Loan Agreement as may be necessary so that the Issuer (or the Noteholders, as applicable) receive a net amount equal to the full amount they would have received in the absence of such withholding. It should be noted, however, that it is currently unclear whether the provisions obliging NLMK to gross up interest payments under the Loan will be enforceable in the Russian Federation. There is a risk that a gross up for withholding tax will not take place and that the interest payments made by NLMK under the Loan Agreement will be reduced by the amount of the Russian income tax withheld by NLMK at the rate of 20% (or such other rate as may be in force at the time of payment) or, potentially, with respect to Non-Resident Noteholders—Individuals Russian personal income tax at a rate of 30% (or such other rate as may be in force at the time of payment). If NLMK is obliged to increase payments under the Loan Agreement, it may (without premium or penalty), subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes would be redeemable at par together with accrued and unpaid interest and additional amounts, if any, to the date of the redemption. No VAT will be payable in the Russian Federation in respect of interest and principal payments under the Loan.

CERTAIN IRISH TAX CONSIDERATIONS The following is a summary of the principal Irish tax consequences for individuals and companies of ownership of the Notes based on the laws and practice of the Irish Revenue Commissioners currently in force in Ireland and may be subject to change. It deals with Noteholders who beneficially own their Notes as an investment. Particular rules not discussed below may apply to certain classes of taxpayers holding

204 Notes, such as dealers in securities, trusts, etc. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Notes should consult their professional advisers on the tax implications of the purchase, holding, redemption or sale of the Notes and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile.

Taxation of Noteholders Withholding Tax In general, tax at the standard rate of income tax (currently 20 per cent.) is required to be withheld from payments of Irish source interest which should include interest payable on the Notes. The Issuer will not be obliged to make a withholding or deduction for or on account of Irish income tax from a payment of interest on a Note where: (a) the Notes are Quoted Eurobonds, i.e. securities which are issued by a company (such as the Issuer), which are listed on a recognised stock exchange (such as the Irish Stock Exchange) and which carry a right to interest; and (b) the person by or through whom the payment is made is not in Ireland, or if such person is in Ireland, either: (i) the Notes are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised); or (ii) the person who is the beneficial owner of the Notes is not resident in Ireland and has made a declaration to a relevant person (such as a paying agent located in Ireland) in the prescribed form; and (c) one of the following conditions is satisfied: (i) the Noteholder is resident for tax purposes in Ireland or, if not so resident, is otherwise within the charge to corporation tax in Ireland in respect of the interest; or (ii) the interest is subject, under the laws of a relevant territory, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which corresponds to income tax or corporation tax in Ireland and which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory; or (iii) the Noteholder is not a company which, directly or indirectly, controls the Issuer, is controlled by the Issuer, or is controlled by a third company which also directly or indirectly controls the Issuer, and neither the Noteholder, nor any person connected with the Noteholder, is a person or persons: i. from whom the Issuer has acquired assets; ii. to whom the Issuer has made loans or advances; or iii. with whom the Issuer has entered into a Swap Agreement, where the aggregate value of such assets, loans, advances or Swap Agreements represents not less than 75 per cent. of the aggregate value of the assets of the Issuer, or (iv) the Issuer is not aware at the time of the issue of any Notes that any Noteholder of those Notes is (i) a person of the type described in (c)(iii) above AND (ii) is not subject, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory, where for these purposes, the term ‘‘Relevant Territory’’ means a member state of the European Union (other than Ireland) or a country with which Ireland has signed a double tax treaty; and ‘‘Swap Agreement’’ means any agreement, arrangement or understanding that— (i) provides for the exchange, on a fixed or contingent basis, of one or more payments based on the value, rate or amount of one or more interest or other rates, currencies, commodities,

205 securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and (ii) transfers to a person who is a party to the agreement, arrangement or undertaking, or to a person connected with that person, in whole or in part, the financial risk associated with a future change in any such value, rate or amount without also conveying a current or future direct or indirect ownership interest in the asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred. Thus, so long as the Notes continue to be quoted on the Irish Stock Exchange are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised), and one of the conditions set out in paragraph (c) above is satisfied, interest on the Notes can be paid by any Paying Agent acting on behalf of the Issuer free of any withholding or deduction for or on account of Irish income tax. If the Notes continue to be quoted but cease to be held in a recognised clearing system, interest on the Notes may be paid without any withholding or deduction for or on account of Irish income tax provided such payment is made through a Paying Agent outside Ireland, and one of the conditions set out in paragraph (c) above is satisfied.

Encashment Tax In certain circumstances, Irish tax will be required to be withheld at the standard rate of income tax (currently 20 per cent.) from interest on any Note, where such interest is collected or realised by a bank or encashment agent in Ireland on behalf of any Noteholder. There is an exemption from encashment tax where the beneficial owner of the interest is not resident in Ireland and has made a declaration to this effect in the prescribed form to the encashment agent or bank.

Income Tax, PRSI and Universal Social Charge Notwithstanding that a Noteholder may receive interest on the Notes free of withholding tax, the Noteholder may still be liable to pay Irish tax with respect to such interest. Noteholders resident or ordinarily resident in Ireland who are individuals may be liable to pay Irish income tax, social insurance (PRSI) contributions and the universal social charge in respect of interest they receive on the Notes. Interest paid on the Notes may have an Irish source and therefore may be within the charge to Irish income tax, notwithstanding that the Noteholder is not resident in Ireland. In the case of Noteholders who are non-resident individuals such Noteholders may also be liable to pay the universal social charge in respect of interest they receive on the Notes. Ireland operates a self-assessment system in respect of tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope. There are a number of exemptions from Irish income tax available to certain non-residents. Firstly, interest payments made by the Issuer are exempt from income tax so long as the Issuer is a qualifying company for the purposes of Section 110 of the TCA, the recipient is not resident in Ireland and is resident in a Relevant Territory and, the interest is paid out of the assets of the Issuer. Secondly, interest payments made by the Issuer in the ordinary course of its trade or business to a company are exempt from income tax provided the recipient company is not resident in Ireland and is a company which is either resident for tax purposes in a Relevant Territory which imposes a tax that generally applies to interest receivable in that Relevant Territory by companies from sources outside that Relevant Territory and which tax corresponds to income tax or corporation tax in Ireland or, in respect of the interest is exempted from the charge to Irish income tax under the terms of a double tax agreement which is either in force or which is not yet in force but which will come into force once all ratification procedures have been completed. Thirdly, interest paid by the Issuer free of withholding tax under the quoted Eurobond exemption is exempt from income tax, where the recipient is a person not resident in Ireland and resident in a Relevant Territory or is a company not resident in Ireland which is under the control, whether directly or indirectly, of person(s) who by virtue of the law of a Relevant Territory are resident for the purpose of tax in a Relevant Territory and are not under the control of person(s) who are not so resident or is a company not resident in Ireland where the principal class of shares of the company or its 75% parent is substantially and regularly traded on a recognised stock exchange. For the purposes of these exemptions and where not specified otherwise, residence is determined under the terms of the relevant double taxation agreement or in any other case,

206 the law of the country in which the recipient claims to be resident. Interest falling within the above exemptions is also exempt from the universal social charge. Notwithstanding these exemptions from income tax, a corporate recipient that carries on a trade in Ireland through a branch or agency in respect of which the Notes are held or attributed, may have a liability to Irish corporation tax on the interest. Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient. Interest on the Notes which does not fall within the above exemptions is within the charge to income tax, and, in the case of Noteholders who are individuals, is subject to the universal social charge. In the past the Irish Revenue Commissioners have not pursued liability to income tax in respect of persons who are not regarded as being resident in Ireland except where such persons have a taxable presence of some sort in Ireland or seek to claim any relief or repayment in respect of Irish tax. However, there can be no assurance that the Irish Revenue Commissioners will apply this treatment in the case of any Noteholder.

Capital Gains Tax A Noteholder will not be subject to Irish tax on capital gains on a disposal of Notes unless such holder is either resident or ordinarily resident in Ireland or carries on a trade or business in Ireland through a branch or agency in respect of which the Notes were used or held.

Capital Acquisitions Tax A gift or inheritance comprising of Notes will be within the charge to capital acquisitions tax (which subject to available exemptions and reliefs, will be levied at 33 per cent.) if either (i) the disponer or the donee/successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/successor) on the relevant date or (ii) if the Notes are regarded as property situate in Ireland (i.e. if the Notes are physically located in Ireland or if the register of the Notes is maintained in Ireland)).

Stamp Duty No stamp duty or similar tax is imposed in Ireland (on the basis of an exemption provided for in Section 85(2)(c) of the Stamp Duties Consolidation Act, 1999 so long as the Issuer is a qualifying company for the purposes of Section 110 of the TCA and the proceeds of the Notes are used in the course of the Issuer’s business), on the issue, transfer or redemption of the Notes.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR US HOLDERS The following is a discussion of certain US federal income tax considerations relating to the purchase, ownership and disposition of the Notes by US Holders (as defined below) that purchase the Notes at their issue price (generally the first price at which a substantial amount of the Notes is sold for money, excluding sales to bond houses, brokers or similar persons or organisations acting in the capacity of underwriters, placement agents or wholesalers) pursuant to this Offering and hold such Notes as capital assets. This discussion is based on the US Internal Revenue Code of 1986, as amended (the ‘‘Code’’), US Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address all of the US federal income tax considerations that may be relevant to specific US Holders in light of their particular circumstances (including US Holders that are directly or indirectly related to the Issuer or NLMK) or to US Holders subject to special treatment under US federal income tax law (such as banks, insurance companies, dealers in securities or other US Holders that generally mark their securities to market for US federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, US Holders that hold a Note as part of a straddle, hedge, conversion or other integrated transaction or US Holders that have a ‘‘functional currency’’ other than the US dollar). This discussion does not address any US state or local or non-US tax considerations or any US federal estate, gift or alternative minimum tax considerations. This discussion also does not address the US federal income tax considerations that may be relevant to Holders that participate in the Tender Offer. Additionally, this discussion assumes that a substantial amount of the Notes that are sold pursuant to this Offering are purchased by Holders that do not participate in the Tender Offer.

207 As used in this discussion, the term ‘‘US Holder’’ means a beneficial owner of a Note that, for US federal income tax purposes, is (i) an individual who is a citizen or resident of the United States, (ii) a corporation created or organised in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to US federal income tax regardless of its source or (iv) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has in effect a valid election under applicable US Treasury regulations to be treated as a United States person. If an entity treated as a partnership for US federal income tax purposes invests in a Note, the US federal income tax considerations relating to such investment will depend in part upon the status and activities of such entity and the particular partner in such entity. Any such entity should consult its own tax adviser regarding the US federal income tax considerations applicable to it and its partners relating to the purchase, ownership and disposition of a Note. EACH PERSON CONSIDERING AN INVESTMENT IN THE NOTES SHOULD CONSULT ITS OWN TAX ADVISERS REGARDING THE US FEDERAL, STATE AND LOCAL AND NON-US INCOME, ESTATE AND OTHER TAX CONSIDERATIONS RELATING TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES.

Characterisation of the Notes There are no regulations, published rulings or judicial decisions addressing the characterisation for US federal income tax purposes of securities issued under substantially the same circumstances and with substantially the same terms as the Notes. To the extent that it is relevant, the Issuer intends to take the position that the Notes constitute debt for US federal income tax purposes. However, no ruling will be obtained from the US Internal Revenue Service (the ‘‘IRS’’) with respect to the characterisation of the Notes as debt, and there can be no assurance that the IRS or the courts would agree with this characterisation of the Notes. If, due to the capital structure of the Issuer or otherwise, the Notes were treated as equity interests in the Issuer, US Holders would be treated as owning interests in a ‘‘passive foreign investment company’’ (‘‘PFIC’’). Treatment of the Notes as equity interests in a PFIC could have adverse US federal income tax consequences to certain categories of US Holders. Accordingly, prospective investors should consult their own tax advisers regarding the characterisation of the Notes for US federal income tax purposes and the consequences of owning an equity interest in a PFIC. The remainder of this discussion assumes that the Notes will be treated as debt for US federal income tax purposes.

Interest on the Notes In general, interest payable on a Note (without reduction for any non-US tax withheld with respect to such payment) will be taxable to a US Holder as ordinary interest income when it is received or accrued, in accordance with such US Holder’s regular method of accounting for US federal income tax purposes. The Notes are not expected to be issued with more than de minimis OID. OID will be considered to be de minimis if it is less than 0.25% of the principal amount multiplied by the number of complete years to maturity of the Notes. However, if the Notes are issued with more than de minimis OID, each US Holder generally will be required to include OID in its income (as interest) as it accrues, regardless of its regular method of accounting for US federal income tax purposes, using a constant yield method, before such US Holder receives any payment attributable to such income. The remainder of this discussion assumes that the Notes are not issued with more than de minimis OID. Interest income on the Notes generally will be treated as income from sources outside the United States and generally will be categorised for US foreign tax credit purposes as ‘‘passive category income’’ or, in the case of some US Holders, as ‘‘general category income.’’ The rules relating to US foreign tax credits are very complex, and each US Holder should consult its own tax adviser regarding the application of such rules.

Sale, Exchange, Retirement or Other Disposition of the Notes Upon the sale, exchange, retirement or other disposition of a Note, a US Holder generally will recognise gain or loss in an amount equal to the difference between the amount realised on such sale, exchange, retirement or other disposition (which does not include any amount attributable to accrued stated interest, which, if not previously included in such US Holder’s income, will be taxable as interest income to such US

208 Holder) and such US Holder’s adjusted tax basis in such Note. Any gain or loss so recognised generally will be capital gain or loss and will be long-term capital gain or loss if such US Holder has held such Note for more than one year at the time of such sale, exchange, retirement or other disposition. Net long-term capital gain of certain non-corporate US Holders is generally subject to preferential rates of tax. The deductibility of capital losses is subject to limitations. Such gain or loss generally will be from sources within the United States.

Substitution of the Issuer If another entity is substituted in place of the Issuer as the obligor under the Notes, such substitution could be treated for US federal income tax purposes as a deemed exchange of the Notes for new securities of the new obligor. If such substitution were treated as a deemed exchange, a US Holder could be required to recognise gain or loss for US federal income tax purposes equal to the difference, if any, between the issue price of the new securities (as determined for US federal income tax purposes) and the US Holder’s adjusted tax basis in the Notes, with the consequences described above under the heading ‘‘—Sale, Exchange, Retirement or Other Disposition of the Notes’’, and such new securities could have OID or premium. US Holders should consult their own tax advisers as to the US federal income tax considerations relating to a substitution of the obligor under the Notes.

Medicare Tax In addition to regular US federal income tax, certain US Holders that are individuals, estates or trusts are subject to a 3.8 per cent. tax on all or a portion of their ‘‘net investment income,’’ which may include all or a portion of their interest income with respect to, and net gain from the sale, exchange, retirement or other disposition of, a Note.

Information Reporting and Backup Withholding Under certain circumstances, information reporting and/or backup withholding may apply to a US Holder with respect to payments of interest on, or proceeds from the sale, exchange, retirement or other disposition of, a Note, unless an applicable exemption is satisfied. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a US Holder’s US federal income tax liability if the required information is furnished by such US Holder on a timely basis to the IRS.

Disclosure Requirements for Specified Foreign Financial Assets Individual US Holders (and certain US entities specified in US Treasury Department guidance) who, during any taxable year, hold any interest in any ‘‘specified foreign financial asset’’ generally will be required to file with their US federal income tax returns certain information on IRS Form 8938 (or any successor form) if the aggregate value of all such assets exceeds certain specified amounts. ‘‘Specified foreign financial asset’’ generally includes any financial account maintained with a non-US financial institution and may also include the Notes if they are not held in an account maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations on assessment and collection of US federal income taxes may be extended, in the event of a failure to comply. US Holders should consult their own tax advisers as to the possible application to them of this filing requirement.

CERTAIN CONSIDERATIONS UNDER THE US FOREIGN ACCOUNT TAX COMPLIANCE ACT Under the Foreign Account Tax Compliance Act provisions of the Code and related US Treasury guidance (‘‘FATCA’’), a withholding tax of 30% will be imposed in certain circumstances on (i) payments of certain US source income (including interest and dividends) and gross proceeds from the sale or other disposition of property that can produce US source interest or dividends (‘‘withholdable payments’’) and (ii) payments by certain foreign financial institutions (such as banks, brokers, investment funds or certain holding companies) (‘‘FFIs’’) that agree to comply with FATCA (‘‘participating FFIs’’) that are attributable to withholdable payments (‘‘foreign passthru payments’’). As the US Treasury has not yet issued regulations defining foreign passthru payments (‘‘passthru payments regulations’’), it is uncertain at present when payments will be treated as ‘‘attributable’’ to withholdable payments. FATCA withholding on foreign passthru payments generally will not apply to obligations that are issued on or before the date that is six months after the date on which the final passthru payment regulations are filed with the US Federal

209 Register unless such obligations are materially modified after that date or are treated as equity for US federal income tax purposes. It is possible that, in order to comply with FATCA, the Issuer (or if the Notes are held through an FFI, such FFI) may be required, pursuant to the intergovernmental agreement between the United States and Ireland or any law enacted in connection with such agreement, an agreement with the United States (an ‘‘FFI Agreement’’) or under applicable non-US law enacted in connection with an intergovernmental agreement between the United States and another jurisdiction (an ‘‘IGA’’) to request certain information and documentation from the holders or beneficial owners of the Notes, which may be provided to the home tax authorities of the Issuer or other FFI or to the IRS. In addition, (i) if the Notes are treated as debt for US federal income tax purposes and the terms of the Notes are materially modified, including by substitution of another obligor for the Issuer, on a date more than six months after the date on which the passthru payment regulations are filed or (ii) if the Notes are treated as equity for US federal income tax purposes, then it is possible that the FATCA withholding tax could apply to any payment with respect to the Notes treated as a foreign passthru payment made after the later of (a) 31 December 2018 and (b) the date on which the passthru payment regulations are published if any required information or documentation is not provided or if payments are made to certain FFIs that have not agreed to comply with an FFI Agreement (and are not subject to similar requirements under applicable non-US law enacted in connection with an IGA). The Issuer will not have any obligation to gross up or otherwise pay additional amounts for any withholding or deduction required with respect to payments on the Notes under or in connection with FATCA. FATCA is particularly complex and its application is uncertain at this time. The above description is based in part on regulations, official guidance and model IGAs, all of which are subject to change or may be implemented in a materially different form. Each non-US person considering an investment in the Notes should consult its own tax advisers regarding the application of FATCA to the Notes.

210 SUBSCRIPTION AND SALE Each of Deutsche Bank AG, London Branch, ING Bank N.V., London Branch, J.P. Morgan Securities plc and Societ´ e´ Gen´ erale´ (together the ‘‘Joint Lead Managers’’ and each a ‘‘Joint Lead Manager’’) have, in a subscription agreement dated 10 June 2016 (the ‘‘Subscription Agreement’’) among the Issuer, NLMK and the Joint Lead Managers upon the terms and subject to the conditions contained therein, severally and not jointly, agreed to subscribe and pay for the Notes at their issue price of 100 per cent. of their principal amount. The Joint Lead Managers shall make any offers and sales into the United States, to the extent necessary, through their US registered broker-dealer affiliates as permitted by FINRA regulations. The Joint Lead Managers are entitled to commissions and reimbursement of certain expenses pursuant to the Subscription Agreement. The Joint Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes.

Selling Restrictions United States The Notes and the Loan have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, US persons, except in certain transactions exempt from the registration requirements of the Securities Act. Each Joint Lead Manager has agreed, severally and not jointly, that, except as permitted by the Subscription Agreement, it will not offer or sell the Notes (1) as part of its distribution at any time or (2) otherwise until 40 days after completion of the distribution compliance period within the United States to, or for the account or benefit of, US persons, and it will have sent to each dealer to which it sells Notes (other than a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, US persons. Terms used in this paragraph have the meanings given to them by Regulation S. Each Joint Lead Manager has agreed, severally and not jointly, that neither it nor any of its affiliates (as defined in Rule 501(b) of Regulation D, nor any person acting on its or their behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer and sale of the Notes in the United States. The Joint Lead Managers only may directly or through their respective US broker-dealer affiliates arrange for the offer and resale of the Notes in the United States only to QIBs in accordance with Rule 144A. The Notes are being offered and sold outside of the United States in reliance on Regulation S. The Subscription Agreement provides that the Joint Lead Managers may directly or through their respective US broker-dealer affiliates arrange for the offer and resale of Notes in the United States only to persons whom they reasonably believe are QIBs that are also QPs who can represent that (a) they are QPs who are QIBs within the meaning of Rule 144A; (b) they are not broker-dealers that own and invest on a discretionary basis less than US$25 million in securities of unaffiliated issuers; (c) they are not participant directed employee plans, such as a 401(k) plan; (d) they are acting for their own account, or the account of one or more QIBs each of which is also a QP; (e) they are not formed for the purpose of investing in the Issuer or the Notes; (f) each account for which they are purchasing will hold and transfer at least US$200,000 in principal amount of Notes at any time; (g) they understand that the Issuer may receive a list of participants holding positions in its securities from one or more book-entry depositaries; and (h) they will provide notice of the transfer restrictions set forth in this Prospectus to any subsequent transferees. In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of Notes within the United States by a dealer that is 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. The Issuer and the Joint Lead Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Prospectus does not constitute an offer to any person in the United States or to any US person other than any QIB who is also a QP and to whom an offer has been made directly by one of the Joint Lead Managers or its US broker-affiliate. Distribution of this Prospectus by any non-US person outside the United States or by any QIB who is also a QP within the United States to any

211 US person or any person within the United States other than any QIB who is also a QP, and those persons, if any, retained to advise such person outside the United States or QIB who is also a QP with respect thereto, is unauthorised and any disclosure without the prior written consent of the Issuer of any of its contents to any such US person or any person within the United States other than any QIB who is also a QP and those persons, if any, retained to advise such non-US person outside the United States or QIB who is also a QP, is prohibited.

United Kingdom Each Joint Lead Manager has severally and not jointly nor jointly and severally represented and agreed that: • 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 Financial Services and Markets Act 2000 (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; and • 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.

Russian Federation Each Joint Lead Manager has severally 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.

Ireland Each Joint Lead Manager has represented and agreed that: (a) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 (Nos. 1 to 3) (as amended, the ‘‘MiFID Regulations’’), including, without limitation, Regulations 7 (Authorisation) and 152 (Restrictions on advertising) thereof, any codes of conduct made under the MiFID Regulations, and the provisions of the Investor Compensation Act 1998 (as amended); (b) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the Companies Act 2014 (as amended, the ‘‘Companies Act’’), the Central Bank Acts 1942–2014 (as amended) and any codes of practice made under Section 117(1) of the Central Bank Act 1989 (as amended); (c) it will not underwrite the issue of, or place, or do anything in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Prospectus (Directive 2003/71/EC) Regulations 2005 (as amended) and any rules issued by the Central Bank under Section 1363 of the Companies Act; and (d) it will not underwrite the issue of, place or otherwise act in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Market Abuse (Directive 2003/6/EC) Regulations 2005 (as amended) (as replaced with effect from 3 July 2016 by the Market Abuse Regulation (EU 596/2014)) and any rules issued by the Central Bank under Section 1370 of the Companies Act.

Allocation of the Notes The Issuer together with NLMK will, in connection with allocation of the Notes in the Offering, consider among other factors whether or not the relevant investor seeking an allocation of the Notes has validly tendered or indicated a firm intention to tender the Existing Notes pursuant to the Tender Offer, and if so, the aggregate principal amount of such Existing Notes tendered or intended to be tendered by such investor. When considering allocations of the Notes, the Issuer together with NLMK intends to look favourably upon those investors who have, prior to the allocation of the Notes, tendered, or indicated their intention to the Issuer and/or NLMK or the Joint Dealer Managers pursuant to the Tender Offer to tender, the Existing Notes. However, neither the Issuer nor NLMK is obliged to allocate the Notes to an investor which has validly tendered or indicated a firm intention to tender the Existing Notes pursuant to

212 the Tender Offer. Any allocations of the Notes, while being considered by the Issuer and NLMK as set out above, will be made in accordance with customary allocation processes and procedures.

General Each Joint Lead Manager has agreed that it has, to the best of its knowledge and belief, complied and will comply with applicable laws and regulations in each jurisdiction in which it offers, sells or delivers Notes or distributes this Prospectus or any other offering or publicity material relating to the Notes, the Issuer or NLMK. No action has or will be taken in any jurisdiction by the Issuer, NLMK or any of the Joint Lead Managers that would, or is intended to, permit a public offer of the Notes or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Accordingly, each Joint Lead Manager has undertaken to the Issuer and NLMK that it will not, directly or indirectly, offer or sell any Notes or distribute or publish this Prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms. These selling restrictions may be modified by the agreement of the Issuer, NLMK and the Joint Lead Managers following a change in a relevant law, regulation or directive. The Joint Lead Managers and their respective affiliates have engaged in transactions with NLMK and other members of the Group (including, in some cases, credit agreements and credit lines) in the ordinary course of their banking business and the Joint Lead Managers performed various investment banking, financial advisory, and other services for NLMK, for which they received customary fees, and the Joint Lead Managers and their respective affiliates may provide such services in the future.

213 INDEPENDENT AUDITORS The Group’s consolidated financial statements as of and for the years ended 31 December 2015 and 2014 included in this Prospectus have been audited by AO PricewaterhouseCoopers Audit, independent auditors, as stated in their reports appearing elsewhere in this Prospectus. AO PricewaterhouseCoopers Audit is a member of the Audit Chamber of Russia (Auditorskaya Palata Rossii). With respect to the unaudited interim condensed consolidated financial statements of the Group as of 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 2015 included in this Prospectus, AO PricewaterhouseCoopers Audit reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated 16 May 2016 and appearing elsewhere in this Prospectus states that they did not audit and they do not express an opinion on the unaudited interim condensed consolidated financial statements of the Group as of 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 2015. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied.

214 GENERAL INFORMATION 1. NLMK was incorporated in the Russian Federation on January 28, 1993, as a joint stock company for an unlimited duration. NLMK operates under the laws of the Russian Federation. NLMK has its registered office at Pl. Metallurgov 2, Lipetsk 398040, Russian Federation, with state registration number 1024800823123, and its telephone number is +7 4742 44-00-41. 2. The Notes have been accepted for clearance through Euroclear, Clearstream, Luxembourg and DTC. The Common Code and the ISIN numbers for the Regulation S Notes are 140577561 and XS1405775617, respectively. The Common Code, CUSIP and ISIN numbers for the Rule 144A Notes are 098266844, 85812PAC7 and US85812PAC77, respectively. 3. It is expected that admission of the Notes to trading on the Main Securities Market of the Irish Stock Exchange will be granted on or before 15 June 2016, subject only to the issue of the Notes. Transactions will normally be effected for settlements in US dollars and for delivery on the third business day after the day of the transaction. 4. The estimated expenses associated with the admission to trading on the regulated market of the Irish Stock Exchange of the Notes are expected to be approximately EUR 7,000. 5. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Main Securities Market, through the Listing Agent, Arthur Cox Listing Services Limited (‘‘ACLSL’’). ACLSL is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission to the Official List or trading on the Main Securities Market for the purposes of the Prospectus Directive. 6. Hard copies of the following documents may be inspected at the registered office of the Issuer and the specified offices of the Principal Paying Agent during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for the life of the Prospectus: • a copy of this Prospectus, together with any supplement to this Prospectus; • the constitution of the Issuer; • the charter of NLMK (English translation); • the Annual Consolidated Financial Statements, including the independent auditor’s reports thereon, and the Interim Consolidated Financial Statements, including the review report thereon; • the Loan Agreement; • the Paying Agency Agreement; • the Trust Deed, which includes the forms of the Global Certificates and the Definitive Certificates; and • the audited financial statements of the Issuer in respect of the financial years ended 31 December 2015 and 2014. 7. The issue of the Notes and the entry into the Loan Agreement was authorised by a decision of the Board of Directors of the Issuer on 27 May 2016. 8. No consents, approvals, authorisations or orders of any regulatory authorities are required by the Issuer under the laws of the Ireland for maintaining the Loan or for issuing the Notes. 9. Since 31 December 2015, the date of the last published audited financial statements of the Issuer, there has been no material adverse change in the financial position or prospects of the Issuer. The Issuer has no subsidiaries. 10. Save for the fees payable to the Joint Lead Managers, the Trustee and the Agents, so far as the Issuer is aware, no person involved in the issue of the Notes has an interest that is material to the issue of the Notes. 11. There has been no significant change in the financial or trading position of NLMK or of the Group since 31 March 2016 and no material adverse change in the financial position or prospects of NLMK or of the Group since 31 December 2015. 12. There has been no material adverse change in the prospects of the Issuer and no significant change in the financial or trading position of the Issuer since 31 December 2015.

215 13. There have been no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which any of the Issuer is aware), during the previous 12 months in relation to the Issuer which may have, or have had in the recent past, significant effects on the Issuer’s financial position or profitability. 14. NLMK has obtained all necessary consents, approvals and authorisations in the Russian Federation in connection with its entry into, and performance of its obligations under, the Loan Agreement. 15. Deutsche Bank Luxembourg S.A. will act as Registrar in relation to the Regulation S Notes. Deutsche Bank Trust Company Americas will act as Registrar in relation to the Rule 144A Notes. 16. The loan to value ratio of the Notes is 100 per cent. 17. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a trustee in office after such removal. Furthermore, the Trust Deed provides, inter alia, that the Trustee may act and/or rely on the opinion or advice of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant, auditor or other expert (whether or not addressed to the Trustee), notwithstanding that such opinion, advice, certificate or information contains a monetary or other limit on the liability of any of the above mentioned persons in respect thereof. 18. The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. 19. The Issuer does not intend to provide any post-issuance transaction information regarding the Notes or the Loan.

216 GLOSSARY OF TERMS

Term or expression Meaning TECHNOLOGY Beneficiation ...... a variety of processes whereby extracted ore from mining is separated into mineral (for further processing or direct use) and gangue (the commercially worthless part of the ore). Blast furnace ...... Facility for converting prepared iron ore into liquid iron (pig iron). It works on the counter flow principle: the charge, consisting of iron ore (including iron ore concentrate and pellets) and coke, is introduced from the top—usually via a rotary chute. The hot blast flows in the opposite direction. The blast is pre-heated in stoves and injected into the furnace through tuyeres. Coke is used as reduction agent. Depending on charge and method of operation, different types of pig iron can be produced. A blast furnace remains in operation for many years (furnace campaign). Blast furnace by-products are blast furnace gas and blast furnace slag. Basic oxygen furnace (BOF)/ Converter ...... In the basic oxygen furnace, molten iron is made into steel. Oxygen is injected to drive out carbon and other impurities dissolved in the melt. This process generates a lot of heat, so scrap is added to keep the melt at around 1700C. The resulting crude steel is then further purified, alloyed in subsequent secondary metallurgy processes, or brought directly to the casting process. Ladle furnace ...... The facility used to maintain and adjust the temperature of liquid steel during processing after tapping from the BOF (or EAF). This also allows the molten steel to be kept ready for use in the event of a delay later in the steelmaking process. Vacuum degassing ...... Vacuum degassing involves exposing the liquid steel to vacuum to improve its properties by reducing the content of gases (hydrogen and oxygen) and the amount of non-metallic inclusions. Continuous casting ...... This is the process of continuously producing billets or slabs from liquid steel that is poured from a ladle, through a tundish into a cast or mould. Electric Arc Furnace (EAF) .... A method of producing steel through the melting of recycled steel and other sources of iron (pig iron, pellets, etc.) using electricity as a key energy source. Hot-rolling ...... The process of plastically deforming a hot slab into coil of specified thickness by passing it between rolls at a relatively high temperature. Cold-rolling ...... Changes in the structure and shape of steel achieved through rolling the steel at a low temperature (often room temperature). It is used to create a permanent increase in the hardness and strength of the steel. It is affected by the application of forces to the steel, which cause changes in the composition, enhancing certain properties. In order for these improvements to be sustained, the temperature must be below a certain range because the structural changes in the steel are eliminated at higher temperatures. Pickling ...... Removing surface oxides from metals by a chemical reaction. Hot dip galvanising ...... A process whereby steel is dipped into molten zinc or zinc alloy. The process can be performed continuously (by running steel strip through the molten metal) or in batches (by dipping complete products such as automobile bodies or gates into a metal bath).

217 Term or expression Meaning Pre-painting line ...... The method for applying organic coating involves the chemical treatment of the strip, followed by passing the strip through rolls to apply the paint and the subsequent thermal treatment of the strip to polymerize the paint. The goal is to apply the coating evenly in a short process, to obtain a uniform surface and the required coating thickness. Quenched and tempered steel . . . Quenching and tempering lines are used for the thermal treatment of thick plates. Quenching is a heat treatment process involving heating steel to above the crystal structure transformation temperature, followed by rapid cooling. This improves the hardness of steel, but increases brittleness and makes it less ductile. Tempering is used after quenching to reduce brittleness and improve ductility and involves reheating the steel and then allowing it to cool slowly. As a result, ductility is improved, brittleness is reduced and the required hardness is achieved. Such steels are used to manufacture low-wear mechanism components (i.e. excavator buckets, etc.). Quarto Mill ...... A four-roll mill with rolls positioned in one vertical plane, two of which are interior and smaller in diameter (work rolls) and two are exterior and larger in diameter (back-up rolls). RAW MATERIALS AND SEMI-FINISHED PRODUCTS Coke ...... The basic fuel consumed in blast furnaces in the smelting of iron. Coke is a processed form of coking coal concentrate. Iron ore concentrate ...... Iron ore containing the valuable minerals of an ore from which most of the waste material has been removed by various treatment processes. Iron (Fe) content: 66.5%. Pellets ...... An enriched form of iron ore shaped into small balls used in the steelmaking processes. Fe content: 65%. Fluxes ...... Materials added to the charge to form slag and regulate its composition. Scrap (ferrous) ...... Ferrous (iron-containing) material that is generally remelted in electric arc furnaces. Steel mills also use scrap for up to 25% of their basic oxygen furnace charge. Scrap is waste steel, prepared for recycling. Sinter ...... A product of sintering iron-bearing particles under high temperature into chunks to remove impurities and agglomerate small fractions of iron ores and concentrates. Alloy ...... A material with metallic properties consisting of several chemical elements. Changing the composition and hence the microstructure of alloys enables the targeted engineering of desired material properties. Crude Steel ...... Steel in its primary form of hot molten metal. Slab ...... Rectangular block of steel, product of the casting process in the melt shop, used as a starting material in the rolling mills to produce hot strip. Pig iron ...... An alloy of iron and carbon that is produced in a blast furnace.

218 Term or expression Meaning Billet ...... A semi-finished steel form that is used for long steel products such as bars, channels, wire rod or other structural shapes. OTHER High value added products ..... finished high value added steel products, including hot-rolled plates (‘‘HRPs’’), cold-rolled steel, galvanized and pre-painted steel, electrical grain-oriented (transformer) and non-grain-oriented (dynamo) steel and metalware. Lipetsk site ...... The main production facility of NLMK Russia located in Lipetsk (Novolipetsk).

219 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT 31 MARCH 2016 AND 31 DECEMBER 2015 AND FOR THE THREE MONTHS ENDED 31 MARCH 2016 AND 31 MARCH 2015 Report on review of interim condensed consolidated financial statements ...... F-4 Interim condensed consolidated statement of financial position ...... F-5 Interim condensed consolidated statement of profit or loss ...... F-6 Interim condensed consolidated statement of comprehensive income ...... F-7 Interim condensed consolidated statement of changes in equity ...... F-8 Interim condensed consolidated statement of cash flows ...... F-9 Notes to the interim condensed consolidated financial statements ...... F-10 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2015 Independent auditor’s report ...... F-23 Consolidated statement of financial position ...... F-25 Consolidated statement of profit or loss ...... F-26 Consolidated statement of comprehensive income ...... F-27 Consolidated statement of changes in equity ...... F-28 Consolidated statement of cash flows ...... F-29 Notes to the consolidated financial statements ...... F-31 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF NOVOLIPETSK STEEL AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2014 Independent auditor’s report ...... F-88 Consolidated statement of financial position ...... F-89 Consolidated statement of profit or loss ...... F-90 Consolidated statement of comprehensive income ...... F-91 Consolidated statement of changes in equity ...... F-92 Consolidated statement of cash flows ...... F-93 Notes to the consolidated financial statements ...... F-94

F-1

NOVOLIPETSK STEEL

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

AS AT 31 MARCH 2016 AND 31 DECEMBER 2015 AND FOR THE THREE MONTHS ENDED 31 MARCH 2016 AND 31 MARCH 2015 (UNAUDITED)

F-2 Novolipetsk Steel Interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited)

CONTENTS

Report on review of interim condensed consolidated financial statements 3 Interim condensed consolidated statement of financial position 4 Interim condensed consolidated statement of profit or loss 5 Interim condensed consolidated statement of comprehensive income 6 Interim condensed consolidated statement of changes in equity 7 Interim condensed consolidated statement of cash flows 8 Notes to the interim condensed consolidated financial statements 9

F-3 Report on Review of Interim Condensed Consolidated Financial Statements

To the Shareholders and Board of Directors of Novolipetsk Steel

Introduction We have reviewed the accompanying interim condensed consolidated statement of financial position of Novolipetsk Steel and its subsidiaries (the “Group”) as of 31 March 2016 and the related interim condensed consolidated statements of profit or loss, comprehensive income, changes in equity and of cash flows for the three-month period then ended. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard 34, “Interim Financial Reporting”. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, “Interim Financial Reporting”.

16 May 2016 Moscow, Russian Federation

AO PricewaterhouseCoopers Audit, 10 Butyrsky Val, Moscow, Russian Federation, 125047 T: +7 495 967 6000, F: +7 495 967 6001, www.pwc.ru F-4 Novolipetsk Steel Interim condensed consolidated statement of financial position as at 31 March 2016 (unaudited) and 31 December 2015 (millions of US dollars)

As at As at Note 31 March 2016 31 December 2015 Assets

Current assets Cash and cash equivalents 4 545.8 343.0 Short-term financial investments 5 1,153.1 1,242.6 Trade and other accounts receivable 6 1,006.4 920.9 Inventories 7 1,086.9 1,205.3 Other current assets 12.6 8.8 3,804.8 3,720.6 Non-current assets Long-term financial investments 5 227.5 219.8 Investments in associates and other companies accounted for using the equity method of accounting 5 102.8 117.7 Property, plant and equipment 8 4,784.2 4,452.3 Goodwill 9 229.5 214.6 Other intangible assets 9 118.8 112.3 Deferred income tax assets 77.7 68.2 Other non-current assets 17.7 13.9 5,558.2 5,198.8 Total assets 9,363.0 8,919.4

Liabilities and equity

Current liabilities Accounts payable and other liabilities 10 663.5 726.4 Short-term borrowings 11 597.0 559.8 Current income tax liability 28.2 27.7 1,288.7 1,313.9 Non-current liabilities Long-term borrowings 11 2,068.9 2,116.3 Deferred income tax liability 360.2 339.3 Other long-term liabilities 12.6 12.2 2,441.7 2,467.8 Total liabilities 3,730.4 3,781.7

Equity attributable to NLMK shareholders Common stock 221.2 221.2 Additional paid-in capital 9.9 9.9 Accumulated other comprehensive loss (6,550.9) (6,988.4) Retained earnings 11,940.3 11,883.4 5,620.5 5,126.1 Non-controlling interests 12.1 11.6 Total equity 5,632.6 5,137.7 Total liabilities and equity 9,363.0 8,919.4

The interim condensed consolidated financial statements as set out on pages 4 to 19 were approved on 16 May 2016.

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. F-5 Novolipetsk Steel Interim condensed consolidated statement of profit or loss for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars, unless otherwise stated)

For the three For the three months ended months ended Note 31 March 2016 31 March 2015

Revenue 15 1,576.9 2,215.7 Cost of sales (1,167.2) (1,430.4)

Gross profit 409.7 785.3

General and administrative expenses (54.4) (64.5) Selling expenses (146.8) (202.7) Other operating income / (expenses) (3.1) 3.3 Taxes, other than income tax (16.4) (20.3)

Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets 189.0 501.1

Gain / (loss) on disposals of property, plant and equipment 0.9 (1.4) Impairment losses and write-off of assets (2.1) (0.1) Share in net losses of associates and other companies accounted for using the equity method (16.1) (23.0) Gains on investments 5 - 59.7 Finance income 10.3 11.6 Finance costs (20.3) (26.7) Foreign currency exchange loss, net 13 (65.8) (109.1) Other expenses, net (19.0) (16.2)

Profit before income tax 76.9 395.9

Income tax expense 14 (20.5) (74.8)

Profit for the period 56.4 321.1

Profit / (loss) attributable to: NLMK shareholders 56.9 320.4 Non-controlling interests (0.5) 0.7

Earnings per share – basic and diluted:

Earnings attributable to NLMK shareholders per share (US dollars) 0.0095 0.0535

Weighted-average shares outstanding: basic and diluted (in thousands) 12 5,993,227 5,993,227

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. F-6 Novolipetsk Steel Interim condensed consolidated statement of comprehensive income for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

For the three For the three months ended months ended Note 31 March 2016 31 March 2015

Profit for the period 56.4 321.1

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

Cumulative translation adjustment 438.5 (151.3)

Total comprehensive income for the period attributable to 494.9 169.8 NLMK shareholders 494.4 169.7 Non-controlling interests 0.5 0.1

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. F-7 Novolipetsk Steel Interim condensed consolidated statement of changes in equity for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

NLMK shareholders Accumulated other Additional comprehensive Retained Non-controlling Note Common stock paid-in capital loss earnings interest Total equity

Balance at 31 December 2014 221.2 - (5,491.9) 11,512.7 14.7 6,256.7

Profit for the period - - - 320.4 0.7 321.1

Cumulative translation adjustment - - (150.7) - (0.6) (151.3)

Balance at 31 March 2015 221.2 - (5,642.6) 11,833.1 14.8 6,426.5

Balance at 31 December 2015 221.2 9.9 (6,988.4) 11,883.4 11.6 5,137.7

Profit for the period - - - 56.9 (0.5) 56.4

Cumulative translation adjustment - - 437.5 - 1.0 438.5

Balance at 31 March 2016 221.2 9.9 (6,550.9) 11,940.3 12.1 5,632.6

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. F-8 Novolipetsk Steel Interim condensed consolidated statement of cash flows for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

For the three For the three months ended months ended Note 31 March 2016 31 March 2015

Cash flows from operating activities Profit for the period 56.4 321.1 Adjustments to reconcile profit for the period to net cash provided by operating activities: Depreciation and amortization 101.2 139.8 (Gain) / loss on disposals of property, plant and equipment (0.9) 1.4 Gains on investments - (59.7) Finance income (10.3) (11.6) Finance costs 20.3 26.7 Equity in net losses of associates and other companies accounted for using the equity method 16.1 23.0 Deferred income tax (benefit) / expense (10.2) 2.5 Impairment losses and write-off of assets 2.1 0.1 Unrealized losses on foreign currency exchange 75.5 48.1 Other adjustments 7.2 8.3 Changes in operating assets and liabilities Increase in trade and other accounts receivable (55.6) (52.9) Decrease in inventories 173.5 101.0 Increase in other current assets (2.8) (4.8) Increase / (decrease) in trade and other accounts payable 50.1 (25.9) Decrease in current income tax liability (1.5) (28.1) Net cash provided by operating activities 421.1 489.0

Cash flows from investing activities Purchases and construction of property, plant and equipment (120.5) (115.6) Proceeds from sale of property, plant and equipment 2.0 1.1 Purchases of investments and loans given, net - (54.8) Withdrawal / (placement) of bank deposits, net 103.9 (90.8) Interest received 3.4 6.7 Contribution to share capital of a company accounted for using the equity method - (22.0) Change in advance VAT payments on imported equipment 2.2 - Net cash used in investing activities (9.0) (275.4)

Cash flows from financing activities Proceeds from borrowings 13.3 42.1 Repayment of borrowings (59.9) (137.0) Interest paid (31.7) (34.5) Dividends to shareholders (153.1) - Net cash used in financing activities (231.4) (129.4) Net increase in cash and cash equivalents 180.7 84.2 Effect of exchange rate changes on cash and cash equivalents 22.1 (18.9) Cash and cash equivalents at the beginning of the year 4 343.0 549.2 Cash and cash equivalents at the end of the period 4 545.8 614.5

Supplemental disclosures of cash flow information:

Cash paid during the period for: Income tax (31.2) (104.0) Placements of bank deposits (167.2) (139.8) Withdrawals of bank deposits 271.1 49.0

The accompanying notes constitute an integral part of these interim condensed consolidated financial statements. F-9 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

1 Background

Novolipetsk Steel (the “Parent Company”) and its subsidiaries (together – the “Group”) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Group is vertically integrated steel company and the largest steel producer in Russia. The Group also operates in the mining segment.

The Group’s main operations are in the Russian Federation, the European Union and the USA and are subject to the legislative requirements of the subsidiaries’ state and regional authorities. The Parent Company’s registered office is located at 2, Metallurgov sq., 398040, Lipetsk, Russian Federation.

2 Basis of preparation

These unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” and should be read in conjunction with the audited consolidated financial statements of the Group as at and for the year ended 31 December 2015, which have been prepared in accordance with IFRSs.

The functional currency of all of the Group’s Russian entities is considered to be the Russian ruble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars as presentation currency for users’ convenience.

Starting January 2016 the Group translates income and expenses into the presentation currency using weighted average exchange rates for each month. The Central Bank of the Russian Federation’s Russian ruble to US dollar closing rates of exchange as at the reporting dates and the period weighted average exchange rates for corresponding quarters of reporting periods are indicated below. 2016 2015

For the 1st quarter 74.6283 62.1919 As at 31 March 67.6076 58.4643 As at 31 December 72.8827

3 Significant accounting policies

The accounting policies applied are consistent with those of the consolidated financial statements for the year ended 31 December 2015. Amendments to IFRSs effective for the year ending 31 December 2016 are not expected to have a material impact on the Group.

F-10 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

4 Cash and cash equivalents

As at As at 31 March 2016 31 December 2015

Cash Russian rubles 20.8 20.4 US dollars 288.8 99.0 Euros 130.0 41.2 Other currencies 3.7 1.7

Deposits Russian rubles 24.1 29.6 US dollars 65.0 140.3 Euros 12.4 - Other currencies 0.6 10.7

Other cash equivalents 0.4 0.1

545.8 343.0

5 Investments

Classification of investments in the interim condensed consolidated statement of financial position: As at As at 31 March 2016 31 December 2015 Short-term financial investments Loans to related parties (Note 16(c)) 70.6 65.4 Bank deposits, including: 1,071.9 1,171.7 - Russian rubles - 14.8 - US dollars 1,026.0 1,090.7 - Euros 45.9 66.2 - other currencies - - Other short-term financial investments 10.6 5.5

1,153.1 1,242.6

Long-term financial investments Loans to related parties (Note 16(c)) 227.5 219.7 Bank deposits and other long-term financial investments - 0.1

227.5 219.8

Total investments 1,380.6 1,462.4

F-11 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

5 Investments (continued)

Investments in associates and other companies accounted for using the equity method of accounting As at As at 31 March 2016 31 December 2015 As at As at Ownership Ownership 31 March 2016 31 December 2015

NLMK Belgium Holdings S.A. 51.0% 51.0% 93.4 108.8 TBEA & NLMK (Shenyang) Metal Product Co., Ltd. 50.0% 50.0% 9.4 8.9

102.8 117.7

In September 2013, the Belgium state-owned company Walloon Region-owned Societe Wallonne de Gestion et de Participations S.A. (“SOGEPA”) and the Group signed an option agreement, which provided call options for the Group and put options for SOGEPA over its 20.5% stake (5.1% of the common shares of NLMK Belgium Holdings S.A. (“NBH”) in each of 2016, 2017 and 2018, and any remaining stake after 2023). Under the option agreement the exercise price was based on the book value of NBH net assets, subject to a minimum value of 20.5% of the shares of EUR 91.1 million plus fixed interest. The options have been valued using standard, market- based valuation techniques and the level 3 inputs.

In March 2015, the Group and SOGEPA have signed an agreement providing for the increase of SOGEPA’s stake in NBH from 20.5% to 49% and on further joint management of NBH’s businesses. The Group’s and SOGEPA’s existing respective put and call options over the SOGEPA shares were terminated. The Group reflected a disposal of 28.5% stake in NBH (loss on the disposal amounting to $21.1) and derecognition of the options previously included in other long-term liabilities (gain amounting to $76.0) in “Gains / (losses) on investments” line of the interim condensed consolidated statement of profit or loss for the three months ended 31 March 2015 in the total amount of $54.9. In accordance with the agreement the Group and SOGEPA made additional pro-rata contributions to the share capital of NBH (EUR 20.4 million and EUR 19.6 million, respectively). The Group and SOGEPA also agreed to support NBH in obtaining financing of its working capital.

Management has analysed the performance of NBH in the first quarter of 2016 and believes that no changes are necessary to the estimates made as at 31 December 2015 of the recoverable amount of these asset.

F-12 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

6 Trade and other accounts receivable

As at As at 31 March 2016 31 December 2015

Financial assets Trade accounts receivable 708.5 613.6 Allowance for impairment of trade accounts receivable (18.2) (16.3) Other accounts receivable 25.8 40.3 Allowance for impairment of other accounts receivable (18.8) (15.3)

697.3 622.3

Non-financial assets Advances given to suppliers 62.0 54.0 Allowance for impairment of advances given to suppliers (4.6) (4.2) VAT and other taxes receivable 249.8 247.3 Accounts receivable from employees 1.9 1.5

309.1 298.6

1,006.4 920.9

The carrying amounts of trade and other accounts receivable approximate their fair values.

As at 31 March 2016 and 31 December 2015, accounts receivable of $109.2 and $74.0, respectively, served as collateral for certain borrowings (Note 11).

7 Inventories

As at As at 31 March 2016 31 December 2015

Raw materials 477.8 522.0 Work in process 342.4 400.3 Finished goods and goods for resale 306.9 340.7

1,127.1 1,263.0

Valuation to net realizable value (40.2) (57.7)

1,086.9 1,205.3

As at 31 March 2016 and 31 December 2015, inventories of $233.8 and $303.5, respectively, served as collateral for certain borrowings (Note 11).

F-13 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

8 Property, plant and equipment

As at As at 31 March 2016 31 December 2015

Land 108.7 101.0 Buildings 1,358.9 1,263.3 Land and buildings improvements 1,718.5 1,633.0 Machinery and equipment 4,872.5 4,482.9 Vehicles 192.2 174.5 Construction in progress 1,101.0 950.3 Other 66.7 77.4

9,418.5 8,682.4

Accumulated depreciation (4,634.3) (4,230.1)

4,784.2 4,452.3

As at 31 March 2016 the Group clarified classification of fixed assets between “Land and buildings improvements” and “Machinery and equipment”. Comparative amounts as at 31 December 2015 also were corrected.

The amount of borrowing costs capitalized was $8.8 and $14.0 for the three months ended 31 March 2016 and 31 March 2015, respectively.

Management has analysed the performance of key cash generating units in the first quarter of 2016 and believes that no changes to the estimates made as at 31 December 2015 regarding impairment of fixed assets and goodwill are required.

9 Intangible assets

As at As at 31 March 2016 31 December 2015

Goodwill 229.5 214.6 Mineral rights 257.6 239.0 Beneficial lease interest 8.7 8.7

495.8 462.3

Accumulated amortization (147.5) (135.4)

348.3 326.9

F-14 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

10 Trade and other accounts payable

As at As at 31 March 2016 31 December 2015

Financial liabilities Trade accounts payable 384.0 342.3 Dividends payable 1.2 161.2 Other accounts payable 19.1 16.0

404.3 519.5

Non-financial liabilities Advances received 80.5 62.9 Taxes payable other than income tax 53.5 39.2 Accounts payable and accrued liabilities to employees 125.2 104.8

259.2 206.9

663.5 726.4

The estimated fair value of the trade and other accounts payable approximates their carrying value.

11 Short-term and long-term borrowings

As at As at Rates Currency Maturity 31 March 2016 31 December 2015

Bonds 8% to 11.5% RUR 2016-2017 380.0 350.4 4.45% to 4.95% USD 2018-2019 1,182.2 1,195.9

Loans LIBOR +1.875% to LIBOR +3% and PRIME +0.875% USD 2016-2019 583.3 583.4 EURIBOR +0.9% to EURIBOR +2% EUR 2016-2022 520.4 546.4

2,665.9 2,676.1

Less: short-term loans and current maturities of long-term loans and bonds (597.0) (559.8)

Long-term borrowings 2,068.9 2,116.3

F-15 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

11 Short-term and long-term borrowings (continued)

The carrying amounts and fair value of long-term bonds are as follows:

As at As at 31 March 2016 31 December 2015 Carrying amount Fair value Carrying amount Fair value

Bonds 1,326.2 1,340.6 1,315.5 1,300.8

The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings approximate their carrying amount. The fair values of bonds are based on cash flows discounted using an applicable rate and are within level 2 of the fair value hierarchy.

Collateral

As at 31 March 2016 and 31 December 2015, the total amount of the Group companies’ collateral was $343.0 and $377.5, respectively.

12 Earnings per share

For the three For the three months ended months ended 31 March 2016 31 March 2015

Profit for the period attributable to NLMK shareholders (millions of US dollars) 56.9 320.4 Weighted average number of shares 5,993,227,240 5,993,227,240

Basic and diluted earnings per share (US dollars) 0.0095 0.0535

Basic earnings per share of common stock is calculated by dividing profit for the period attributable to NLMK shareholders by the weighted average number of shares of common stock outstanding during the reporting period. The Parent Company does not have potentially dilutive financial instruments outstanding.

13 Foreign currency exchange

For the three For the three months ended months ended 31 March 2016 31 March 2015

Foreign exchange loss on cash and cash equivalents (34.7) (29.1) Foreign exchange loss on financial instruments - (0.1) Foreign exchange (loss) / gain on financial investments (185.8) 0.9 Foreign exchange gain / (loss) on debt financing 145.0 (19.9) Foreign exchange gain / (loss) on other assets and liabilities 9.7 (60.9)

(65.8) (109.1)

F-16 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

14 Income tax

Income tax expense for the three months ended 31 March 2016 is recognized based on management’s estimate of the expected annual income tax rate. Tax effect of certain items were not considered in the calculation of income tax expense for the three months ended 31 March 2016 and 31 March 2015. The higher effective tax rate for the three months ended 31 March 2016 was mainly the result of the increased share of losses, for which no deferred taxes were recognised, in the total amount of profit before income tax.

15 Segment information

The Group has five reportable business segments: Russian flat products, Foreign rolled products, Russian long products, Mining and Investments in associate entity NBH. These segments are combinations of subsidiaries and companies accounted for using equity method of accounting, have separate management teams and offer different products and services. The above five segments meet the criteria for reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and management.

Revenue from segments that does not exceed the quantitative thresholds is primarily attributable to two operating segments of the Group. Those segments include insurance and other services. None of these segments has met any of the quantitative thresholds to be reported separately.

The Group’s management determines intersegmental sales and transfers, as if the sales or transfers were to third parties. The Group’s management evaluates performance of the segments based on segment revenues, gross profit, operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets, and profit for the year.

Intersegmental operations and balances include elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within line “Profit / (loss) for the period” together with other intercompany elimination adjustments, including elimination of NBH liabilities to the Group companies. NBH deconsolidation adjustments include full elimination of sales of NBH with further recognition of the Group’s sales to NBH and elimination of unrealised profits, recognition of investment in associate, recognition of impairment and share of loss arising for NBH and other consolidation adjustments.

F-17 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

15 Segment information (continued)

Information on segments’ profit or loss for the three months ended 31 March 2016 and their assets and liabilities on this date is as follows: Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 25.0 927.6 165.1 316.5 274.3 1.2 - (132.8) 1,576.9 Intersegment revenue 82.2 209.6 24.2 - 8.4 - (316.0) (8.4) - Gross profit / (loss) 63.3 335.9 12.6 17.2 18.9 0.2 (19.5) (18.9) 409.7 Operating profit / (loss)* 48.9 168.7 (14.6) (7.0) (25.4) 0.1 (7.1) 25.4 189.0 Profit / (loss) for the period 35.5 82.3 (7.8) (16.4) (31.6) 0.1 (21.2) 15.5 56.4 Segment assets 1,563.7 7,730.2 956.4 1,000.9 1,460.1 12.2 (2,015.5) (1,345.0) 9,363.0 Segment liabilities (279.5) (3,482.0) (503.9) (1,436.1) (1,281.7) (0.8) 2,477.3 776.3 (3,730.4) Depreciation and amortization (9.1) (64.3) (10.1) (17.6) (18.3) (0.1) - 18.3 (101.2)

Information on segments’ profit or loss for the three months ended 31 March 2015 and their assets and liabilities as at 31 December 2015 is as follows: Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 46.1 1,269.8 231.1 419.6 331.8 - - (82.7) 2,215.7 Intersegment revenue 89.0 341.6 42.9 - 23.2 - (473.5) (23.2) - Gross profit / (loss) 86.5 660.2 44.4 (6.0) 48.4 - 0.2 (48.4) 785.3 Operating profit / (loss)* 56.6 446.9 9.6 (29.6) (34.9) (0.4) 18.0 34.9 501.1 Profit / (loss) for the period 53.9 297.7 4.9 (20.4) (33.8) 0.8 7.3 10.7 321.1 Segment assets 1,476.6 7,509.6 953.4 1,036.6 1,485.4 11.6 (2,195.6) (1,358.2) 8,919.4 Segment liabilities (326.0) (3,603.2) (565.6) (1,458.9) (1,281.7) (1.0) 2,679.0 775.7 (3,781.7) Depreciation and amortization (7.4) (93.2) (21.8) (17.1) (20.1) (0.3) - 20.1 (139.8) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

F-18 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

16 Related party transactions

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, or joint control over the other party in making financial or operational decisions as defined by IAS 24, “Related Party Disclosures”. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group carries out operations with related parties on arm’s length.

(a) Sales to and purchases from related parties

For the three For the three months ended months ended 31 March 2016 31 March 2015 Sales NBH group companies 123.5 182.9 Other related parties 0.4 0.7

Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 60.8 63.0 Other related parties 9.3 24.0

(b) Accounts receivable from and accounts payable to related parties

As at As at 31 March 2016 31 December 2015 Accounts receivable and advances given NBH group companies 207.3 220.8 Other related parties 34.1 27.3

Accounts payable Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 6.8 5.8 Other related parties 17.0 18.9

As at As at 31 March 2016 31 December 2015

Loans, issued to NBH group companies 298.1 285.1 Deposits and current accounts in PJSC Bank ZENIT and PJSC Lipetskcombank (companies under the significant influence of the Group’s controlling shareholder) 17.7 24.2

(d) Financial guarantees issued

As at 31 March 2016 and 31 December 2015 guarantees issued by the Group for borrowings of NBH group companies’ amounted to $274.0 and $273.2, respectively, which is the maximum potential amount of future payments, to be paid on demand of the guarantee. No amount has been accrued in these interim condensed consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low.

F-19 Novolipetsk Steel Notes to the interim condensed consolidated financial statements as at 31 March 2016 and 31 December 2015 and for the three months ended 31 March 2016 and 31 March 2015 (unaudited) (millions of US dollars)

16 Related party transactions (continued)

The maturity of the guaranteed obligations is as follows: As at As at 31 March 2016 31 December 2015

Less than 1 year 85.1 82.0 From 1 to 2 years 12.2 14.3 Over 2 years 176.7 176.9

274.0 273.2

17 Subsequent events

In April 2016, the Board of Directors of the Parent Company proposed dividends for the fourth quarter of 2015 of 2.43 Russian rubles per share in the total amount of Russian rubles of 14,564 million ($215.4 at the exchange rate as at 31 March 2016) and for the three months ended 31 March 2016 of 1.13 Russian rubles per share in the total amount of Russian rubles of 6,772 million ($100.2 at the exchange rate as at 31 March 2016). The final amount of dividends is subject to the approval by an Annual General Stockholders’ Meeting.

In April 2016 on the back of the decision to close the Beautor site the management of NLMK Coating – one of the subsidiaries of NBH – reached an agreement with the workers representatives on a social plan which foresees, among others, support for affected workers in finding new opportunities as well as financial indemnities. The total estimated costs of this agreement and other costs related to the mothballing amount to 25 mln Euro, which will be expensed in 2016.

The Group’s management has performed an evaluation of subsequent events and did not find any, except mentioned above, through the period from 1 April 2016 to 16 May 2016, which is the date when these interim condensed consolidated financial statements were available to be issued.

F-20

NOVOLIPETSK STEEL

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2015

(WITH INDEPENDENT AUDITOR’S REPORT THEREON)

F-21 Novolipetsk Steel Consolidated financial statements as at and for the year ended 31 December 2015

CONTENTS

Independent auditor’s report 3 Consolidated statement of financial position 5 Consolidated statement of profit or loss 6 Consolidated statement of comprehensive income 7 Consolidated statement of changes in equity 8 Consolidated statement of cash flows 9 Notes to the consolidated financial statements 11

F-22 F-23 F-24 Novolipetsk Steel Consolidated statement of financial position as at 31 December 2015 (millions of US dollars)

As at As at As at Note 31 December 2015 31 December 2014 31 December 2013 Assets

Current assets Cash and cash equivalents 3 343.0 549.2 970.0 Short-term financial investments 5 1,242.6 621.3 485.0 Trade and other accounts receivable 6 920.9 1,122.5 1,459.0 Inventories 7 1,205.3 1,562.8 2,123.8 Other current assets 8.8 5.3 7.6 3,720.6 3,861.1 5,045.4 Non-current assets Long-term financial investments 5 219.8 141.3 82.5 Investments in associates and other companies accounted for using the equity method of accounting 4 117.7 106.2 419.1 Property, plant and equipment 8 4,452.3 5,613.6 9,892.1 Goodwill 9 214.6 285.4 463.4 Other intangible assets 9 112.3 193.9 374.5 Deferred income tax assets 17 68.2 124.9 136.4 Other non-current assets 13.9 23.0 39.6 5,198.8 6,488.3 11,407.6 Total assets 8,919.4 10,349.4 16,453.0

Liabilities and equity

Current liabilities Trade and other accounts payable 10 726.4 775.9 1,161.8 Short-term borrowings 11 559.8 804.3 1,136.7 Current income tax liability 27.7 47.5 21.6 1,313.9 1,627.7 2,320.1 Non-current liabilities Long-term borrowings 11 2,116.3 1,964.2 3,053.8 Deferred income tax liability 17 339.3 407.4 641.0 Other long-term liabilities 12.2 93.4 39.6 2,467.8 2,465.0 3,734.4 Total liabilities 3,781.7 4,092.7 6,054.5

Equity attributable to NLMK shareholders Common stock 12(a) 221.2 221.2 221.2 Additional paid-in capital 23(f) 9.9 - - Accumulated other comprehensive loss (6,988.4) (5,491.9) (839.9) Retained earnings 11,883.4 11,512.7 10,989.1 5,126.1 6,242.0 10,370.4 Non-controlling interests 11.6 14.7 28.1 Total equity 5,137.7 6,256.7 10,398.5 Total liabilities and equity 8,919.4 10,349.4 16,453.0

The consolidated financial statements as set out on pages 5 to 65 were approved on 23 March 2016.

The accompanying notes constitute an integral part of these consolidated financial statements. F-25 Novolipetsk Steel Consolidated statement of profit or loss for the year ended 31 December 2015 (millions of US dollars, unless otherwise stated)

For the year ended For the year ended For the year ended Note 31 December 2015 31 December 2014 31 December 2013

Revenue 14 8,008.3 10,395.7 10,818.4 Cost of sales (5,495.7) (7,389.0) (8,665.9)

Gross profit 2,512.6 3,006.7 2,152.5

General and administrative expenses (261.1) (364.3) (456.9) Selling expenses (801.6) (923.1) (945.6) Other operating income / (expenses) 14.1 6.1 (6.6) Taxes, other than income tax 16 (75.7) (137.5) (134.6)

Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets 1,388.3 1,587.9 608.8

Loss on disposals of property, plant and equipment (7.6) (11.9) (23.0) Impairment losses and write-off of assets 4, 8 (85.5) (657.2) (21.0) Share in net losses of associates and other companies accounted for using the equity method 4 (103.0) (193.1) (54.0) Result of disposal of subsidiary 20 - - (51.4) Income on change of restructuring provision - - 7.5 Gains on investments 20 80.3 37.4 2.3 Finance income 18 51.9 36.5 40.6 Finance costs 18 (95.3) (136.8) (121.9) Foreign currency exchange gain, net 19 109.5 488.2 85.2 Other expenses, net (17.5) (15.0) (53.9)

Profit before income tax 1,321.1 1,136.0 419.2

Income tax expense 17 (352.9) (362.4) (255.0)

Profit for the year 968.2 773.6 164.2

Profit attributable to: NLMK shareholders 967.4 772.5 145.4 Non-controlling interests 0.8 1.1 18.8

Earnings per share – basic and diluted:

Earnings attributable to NLMK stockholders per share (US dollars) 13 0.1614 0.1289 0.0243

Weighted-average shares outstanding: basic and diluted (in thousands) 12(a) 5,993,227 5,993,227 5,993,227

The accompanying notes constitute an integral part of these consolidated financial statements. F-26 Novolipetsk Steel Consolidated statement of comprehensive income for the year ended 31 December 2015 (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2015 31 December 2014 31 December 2013

Profit for the year 968.2 773.6 164.2

Other comprehensive loss:

Items that may be reclassified subsequently to profit or loss:

Cumulative translation adjustment 2(b) (1,500.3) (4,666.5) (780.4)

Total comprehensive loss for the year attributable to (532.1) (3,892.9) (616.2) NLMK shareholders (529.1) (3,879.5) (634.5) Non-controlling interests (3.0) (13.4) 18.3

The accompanying notes constitute an integral part of these consolidated financial statements. F-27 Novolipetsk Steel Consolidated statement of changes in equity for the year ended 31 December 2015 (millions of US dollars)

NLMK shareholders Accumulated other Additional comprehensive Retained Non-controlling Note Common stock paid-in capital loss earnings interest Total equity Balance at 1 January 2013 221.2 - - 11,008.8 (32.9) 11,197.1

Profit for the year - - - 145.4 18.8 164.2

Cumulative translation adjustment 2(b) - - (779.9) - (0.5) (780.4) Change of non-controlling interests in existing subsidiaries - - - (49.5) 42.7 (6.8) Disposal of other comprehensive income as a result of deconsolidation 20 - - (60.0) - - (60.0)

Dividends to shareholders 12(b) - - - (115.6) - (115.6)

Balance at 31 December 2013 221.2 - (839.9) 10,989.1 28.1 10,398.5

Profit for the year - - - 772.5 1.1 773.6

Cumulative translation adjustment 2(b) - - (4,652.0) - (14.5) (4,666.5)

Dividends to shareholders 12(b) - - - (248.9) - (248.9)

Balance at 31 December 2014 221.2 - (5,491.9) 11,512.7 14.7 6,256.7

Profit for the year - - - 967.4 0.8 968.2

Disposal of assets to an entity under common control 23(f) - 9.9 - - (0.1) 9.8

Cumulative translation adjustment 2(b) - - (1,496.5) - (3.8) (1,500.3)

Dividends to shareholders 12(b) - - - (596.7) - (596.7)

Balance at 31 December 2015 221.2 9.9 (6,988.4) 11,883.4 11.6 5,137.7

The accompanying notes constitute an integral part of these consolidated financial statements. F-28 Novolipetsk Steel Consolidated statement of cash flows for the year ended 31 December 2015 (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2015 31 December 2014 31 December 2013

Cash flows from operating activities Profit for the year 968.2 773.6 164.2 Adjustments to reconcile profit for the year to net cash provided by operating activities: Depreciation and amortization 560.0 793.5 871.1 Loss on disposals of property, plant and equipment 7.6 11.9 23.0 (Income) / losses on investments (80.3) (37.4) 49.1 Finance income (51.9) (36.5) (40.6) Finance costs 95.3 136.8 121.9 Share in net losses of associates and other companies accounted for using the equity method 4 103.0 193.1 54.0 Deferred income tax expense / (benefit) 17 51.8 (15.9) 87.7 Impairment losses 85.5 657.2 - Unrealized gains on foreign currency exchange (173.4) (574.0) - Other adjustments (8.4) 31.5 14.2 Changes in operating assets and liabilities Decrease / (increase) in trade and other accounts receivable 98.2 (49.9) (321.3) Decrease / (increase) in inventories 82.8 (97.6) (95.8) (Increase) / decrease in other current assets (5.5) (1.8) 7.4 (Decrease) / increase in trade and other accounts payable (75.5) (28.9) 396.4 (Decrease) / increase in current income tax liability (6.3) 50.1 2.1 Net cash provided by operating activities 1,651.1 1,805.7 1,333.4

Cash flows from investing activities Purchases and construction of property, plant and equipment (594.7) (562.6) (756.3) Proceeds from sale of property, plant and equipment 10.8 15.0 5.8 Purchases of investments and loans given, net (198.8) (231.6) (87.4) Placement of bank deposits, net (641.0) (197.1) (264.4) Interest received 43.6 30.7 40.4 Contribution to share capital of the company accounted for using the equity method 20 (22.0) - - Advance VAT payments on imported equipment (23.8) - - Disposal of assets to an entity under common control 23(f) 9.8 - - Cash received in course of bankruptcy proceedings 24(b) 16.8 - - Disposal of investment in subsidiary 20 - - 46.2 Net cash used in investing activities (1,399.3) (945.6) (1,015.7)

Cash flows from financing activities Proceeds from borrowings 675.6 110.2 2,000.7 Repayment of borrowings and capital lease payments (578.8) (910.7) (2,020.2) Interest paid (79.4) (120.6) (81.5) Dividends to shareholders (395.2) (225.9) (113.6) Acquisition of additional stake in existing subsidiary - - (9.6) Net cash used in financing activities (377.8) (1,147.0) (224.2) Net (decrease) / increase in cash and cash equivalents (126.0) (286.9) 93.5 Effect of exchange rate changes on cash and cash equivalents (80.2) (133.9) (74.7) Cash and cash equivalents at the beginning of the year 3 549.2 970.0 951.2 Cash and cash equivalents at the end of the year 3 343.0 549.2 970.0

The accompanying notes constitute an integral part of these consolidated financial statements. F-29 Novolipetsk Steel Consolidated statement of cash flows for the year ended 31 December 2015 (millions of US dollars)

For the year ended For the year ended For the year ended Note 31 December 2015 31 December 2014 31 December 2013 Supplemental disclosures of cash flow information

Cash paid during the year for: Income tax paid (320.9) (352.4) (143.3) Placements of bank deposits (1,594.7) (1,997.8) (1,232.0) Withdrawals of bank deposits 953.7 1,800.7 967.6

Non cash investing activities: Fair value of assets disposed of in course of partial disposal of investment 20 - - 867.3 Conversion of debt to equity 20 109.5 270.4 -

The accompanying notes constitute an integral part of these consolidated financial statements. F-30 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

1 Background

Novolipetsk Steel (the “Parent Company”) and its subsidiaries (together – the “Group”) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Parent Company is a Russian Federation public joint stock company in accordance with the Civil Code of the Russian Federation. The Parent Company was originally established as a State owned enterprise in 1934 and was privatized in the form of an open joint stock company on 28 January 1993. On 12 August 1998 the Parent Company’s name was re-registered as an open joint stock company in accordance with the Law on Joint Stock Companies of the Russian Federation and on 29 December 2015 the name of the Parent Company was changed to public joint stock company due to changes in legislation of the Russian Federation.

The Group is vertically integrated steel company and the largest steel producer in Russia. The Group also operates in the mining segment (Note 21).

As at 31 December 2015 the Parent Company’s major shareholder with 85.54% ownership interest is Fletcher Group Holdings Limited which is beneficially owned by Mr. Vladimir Lisin.

The major companies of the Group are: Share at Share at Share at Country of Activity 31 December 31 December 31 December incorporation 2015 2014 2013 Companies under the Group’s control: Russian flat products LLC VIZ-Stahl Production of steel Russia 100.00% 100.00% 100.00% OJSC Altai-Koks Production of blast Russia 100.00% 100.00% 100.00% furnace coke Novex Trading (Swiss) S.A. Trading Switzerland 100.00% 100.00% 100.00% Novexco (Cyprus) Ltd. Trading Cyprus 100.00% 100.00% 100.00%

Foreign rolled products NLMK DanSteel A/S Production of steel Denmark 100.00% 100.00% 100.00% NLMK Indiana LLC Production of steel USA 100.00% 100.00% 100.00% NLMK Pennsylvania LLC Production of steel USA 100.00% 100.00% 100.00%

Russian long products OJSC Nizhneserginski Production of steel and Russia 92.59% 92.59% 92.59% Hardware-Metallurgical Plant long products LLC NLMK-Metalware Production of metalware Russia 100.00% 100.00% 100.00% LLC NLMK-Kaluga Production of long Russia 100.00% 100.00% 100.00% products LLC Vtorchermet NLMK Processing of metal scrap Russia 100.00% 100.00% 100.00%

Mining OJSC Stoilensky GOK Mining and processing of Russia 100.00% 100.00% 100.00% iron-ore raw

Among associates and other companies accounted for using the equity method the major is: Share at Share at Share at Country of Activity 31 December 31 December 31 December incorporation 2015 2014 2013

NLMK Belgium Holdings S.A. Holding company Belgium 51.00% 79.50% 79.50% (Note 20)

F-31 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

2 Basis of consolidated financial statements preparation

(a) Basis of preparation

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention except those, described in the principal accounting policies applied in the preparation of these consolidated financial statements, as set out in Note 25. These policies have been consistently applied to all the periods presented in these consolidated financial statements. Figures for three periods are presented for users’ convenience.

(b) Functional and reporting currency

Functional currency of all Group’s Russian entities is considered to be the Russian ruble. The functional currency of the majority of the foreign subsidiaries is their local currency. The Group uses US dollars as presentation currency for users’ convenience.

The results of operations and financial position of each Group entity are translated into the presentation currency as follows: . assets and liabilities in statement of financial position are translated at the closing rate at the end of the respective reporting period; . income and expenses are translated at average exchange rates for each quarter (unless this average rate 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); . components of equity are translated at the historical rate; . all resulting exchange differences are recognized in other comprehensive income. Items of consolidated statements of cash flow are translated at average exchange rates for each quarter (unless this average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case proceeds and disposals are translated at the dates of the transactions).

When control over a foreign operation is lost, the previously recognized exchange differences on translation to a different presentation currency are reclassified from other comprehensive income to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity.

The Central Bank of the Russian Federation’s Russian ruble to US dollar closing rates of exchange as of the reporting dates and the period weighted average exchange rates for corresponding reporting periods are indicated below.

2015 2014 2013

As at 1 January 30.3727 For the 1st quarter 62.1919 34.9591 30.4142 For the 2nd quarter 52.6543 34.9999 31.6130 For the 3rd quarter 62.9784 36.1909 32.7977 For the 4th quarter 65.9434 47.4243 32.5334 As at 31 December 72.8827 56.2584 32.7292

F-32 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

3 Cash and cash equivalents

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Cash Russian rubles 20.4 20.3 70.8 US dollars 99.0 150.8 194.1 Euros 41.2 54.3 158.6 Other currencies 1.7 8.0 2.0

Deposits Russian rubles 29.6 96.3 204.9 US dollars 140.3 158.0 331.8 Euros - 53.6 5.7 Other currencies 10.7 7.8 1.9

Other cash equivalents 0.1 0.1 0.2

343.0 549.2 970.0

4 Investments in associates and other companies accounted for using the equity method of accounting

As at As at As at 31 December 2015 31 December 2014 31 December 2013

NLMK Belgium Holdings S.A. (Note 20) 108.8 97.3 412.8 TBEA & NLMK (Shenyang) Metal Product Co., Ltd. 8.9 8.9 6.3

117.7 106.2 419.1

The table below summarizes the movements in the carrying amount of the Group’s investments in associates and other companies accounted for using the equity method of accounting.

2015 2014 2013

As at 1 January 106.2 419.1 8.1 Share of net loss of associates and other companies accounted for using the equity method of accounting (103.0) (193.1) (54.0) Conversion of debt to equity 109.5 270.4 - Contributions to the share capital by the Group 22.0 - - Impairment of investments - (325.2) - Disposal of 28.5% shares in NBH (35.6) Unrealized profit in inventory of associates and other companies accounted for using the equity method of accounting 30.3 (28.0) (2.3) Translation adjustment (12.8) (29.7) (0.2) Reclassification due to loss of control (Note 20) - - 467.5 Other adjustments 1.1 (7.3) - As at 31 December 117.7 106.2 419.1

F-33 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

4 Investments in associates and other companies accounted for using the equity method of accounting (continued)

The Group’s interests in its principal associates and other companies accounted for using the equity method of accounting and their summarized financial information were as follows: Profit / (loss) Company Year Share Assets Liabilities Revenue for the year

NLMK Belgium Holdings S.A. (Note 20) (Belgium) 2015 51.0% 1,485.4 (1,281.7) 1,277.6 (191.3) including from / (to) the Group 18.4 (505.9) 55.5 - 2014 79.5% 1,857.2 (1,542.9) 1,517.3 (243.4) including from / (to) the Group 24.7 (510.5) 54.9 - 2013 79.5% 2,094.2 (1,782.4) 405.6 (70.9) including from / (to) the Group 6.1 (479.8) 5.9 -

TBEA & NLMK (Shenyang) Metal Product Co., Ltd. (China) 2015 50.0% 18.0 (0.2) 9.9 0.7 2014 50.0% 18.4 (0.6) 12.3 0.9 2013 50.0% 17.4 (0.1) 4.4 0.5

Reconciliation of net assets of NBH, calculated in accordance with its consolidated financial statements, to carrying amount of investment is below.

2015 2014

Net assets as at 1 January 28.2 27.3 Net loss for the period (Note 20) (178.4) (276.1) Proportional contributions into share capital 43.2 - Conversion of debt to equity 109.5 270.4 Other adjustments 1.9 (8.4) Translation adjustment (0.2) 15.0 Net assets as at 31 December 4.2 28.2 Share in net assets 2.1 22.4 Share in PP&E valuation difference 205.7 349.2 Share of other investor in conversion of debt to equity (Note 20) 109.1 55.4 Impairment of investments (239.8) (325.2) Unrealised profit 30.3 (28.0) Cumulative translation adjustment and other adjustments 1.4 23.5 Investments in NBH 108.8 97.3

Net assets of NBH as of the date of disposal, calculated in accordance with its consolidated financial statements, amounted to $88.8. Major adjustments in reconciliation of net assets of NBH to carrying amount of investment were: net loss (Note 20) and share in PP&E valuation difference.

F-34 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

5 Financial investments

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Short-term financial investments Loans to related parties (Note 23) 65.4 68.4 107.6 Bank deposits (Note 22(c)), including: 1,171.7 549.4 376.9 - Russian rubles 14.8 14.8 26.9 - US dollars 1,090.7 425.8 350.0 - Euros 66.2 96.5 - - other currencies - 12.3 - Other short-term financial investments 5.5 3.5 0.5

1,242.6 621.3 485.0 Long-term financial investments Loans to related parties (Note 23) 219.7 141.2 78.0 Bank deposits and other long-term financial investments 0.1 0.1 4.5

219.8 141.3 82.5

1,462.4 762.6 567.5

6 Trade and other accounts receivable

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Financial assets Trade accounts receivable 613.6 802.0 901.7 Allowance for impairment of trade accounts receivable (16.3) (28.6) (39.3) Other accounts receivable 40.3 38.7 67.5 Allowance for impairment of other accounts receivable (15.3) (20.4) (25.1)

622.3 791.7 904.8

Non-financial assets Advances given to suppliers 54.0 69.7 81.7 Allowance for impairment of advances given to suppliers (4.2) (9.6) (19.3) VAT and other taxes receivable 247.3 269.0 488.5 Accounts receivable from employees 1.5 1.7 3.3

298.6 330.8 554.2

920.9 1,122.5 1,459.0

The carrying amounts of trade and other accounts receivable approximate their fair values.

As at 31 December 2015, 2014 and 2013 accounts receivable of $74.0, $137.6 and $141.7, respectively, served as collateral for certain borrowings (Note 11).

F-35 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

6 Trade and other accounts receivable (continued)

Movements in the Group’s provision for impairment of trade and other accounts receivables are as follows:

2015 2014 2013

As at 1 January (58.6) (83.7) (95.1) Provision for impairment during the year (22.8) (35.9) (45.1) Receivables written off during the year as uncollectible 21.1 0.3 2.4 Unused amounts reversed 13.7 21.1 38.6 Change in scope of consolidation 0.1 4.3 9.1 Translation adjustment 10.7 35.3 6.4 As at 31 December (35.8) (58.6) (83.7)

The allocation of trade accounts receivable, net of provision for doubtful debt, by geographical area is follows:

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Russia 130.5 133.6 167.9 European Union 288.6 399.3 422.6 North America 58.7 146.9 142.5 Asia and Oceania 48.8 37.0 95.3 Middle East, including Turkey 42.2 21.0 10.6 Other regions 28.5 35.6 23.5

597.3 773.4 862.4

7 Inventories

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Raw materials 522.0 623.1 980.7 Work in process 400.3 569.7 526.6 Finished goods and goods for resale 340.7 419.5 684.2

1,263.0 1,612.3 2,191.5

Valuation to net realizable value (57.7) (49.5) (67.7)

1,205.3 1,562.8 2,123.8

As at 31 December 2015, 2014 and 2013 inventories of $303.5, $562.0 and $310.5, respectively, served as collateral for certain borrowings (Note 11).

Share of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2015, 2014 and 2013 amounted to 63.5%, 61.3% and 61.7%, respectively. Share of fuel and energy resources expenses in cost of sales for the years ended 31 December 2015, 2014 and 2013 amounted to 10.9%, 13.0% and 13.4%, respectively.

F-36 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

8 Property, plant and equipment

Land and buildings Machinery and Construction in Land Buildings improvements equipment Vehicles progress Other Total

Cost at 1 January 2013 270.9 2,544.7 2,218.9 10,737.9 437.8 2,827.3 153.3 19,190.8 Accumulated depreciation - (806.4) (992.7) (5,485.6) (223.9) - (78.9) (7,587.5) Net book value at 1 January 2013 270.9 1,738.3 1,226.2 5,252.3 213.9 2,827.3 74.4 11,603.3

Additions - - - 10.4 7.1 836.2 - 853.7 Disposals (0.1) (2.2) (2.9) (11.9) (4.1) (15.3) (0.6) (37.1) Deconsolidation of subsidiaries (Note 20) (42.2) (174.0) (12.5) (698.1) - (30.4) (24.0) (981.2) Available for use 3.9 580.0 239.1 691.2 22.3 (1,554.7) 18.2 - Depreciation charge - (75.6) (74.7) (655.5) (37.2) - (20.5) (863.5) Translation adjustment (16.7) (117.3) (91.7) (279.6) (15.0) (161.0) (1.8) (683.1)

Cost at 31 December 2013 215.8 2,748.0 2,267.0 9,804.7 413.8 1,902.1 103.2 17,454.6 Accumulated depreciation - (798.8) (983.5) (5,495.9) (226.8) - (57.5) (7,562.5) Net book value at 31 December 2013 215.8 1,949.2 1,283.5 4,308.8 187.0 1,902.1 45.7 9,892.1

Additions - - - 0.5 - 605.5 - 606.0 Disposals (6.0) (3.0) (3.2) (10.8) (2.6) (1.5) (0.8) (27.9) Impairment - (122.6) (41.6) (139.3) - (4.3) - (307.8) Available for use 9.2 90.0 154.7 645.5 13.9 (921.8) 8.5 - Depreciation charge - (78.6) (82.8) (542.5) (33.3) - (13.6) (750.8) Translation adjustment (88.1) (773.2) (554.3) (1,638.8) (66.5) (674.4) (2.7) (3,798.0)

Cost at 31 December 2014 130.9 1,583.7 1,378.7 6,231.3 235.5 905.6 78.6 10,544.3 Accumulated depreciation - (521.9) (622.4) (3,607.9) (137.0) - (41.5) (4,930.7) Net book value at 31 December 2014 130.9 1,061.8 756.3 2,623.4 98.5 905.6 37.1 5,613.6

F-37 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

8 Property, plant and equipment (continued)

Land and buildings Machinery and Construction in Land Buildings improvements equipment Vehicles progress Other Total

Additions - - - - - 639.8 - 639.8 Disposals (1.3) (0.6) (4.0) (11.8) (1.9) (33.4) (0.2) (53.2) Impairment - (13.7) (7.1) (26.8) (11.0) - - (58.6) Available for use 0.6 30.4 36.2 220.3 10.3 (309.0) 11.2 - Depreciation charge - (40.0) (45.3) (393.6) (18.1) - (7.5) (504.5) Translation adjustment (29.2) (218.3) (166.4) (494.9) (20.5) (252.7) (2.8) (1,184.8)

Cost at 31 December 2014 101.0 1,263.3 1,088.5 5,027.4 174.5 950.3 77.4 8,682.4 Accumulated depreciation - (443.7) (518.8) (3,110.8) (117.2) - (39.6) (4,230.1) Net book value at 31 December 2015 101.0 819.6 569.7 1,916.6 57.3 950.3 37.8 4,452.3

F-38 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

8 Property, plant and equipment (continued)

As at 31 December 2015, 2014 and 2013 the Group did not have pledged property, plant and equipment.

The amount of borrowing costs capitalized is $50.7, $59.0 and $164.0 for the years ended 31 December 2015, 2014 and 2013, respectively.

At 31 December 2015, 2014 and 2013 the Group’s management considered that the low level of economic activity combined with a deterioration in the steel market represented a trigger for impairment testing and has performed the tests for impairment of assets using the income approach based on primarily Level 3 inputs.

For the purpose of impairment testing for the years ended 31 December 2015, 2014 and 2013, the Group’s management has estimated cash flows for 7 years due to long useful-lives of steel making equipment and normalized cash flows for a post-forecast period. Prices for steel products in this estimate were determined on the basis of forecasts of investment banks’ analysts.

The table below summarizes companies and types of assets, also subject to impairment test as of 31 December 2015, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their balance values. As of 31 December 2015 an impairment testing showed that recoverable amount of property, plant and equipment (value in use) of scrap collecting assets in Russian long products segment and OJSC Nizhneserginski Hardware- Metallurgical Plant was below its carrying amount by $23.9 and $34.7, respectively. An impairment testing also showed impairment of goodwill in NLMK Indiana LLC by $14.4.

Sensitivity, Forecast Average sale Discount % of change Company Asset type period, Product types price*, $ per rate, % years tonne (FCA) Sales Price volume

OJSC Stoilensky GOK Property, plant 7 12-16% Iron ore 44 -43% -56% and equipment and intangible assets OJSC Stoilensky GOK Goodwill 7 12-16% Iron ore 44 -36% -47%

NLMK Pennsylvania LLC Property, plant 7 8% Flat products 646 -3% -22% and equipment NLMK Indiana LLC Property, plant 7 8% Flat products 540 -0.4% -3% and equipment NLMK Indiana LLC Goodwill 7 8% Flat products 540 +0.3% +2%

OJSC Altai-Koks Property, plant 7 12-16% Coke, chemical 172 -15% -40% and equipment products OJSC Altai-Koks Goodwill 7 12-16% Coke, chemical 172 -13% -35% products Scrap collecting assets in Property, plant 7 12-16% Metal scrap 171 +3% - Russian long products and equipment segment OJSC NSMMZ Property, plant 7 12-16% Long products and 344 +1% +2% and equipment semi-finished goods LLC NLMK-Kaluga Property, plant 7 12-16% Long-products 353 -0.2% -1% and equipment and semi-finished goods LLC NLMK-Metalware Property, plant 7 12-16% Metalware 464 -7% -31% and equipment NLMK DanSteel A/S Property, plant 7 8% Plate 630 -1% -5% and equipment * Weighted average prices giving the product mix, averaged for the period from 2016 to 2022

F-39 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

8 Property, plant and equipment (continued)

The table below summarizes companies and types of assets, also subject to impairment test as of 31 December 2014, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their balance values. As of 31 December 2014 an impairment testing showed that recoverable amount of property, plant and equipment (value in use) of OJSC Nizhneserginski Hardware-Metallurgical Plant, LLC NLMK-Kaluga and NLMK DanSteel A/S was below its carrying amount by $113.7, $127.0 and $67.1, respectively.

Sensitivity, Forecast Average sale Discount % of change Company Asset type period, Product types price*, $ per rate, % years tonne (FCA) Sales Price volume

NLMK Property, plant 7 12-16% Flat products 405 -17% -17% and equipment and intangible assets OJSC Stoilensky GOK Property, plant 7 12-16% Iron ore 34 -25% -27% and equipment and intangible assets OJSC Stoilensky GOK Goodwill 7 12-16% Iron ore 34 -7% -8%

NLMK Pennsylvania LLC Property, plant 7 9% Flat products 799 -5% -62% and equipment NLMK Indiana LLC Property, plant 7 9% Flat products 705 -4% -35% and equipment OJSC Altai-Koks Goodwill 7 12-16% Coke, chemical 116 -3% -14% products Scrap collecting assets in Property, plant 7 12-16% Metal scrap 199 -2% -43% Russian long products and equipment segment OJSC NSMMZ Property, plant 7 12-16% Long products and 403 +2% +7% and equipment semi-finished goods LLC NLMK-Kaluga Property, plant 7 12-16% Long-products 437 +3% - and equipment and semi-finished goods NLMK DanSteel A/S Property, plant 6 9% Plate 738 +2% - and equipment * Weighted average prices giving the product mix, averaged for the period from 2015 to 2021

F-40 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

8 Property, plant and equipment (continued)

The table below summarizes companies and types of assets, subject to impairment test as of 31 December 2013, major assumptions and their sensitivity used in the impairment models. Prices for steel products in this estimate were determined on the basis of forecasts of investment banks’ analysts. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their balance values.

Sensitivity, Forecast Average sale Discount % of change Company Asset type period, Product types price*, $ per rate, % years tonne (FCA) Sales Price volume

LLC NLMK-Kaluga Property, plant 7 11% Long products and 592 -1% -5% and equipment semi-finished goods OJSC Nizhneserginski Property, plant 7 11% Long products 568 -3% -10% Hardware-Metallurgical and equipment Plant LLC NLMK-Metalware Property, plant 7 11% Metalware 697 -4% -19% and equipment Scrap collecting assets in Property, plant 7 11% Scrap 268 -1% -5% Russian long products and equipment segment NLMK Property, plant 7 11% Flat products and 631 -6% -24% and equipment semi-finished goods NLMK DanSteel A/S Property, plant 7 8% Plate 895 -4% -24% and equipment * Weighted average prices giving the product mix, averaged for the period from 2014 to 2020

F-41 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

9 Intangible assets

Industrial intellectual Beneficial Goodwill Mineral rights Customer base property lease interest Total

Cost at 1 January 2013 786.1 557.7 196.8 59.5 8.7 1,608.8 Accumulated amortisation - (281.7) (93.5) (29.1) (0.4) (404.7) Net book value at 1 January 2013 786.1 276.0 103.3 30.4 8.3 1,204.1

Additions - 15.6 - - - 15.6 Disposals (Note 20) (289.7) - - (3.0) - (292.7) Amortisation charge - (12.6) (15.8) (4.3) (0.1) (32.8) Translation adjustment (33.0) (20.5) (0.7) (2.1) - (56.3)

Cost at 31 December 2013 463.4 532.1 189.1 52.2 8.7 1,245.5 Accumulated amortisation - (273.6) (102.3) (31.2) (0.5) (407.6) Net book value at 31 December 2013 463.4 258.5 86.8 21.0 8.2 837.9

Amortisation charge - (11.4) (44.4) (9.4) (0.1) (65.3) Translation adjustment (178.0) (104.4) (5.1) (5.8) - (293.3)

Cost at 31 December 2014 285.4 309.6 147.6 30.4 8.7 781.7 Accumulated amortisation - (166.9) (110.3) (24.6) (0.6) (302.4) Net book value at 31 December 2014 285.4 142.7 37.3 5.8 8.1 479.3

Amortisation charge - (7.1) (36.9) (5.6) (0.1) (49.7) Impairment (14.4) - - - - (14.4) Translation adjustment (56.4) (31.3) (0.4) (0.2) - (88.3)

Cost at 31 December 2015 214.6 239.0 - - 8.7 462.3 Accumulated amortisation - (134.7) - - (0.7) (135.4) Net book value at 31 December 2015 214.6 104.3 - - 8.0 326.9

The intangible assets were acquired in business combinations and met the criteria for separate recognition. They were recorded at fair values at the date of acquisition, based on their appraised values.

Useful lives of the Group’s intangible assets as at 31 December 2015 are shown below. Total useful life, Remaining useful life, Company months months

Mineral rights LLC Zhernovsky GOK 240 116 Mineral rights LLC Zhernovsky GOK 240 192 Mineral rights LLC Usinsky GOK 240 181 Mineral rights OJSC Stoilensky GOK 306 240 Customer base LLC VIZ-Stahl 125 - Customer base Novexco (Cyprus) Ltd., Novex Trading (Swiss) S.A. 180 - Industrial intellectual property LLC VIZ-Stahl 149 - Beneficial lease interest NLMK Indiana LLC 974 888

F-42 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

9 Intangible assets (continued) During 2015 the Group revised useful lives of customer base and industrial intellectual property and completed their amortization in the third quarter of 2015. In May 2011, the Group acquired a license for exploration and extraction of coal in the Zhernovsky Glubokiy coal field of the Zhernovsky coal deposit expiring in 2031. The carrying value of this license as at 31 December 2015 is $4.6. In August 2005, the Group acquired a license for exploration and mining of Zhernovsky coal deposit expiring in 2025. The carrying value of this license as at 31 December 2015 is $7.3. In March 2011, the Group acquired a license for exploration and extraction of coal in the mine field area No. 3 of the Usinsky coal deposit expiring in 2031. The carrying value of this license as at 31 December 2015 is $16.8. A license for iron ore and non-metallics mining at Stoilensky iron-ore deposit in Belgorod Region expiring in 2035 was acquired by the Group in 2004 through a business combination. The carrying value of these mineral rights as at 31 December 2015 is $75.7. The Group’s management believes that these licenses will be extended. Goodwill arising on acquisitions was allocated to the appropriate business segment in which each acquisition took place. Goodwill arising from the acquisition in 2011 of a controlling interest in SIF S.A. (Note 20) amounted to $289.7. At the time of acquisition this goodwill was assigned to the steel segment and foreign rolled products segment in the amount of $128.4 and $161.3, respectively, and was disposed as a result of NBH deconsolidation (Note 20). Goodwill allocation to each segment is as follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013

Russian flat products 139.2 179.7 307.5 Foreign rolled products 21.3 35.7 35.7 Russian long products 2.5 3.3 5.7 Mining 51.6 66.7 114.5

214.6 285.4 463.4

Goodwill impairment testing The Group tested goodwill for impairment as at 31 December 2015, 2014 and 2013. The recoverable amount has been determined as values in use of respective assets. For the purpose of this impairment testing the Group used the same estimates as for testing of other assets, as disclosed in Note 8. An impairment testing showed impairment of goodwill in NLMK Indiana LLC by $14.4.

10 Trade and other accounts payable

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Financial liabilities Trade accounts payable 342.3 440.9 621.9 Dividends payable 161.2 0.7 1.4 Other accounts payable 16.0 23.1 89.0

519.5 464.7 712.3

Non-financial liabilities Advances received 62.9 105.4 111.4 Taxes payable other than income tax 39.2 77.3 134.0 Accounts payable and accrued liabilities to employees 104.8 128.5 204.1

206.9 311.2 449.5

726.4 775.9 1,161.8

F-43 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

11 Borrowings

As at As at As at Rates Currency Maturity 31 December 2015 31 December 2014 31 December 2013

Bonds 8% to 11.5% RUR 2015-2017 350.4 543.9 1,400.7 4.45% to 4.95% USD 2018-2019 1,195.9 1,196.1 1,319.6

Loans 5% and 10% RUR 2015-2017 - 23.1 38.4 LIBOR +1.375% to LIBOR +3% and PRIME +0.375% USD 2015-2019 583.4 374.9 541.0 EURIBOR +0.9% to EURIBOR +2% EUR 2015-2022 546.4 620.9 853.4

Short-term and long-term finance lease liability and other borrowings - 9.6 37.4

2,676.1 2,768.5 4,190.5

Less: short-term loans and current maturities of long-term loans (559.8) (804.3) (1,136.7)

Long-term borrowings 2,116.3 1,964.2 3,053.8

The carrying amounts and fair value of long-term bonds are as follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013 Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value

Bonds 1,315.5 1,300.8 1,444.9 1,278.6 2,216.6 2,215.8

The fair value of short-term borrowings equals their carrying amount. The fair values of long-term borrowings and finance lease liabilities approximate their carrying amount. The fair values of bonds are based on cash flows discounted using an applicable rate and are within level 2 of the fair value hierarchy.

The payments scheduled for long-term borrowings are as follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013

1-2 year 359.6 580.0 1,169.2 2-5 years 1,719.3 1,347.4 1,300.6 over 5 years 37.4 36.8 584.0

2,116.3 1,964.2 3,053.8

Collateral

As at 31 December 2015, 2014 and 2013, the total amount of collateral was $377.5, $699.6 and $452.2, respectively (Notes 6, 7).

F-44 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

12 Shareholders’ equity

(a) Shares

As at 31 December 2015, 2014 and 2013, the Parent Company’s share capital consisted of 5,993,227,240 issued common shares, with a par value of 1 Russian ruble each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

(b) Dividends

Dividends are paid on common shares at the recommendation of the Board of Directors and approval at a General Stockholders’ Meeting, subject to certain limitations as determined by Russian legislation. Profits available for distribution to shareholders in respect of any reporting period are determined by reference to the statutory financial statements of the Parent Company. As at 31 December 2015, 2014 and 2013, the retained earnings of the Parent Company, available for distribution in accordance with the legislative requirements of the Russian Federation, amounted to $4,360.9, $5,409.3 and $8,971.7, converted into US dollars using exchange rates at 31 December 2015, 2014 and 2013, respectively.

According to the dividend policy, the Group pays dividends on a quarterly basis as follows: . if Net Debt/EBITDA is 1.0x or less: dividends are in range with the boundaries of 50% of net income and 50% of free cash flow calculated based on IFRS consolidated financial statements; . if Net Debt/EBITDA exceeds 1.0x: dividends are in range with the boundaries of 30% of net profit and 30% of free cash flow calculated based on IFRS consolidated financial statements.

In December 2015, the Parent Company declared dividends for the third quarter of 2015 of 1.95 Russian ruble per share for the total of $163.9 (at the historical rate as of the announcement date). Dividends payable amounted to $161.2 at 31 December 2015 (Note 10).

In September 2015, the Parent Company declared dividends for the second quarter of 2015 of 0.93 Russian ruble per share for the total of $84.1 (at the historical rate as of the announcement date).

In June 2015, the Parent Company declared dividends for the year ended 31 December 2014 of 2.44 Russian rubles per share for the total of $303.9 (including interim dividends for the six months ended 30 June 2014 of 0.88 Russian ruble per share for the total of $133.9) translated at the historical rate as of the announcement date and for the three months ended 31 March 2015 of 1.64 Russian rubles per share for the total of $178.7 (at the historical rate as of the announcement date).

In September 2014 the Parent Company declared interim dividends for the six months ended 30 June 2014 of 0.88 Russian rubles per share for the total of $133.9 (at the historical rate).

In June 2014, the Parent Company declared dividends for the year ended 31 December 2013 of 0.67 Russian rubles per share for the total of $115.0 (at the historical rate).

In June 2013, the Parent Company declared dividends for the year ended 31 December 2012 of 0.62 Russian rubles per share for the total of $115.6 (at the historical rate).

F-45 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

12 Shareholders’ equity (continued)

The Group’s objectives when managing capital are to safeguard a financial stability and a target return for shareholders, as well as reduction of capital cost and optimization of its structure. To achieve these objectives the Group may revise investing program, borrow new or repay existing loans, offer share of debt instruments on capital markets.

When managing capital the Group uses the following indicators: . the return on invested capital ratio, which is defined as operating profit for the last twelve months less tax divided by capital employed, should exceed cost of capital; . free cash-flow, which is defined as net cash provided by operating activities less net interest paid less capital expenditures less advances given in investing activities, should be positive.

There were no changes in the Group’s approach to capital management during the reporting period.

13 Earnings per share For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Profit for the year attributable to NLMK shareholders (millions of US dollars) 967.4 772.5 145.4 Weighted average number of shares 5,993,227,240 5,993,227,240 5,993,227,240

Basic and diluted earnings per share attributable to NLMK shareholders (US dollars) 0.1614 0.1289 0.0243

Basic net earnings per share is calculated by dividing profit for the year attributable to NLMK shareholders by the weighted average number of common shares outstanding during the reporting period.

The average shares outstanding for the purposes of basic and diluted earnings per share information was 5,993,227,240 for the years ended 31 December 2015, 2014 and 2013. The Parent Company does not have potentially dilutive financial instruments outstanding.

14 Revenue

(a) Revenue by product For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Pig iron, slabs and billets 2,207.2 2,486.4 2,202.2 Flat products 4,366.4 5,651.1 6,367.5 Long products and metalware 808.9 1,301.3 1,240.6 Iron-ore and sintering ore 165.8 311.4 327.0 Coke and other chemical products 228.9 259.8 254.4 Scrap 46.9 74.7 66.5 Other products 184.2 311.0 360.2

8,008.3 10,395.7 10,818.4

F-46 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

14 Revenue (continued)

(b) Revenue by geographical area

The allocation of total revenue by geographical area is based on the location of end customers who purchased the Group’s products. The Group’s total revenue from external customers by geographical area for the years ended 31 December 2015, 2014 and 2013 is as follows: For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Russia 3,146.0 4,434.3 4,373.4 North America 1,356.8 2,084.9 1,558.9 European Union 1,603.0 1,819.6 1,982.8 Middle East, including Turkey 684.1 636.5 875.4 Asia and Oceania 374.4 319.3 794.2 Other regions 844.0 1,101.1 1,233.7

8,008.3 10,395.7 10,818.4

The Group does not have customers with a share of more than 10% from revenue.

15 Labour costs

Group’s labour costs, including social security costs, which are included in the corresponding lines of the consolidated statement of profit or loss were as indicated below. For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Cost of sales (608.2) (858.6) (1,038.4) General and administrative expenses (153.8) (231.4) (295.8) Selling expenses (31.3) (40.4) (40.8)

(793.3) (1,130.4) (1,375.0)

Management remuneration consists of payments to the members of Management Board and Board of Directors of the Parent Company. Compensation comprises annual remuneration and a performance bonus contingent on results. Total management remuneration, including social security costs, amounted to $11.3, $13.6 and $9.3 in 2015, 2014 and 2013, respectively.

16 Taxes, other than income tax

Allocation of taxes, other than income tax to the functional items of consolidated statement of profit or loss is indicated below. For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Cost of sales (65.7) (122.4) (122.5) General and administrative expenses (4.4) (7.5) (6.6) Selling expenses (0.4) (0.6) (0.7) Other operating expenses (5.2) (7.0) (4.8)

(75.7) (137.5) (134.6)

F-47 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

17 Income tax

Income tax charge comprises the following: For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Current income tax expense (301.1) (378.3) (141.1) Deferred income tax benefit / (expense) (51.8) 15.9 (87.7) Adjustment of current income tax for the previous periods, recognized in the reporting period - - (26.2)

Total income tax expense (352.9) (362.4) (255.0)

The corporate income tax rate applicable to the Group entities, located in Russia, is predominantly 20%. The corporate income tax rate applicable to income of foreign subsidiaries ranges from 30% to 35%.

Income before income tax is reconciled to the income tax expense as follows: For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Profit before income tax 1,321.1 1,136.0 419.2

Income tax at applicable tax rate 20% (264.2) (227.2) (83.8)

Change in income tax: - tax effect of non-deductible expenses (63.3) (20.5) (59.5) - non-taxable translation adjustments 17.0 39.4 7.2 - effect of different tax rates 31.7 118.3 25.6 - unrecognized tax loss carry forward for current year (82.4) (99.6) (82.3) - utilization of previously unrecognized tax-losses carry- forward - 22.6 - - change in option and in NBH ownership (Note 20) 18.6 (16.3) - - write-off of previously recognized deferred tax assets (9.8) (53.0) (62.7) - loss on impairment of investment (Note 20) - (100.5) - - adjustment of current income tax for the previous periods, recognized in the reporting period - - (26.2) - other (0.5) (25.6) 26.7

Total income tax expense (352.9) (362.4) (255.0)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below: As at As at As at 31 December 2015 31 December 2014 31 December 2013 Deferred tax assets Trade and other accounts payable 74.2 100.8 170.3 Other non-current liabilities - - 0.1 Trade and other accounts receivable 3.2 15.8 27.5 Inventories - 24.5 - Net operating loss and credit carry-forwards - 14.6 73.3 Other 15.7 13.9 6.4

F-48 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

17 Income tax (continued)

As at As at As at 31 December 2015 31 December 2014 31 December 2013 93.1 169.6 277.6 Deferred tax liabilities Property, plant and equipment (341.8) (429.9) (728.2) Other intangible assets (7.9) (8.5) (21.8) Inventories (12.9) - (32.2) Other non-current liabilities (1.6) (13.7) -

(364.2) (452.1) (782.2)

Total deferred tax liability, net (271.1) (282.5) (504.6)

The movements in deferred income tax assets and liabilities are presented below:

2015 2014 2013

As at 1 January (282.5) (504.6) (501.1) Recognized in consolidated statement of profit or loss (51.8) 15.9 (87.7) Deconsolidation of subsidiaries (Note 20) - - 50.1 Translation adjustment 63.2 206.2 34.1 As at 31 December (271.1) (282.5) (504.6)

The amount of net operating losses that can be utilized each year is limited under the Group’s different tax jurisdictions. The Group regularly evaluates assumptions underlying its assessment of the realizability of its deferred tax assets and makes adjustments to the extent necessary. In assessing whether it is probable that future taxable profit against which the Group can utilize the potential benefit of the tax loss carry-forwards will be available, management considers the current situation and the future economic benefits outlined in specific business plans for each subsidiary.

The table below summarizes not recognized cumulative tax-loss carry forwards, for which no deferred tax assets were recognised, with a breakdown by the expiry dates. As at As at As at 31 December 2015 31 December 2014 31 December 2013

From 1 to 5 years 294.3 310.9 165.4 From 5 to 10 years 376.3 600.4 1,060.9 More than 10 years 850.9 680.9 714.6 No expiration 976.5 1,084.8 1,180.9

2,498.0 2,677.0 3,121.8

Deferred tax assets are recorded only to the extent that it is probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilized. In the second quarter of 2013 valuation models, previously supported deferred tax assets recoverability in Group’s major European entities, were revised based on the results of analysis of economic condition in Europe. The revised models did not support recoverability of a part of these assets of $62.7, which resulted in write-off of previously recognized deferred tax assets in the second quarter of 2013. As at 31 December 2013 figures of these European entities were eliminated from consolidated statement of financial position of the Group (Note 20).

The Group has not recorded a deferred tax liability in respect of temporary differences of $908.2, $1,274.5 and $1,628.9 for the years ended 31 December 2015, 2014 and 2013, respectively, associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

F-49 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

17 Income tax (continued)

In accordance with Russian legislation, the Group’s key Russian entities, including NLMK, were integrated in one consolidated tax group for the purpose of assessment and payment of corporate income tax in line with the comprehensive financial result of business operations. The Group’s entities that do not constitute the consolidated tax group assess their income taxes individually.

As at 31 December 2015, 2014 and 2013 the Group analysed its tax positions for uncertainties affecting recognition and measurement thereof. Following the analysis, the Group believes that it is likely that all deductible tax positions stated in the income tax return recognised and valuated in accordance with the tax legislation.

18 Finance income and costs

For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Interest income on bank accounts and bank deposits 44.5 29.5 36.2 Other finance income 7.4 7.0 4.4

Total finance income 51.9 36.5 40.6

Interest expense on borrowings (118.9) (178.9) (221.5) Capitalized interest 32.2 61.6 121.9 Other finance costs (8.6) (19.5) (22.3)

Total finance costs (95.3) (136.8) (121.9)

19 Foreign currency exchange

For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

Foreign exchange gain on cash and cash equivalents 44.6 251.9 55.1 Foreign exchange gain on financial investments 542.1 1,249.9 180.1 Foreign exchange gain / (loss) on financial instruments 1.8 (33.1) (1.2) Foreign exchange loss on debt financing (415.1) (898.5) (170.0) Foreign exchange (loss) / gain on other assets and liabilities (63.9) (82.0) 21.2

109.5 488.2 85.2

20 Disposal of companies which are under the Group’s control

In September 2013, the Group signed an agreement with Societe Wallonne de Gestion et de Participations S.A. (SOGEPA), a Belgian state-owned company, to sell a 20.5% stake in SIF S.A.’s subsidiary – NLMK Belgium Holdings S.A. (NBH), which comprises NLMK Europe’s operating and trading companies, excluding NLMK DanSteel A/S, for EUR 91.1 million ($122.9). The agreement provides SOGEPA with certain governance rights over NBH and its subsidiaries, and key management decisions will be taken jointly by the Group and SOGEPA by their representation on the Board of Directors of NBH.

F-50 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

20 Disposal of companies which are under the Group’s control (continued)

The Group brought in SOGEPA as a strategic investor in the context of the continuing restructuring of its European assets aimed at further enhancing efficiency and optimizing costs.

The agreement resulted in the loss of control by the Group over NBH and therefore NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013.

The fair value of the Group’s remaining 79.5% interest in NBH was determined based on management’s best estimates of future cash flows, including assumptions regarding the increase in capacity utilization and the implementation of the operational business plan, including the restructuring plan. This stake in the amount of $459.2 was accounted for as a company using the equity method which is treated as a related party. Calculation of the result of disposal also includes cash proceeds of $122.9, release of cumulative translation adjustment of $60.0, written off goodwill of $289.7, written off option of $30.0 and write off of net assets of NBH at date of disposal disclosed below. The Group has recorded a loss on disposal related to the transaction amounting to $51.4, which is included in “Result of disposal of subsidiary” line.

The carrying amounts of assets and liabilities of NBH as at the date of disposal were as follows:

Current assets, including: 1,029.9 Cash and cash equivalents 76.7 Other current assets 953.2 Non-current assets 1,133.5 Total assets 2,163.4

Current liabilities (926.9) Non-current liabilities (862.7) Total liabilities (1,789.6)

Equity 373.8

Current assets include trade and other accounts receivable of $329.5, inventories of $609.4. Non-current assets include property, plant and equipment of $980.7 and deferred income tax assets of $149.1. Current liabilities include trade and other accounts payable of $624.7. Non-current liabilities include long-term borrowings of $531.9 and deferred income tax liability of $199.2.

Information on NBH’s operations from 1 January 2013 to the date of disposal is as follows:

Revenue 1,047.1 Cost of sales (973.3) Income tax expense (53.0) Net loss for the period (276.7)

Revenue and net loss of NBH for the fourth quarter of 2013 amounted to $405.6 and $(70.9), respectively. Revenue and loss of NBH before impairment losses for 2014 amounted to $1,517.3 and $(243.4), respectively. Revenue and net loss of NBH for 2015 amounted to $1,277.6 and $(191.3), respectively.

Continuous trend of low prices for steel products in Europe and underperformance of NBH holding companies resulted in a necessity of reassessment of impairment testing model for the investments in NBH in 2014, which showed no impairment in 2013. The revised model showed a necessity of further impairment of $325.2 as at 31 December 2014. For the purpose of impairment testing the Group has estimated cash flows for 9 years for different groups of assets and respective cash flows in the post-forecast period. Prices for steel products were determined on the basis of forecasts of investment banks’ analysts. A discount rate of 8% was used. The impairment testing model is sensitive to assumptions used. For example, increase in the discount rate by 1% will result in additional impairment of $117.

F-51 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

20 Disposal of companies which are under the Group’s control (continued)

Information about the Group’s operations with NBH is disclosed in Note 23.

Summarized financial information for NBH before impairment losses is as follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013

Current assets 734.1 921.9 993.0 Non-current assets 751.3 935.3 1,101.2

Total assets 1,485.4 1,857.2 2,094.2

Current liabilities (657.5) (1,054.3) (819.4) Non-current liabilities (624.2) (488.6) (963.0)

Total liabilities (1,281.7) (1,542.9) (1,782.4)

Equity 203.7 314.3 311.8

NBH cash and cash equivalents as at 31 December 2015, 2014 and 2013 amounted to $59.8, $46.1 and $25.1, respectively.

The Group’s share in NBH’s net loss for the year ended 31 December 2015, 2014 and from the date of disposal to 31 December 2013 amounted to $(103.4), $(193.5) and $(54.2), respectively, and is included in “Share in net losses of associates and other companies accounted for using the equity method” line in the consolidated statement of profit or loss.

Deferred tax assets and deferred tax liabilities of NBH as at the date of disposal refer to the temporary differences originated from the following:

Trade and other accounts receivable 0.2 Inventories (8.0) Property, plant and equipment (148.7) Other intangible assets 0.3 Trade and other accounts payable 5.5 Non-current liabilities 2.3 Net operating loss and credit carry-forwards 94.7 Other 3.6

Net deferred tax liability (50.1)

Fair value of options

In September 2013 SOGEPA and the Group also signed an option agreement, which provides call options for the Group and put options for SOGEPA over its 20.5% stake (5.1% of the common shares of NBH in each of 2016, 2017 and 2018, and any remaining stake after 2023).

Under the option agreement the exercise price was based on the book value of NBH net assets, subject to a minimum value of 20.5% of the shares of EUR 91.1 million plus fixed interest. The Group has recognized a liability in respect of these options, based on their fair value in the amount of $82.5 and $30.0 as at 31 December 2014 and 2013, respectively, included in “Other long-term liabilities” line of the consolidated statement of financial position. The change in the value of the option resulted in loss amounted to $(52.5) and included in “Gains on investments” line of the consolidated statement of profit or loss.

The options have been valued using standard, market-based valuation techniques. The Level 3 significant unobservable inputs used in the fair value measurement of the option agreement are the annualized volatility of the underlying shares and the fair value of the underlying shares.

F-52 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

20 Disposal of companies which are under the Group’s control (continued)

Changes to NLMK Belgium Holdings’ ownership structure and governance

In March 2015, the Group and SOGEPA signed an agreement to increase SOGEPA’s share in NBH from 20.5% to 49%. Under the agreement the Group’s and SOGEPA’s existing respective put and call options over the SOGEPA shares in NBH were terminated.

NBH board of directors is increased to include four representatives of NLMK Group and three representatives of SOGEPA. SOGEPA also received board seats at production subsidiaries of NBH.

Disposal of the option resulted in gain amounted to $76.0 and included in “Gains on investments” line of the consolidated statement of profit or loss.

Earlier, in December 2014, the Group made a conversion of existing loans given into NBH share capital in the amount of EUR 220 million with a corresponding reflection in the consolidated financial statements for the year ended 31 December 2014. These investments are also a part of the agreement signed in March 2015. In December 2015, the Group made a conversion of existing loans given into NBH share capital in the amount of EUR 100 million with a corresponding reflection in the consolidated financial statements for the year ended 31 December 2015. These contributions did not change Group’s share in NBH.

The Group and SOGEPA have agreed to support NBH in obtaining financing of its working capital. In March 2015 the shareholders made additional contributions into NBH share capital proportionally their shares (EUR 20.4 million and EUR 19.6 million, respectively).

21 Segment information

The Group has five reportable business segments: Russian flat products, Foreign rolled products, Russian long products, Mining and Investments in associate entity NBH (Note 20). These segments are combinations of subsidiaries, have separate management teams and offer different products and services. The above five segments meet the criteria for reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and management.

Intersegmental operations and balances include elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within line “Profit / (loss) for the year” together with other intercompany elimination adjustments, including elimination of NBH liabilities to the Group companies (Note 23). NBH deconsolidation adjustments include full elimination of sales of NBH with further recognition of the Group’s sales to NBH and elimination of unrealised profits (Notes 4, 23), recognition of investment in associate (Note 4), recognition of impairment and share of loss arising for NBH and other consolidation adjustments.

F-53 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

21 Segment information (continued)

Information on segments’ profit or loss for the year ended 31 December 2015 and their assets and liabilities on this date is as follows:

Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 184.2 4,718.7 859.0 1,441.9 1,212.7 11.7 - (419.9) 8,008.3 Intersegment revenue 405.0 1,345.9 293.3 - 64.9 0.1 (2,044.3) (64.9) - Cost of sales (225.9) (4,000.1) (1,026.1) (1,512.5) (1,121.5) (5.0) 2,066.7 328.7 (5,495.7) Gross profit / (loss) 363.3 2,064.5 126.2 (70.6) 156.2 6.8 22.4 (156.2) 2,512.6 Operating profit / (loss)* 256.8 1,195.9 (16.8) (165.7) (172.2) 5.2 112.9 172.2 1,388.3 Net finance income / (costs) 16.8 4.8 (26.1) (39.9) (19.5) 1.0 - 19.5 (43.4) Income tax expense (71.2) (244.9) 2.1 (0.6) 6.5 (0.8) (37.5) (6.5) (352.9) Profit / (loss) for the year 279.1 1,290.3 (92.7) (203.8) (191.3) (5.4) (195.9) 87.9 968.2 Segment assets 1,476.6 7,509.6 953.4 1,036.6 1,485.4 11.6 (2,195.6) (1,358.2) 8,919.4 Segment liabilities (326.0) (3,603.2) (565.6) (1,458.9) (1,281.7) (1.0) 2,679.0 775.7 (3,781.7) Depreciation and amortization (40.6) (384.6) (65.4) (69.3) (80.2) (0.1) - 80.2 (560.0) Capital expenditures (281.3) (259.8) (24.9) (22.7) - (6.0) - - (594.7) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

F-54 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

21 Segment information (continued)

Information on segments’ profit or loss for the year ended 31 December 2014 and their assets and liabilities on this date is as follows:

Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 345.9 5,684.1 1,446.9 2,015.0 1,462.4 0.1 - (558.7) 10,395.7 Intersegment revenue 721.8 2,187.9 367.7 - 54.9 - (3,277.4) (54.9) - Cost of sales (347.5) (5,667.2) (1,578.4) (1,896.7) (1,375.3) (0.1) 3,004.6 471.6 (7,389.0) Gross profit / (loss) 720.2 2,204.8 236.2 118.3 142.0 - (272.8) (142.0) 3,006.7 Operating profit / (loss)* 576.3 874.2 242.3 21.4 (215.9) (2.2) (124.1) 215.9 1,587.9 Net finance income / (costs) 27.9 (9.1) (82.9) (37.2) (21.3) 1.0 - 21.3 (100.3) Income tax expense (193.6) (221.9) (19.0) 27.2 11.1 (0.2) 45.1 (11.1) (362.4) Profit / (loss) for the year 763.0 1,426.3 (96.3) (154.6) (243.4) 6.4 (652.5) (275.3) 773.6 Segment assets 1,948.9 8,902.9 1,367.9 1,491.9 1,857.2 99.7 (3,611.8) (1,707.3) 10,349.4 Segment liabilities (480.0) (4,138.9) (996.3) (1,956.0) (1,542.9) (27.6) 4,016.6 1,032.4 (4,092.7) Depreciation and amortization (63.6) (538.5) (106.6) (82.7) (101.1) (2.1) - 101.1 (793.5) Capital expenditures (253.9) (220.9) (51.2) (17.9) - (18.7) - - (562.6) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

F-55 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

21 Segment information (continued)

Information on segments’ profit or loss for the year ended 31 December 2013 and their assets and liabilities on this date is as follows:

Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 372.2 6,240.6 1,328.2 1,693.0 1,446.9 0.6 - (263.1) 10,818.4 Intersegment revenue 978.8 1,623.8 388.1 1.7 5.8 - (2,992.4) (5.8) - Cost of sales (423.0) (6,655.5) (1,507.8) (1,795.7) (1,327.6) (0.3) 2,826.3 217.7 (8,665.9) Gross profit / (loss) 928.0 1,208.9 208.5 (101.0) 125.1 0.3 (166.1) (51.2) 2,152.5 Operating profit / (loss)* 787.1 (254.6) 324.8 (42.3) (244.9) (8.1) 10.3 36.5 608.8 Net finance income / (costs) 23.3 52.1 (107.3) (37.0) (18.5) 1.0 - 5.1 (81.3) Income tax expense (118.1) (85.8) (5.5) 6.0 (81.7) (0.2) 1.6 28.7 (255.0) Profit / (loss) for the year 766.2 167.1 197.3 (61.4) (347.6) 0.8 (574.9) 16.7 164.2 Segment assets 2,382.5 13,223.2 2,799.6 1,476.3 2,094.2 62.8 (3,912.6) (1,673.0) 16,453.0 Segment liabilities (177.0) (6,021.3) (1,996.5) (1,692.2) (1,782.4) (53.1) 4,366.1 1,301.9 (6,054.5) Depreciation and amortization (71.5) (553.1) (88.0) (74.8) (112.6) - - 28.9 (871.1) Capital expenditures (125.7) (391.5) (179.8) (48.5) - (10.8) - - (756.3) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA and Europe.

F-56 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties

(a) Operating environment of the Group

The Russian Federation’s economy continues to display some characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that in practice is not freely convertible in most countries outside the Russian Federation and relatively high inflation. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations (Note 24(f)).

The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political developments. Management believes it is taking all the necessary measures to support the sustainability and growth of the Group’s business.

The political and economic turmoil witnessed in the region, including continuing international sanctions against certain Russian companies and individuals have had and may continue to have a negative impact on the Russian economy. The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. This operating environment may have a significant impact on the Group’s operations and financial position, the effect of which is difficult to predict, however, Management is taking necessary measures to ensure sustainability of the Group’s operations.

The major financial risks inherent to the Group’s operations are those related to market risk, credit risk and liquidity risk. The objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits.

(b) Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises of three types of risk: interest rate risk, foreign currency risk and commodity price risk.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with variable interest rates. To manage this risk the Group analyses interest rate risks on a regular basis. The Group reduces its exposure to this risk by having a balanced portfolio of fixed and variable rate loans.

The interest rate risk profile of the Group is follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013

Fixed rate instruments

Financial assets 2,427.7 2,103.5 2,363.9 - cash and cash equivalents (Note 3) 343.0 549.2 970.0 - short-term financial investments (Note 5) 1,242.6 621.3 484.6 - trade and other accounts receivable less allowance (Note 6) 622.3 791.7 904.8 - long-term financial investments (Note 5) 219.8 141.3 4.5

Financial liabilities (2,065.8) (2,366.9) (3,508.3) - trade, other accounts payable and dividends payable (Note 10) (519.5) (464.7) (712.3) - short-term borrowings (Note 11) (230.8) (302.5) (525.0) - long-term borrowings (Note 11) (1,315.5) (1,599.7) (2,271.0)

F-57 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties (continued)

As at As at As at 31 December 2015 31 December 2014 31 December 2013 Variable rate instruments

Financial assets - - 78.4 - short-term financial investments (Note 5) - - 0.4 - long-term financial investments (Note 5) - - 78.0

Financial liabilities (1,129.8) (866.3) (1,394.5) - short-term borrowings (Note 11) (329.0) (501.8) (611.7) - long-term borrowings (Note 11) (800.8) (364.5) (782.8)

A change of 100 basis points in interest rates for variable rate instruments would have insignificantly change profit and equity.

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The export-oriented companies of the Group are exposed to foreign currency risks. To minimize foreign currency risks the export program is designed taking into account potential (forecast) major foreign currencies’ exchange fluctuations. The Group diversifies its revenues in different currencies. In its export contracts the Group controls the balance of currency positions: payments in foreign currency are settled with export revenues in the same currency. At the same time standard hedging instruments to manage foreign currency risk might be used.

The net foreign currency position presented below is calculated in respect of major currencies by items of consolidated statement of financial position as the difference between assets and liabilities denominated in a currency other than the functional currency of the entity at 31 December 2015.

US dollar Euro

Cash and cash equivalents 196.4 39.6 Trade and other accounts receivable 2.9 303.6 Short-term financial investments 1,079.9 129.4 Long-term financial investments - 222.1 Trade and other accounts payable (42.3) (95.2) Short-term borrowings (19.8) (145.6) Long-term borrowings (1,578.3) (400.8)

Net foreign currency position (361.2) 53.1

US dollar Euro

Cash and cash equivalents 230.4 107.1 Trade and other accounts receivable 7.0 402.1 Short-term financial investments 423.0 164.8 Long-term financial investments - 141.2 Trade and other accounts payable (40.7) (107.2) Short-term borrowings (117.7) (126.9) Long-term borrowings (1,178.3) (494.0)

Net foreign currency position (676.3) 87.1

F-58 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties (continued)

US dollar Euro

Cash and cash equivalents 460.5 161.2 Trade and other accounts receivable 3.1 418.4 Short-term financial investments 350.3 107.2 Other non-current assets 0.6 - Trade and other accounts payable (51.2) (93.3) Short-term borrowings (169.6) (170.6) Long-term borrowings (1,400.0) (682.8)

Net foreign currency position (806.3) (259.9)

Sensitivity analysis

Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes.

A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2015, 2014 and 2013 would have increased / (decreased) equity by the amounts shown below, however effect on profit for the year would be different, and would amount to $87.6, $196.8 and $105.3, respectively, due to foreign exchange gain from intercompany operations (Note 19).

For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013

US dollar (90.3) (169.1) (201.6) Euro 13.3 21.8 (65.0)

A weakening of these currencies against the functional currency would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.

Commodity price risk

Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results.

The Group minimizes its risks, related to production distribution, by having a wide range of geographical zones for sales, which allows the Group to respond quickly to negative changes in the situation on one or more sales markets on the basis of an analysis of the existing and prospective markets.

One of the commodity price risk management instruments is vertical integration. A high degree of vertical integration allows cost control and effective management of the entire process of production: from mining of raw materials and generation of electric and heat energy to production, processing and distribution of metal products.

To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

F-59 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties (continued)

Credit risk is the risk when counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss for the Group.

The Group is exposed to credit risk from its operating activities (primarily for trade receivables and advances given to suppliers) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management.

The Group controls the levels of credit risk it undertakes by assessing the degree of risk for each counterparty or groups of parties. Such risks are monitored on a revolving basis and are subject to a quarterly, or more frequent, review.

The Group’s management reviews ageing analysis of outstanding trade receivables and follows up on past due balances.

The Group’s maximum exposure to credit risk by class of assets reflected in the carrying amounts of financial assets on the consolidated statement of financial position is as follows:

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Cash and cash equivalents (Note 3) 343.0 549.2 970.0 Trade and other accounts receivable (Note 6) 622.3 791.7 904.8 Short-term financial investments (Note 5) 1,242.6 621.3 485.0 Long-term financial investments (Note 5) 219.8 141.3 82.5

Total on-balance sheet exposure 2,427.7 2,103.5 2,442.3

Financial guarantees issued (Note 23(d)) 273.2 611.6 790.6

2,700.9 2,715.1 3,232.9

Analysis by credit quality, based on international agencies’ credit rating of bank balances and term deposits as well as short-term and long-term bank deposits is as follows:

As at As at As at 31 December 2015 31 December 2014 31 December 2013 Bank balances and term deposits AAA-BBB 244.3 504.9 837.6 BB-B 95.6 38.9 122.0 Unrated and cash on hand 3.1 5.4 10.4

343.0 549.2 970.0

Short-term and long-term bank deposits AAA-BBB 756.4 549.2 370.3 BB-B 415.3 0.2 10.4 Unrated - - -

1,171.7 549.4 380.7

F-60 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties (continued)

As at 31 December 2015, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 485.8 43.8 269.9

Overdue, including: 127.8 10.2 19.2 - up to 1 month 84.9 3.0 1.0 - from 1 to 3 months 16.0 0.7 0.6 - from 3 to 12 months 7.8 1.3 9.8 - over 12 months 19.1 5.2 7.8

613.6 54.0 289.1

Allowance (16.3) (4.2) (15.3)

Net of allowance 597.3 49.8 273.8

As at 31 December 2014, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 669.3 49.3 290.9

Overdue, including: 132.7 20.4 18.5 - up to 1 month 60.1 6.8 0.9 - from 1 to 3 months 31.2 3.6 0.5 - from 3 to 12 months 11.7 5.3 4.9 - over 12 months 29.7 4.7 12.2

802.0 69.7 309.4

Allowance (28.6) (9.6) (20.4)

Net of allowance 773.4 60.1 289.0

F-61 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

22 Risks and uncertainties (continued)

As at 31 December 2013, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 730.7 55.9 529.2

Overdue, including: 171.0 25.8 30.1 - up to 1 month 67.2 7.4 0.9 - from 1 to 3 months 43.8 4.8 0.6 - from 3 to 12 months 5.3 2.5 2.3 - over 12 months 54.7 11.1 26.3

901.7 81.7 559.3

Allowance (39.3) (19.3) (25.1)

Net of allowance 862.4 62.4 534.2

As at 31 December 2015, 2014 and 2013 the Group does not have trade and other accounts receivable which was overdue and not impaired.

(d) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources.

The Group monitors its risk to a shortage of funds using a regular cash flow forecast. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases. To provide for sufficient cash balances required for settlement of its obligations in time the Group uses detailed budgeting and cash flow forecasting instruments.

The table below analyses the Group’s short-term and long-term borrowings by their remaining corresponding contractual maturity. The amounts disclosed in the maturity table are the undiscounted cash outflows.

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Less than 1 year 752.5 877.6 1,269.1 From 1 to 2 years 473.1 719.7 1,396.0 From 2 to 5 years 1,799.8 1,442.7 1,998.0 Over 5 years 37.6 8.7 29.1

Total borrowings 3,063.0 3,048.7 4,692.2

Liquidity risk related to financial guarantees issued disclosed in Note 23(d).

As at 31 December 2015, 2014 and 2013 the Group does not have significant trade and other accounts payable with maturity over one year and its carrying amount approximates its fair value.

(e) Insurance

To minimize risks the Group concludes insurance policies which cover property damages and business interruptions, freightage, general liability and vehicles. In respect of legislation requirements, the Group purchases compulsory motor third party liability insurance, insurance of civil liability of organizations operating hazardous facilities. The Group also buys civil liability insurance of the members of self-regulatory organizations, directors and officers liability insurance, voluntary health insurance for employees of the Group.

F-62 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

23 Related party transactions

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 or joint control over the other party in making financial or operational decisions as defined by IAS 24, Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group carries out operations with related parties on arm’s length.

(a) Sales to and purchases from related parties

For the year ended For the year ended For the year ended 31 December 2015 31 December 2014 31 December 2013 Sales NBH group companies 731.8 985.7 227.7 Other related parties 4.7 7.7 9.1

Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 324.9 375.9 411.3 Other related parties 64.4 60.6 16.3

(b) Accounts receivable from and accounts payable to related parties

As at As at As at 31 December 2015 31 December 2014 31 December 2013 Accounts receivable and advances given NBH group companies 220.8 300.9 294.2 Other related parties 27.3 17.5 36.8

Accounts payable Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 5.8 2.3 15.2 Other related parties 18.9 25.2 6.3

As at As at As at 31 December 2015 31 December 2014 31 December 2013

Loans, issued to NBH group companies (Note 5) 285.1 209.6 185.6 Deposits and current accounts in PJSC Bank ZENIT and PJSC Lipetskcombank (companies under the significant influence of the Group’s controlling shareholder) 24.2 36.5 92.4

When issuing loans to the foreign companies of the Group and companies accounted for using the equity method, interest rate is determined using information on similar external deals subject to company’s internal credit rating.

Interest income from deposits and current accounts in PJSC Bank ZENIT and PJSC Lipetskcombank for the years ended 31 December 2015, 2014 and 2013 amounted to $2.4, $3.5 and $3.3, respectively.

(d) Financial guarantees issued

As at 31 December 2015, 2014 and 2013 guarantees issued by the Group for borrowings of NBH group companies’ amounted to $273.2, $611.6 and $790.6, respectively, which is the maximum potential amount of future payments, paid on demand of the guarantee. No amount has been accrued in these consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low.

F-63 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

23 Related party transactions (continued)

The maturity of the guaranteed obligations is as follows: As at As at As at 31 December 2015 31 December 2014 31 December 2013

Less than 1 year 82.0 528.9 176.8 From 1 to 2 years 14.3 61.8 533.3 Over 2 years 176.9 20.9 80.5

273.2 611.6 790.6

(e) Contributions to non-governmental pension fund and charity fund

Total contributions to a non-governmental pension fund and charity fund in 2015, 2014 and 2013 amounted to $6.5, $9.1 and $6.5, respectively. The Group has no long-term commitments to provide funding, guarantees or other support to the abovementioned funds.

(f) Common control transfers

In September 2015, the Parent Company completed the sales of its full controlling interest in OJSC North Oil and Gas Company (51.0%) for $10.1 cash consideration from a company under common control. Disposal of OJSC North Oil and Gas Company resulted in deconsolidation of assets amounting to $20.4 and liabilities amounting to $20.1.

The difference between transaction price and value of net assets is recorded in line item “Disposal of assets to an entity under common control” of consolidated statement of changes in equity. Revenue and profit of OJSC North Oil and Gas Company for the nine months ended 30 September 2015 are not material.

This transaction was carried out in line with the Group’s management of none-core assets portfolio.

24 Commitments and contingencies

(a) Anti-dumping investigations

The Group’s export trading activities are subject from time to time to compliance reviews of importers’ regulatory authorities. The Group’s export sales were considered within several anti-dumping investigation frameworks. The Group takes steps to address negative effects of the current and potential anti-dumping investigations and participates in the settlement efforts coordinated through the Russian authorities. No provision arising from any possible agreements as a result of anti-dumping investigations has been made in the accompanying consolidated financial statements.

(b) Litigation

The Group, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The Group’s management believes that any ultimate liability resulting from these legal actions will not significantly affect its financial position or results of operations, and no amount has been accrued in the accompanying consolidated financial statements.

Initiated in January 2010 by the non-controlling shareholder of OJSC Maxi-Group court proceeding at the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (hereinafter, ICA Court) regarding the enforcement of the additional payment by the Parent Company for the shares of OJSC Maxi-Group ended in January 2012 in favour to the Parent Company.

Initiated in December 2012 by the non-controlling shareholder of OJSC Maxi-Group court proceeding at ICA Court regarding the loss of assets in connection with a share-purchase agreement ended in January 2014. Arbitrators stated that ICA Court lacks jurisdiction to adjudicate the claim of Maxi-Group’s non-controlling shareholder against the Parent Company and terminated examinations.

No further appeal is possible in these claims.

F-64 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

24 Commitments and contingencies (continued)

In the third quarter of 2014 the Group received about $104.0, in November 2015 about $17 and in January 2016 about $11, in course of bankruptcy proceedings which were the result of execution of the decision taken by Russian court in 2012. These amounts are included in “Gains on investments” line in the consolidated statement of profit or loss.

Recently there are still certain court proceedings initiated by the non-controlling shareholder of OJSC Maxi-Group going on in European courts and related to the claim filed to ICA Court in January 2010. In 2014 courts in France and England decided to execute a decision of ICA Court (which was cancelled in Russia) on the territory of these states. In December 2014 the Parent Company claimed the appeal on a decision of French court and in November 2015 – the appeal on a decision of English court. The Group’s management considers the probability of unfavorable outcome and cash outflow in connection with these court proceedings is low and accordingly, no accruals in relation to these claims were made in these consolidated financial statements.

The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be reasonably estimated. In the current enforcement climate under existing legislation, management believes that the Group has met the Government’s federal and regional requirements concerning environmental matters, therefore there are no significant liabilities for environmental damage or remediation.

(d) Capital commitments

Management estimates the outstanding agreements in connection with equipment supply and construction works amounted to $564.7, $620.8 and $498.6 as at 31 December 2015, 2014 and 2013, respectively.

(e) Social commitments

The Group makes contributions to mandatory and voluntary social programs. The Group’s social assets, as well as local social programs, benefit the community at large and are not normally restricted to the Group’s employees. The Group has transferred certain social operations and assets to local authorities, however, management expects that the Group will continue to fund certain social programs through the foreseeable future. These costs are recorded in the period they are incurred.

(f) Tax contingencies

Russian 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 federal authorities. Recent events within the Russian Federation 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, including certain operation of intercompany financing of Russian subsidiaries within the Group, that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed, and certain expenses used for profit tax calculation may be excluded from tax returns. 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.

Russian transfer pricing legislation was amended starting from 1 January 2012. The new transfer pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the international principles. The new legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (defined by applicable legislation), provided that the transaction price is not arm’s length. Management exercises its judgment about whether or not the transfer pricing documentation that the entity has prepared, as required by the new legislation, provides sufficient evidence to support the Group’s tax positions. Given that the practice of implementation of the new Russian transfer pricing rules has not yet developed, the impact of any challenge of the Group’s transfer prices cannot be reliably estimated, however, it may be significant to the financial position and the results of the Group’s operations.

F-65 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

24 Commitments and contingencies (continued)

The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the certainty that these companies do not have a permanent establishment in Russia and, correspondingly, are not subject to profit tax. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently. However, it may be significant to the financial position and/or the overall operations of the Group. In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). Starting from 2015, CFC income may be a subject to a 20% tax rate. As a result, the Group’s management analyses the impact of new tax provisions on Group’s activity and implements the required actions in order to comply with Russian tax requirements. Based on its own understanding of new provisions of tax legislation and the fact that the practice of implementation of these provisions has not formed, management does not recognised current tax expense as well as deferred taxes for temporary differences related to the relevant Group’s subsidiaries to which the CFC legislation applies to and to the extent that the Group is obliged to settle such taxes.

As at 31 December 2015, management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency and customs positions will be sustained.

(g) Major terms of loan agreements

Certain of the loan agreements contain debt covenants that impose restrictions on the purposes for which the loans may be utilized, covenants with respect to disposal of assets, incurrence of additional liabilities, issuance of loans or guarantees, obligations in respect of any future reorganizations procedures or bankruptcy of borrowers, and also require that borrowers maintain pledged assets to their current value and conditions. In addition, these agreements contain covenants with respect to compliance with certain financial ratios, clauses in relation to performance of the borrowers, including cross default provisions, as well as legal claims in excess of certain amount, where reasonable expectations of a negative outcome exist, and covenants triggered by any failure of the borrower to fulfill contractual obligations. The Group companies are in compliance with all debt covenants as at each reporting date.

25 Significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These accounting policies have been consistently applied by the Group from one reporting period to another.

(a) Basis of consolidation

Subsidiaries

Subsidiaries are those entities that the Group controls because the Group has (a) power over the investees (that is, it can direct relevant activities of the investees that significantly affect their returns); (b) exposure, or rights, to variable returns from its involvement with the investees; and (c) the ability to use its power over the investees to affect the amount of investor returns.

Subsidiaries are consolidated when the Group obtains control over an investee and terminates when the Group ceases to have control over the investee.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Group. Non-controlling interest forms a separate component of the Parent Company’s equity.

The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. 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.

F-66 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction-by-transaction basis, either at: (a) fair value, or (b) the non-controlling interest’s proportionate share of net assets of the acquiree.

Goodwill is measured by deducting the net assets of an acquiree from the aggregate of: the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree, and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews the appropriateness of their measurement.

Consideration transferred for an acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including the fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition-related costs such as fees for advisory, legal, valuation and similar professional services. Transaction costs related to an acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of a business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.

All intercompany transactions, balances and unrealised gains on transactions between the Group companies are eliminated. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Parent Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Associates and other companies accounted for using the equity method of accounting

Associates and other companies accounted for using the equity method of accounting are entities over which the Group has significant influence, but not control or joint control over financial or operating policies.

Investments in associates and other companies accounted for using the equity method of accounting are initially recognised at cost (fair value of the consideration transferred).

The Group also uses the equity method of accounting to account for an agreement under which the parties exercising joint control of the arrangement are entitled to the net assets of the company accounted for using the equity method of accounting. Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Dividends received from associates and other companies accounted for using the equity method of accounting reduce the carrying value of the investment in associates and other companies accounted for using the equity method of accounting. The Group’s share of profits or losses of associates and other companies accounted for using the equity method of accounting after acquisition is recorded in the consolidated statement of profit or loss for the year as share of financial result of associates and other companies accounted for using the equity method of accounting. The Group’s share in the change of other comprehensive income after the acquisition is recorded within other comprehensive income as a separate line item. All other changes in the Group’s share of the carrying amount of net assets of the associates and other companies accounted for using the equity method of accounting are recognised in profit or loss within the share of financial results of the associates and other companies accounted for using the equity method of accounting, but the treatment could be different depending on the substance of the change.

However, when the Group’s share of losses in an associate and other companies accounted for using the equity method of accounting equals or exceeds its interest in the associate or company accounted for using the equity method of accounting, including any other unsecured receivables, the Group does not recognise further losses, unless this is required by law or it has incurred obligations or made payments on behalf of the associate or other companies accounted for using the equity method of accounting.

F-67 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Unrealised gains on transactions between the Group and its associates and other companies accounted for using the equity method of accounting are eliminated to the extent of the Group’s interest in these entities. Unrealised losses arising from transactions between the Group and its associates and other companies accounted for using the equity method of accounting are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.

In the consolidated statement of financial position, the Group’s share in the associate or other companies accounted for using the equity method of accounting is presented at the carrying amount inclusive of goodwill at the acquisition date and the Group’s share of post-acquisition profits and losses net of impairment loss.

Disposals of subsidiaries, associates or other companies accounted for using the equity method of accounting

When the Group ceases to have control or significant influence, any retained interest in the subsidiary, associate or company accounted for using the equity method of accounting is re-measured to its fair value, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, company accounted for using the equity method of accounting, or financial asset. In addition, any amounts previously recognised in other comprehensive income, in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.

At the date when the Group’s control ceases, it de-recognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognises profit or loss connected with the loss of control attributable to the former controlling stake.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(b) Cash and cash equivalents

Cash and cash equivalents include cash balances in hand, cash on current accounts with banks, bank deposits and other short-term highly liquid investments with original maturities of three months or less.

Restricted cash balances comprise balances of cash and cash equivalents which are legally or contractually restricted from withdrawal.

Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period are included in other non-current assets.

(d) Value added tax (VAT)

Output value added tax arising upon the sale of goods (performance of work, provision of services) is payable to the tax authorities on the earlier of: (a) collection of receivables from customers; or (b) delivery of goods (work, services) or property rights to customers. VAT is excluded from revenue.

Input VAT on goods and services purchased (received) is generally recoverable against output VAT upon receipt of the VAT invoice. VAT related to sales / purchases and services provision / receipt payments to the budget which has not been settled with at the balance sheet date (deferred VAT) is recognised in the consolidated statement of financial position on a gross basis and disclosed separately within current assets and current liabilities.

Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debt, including VAT.

F-68 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

(e) Inventories

Inventories are recorded at the lower of cost and net realisable value (the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses).

Inventories include raw materials designated for use in the production process, finished goods, work in progress and goods for resale.

Release to production or any other write-down of inventories is carried at the weighted average cost.

The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity).

Other costs are included in the cost of inventories only to the extent they were incurred to provide for the current location and condition of inventories.

When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories, including obsolete inventories written down, shall be recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(f) Property, plant and equipment (PP&E)

Measurement at recognition

Property, plant and equipment are initially stated at cost (historical cost model). The PP&E cost includes: . its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; . any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the relevant entity’s management; . the initial estimate of the cost of subsequent dismantling and removal of a fixed asset, and restoring the site on which it was located, the obligation for which the relevant entity incurs either when the item is acquired or as a consequence of having used the item during a specific period for purposes other than to produce inventories during that period.

The value of property, plant and equipment built using an entity’s own resources includes the cost of materials and labour, and the relevant portion of production overhead costs directly attributable to the construction of the PP&E.

Borrowing costs directly attributable to the acquisition, construction or production of an asset which takes a substantial period of time to prepare for use or sale are included in the cost of this asset.

Recognition of costs in the carrying amount of a property, plant and equipment item ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management of the relevant entity.

Subsequent measurement

Property, plant and equipment items are carried at cost less accumulated depreciation and recognised impairment losses.

F-69 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Subsequent expenditures

The costs of minor repairs are expensed when incurred. The costs of regular replacement of large components of property, plant and equipment items are recognised in the carrying amount of the relevant asset when incurred subject to recognition criteria. The carrying amount of the parts being replaced is de-recognised.

When a large-scale technical inspection is conducted, related costs are recognised in the carrying amount of a fixed asset as replacement of previous technical inspection subject to recognition criteria. Any costs related to the previous technical inspection that remain in the carrying value shall be de-recognised.

Other subsequent expenditures are capitalised only when they increase the future economic benefits embodied in these assets.

All other expenses are treated as costs in the consolidated statement of profit or loss in the reporting period as incurred.

Property, plant and equipment line of the consolidated statement of financial position also includes capital construction and machinery, and equipment to be installed.

If PP&E items include major units with different useful lives, then each individual unit of the related asset is accounted for separately.

Borrowing costs

Borrowing costs are capitalised from the date of capitalisation and up to the date when the assets are substantially ready for utilisation or sale.

The commencement date for capitalisation is when the Group (a) incurs expenditures for the qualifying asset; (b) incurs borrowing costs; and (c) undertakes activities that are necessary to prepare the asset for its intended use or sale.

When funds borrowed for common purposes are used to purchase an asset, capitalised borrowing costs are determined through multiplying the capitalisation rate by expenses related to the asset.

Interest payments capitalised under IAS 23 are classified in consolidated statement of cash flows in a manner that is consistent with the classification of the underlying asset on which the interest is capitalised.

All other borrowing costs are attributed to expenses in the reporting period when incurred and recorded in the consolidated statement of profit or loss in the “Finance costs” line.

Mineral rights

Exploration and evaluation assets are carried at original cost and classified consistently within tangible or intangible assets depending on their nature. Mineral rights acquired as a result of a business combination are measured at fair value at the acquisition date. Other mineral rights and licenses are recorded at cost. Mineral rights are amortised using the straight-line basis over the license term given approximately even production output during the license period.

F-70 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Depreciation

Depreciation is charged on a straight-line basis over the estimated remaining useful lives of the individual assets through an even write-down of historical cost to their net book value. Property, plant and equipment items under finance leases and subsequent capitalised expenses are depreciated on a straight-line basis over the estimated remaining useful lives of the individual assets. Depreciation commences from the time an asset is available for use, i.e. when the location and condition provide for its operation in line with the Group management’s intentions.

Depreciation is not charged on assets to be disposed of and on land. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the consumption of benefits to be derived from it.

The range of estimated useful lives of different asset categories is as follows:

Buildings and land and buildings improvements 1 – 105 years Machinery and equipment 1 – 87 years Vehicles 1 – 39 years

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 asset were already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

If the cost of land includes the costs of site dismantlement, removal of PP&E items and restoration expenses, that portion of the land asset is depreciated over the period of consumption of benefits obtained by incurring those costs.

Impairment of PP&E is outlined in section (j) “Impairment of non-current assets”.

(g) Leasing

Leasing transactions are classified according to the relevant lease agreements, which specify the risks and rewards associated with the leased property and distributed between the lessor and lessee. Lease agreements are classified as financial leases or operating leases.

In a financial lease, the Group receives the major portion of economic benefits and risks associated with the ownership of the asset. At the commencement of the lease term, the leased asset is recognised in the consolidated statement of financial position at the lower of fair value or discounted value of future minimum lease payments. The corresponding rental obligations are included in borrowings. Interest expenses within lease payments are charged to profit or loss over the lease term using the effective interest method.

Accounting policies for depreciation of leased assets are consistent with the accounting policies applicable to owned depreciable assets.

A lease is classified as an operating lease if it does not imply transferring the major portion of risks and rewards associated with the ownership of the asset. Payments made under operating leases are recorded as an expense on a straight-line basis over the lease term.

F-71 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

(h) Goodwill and intangible assets

Goodwill is the difference between: . the comprehensive acquisition date fair value of the consideration transferred and non-controlling interest, and, where the entity is acquired in instalments, the acquisition date fair value of the non- controlling interest previously held by the buyer in the acquired entity; and . the share of net fair value of identifiable assets acquired and liabilities assumed.

The excess of the share of net fair value of identifiable assets bought and obligations assumed by the Group over the consideration transferred and the fair value of non-controlling interest at the acquisition date previously owned by the buyer in the acquired entity, represents income from a profitable acquisition. Income is recognised in the consolidated statement of profit or loss at the acquisition date.

Goodwill on associates and other equity-accounted entities is included in the carrying amount of investments in these entities.

When interest in the previously acquired entity increases (within non-controlling interest) goodwill is not recognised. The difference between the acquired share of net assets and consideration transferred is recognised in equity.

Goodwill is measured at historical cost and subsequently stated less accumulated impairment losses.

Impairment of goodwill

The goodwill is not amortised but tested for impairment at least annually and whenever there are indications that goodwill may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (“CGUs”) that are expected to benefit from the synergies of the combination. The evaluation of impairment for cash-generating units, among which goodwill was distributed, is performed once a year or more often, when there are indicators of impairment of such CGUs.

If the recoverable amount of a cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to any other assets of the CGU pro-rata to the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent periods.

Disposal of goodwill

If goodwill is a part of the cash-generating unit, and a part of the unit is disposed of, the goodwill pertaining to that part of disposed operations is included in the carrying amount of that operation when profit or loss on its disposal is determined. In such circumstances, the goodwill disposed of is generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

F-72 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Intangible assets

Intangible assets are initially recognised at cost.

The cost of a separately acquired intangible asset comprises: . its purchase price, including non-refundable purchase taxes, after deducting trade discounts and rebates; . any directly attributable cost of preparing the asset for its intended use.

If an intangible asset is acquired as a result of a business combination, the cost of the intangible asset equals its fair value at the acquisition date.

If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the entire period of credit unless it is capitalised in accordance with IAS 23, “Borrowing Costs”.

If an intangible asset is an integral part of a fixed asset to which it belongs, then it is recorded as part of that asset.

After the initial recognition of intangibles, they are carried at cost less any accumulated amortisation and any accumulated impairment loss. 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.

Amortisation

An intangible asset with an indefinite useful life is not amortised. Intangible assets with a definite useful life are amortised using the straight-line method over the shorter of: the useful life or legal rights thereto.

(i) Decommissioning obligation

The Group’s obligations related to assets disposal include estimating costs related to restoration of land in accordance with applicable legal requirements and licenses.

Decommissioning costs are carried at the present value of expected expenses to settle obligations that is calculated using estimated cash flows and are recognised as a part of the historical cost of the asset. Capitalised costs are amortised over the asset’s useful life.

Cash flows are discounted at the current rate before tax, which reflects risks inherent to the asset decommissioning obligations. The effect of discounting is recognised in the consolidated statement of profit or loss as finance costs.

The estimated future costs related to decommissioning are reviewed annually and adjusted as necessary.

(j) Impairment of non-current assets

At each reporting date, the Group determines if there are any objective indications of potential impairment of an individual asset or group of assets.

Intangible assets with indefinite useful lives are tested for impairment at least once a year if their carrying amount impairment indicators are identified.

F-73 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Recoverable value measurement

If any such impairment indicators exist, then the asset’s recoverable amount is estimated. In the event of impairment, the value of the asset is written down to its recoverable value, which represents the higher of: the fair value less costs to sell or the value in use.

Fair value less costs to sell is the amount obtainable from the sale of an asset or payable on the transfer of a liability at the evaluation date, in an arm’s length transaction between knowledgeable, willing parties, less any direct costs related to the sale or transfer.

Value in use is the present value of estimated future cash flows from expected continuous use of an asset and its disposal at the end of its useful life.

In assessing value-in-use, the anticipated future cash proceeds are discounted to their current value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units), which in most cases are determined as individual subsidiaries of the Group. Estimated cash flows are adjusted in line with the risk of specific conditions at sites and discounted at the rate based on the weighted average cost of capital. With regard to assets that do not generate cash regardless of cash flows generated by other assets, the recoverable amounts are based on the cash-generating unit to which such assets relate.

Impairment loss

The asset’s carrying amount is written down to its estimated recoverable value, and loss is included in the consolidated statement of profit or loss for the period. Impairment loss is reversed if there are indications that the assets’ impairment losses (other than goodwill) recognised in previous periods no longer exist or have been reduced, and if any consequent increase in the recoverable value can be objectively linked to the event that took place after the impairment loss recognition. Impairment loss is reversed only to the extent that the carrying amount of an asset does not exceed its carrying amount that would be established (less amortisation) if the asset impairment loss had not been recognised. An impairment loss is reversed for the relevant asset immediately through consolidated statement of profit or loss.

(k) Pension and post-retirement benefits other than pensions

The Group recognises liabilities for post-employment benefits, including one-off payments made upon retirement. For the nine months ended 30 September 2013, the Group maintained defined benefit pension plans that covered the majority of its employees in Europe (Note 20).

The Parent Company and some other Group companies maintain defined contribution plans in accordance with which contributions are made on a monthly basis to a non-government pension fund (the “Fund”), calculated as a certain fixed percentage of the employees’ salaries. These pension contributions are accumulated in the Fund during the employment period and subsequently distributed by the Fund. Accordingly, the Group has no long- term commitments to provide funding, guarantees, or other support to the Fund.

The Group complies with the pension and social insurance legislation of the Russian Federation and the other countries where it operates. Contributions to the Russian Federation Pension Fund by the employer are calculated as a percentage of current gross salaries. Such contributions constitute defined contribution plans.

Payments under defined contribution plans are expensed as incurred.

F-74 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

(l) Provisions for liabilities and charges

Provisions for liabilities and charges are accrued when the Group: . has present obligations (legal or constructive) as a result of past events; . it is probable that an outflow of resources embodying economic benefits will be required to settle such an obligation; . a reliable estimate of the amount of the obligation can be made.

The amount recognised as a provision shall be the best estimate of the expenses required to settle the present obligation at the end of the reporting period. Where the impact of the time factor on the value of money is significant, the provision should equal the present value of the expected cost of settling the liability using the discount rate before taxes. Any increase in the carrying amount of the provision is recorded in the consolidated statement of profit or loss as finance costs.

The nature and estimated value of contingent liabilities and assets (including court proceedings, environmental costs, etc.) are disclosed in notes to the consolidated financial statements where the probability of economic benefits outflow is insignificant.

The creation and release of provision for impaired receivables have been included in selling expenses in the consolidated statement of profit or loss. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

(m) Call and put options

Call and put options are carried at their fair value in the consolidated financial statements. These options are accounted for as assets when their fair value is positive (for call options) and as liabilities when the fair value is negative (for put options). Changes in the fair value of options are reflected in the consolidated statement of profit or loss.

(n) Income taxes

Income tax expense comprises current and deferred tax. The current and deferred taxes are recognised in profit or loss for the period, except for the portion thereof that arises from a business combination or transactions or events that are recognised directly within equity.

Current tax

Current tax liabilities are measured in the amount expected to be paid to (recovered from) the tax authorities, applying the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax assets and liabilities are recognised for the differences between the carrying amount of an asset or liability in the consolidated statement of financial position and their tax base.

F-75 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Deferred tax is not recognised if temporary differences: . arise at the goodwill initial recognition; . arise at the initial recognition (except for business combination) of assets and liabilities that do not impact taxable or accounting profits; . are associated with investments in subsidiaries where the Group controls the timing of the reversal of these temporary differences, and it is probable that the temporary differences will not be utilised in the foreseeable future.

Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Estimation of tax assets and liabilities reflects tax implications that would arise depending on the method to be used at the end of the reporting period to recover or settle carrying value of these assets or liabilities.

Deferred tax assets are recognised in respect of the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits may be utilised.

The carrying amount of deferred tax assets is subject to revision at the end of each reporting period and is decreased to the extent of reduced probability of receiving sufficient taxable income to benefit from utilising the deferred tax assets partially or in full.

Deferred tax assets and liabilities are offset if there is a legal right for the offset of current tax assets and liabilities, and when they relate to income taxes levied by the same tax authority or on the same taxpayer; and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Uncertain tax positions

The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

(o) Dividends payable

Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting date and before the consolidated financial statements have been authorised for issue are disclosed in the subsequent events note.

(p) Revenue recognition

Revenue from sales of goods and provision of services

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. The Group recognises revenue when the amount can be reliably measured, it is probable that future economic benefits will flow to the Group, and the specific criteria stipulated by IAS 18, “Revenue” have been met for each type of Group revenues.

Revenue is recorded less of discounts, provisions, value added tax and export duties, and refunds, and after excluding internal Group sales turnover.

F-76 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

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 from services is recognised in the period in which the services were rendered, by reference to the 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 rendered under the relevant agreement.

Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

Dividend income

Dividend income on investments is recognised when the Group becomes entitled to receive the payment.

(q) Segment information

The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph 11 of IFRS 8, “Operating Segments”.

The Group’s organisation comprises five reportable segments: . the Russian flat products segment, comprising production and sales of steel products and coke, primarily pig iron, steel slabs, hot rolled steel, cold rolled steel, galvanised cold rolled sheet and cold rolled sheet with polymeric coatings and also electro-technical steel; . the Foreign rolled products segment, comprising production and sales of steel products in the United States and Europe; . the Russian long products segment, comprising a number of steel-production facilities combined in a single production system beginning from scrap iron collection and recycling to steel-making, production of long products, reinforcing rebar and metalware; . the Mining segment, which comprises mining, processing and sales of iron ore, fluxing limestone and metallurgical dolomite, and supplies raw materials to the steel segment and third parties; . Investments in associate entity NBH, comprising production of hot rolled, cold rolled coils and galvanized and pre-pained steel, and also production of a wide range of plates as well as a number of steel service centers located in the European Union.

Other activities and operating segments that are not reportable segments are combined and disclosed in “all other segments”.

The accounting policies of each segment are similar to the principles outlined in significant accounting policies.

(r) Financial instruments

Financial assets

The Group’s financial assets include cash and short-term deposits, trade and other accounts receivable, loans and other amounts receivable, quoted and non-quoted financial instruments and derivatives.

Financial assets have the following categories: . loans and receivables; . held-to-maturity investments.

F-77 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Loans and receivables

Loans and receivables represent non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to the initial recognition, such financial assets are measured at amortised cost using the effective interest method less any impairment losses.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity investments if the Group intends and is able to hold them to maturity. Subsequent to the initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment losses.

Valuation techniques

Depending on their classification, financial instruments are carried at fair value or amortised cost. Below are the methods and key definitions.

Fair value is the price that would be received from selling an asset or paid when transferring a liability in an orderly transaction between market participants as at the valuation date. The best evidence of fair value is the price quoted in an active market.

The fair value of financial instruments traded in active markets at each reporting date is determined based on the market quotes or dealers’ quotes (buy quotes for long positions and sell quotes for short positions) without deducting transaction costs.

Valuation techniques, such as discounted cash flow models, or models based on recent arm’s length transactions or consideration of financial data of the investees, are used to measure the fair value of financial instruments for which external market pricing information is unavailable.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus or minus the cumulative amortisation of any difference between that initial amount and the maturity amount (calculated using the effective interest method), and for financial assets less any impairment loss.

The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument.

Initial recognition of financial assets

Financial investments available for sale and financial assets at fair value through profit or loss are initially recorded at fair value. All other financial assets are initially recorded at fair value plus transaction costs.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at the trade date, which is the date when the Group commits to buy or sell a financial asset.

F-78 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

De-recognition

The Group de-recognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets, or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control in respect of these assets.

Control of an asset 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. If the Group neither transfers nor retains substantially all risks and rewards of ownership of the asset, but retains control over such transferred asset, the Group continues recognition of its share in this asset and the related obligation in the amount of the anticipated consideration.

Impairment of financial assets

At each reporting date, the Group assesses whether the objective indicators exist that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets are considered to be impaired only when there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that have had an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or group of debtors are experiencing significant financial difficulty, cannot service their debt or are demonstrating delinquency in interest or principal payments; or they are likely to undergo bankruptcy procedures or any other financial reorganisation. In addition, such evidence includes observable data testifying to an identifiable decline in estimated future cash flows under a financial instrument, in particular, negative changes in a counterparty’s payment status caused by changes in the national or local business environment that impact the counterparty, or a significant impairment of collateral, if any, as a result of deteriorated market conditions.

Impairment of financial assets carried at amortised cost

The carrying amount of an asset is reduced by the amount of the allowance for impairment of financial assets. Losses from impairment of financial assets carried at amortised cost are carried through profit or loss as they arise.

Accrual of interest income on the reduced carrying value is continued based on the interest rate applied to discounting the future cash flows for impairment loss assessment.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then de-recognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows.

Impairment of financial investments available for sale

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that a financial investment or a group of financial investments is impaired.

Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security 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 profit or loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year.

F-79 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. 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 profit or loss, the impairment loss is reversed through the current period’s profit or loss.

Financial liabilities

The Group’s financial liabilities include trade and other payables, bank overdrafts, borrowings, financial guarantee agreements and derivative financial instruments.

Financial liabilities are respectively classified as: . financial liabilities at fair value through profit or loss; . borrowings and loans.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trade and financial liabilities designated initially at fair value through profit or loss. Financial liabilities are classified as held for trade if acquired for the purpose of selling in the short term. Income and expense on liabilities held for trade are recognised in the consolidated statement of profit or loss.

Borrowings

After initial recognition, interest-bearing borrowings are carried at amortised cost using the effective interest method. Gains and losses on such financial liabilities are recognised in consolidated statements of profit or loss upon their de-recognition and also as amortisation accrued using the effective interest method.

Initial recognition of financial liabilities

All financial liabilities are initially recorded at fair value less transaction costs incurred (except for financial liabilities at fair value through the consolidated statements of profit or loss).

De-recognition

A financial liability is de-recognised from the consolidated statement of financial position if it was settled, cancelled or expired.

If the existing financial liability is replaced by another liability to the same creditor, on terms that significantly differ from the previous terms, or the terms of the existing liability significantly differ from the previous terms, such replacement or change is recorded as de-recognition of the initial liability and recognition of a new liability, and the difference in their carrying amount is recognised in the consolidated statement of profit or loss.

Financial guarantee agreements

Financial guarantees issued by the Group are irrevocable agreements requiring a payment to compensate losses incurred by the owner of the agreement due to the inability of the debtor to duly pay under the terms of a debt instrument. Financial guarantee agreements are initially recorded at fair value. Consequently the liability is measured at the higher of the best likelihood estimate of costs necessary to settle the liability at the reporting date, and the amount of the liability less accumulated amortisation.

Derivative financial instruments

Derivative financial instruments, including foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps, and currency and interest rate options, are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting.

F-80 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

25 Significant accounting policies (continued)

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

(s) Related parties

Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence over the other party in making financial and operational decisions or exercise a joint control over it. In considering each possible related-party relationship, attention is directed to the substance of the relationship, not merely the legal form.

26 Critical accounting estimates and judgements

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities as well as disclosures. Management also makes certain judgements, in the process of applying the Group’s accounting policies. Estimates and judgements are continually evaluated based on historical experience and other factors, including forecasts and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, and management’s estimates can be revised in the future, either negatively or positively, based on the facts surrounding each estimate.

Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year are reported below.

(a) Consolidation of subsidiaries

Management judgement is involved in the assessment of control and the consolidation of subsidiaries in the Group’s consolidated financial statements.

(b) Tax legislation and potential tax gains and losses

The Group’s potential tax gains and losses are reassessed by management at every reporting date. Liabilities which are recorded for income tax positions are determined by management based on the interpretation of current tax laws. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle tax liabilities at the reporting date.

The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production volumes, inventories, technical obsolescence rates, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may affect future useful lives (Note 8).

(d) Fair value estimation for acquisitions

In accounting for business combinations, the purchase price paid to acquire a business is allocated to its assets and liabilities based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired, net of liabilities, is recorded as goodwill. A significant amount of judgement is involved in estimating the individual fair values of property, plant and equipment and identifiable intangible assets.

F-81 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

26 Critical accounting estimates and judgements (continued)

The estimates used in determining fair values are based on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ from the projected results used to determine fair value.

(e) Impairment analysis of property, plant and equipment and goodwill

The estimation of forecasted cash flows for the purposes of impairment testing involves the application of a number of significant judgements and estimates to certain variables including volumes of production and extraction, prices on finished goods, operating costs, capital investment, and macroeconomic factors such as inflation and discount rates. In addition, judgement is applied in determining the cash-generating units assessed for impairment (Notes 8, 9).

Accounting for provisions

Accounting for impairment includes provisions against capital construction projects, financial assets and other non-current assets (at least annually).

(f) Accrual of accounts receivable impairment provision

The impairment provision for accounts receivable is based on the management’s assessment of the collectability and recoverable amount of specific customer accounts, being the present value of expected cash flows. If there is deterioration in a major customer’s creditworthiness or actual defaults are higher or lower than estimates, the actual results could differ from these estimates.

(g) Control and the consolidation or accounting using equity method of accounting of entities in the Group’s consolidated financial statements

Management judgement is involved in the assessment of control and the consolidation or accounting using equity method of accounting of certain entities in the Group’s consolidated financial statements. As at 31 December 2015 and 2014 the Group owned 51.0% and 79.5% of shares in NBH, respectively, however, management had concluded that in the light of giving certain governance rights to the party owing the residual interest in this company, the Group does not control this company, thus the Group’s investment in NBH should be accounted for under the equity method starting 30 September 2013 (Note 20).

After the partial disposal of NBH as of 30 September 2013, which the Group executed in the context of the continuing restructuring of its European operations aimed at further enhancing efficiency optimizing costs, the Group retained its presence in Europe and in the rolled products line of business. Therefore management believes that this disposal does not meet the definition of a discontinued operations under IFRS 5.

27 New or revised standards and interpretations

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2016 or later, and which the Group has not early adopted: . IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:

- Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).

F-82 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

27 New or revised standards and interpretations (continued)

- Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.

- Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.

- Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

- IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a “three stage” approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for trade and lease receivables.

- Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. . Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective from the uncertain date). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary. . Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this amendment, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. . IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.

F-83 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

27 New or revised standards and interpretations (continued)

. IFRS 16 "Leases" (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. . Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued in January 2016 and effective for annual periods beginning on or after 1 January 2017). The amendment has clarified the requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity will have to recognise deferred tax asset for unrealised losses that arise as a result of discounting cash flows of debt instruments at market interest rates, even if it expects to hold the instrument to maturity and no tax will be payable upon collecting the principal amount. The economic benefit embodied in the deferred tax asset arises from the ability of the holder of the debt instrument to achieve future gains (unwinding of the effects of discounting) without paying taxes on those gains. . Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). The amendments impact 4 standards. IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods, unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". . Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. . Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017) The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing activities.

F-84 Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2015 (millions of US dollars)

27 New or revised standards and interpretations (continued)

The Group is currently assessing the impact of the amendments on its financial position and results of operation.

The following new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements once adopted: . IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016). . Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016). . Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1 January 2016). . Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016). . Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016).

28 Subsequent events

The Group’s management has performed an evaluation of subsequent events and did not find any through the period from 1 January 2016 to 23 March 2016, which is the date when these consolidated financial statements are published.

F-85

OJSC NOVOLIPETSK STEEL

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2014

(WITH REPORT OF INDEPENDENT AUDITORS THEREON)

F-86 OJSC Novolipetsk Steel Consolidated financial statements as at and for the year ended 31 December 2014

CONTENTS

Independent auditor’s report 3 Consolidated statement of financial position 4 Consolidated statement of profit or loss 5 Consolidated statement of other comprehensive income 6 Consolidated statement of changes in equity 7 Consolidated statement of cash flows 8 Notes to the consolidated financial statements 9

F-87 F-88 OJSC Novolipetsk Steel Consolidated statement of financial position as at 31 December 2014 (millions of US dollars)

As at As at As at Note 31 December 2014 31 December 2013 1 January 2013 Assets

Current assets Cash and cash equivalents 3 549.2 970.0 951.2 Short-term financial investments 5 621.3 485.0 108.6 Trade and other accounts receivable 6 1,122.5 1,459.0 1,526.3 Inventories 7 1,562.8 2,123.8 2,826.9 Other current assets 5.3 7.6 30.5 3,861.1 5,045.4 5,443.5 Non-current assets Long-term financial investments 5 141.3 82.5 18.4 Investments in associates and other companies accounted for using the equity method of accounting 4 106.2 419.1 8.1 Property, plant and equipment 8 5,613.6 9,892.1 11,603.3 Goodwill 9 285.4 463.4 786.1 Other intangible assets 9 193.9 374.5 418.0 Deferred income tax assets 19 124.9 136.4 312.5 Other non-current assets 23.0 39.6 30.9 6,488.3 11,407.6 13,177.3 Total assets 10,349.4 16,453.0 18,620.8

Liabilities and equity

Current liabilities Trade and other accounts payable 10 775.9 1,161.8 1,475.6 Short-term borrowings 11 804.3 1,136.7 1,837.8 Current income tax liability 47.5 21.6 23.8 1,627.7 2,320.1 3,337.2 Non-current liabilities Long-term borrowings 11 1,964.2 3,053.8 2,850.2 Deferred income tax liability 19 407.4 641.0 813.6 Other long-term liabilities 12 93.4 39.6 422.7 2,465.0 3,734.4 4,086.5 Total liabilities 4,092.7 6,054.5 7,423.7

Equity attributable to NLMK shareholders Common stock 14(a) 221.2 221.2 221.2 Accumulated other comprehensive loss (5,491.9) (839.9) - Retained earnings 11,512.7 10,989.1 11,008.8 6,242.0 10,370.4 11,230.0 Non-controlling interests 14.7 28.1 (32.9) Total equity 6,256.7 10,398.5 11,197.1 Total liabilities and equity 10,349.4 16,453.0 18,620.8

The consolidated financial statements as set out on pages 4 to 63 were approved on 8 November 2015.

The accompanying notes constitute an integral part of these consolidated financial statements. F-89 OJSC Novolipetsk Steel Consolidated statement of profit or loss for the year ended 31 December 2014 (millions of US dollars)

For the year ended For the year ended Note 31 December 2014 31 December 2013

Revenue 16 10,395.7 10,818.4 Cost of sales (7,389.0) (8,665.9)

Gross profit 3,006.7 2,152.5

General and administrative expenses (364.3) (456.9) Selling expenses (923.1) (945.6) Other operating income / (expenses) 6.1 (6.6) Taxes, other than income tax 18 (137.5) (134.6)

Operating profit before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets 1,587.9 608.8

Loss on disposals of property, plant and equipment (11.9) (23.0) Impairment losses and write-off of assets 4, 8 (657.2) (21.0) Share in net losses of associates and other companies accounted for using the equity method 4 (193.1) (54.0) Result of disposal of subsidiary 23 - (51.4) Income on change of restructuring provision - 7.5 Gains on investments 37.4 2.3 Finance income 20 36.5 40.6 Finance costs 20 (136.8) (121.9) Foreign currency exchange gain, net 21 488.2 85.2 Other expenses, net (15.0) (53.9)

Profit before income tax 1,136.0 419.2

Income tax expense 19 (362.4) (255.0)

Profit for the year 773.6 164.2

Profit attributable to: NLMK shareholders 772.5 145.4 Non-controlling interests 1.1 18.8

Earnings per share – basic and diluted:

Earnings attributable to NLMK stockholders per share (US dollars) 15 0.1289 0.0243

Weighted-average shares outstanding: basic and diluted (in thousands) 14(a) 5,993,227 5,993,227

The accompanying notes constitute an integral part of these consolidated financial statements. F-90 OJSC Novolipetsk Steel Consolidated statement of other comprehensive income for the year ended 31 December 2014 (millions of US dollars)

For the year ended For the year ended Note 31 December 2014 31 December 2013

Profit for the year 773.6 164.2

Other comprehensive loss:

Items that may be reclassified subsequently to profit or loss:

Cumulative translation adjustment 2(b) (4,666.5) (780.4)

Total comprehensive loss for the year attributable to (3,892.9) (616.2) NLMK shareholders (3,879.5) (634.5) Non-controlling interests (13.4) 18.3

The accompanying notes constitute an integral part of these consolidated financial statements. F-91 OJSC Novolipetsk Steel Consolidated statement of changes in equity for the year ended 31 December 2014 (millions of US dollars)

NLMK shareholders Accumulated other Non-controlling Note Common stock comprehensive loss Retained earnings interests Total equity Balance at 1 January 2013 221.2 - 11,008.8 (32.9) 11,197.1

Profit for the year - - 145.4 18.8 164.2

Cumulative translation adjustment 2(b) - (779.9) - (0.5) (780.4)

Change of non-controlling interests in existing subsidiaries 13 - - (49.5) 42.7 (6.8) Disposal of other comprehensive income as a result of deconsolidation 23 - (60.0) - - (60.0)

Dividends to shareholders 14(b) - - (115.6) - (115.6)

Balance at 31 December 2013 221.2 (839.9) 10,989.1 28.1 10,398.5

Profit for the year - - 772.5 1.1 773.6

Cumulative translation adjustment 2(b) - (4,652.0) - (14.5) (4,666.5)

Dividends to shareholders 14(b) - - (248.9) - (248.9)

Balance at 31 December 2014 221.2 (5,491.9) 11,512.7 14.7 6,256.7

The accompanying notes constitute an integral part of these consolidated financial statements. F-92 OJSC Novolipetsk Steel Consolidated statement of cash flows for the year ended 31 December 2014 (millions of US dollars)

For the year ended For the year ended Note 31 December 2014 31 December 2013

Cash flows from operating activities Profit for the year 773.6 164.2 Adjustments to reconcile profit for the year to net cash provided by operating activities: Depreciation and amortization 793.5 871.1 Loss on disposals of property, plant and equipment 11.9 23.0 (Income) / losses on investments (37.4) 49.1 Finance income (36.5) (40.6) Finance costs 136.8 121.9 Share in net losses of associates and other companies accounted for using the equity method 4 193.1 54.0 Deferred income tax (benefit) / expense 19 (15.9) 87.7 Losses / (gains) on derivatives 3.1 (0.5) Impairment losses 657.2 - Unrealized gains on foreign currency exchange (574.0) - Other adjustments 28.4 14.7 Changes in operating assets and liabilities Increase in trade and other accounts receivable (49.9) (321.3) Increase in inventories (97.6) (95.8) (Increase) / decrease in other current assets (1.8) 7.4 (Decrease) / increase in trade and other accounts payable (28.9) 396.4 Increase in current income tax liability 50.1 2.1 Net cash provided by operating activities 1,805.7 1,333.4

Cash flows from investing activities Purchases and construction of property, plant and equipment (562.6) (756.3) Proceeds from sale of property, plant and equipment 15.0 5.8 Purchases of investments and loans given, net (231.6) (87.4) Placement of bank deposits, net (197.1) (264.4) Interest received 30.7 40.4 Disposal of investment in subsidiary 23 - 46.2 Net cash used in investing activities (945.6) (1,015.7)

Cash flows from financing activities Proceeds from borrowings 110.2 2,000.7 Repayment of borrowings and capital lease payments (910.7) (2,020.2) Interest paid (120.6) (81.5) Dividends to shareholders (225.9) (113.6) Acquisition of additional stake in existing subsidiary 13 - (9.6) Net cash used in financing activities (1,147.0) (224.2) Net (decrease) / increase in cash and cash equivalents (286.9) 93.5 Effect of exchange rate changes on cash and cash equivalents (133.9) (74.7) Cash and cash equivalents at the beginning of the year 3 970.0 951.2 Cash and cash equivalents at the end of the year 3 549.2 970.0

Supplemental disclosures of cash flow information

Cash paid during the year for: Income tax paid (352.3) (143.3) Placements of bank deposits (1,997.8) (1,232.0) Withdrawals of bank deposits 1,800.7 967.6 Fair value of assets disposed of in course of partial disposal of investment 23 - 867.3 Conversion of debt to equity 23 270.4 -

The accompanying notes constitute an integral part of these consolidated financial statements. F-93 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

1 Background

OJSC Novolipetsk Steel (the “Parent Company”) and its subsidiaries (together – the “Group”) is one of the world’s leading steelmakers with facilities that allow it to operate an integrated steel production cycle. The Parent Company is a Russian Federation open joint stock company in accordance with the Civil Code of the Russian Federation. The Parent Company was originally established as a State owned enterprise in 1934 and was privatized in the form of an open joint stock company on 28 January 1993. On 12 August 1998 the Parent Company’s name was re-registered as an open joint stock company in accordance with the Law on Joint Stock Companies of the Russian Federation.

The Group is one of the leading global suppliers of slabs and transformer steel and one of the leading suppliers to the Russian market of high value added products including pre-painted, galvanized and electrical steel as well as a variety of long steel products. The Group also operates in the mining segment (Note 24).

As at 31 December 2014 the Parent Company’s major shareholder with 85.54% ownership interest is Fletcher Group Holdings Limited which is beneficially owned by Mr. Vladimir Lisin.

The major companies of the Group are: Share at Share at Share at Country of Activity 31 December 31 December 1 January incorporation 2014 2013 2013 Companies under the Group’s control: Russian flat products LLC VIZ-Stahl Production of steel Russia 100.00% 100.00% 100.00% OJSC Altai-Koks Production of blast Russia 100.00% 100.00% 100.00% furnace coke Novex Trading (Swiss) S.A. Trading Switzerland 100.00% 100.00% 100.00% Novexco (Cyprus) Ltd. Trading Cyprus 100.00% 100.00% 100.00%

Russian long products OJSC Nizhneserginski Production of steel and Russia 92.59% 92.59% 57.00% Hardware-Metallurgical Plant long products LLC NLMK-Metalware Production of metalware Russia 100.00% 100.00% 100.00% LLC NLMK-Kaluga Production of long Russia 100.00% 100.00% 100.00% products LLC Vtorchermet NLMK Processing of metal scrap Russia 100.00% 100.00% 100.00%

Mining OJSC Stoilensky GOK Mining and processing of Russia 100.00% 100.00% 100.00% iron-ore raw

Among associates and other companies accounted for using the equity method the major is: Share at Share at Share at Country of Activity 31 December 31 December 1 January incorporation 2014 2013 2013

NLMK Belgium Holdings S.A. Holding company Belgium 79.50% 79.50% 100.00% (Note 23)

F-94 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

2 Basis of consolidated financial statements preparation

(a) Basis of preparation

For all periods up to and including the year ended 31 December 2014, the Group prepared its financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These consolidated financial statements are the first prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention except as described below. Refer to Note 31 for information on how the Group adopted IFRS. The principal accounting policies applied in the preparation of these consolidated financial statements are set out in Note 28. These policies have been consistently applied to all the periods presented in these consolidated financial statements.

(b) Functional and reporting currency

Functional currency of all Group’s Russian entities is considered to be the Russian ruble. The functional currency of the foreign subsidiaries is their local currency.

The results of operations and financial position of each Group entity are translated into the presentation currency as follows: . assets and liabilities for each statement of financial position are translated at the closing rate at the end of the respective reporting period; . income and expenses are translated at average exchange rates for each quarter (unless this average rate 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); . components of equity are translated at the historical rate; . all resulting exchange differences are recognized in other comprehensive income. Items of consolidated statements of cash flow are translated at average exchange rates for each quarter (unless this average rate 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).

2014 2013

As at 1 January 30.3727 For the 1st quarter 34.9591 30.4142 For the 2nd quarter 34.9999 31.6130 For the 3rd quarter 36.1909 32.7977 For the 4th quarter 47.4243 32.5334 As at 31 December 56.2584 32.7292

F-95 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

3 Cash and cash equivalents

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Cash Russian rubles 20.3 70.8 58.9 US dollars 150.8 194.1 98.4 Euros 54.3 158.6 180.7 Other currencies 8.0 2.0 2.6

Deposits Russian rubles 96.3 204.9 441.2 US dollars 158.0 331.8 105.9 Euros 53.6 5.7 46.5 Other currencies 7.8 1.9 3.7

Other cash equivalents 0.1 0.2 13.3

549.2 970.0 951.2

4 Investments in associates and other companies accounted for using the equity method of accounting

As at As at As at 31 December 2014 31 December 2013 1 January 2013

NLMK Belgium Holdings S.A. (Note 23) 97.3 412.8 - TBEA & NLMK (Shenyang) Metal Product Co., Ltd. 8.9 6.3 8.1

106.2 419.1 8.1

The table below summarizes the movements in the carrying amount of the Group’s investments in associates and other companies accounted for using the equity method of accounting.

2014 2013

As at 1 January 419.1 8.1 Share of net loss of associates and other companies accounted for using the equity method of accounting (193.1) (54.0) Conversion of debt to equity 270.4 - Impairment of investments (325.2) - Unrealized profit in inventory of associates and other companies accounted for using the equity method of accounting (28.0) (2.3) Translation adjustment (29.7) (0.2) Reclassification due to loss of control (Note 23) - 467.5 Other adjustments (7.3) - As at 31 December 106.2 419.1

F-96 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

4 Investments in associates and other companies accounted for using the equity method of accounting (continued)

The Group’s interests in its principal associates and other companies accounted for using the equity method of accounting and their summarized financial information as at 31 December 2014 were as follows: Profit / Country of (loss) Company incorporation Share Assets Liabilities Revenue for the year

NLMK Belgium Holdings S.A. (Note 23) Belgium 79.50% 1,857.2 (1,542.9) 1,517.3 (243.4) including from / (to) the Group - 24.7 (510.5) 54.9 - TBEA & NLMK (Shenyang) Metal Product Co., Ltd. China 50.00% 18.4 (0.6) 12.3 0.9

The Group’s interests in its principal associates and other companies accounted for using the equity method of accounting and their summarized financial information as at 31 December 2013 were as follows: Profit / Country of (loss) Company incorporation Share Assets Liabilities Revenue for the year

NLMK Belgium Holdings S.A. (Note 23) Belgium 79.50% 2,094.2 (1,782.4) 405.6 (70.9) including from / (to) the Group - 6.1 (479.8) 5.9 - TBEA & NLMK (Shenyang) Metal Product Co., Ltd. China 50.00% 17.4 (0.1) 4.4 0.5

Reconciliation of net assets of NBH to carrying amount of investment is below.

2014

Net assets as at 1 January 27.3 Net loss for the period (276.1) Conversion of debt to equity 270.4 Other adjustments (8.4) Translation adjustment 15.0 Net assets as at 31 December 28.2 Share in net assets 22.4 Share in PP&E valuation difference 349.2 Share of other investor in conversion of debt to equity (Note 23) 55.4 Impairment of investments (325.2) Unrealised profit (28.0) Cumulative translation adjustment and other adjustments 23.5 Investments in NBH 97.3

F-97 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

5 Financial investments

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Short-term financial investments Loans to related parties (Note 26) 68.4 107.6 - Bank deposits and other short-term financial investments 552.9 377.4 108.6

621.3 485.0 108.6 Long-term financial investments Loans to related parties (Note 26) 141.2 78.0 - Bank deposits and other long-term financial investments 0.1 4.5 18.4

141.3 82.5 18.4

762.6 567.5 127.0

6 Trade and other accounts receivable

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Financial assets Trade accounts receivable 802.0 901.7 847.3 Allowance for impairment of trade accounts receivable (28.6) (39.3) (48.6) Other accounts receivable 38.7 67.5 83.4 Allowance for impairment of other accounts receivable (20.4) (25.1) (27.7)

791.7 904.8 854.4

Non-financial assets Advances given to suppliers 69.7 81.7 122.5 Allowance for impairment of advances given to suppliers (9.6) (19.3) (18.8) VAT and other taxes receivable 269.0 488.5 563.7 Accounts receivable from employees 1.7 3.3 4.5

330.8 554.2 671.9

1,122.5 1,459.0 1,526.3

The carrying amounts of trade and other accounts receivable approximate their fair values.

As at 31 December 2014 and 2013 and 1 January 2013 accounts receivable of $137.6, $141.7 and $264.4, respectively, served as collateral for certain borrowings (Note 11).

Movements in the Group’s provision for impairment of trade and other accounts receivables are as follows:

2014 2013

As at 1 January (83.7) (95.1) Provision for impairment during the year (35.9) (45.1) Receivables written off during the year as uncollectible 0.3 2.4 Unused amounts reversed 21.1 38.6 Change in scope of consolidation 4.3 9.1 Translation adjustment 35.3 6.4 As at 31 December (58.6) (83.7)

F-98 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

6 Trade and other accounts receivable (continued)

The allocation of trade accounts receivable, net of provision for doubtful debt, by geographical area is follows:

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Russia 133.6 167.9 189.6 European Union 399.3 422.6 331.1 North America 146.9 142.5 96.4 Asia and Oceania 37.0 95.3 90.1 Middle East, including Turkey 21.0 10.6 27.8 Other regions 35.6 23.5 63.7

773.4 862.4 798.7

7 Inventories

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Raw materials 623.1 980.7 1,201.5 Work in process 569.7 526.6 876.5 Finished goods and goods for resale 419.5 684.2 852.9

1,612.3 2,191.5 2,930.9

Valuation to net realizable value (49.5) (67.7) (104.0)

1,562.8 2,123.8 2,826.9

As at 31 December 2014 and 2013 and 1 January 2013 inventories of $562.0, $310.5 and $672.5, respectively, served as collateral for certain borrowings (Note 11).

Share of raw materials and acquired semi-finished goods in cost of sales for the years ended 31 December 2014 and 2013 amounted to 61.3% and 61.7%, respectively. Share of fuel and energy resources expenses in cost of sales for the years ended 31 December 2014 and 2013 amounted to 13.0% and 13.4%, respectively.

F-99 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

8 Property, plant and equipment

Land and buildings Machinery and Construction in Land Buildings improvements equipment Vehicles progress Other Total

Additions - - - 10.4 7.1 836.2 - 853.7 Disposals (0.1) (2.2) (2.9) (11.9) (4.1) (15.3) (0.6) (37.1) Deconsolidation of subsidiaries (Note 23) (42.2) (174.0) (12.5) (698.1) - (30.4) (24.0) (981.2) Available for use 3.9 580.0 239.1 691.2 22.3 (1,554.7) 18.2 - Depreciation charge - (75.6) (74.7) (655.5) (37.2) - (20.5) (863.5) Translation adjustment (16.7) (117.3) (91.7) (279.6) (15.0) (161.0) (1.8) (683.1)

F-100 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

8 Property, plant and equipment (continued)

As at 1 January 2013, property, plant and equipment of $203.8 (net book value) served as collateral for certain borrowings (Note 11). As at 31 December 2014 and 2013 the Group did not have pledged property, plant and equipment.

The amount of borrowing costs capitalized is $59.0 and $164.0 for the years ended 31 December 2014 and 2013, respectively.

At 31 December 2014 and 2013 the Group’s management considered that the low level of economic activity combined with a deterioration in the steel market represented a trigger for impairment testing and has performed the tests for impairment of assets using the income approach based on primarily Level 3 inputs.

For the purpose of impairment testing for the years ended 31 December 2014 and 2013, the Group’s management has estimated cash flows for 7 years due to long useful-lives of steel making equipment and normalized cash flows for a post-forecast period. Prices for steel products in this estimate were determined on the basis of forecasts of investment banks’ analysts.

Average price*, $ per Sensitivity, Forecast Discount tonne of % of change Company Asset type period, Product types rate, % metal years products Sales Price (FCA) volume

OJSC NLMK Property, plant 7 12-16% Flat products 405 -17% -17% and equipment and intangible assets OJSC Stoilensky GOK Property, plant 7 12-16% Iron ore 34 -25% -27% and equipment and intangible assets OJSC Stoilensky GOK Goodwill 7 12-16% Iron ore 34 -7% -8%

NLMK Pennsylvania LLC Property, plant 7 9% Flat products 799 -5% -62% and equipment NLMK Indiana LLC Property, plant 7 9% Flat products 705 -4% -35% and equipment OJSC Altai-Koks Goodwill 7 12-16% Coke, chemical 116 -3% -14% products LLC Vtorchermet NLMK Property, plant 7 12-16% Metal scrap 199 -2% -43% and equipment OJSC NSMMZ Property, plant 7 12-16% Long products and 403 +2% +7% and equipment semi-finished goods LLC NLMK-Kaluga Property, plant 7 12-16% Long-products 437 +3% - and equipment and semi-finished goods NLMK DanSteel A/S Property, plant 6 9% Plate 738 +2% - and equipment * Weighted average prices giving the product mix, averaged for the period from 2015 to 2021

F-101 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

8 Property, plant and equipment (continued)

Average price*, $ per Sensitivity, Forecast Discount tonne of % of change Company Asset type period, Product types rate, % metal years products Sales Price (FCA) volume

LLC NLMK-Kaluga Property, plant 7 11% Long products and 592 -1% -5% and equipment semi-finished goods OJSC Nizhneserginski Property, plant 7 11% Long products 568 -3% -10% Hardware-Metallurgical and equipment Plant LLC NLMK-Metalware Property, plant 7 11% Metalware 697 -4% -19% and equipment LLC Vtorchermet NLMK Property, plant 7 11% Scrap 268 -1% -5% and equipment OJSC NLMK Property, plant 7 11% Flat products and 631 -6% -24% and equipment semi-finished goods NLMK DanSteel A/S Property, plant 7 8% Plate 895 -4% -24% and equipment * Weighted average prices giving the product mix, averaged for the period from 2014 to 2020

As of the date of transition to IFRS the Group’s management has performed an impairment testing, which showed that recoverable amount of property, plant and equipment (value in use) of NLMK Pennsylvania LLC as at 1 January 2013 was below its carrying amount by $38.5. The major assumptions and their sensitivity, used in this model, are indicated below. Sensitivity in the table below was determined as a percent of changes of corresponding factors in forecast and post-forecast periods when recoverable values of assets (value in use) become equal to their balance values. Impairment testing carried out in regards to the other Group’s companies showed no impairment and the respective models had sufficient headroom.

Average price*, $ per Sensitivity, Forecast Discount tonne of % of change Company Asset type period, Product types rate, % metal years products Sales Price (FCA) volume

NLMK Pennsylvania LLC Property, plant 7 8% Flat products 764 +0.3% +3% and equipment * Weighted average prices giving the product mix, averaged for the period from 2014 to 2020

F-102 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

9 Intangible assets

Industrial intellectual Beneficial Goodwill Mineral rights Customer base property lease interest Total

Cost at 1 January 2013 786.1 557.7 196.8 59.5 8.7 1,608.8 Accumulated amortisation - (281.7) (93.5) (29.1) (0.4) (404.7) Net book value at 1 January 2013 786.1 276.0 103.3 30.4 8.3 1,204.1

Additions - 15.6 - - - 15.6 Disposals (Note 23) (289.7) - - (3.0) - (292.7) Amortisation charge - (12.6) (15.8) (4.3) (0.1) (32.8) Translation adjustment (33.0) (20.5) (0.7) (2.1) - (56.3)

Cost at 31 December 2013 463.4 532.1 189.1 52.2 8.7 1,245.5 Accumulated amortisation - (273.6) (102.3) (31.2) (0.5) (407.6) Net book value at 31 December 2013 463.4 258.5 86.8 21.0 8.2 837.9

Amortisation charge - (11.4) (44.4) (9.4) (0.1) (65.3) Translation adjustment (178.0) (104.4) (5.1) (5.8) - (293.3)

Cost at 31 December 2014 285.4 309.6 147.6 30.4 8.7 781.7 Accumulated amortisation - (166.9) (110.3) (24.6) (0.6) (302.4) Net book value at 31 December 2014 285.4 142.7 37.3 5.8 8.1 479.3

Useful lives of the Group’s intangible assets as at 31 December 2014 are shown below. Total useful life, Remaining useful life, Company months months

Mineral rights OJSC Novolipetsk Steel 240 128 Mineral rights OJSC Novolipetsk Steel 240 204 Mineral rights OJSC Novolipetsk Steel 240 193 Mineral rights OJSC Stoilensky GOK 306 252 Customer base LLC VIZ-Stahl 125 24 Customer base Novexco (Cyprus) Ltd., Novex Trading (Swiss) S.A. 180 101 Industrial intellectual property LLC VIZ-Stahl 149 48 Industrial intellectual property (Note 23) NBH 60 - Beneficial lease interest NLMK Indiana LLC 974 900

In May 2011, the Group acquired a license for exploration and extraction of coal in the Zhernovsky Glubokiy coal field of the Zhernovsky coal deposit expiring in 2031. The carrying value of this license as at 31 December 2014 is $6.3. In August 2005, the Group acquired a license for exploration and mining of Zhernovsky coal deposit expiring in 2025. The carrying value of this license as at 31 December 2014 is $10.4.

In March 2011, the Group acquired a license for exploration and extraction of coal in the mine field area No. 3 of the Usinsky coal deposit expiring in 2031. The carrying value of this license as at 31 December 2014 is $23.0.

F-103 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

9 Intangible assets (continued)

A license for iron ore and non-metallics mining at Stoilensky iron-ore deposit in Belgorod Region expiring in 2035 was acquired by the Group in 2004 through a business combination. The carrying value of these mineral rights as at 31 December 2014 is $103.0.

The Group’s management believes that these licenses will be extended.

Goodwill arising on acquisitions was allocated to the appropriate business segment in which each acquisition took place. Goodwill arising from the acquisition in 2011 of a controlling interest in SIF S.A. (Note 23) amounted to $289.7. At the time of acquisition this goodwill was assigned to the steel segment and foreign rolled products segment in the amount of $128.4 and $161.3, respectively, and was disposed as a result of NBH deconsolidation (Note 23).

Goodwill allocation to each segment is as follows: As at As at As at 31 December 2014 31 December 2013 1 January 2013

Russian flat products 179.7 307.5 331.2 Foreign rolled products 35.7 35.7 325.4 Russian long products 3.3 5.7 6.1 Mining 66.7 114.5 123.4

285.4 463.4 786.1

Goodwill impairment testing

The Group tested goodwill for impairment as at 31 December 2014 and 2013. The recoverable amount has been determined as values in use of respective assets. For the purpose of this impairment testing the Group used the same estimates as for testing of other assets, as disclosed in Note 8. As a result no impairment of the tested values was identified by the Group.

10 Trade and other accounts payable

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Financial liabilities Trade accounts payable 440.9 621.9 775.7 Dividends payable 0.7 1.4 1.5 Other accounts payable 23.1 89.0 172.9

464.7 712.3 950.1

Non-financial liabilities Advances received 105.4 111.4 131.3 Taxes payable other than income tax 77.3 134.0 166.8 Accounts payable and accrued liabilities to employees 128.5 204.1 227.4

311.2 449.5 525.5

775.9 1,161.8 1,475.6

F-104 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

11 Borrowings

As at As at As at Rates Currency Maturity 31 December 2014 31 December 2013 1 January 2013

Bonds 8% to 8.95% RUR 2013-2017 543.9 1,400.7 1,669.3 4.45% to 4.95% USD 2018-2019 1,196.1 1,319.6 506.5

Loans 8.25% and 10% RUR 2013-2017 23.1 38.4 366.3 LIBOR +1.2% to 2.5% and PRIME +0.625% USD 2013-2016 374.9 541.0 384.7 EURIBOR +0.3% to EURIBOR +5.5% EUR 2013-2022 620.9 853.4 1,697.9

Short-term and long-term finance lease liability and other borrowings 9.6 37.4 63.3

2,768.5 4,190.5 4,688.0

Less: short-term loans and current maturities of long-term loans (804.3) (1,136.7) (1,837.8)

Long-term borrowings 1,964.2 3,053.8 2,850.2

The carrying amounts and fair value of long-term bonds are as follows: As at As at As at 31 December 2014 31 December 2013 1 January 2013 Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value

Bonds 1,444.9 1,278.6 2,216.6 2,215.8 1,487.7 1,499.2

The payments scheduled for long-term borrowings are as follows: As at As at As at 31 December 2014 31 December 2013 1 January 2013

1-2 year 580.0 1,169.2 1,734.5 2-5 years 1,347.4 1,300.6 363.9 over 5 years 36.8 584.0 751.8

1,964.2 3,053.8 2,850.2

Collateral

As at 31 December 2014 and 2013 and 1 January 2013, the total amount of collateral was $699.6, $452.2 and $1,140.7, respectively (Notes 6, 7, 8).

F-105 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

12 Other long-term liabilities

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Fair value of option (Note 23) 82.5 30.0 - Employee benefit obligation - - 92.6 Payables for SIF S.A. shares - - 282.7 Other long-term liabilities 10.9 9.6 47.4

93.4 39.6 422.7

13 Change in non-controlling interests in companies of Russian long product segment

In February 2013, the Parent Company acquired through a public auction for $9.6 a stake of 35.59% in OJSC NSMMZ. As a result of this transaction, there was a decrease in the additional paid-in capital by $49.5 with a corresponding change of non-controlling interests for the year ended 31 December 2013.

14 Shareholders’ equity

(a) Shares

As at 31 December 2014 and 2013 and 1 January 2013, the Parent Company’s share capital consisted of 5,993,227,240 issued common shares, with a par value of 1 Russian ruble each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

(b) Dividends

Dividends are paid on common shares at the recommendation of the Board of Directors and approval at a General Stockholders’ Meeting, subject to certain limitations as determined by Russian legislation. Profits available for distribution to shareholders in respect of any reporting period are determined by reference to the statutory financial statements of the Parent Company. As at 31 December 2014 and 2013, the retained earnings of the Parent Company, available for distribution in accordance with the legislative requirements of the Russian Federation, amounted to $5,409.3 and $8,971.7, converted into US dollars using exchange rates at 31 December 2014 and 2013, respectively.

In 2014 the dividend policy provided for a minimum annual dividend payment of at least 20% of annual net income and sets an objective of reaching an average rate of dividend payments during the five-year cycle of at least 30% of net income, both determined in accordance with US GAAP or IFRS.

In September 2014 the Parent Company declared interim dividends for the six months ended 30 June 2014 of 0.88 Russian rubles per share for the total of $133.9 (at the historical rate). Dividends payable amounted to $0.7 at 31 December 2014 (Note 10).

In June 2014, the Parent Company declared dividends for the year ended 31 December 2013 of 0.67 Russian rubles per share for the total of $115.0 (at the historical rate).

In June 2013, the Parent Company declared dividends for the year ended 31 December 2012 of 0.62 Russian rubles per share for the total of $115.6 (at the historical rate). Dividends payable amounted to $1.4 as at 31 December 2013 (Note 10).

F-106 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

14 Shareholders’ equity (continued)

When managing capital the Group uses the following indicators: . the return on invested capital ratio which is defined as operating profit for the last twelve months less tax divided by capital employed; . free cash-flow which is defined as net cash provided by operating activities less net cash used in investing activities less net interest paid.

There were no changes in the Group’s approach to capital management during the reporting period.

15 Earnings per share For the year ended For the year ended 31 December 2014 31 December 2013

Profit for the year attributable to NLMK shareholders (millions of US dollars) 772.5 145.4 Weighted average number of shares 5,993,227,240 5,993,227,240

Basic and diluted earnings per share attributable to NLMK shareholders (US dollars) 0.1289 0.0243

Basic net earnings per share is calculated by dividing profit for the year attributable to NLMK shareholders by the weighted average number of common shares outstanding during the reporting period.

The average shares outstanding for the purposes of basic and diluted earnings per share information was 5,993,227,240 for the years ended 31 December 2014 and 2013. The Parent Company does not have potentially dilutive financial instruments outstanding.

16 Revenue

(a) Revenue by product For the year ended For the year ended 31 December 2014 31 December 2013

Pig iron, slabs and billets 2,486.4 2,202.2 Flat products 5,651.1 6,367.5 Long products and metalware 1,301.3 1,240.6 Iron-ore and sintering ore 311.4 327.0 Coke and other chemical products 259.8 254.4 Scrap 74.7 66.5 Other products 311.0 360.2

10,395.7 10,818.4

F-107 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

16 Revenue (continued)

(b) Revenue by geographical area

The allocation of total revenue by geographical area is based on the location of end customers who purchased the Group’s products. The Group’s total revenue from external customers by geographical area for the years ended 31 December 2014 and 2013 is as follows: For the year ended For the year ended 31 December 2014 31 December 2013

Russia 4,434.3 4,373.4 North America 2,084.9 1,558.9 European Union 1,819.6 1,982.8 Middle East, including Turkey 636.5 875.4 Asia and Oceania 319.3 794.2 Other regions 1,101.1 1,233.7

10,395.7 10,818.4

The Group does not have customers with a share of more than 10% from revenue.

17 Labour costs

Cost of sales (858.6) (1,038.4) General and administrative expenses (231.4) (295.8) Selling expenses (40.4) (40.8)

(1,130.4) (1,375.0)

18 Taxes, other than income tax

Allocation of taxes, other than income tax to the functional items of consolidated statement of profit or loss is indicated below. For the year ended For the year ended 31 December 2014 31 December 2013

Cost of sales (122.4) (122.5) General and administrative expenses (7.5) (6.6) Selling expenses (0.6) (0.7) Other operating expenses (7.0) (4.8)

(137.5) (134.6)

F-108 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

19 Income tax

Income tax charge comprises the following: For the year ended For the year ended 31 December 2014 31 December 2013

Current income tax expense (378.3) (141.1) Deferred income tax benefit / (expense) 15.9 (87.7) Adjustment of current income tax for the previous periods, recognized in the reporting period - (26.2)

Total income tax expense (362.4) (255.0)

Income before income tax is reconciled to the income tax expense as follows: For the year ended For the year ended 31 December 2014 31 December 2013

Profit before income tax 1,136.0 419.2

Income tax at applicable tax rate 20% (227.2) (83.8)

Change in income tax: - tax effect of non-deductible expenses (20.5) (59.5) - non-taxable translation adjustments 39.4 7.2 - effect of different tax rates 118.3 25.6 - unrecognized tax loss carry forward for current year (99.6) (82.3) - utilization of previously unrecognized tax-losses carry- forward 22.6 - - change in option (Note 23) (16.3) - - write-off of previously recognized deferred tax assets (53.0) (62.7) - loss on impairment of investment (Note 23) (100.5) - - adjustment of current income tax for the previous periods, recognized in the reporting period - (26.2) - other (25.6) 26.7

Total income tax expense (362.4) (255.0)

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below: As at As at As at 31 December 2014 31 December 2013 1 January 2013 Deferred tax assets Trade and other accounts payable 100.8 170.3 180.6 Other non-current liabilities - 0.1 0.6 Trade and other accounts receivable 15.8 27.5 29.1 Inventories 24.5 - - Net operating loss and credit carry-forwards 14.6 73.3 238.0 Other 13.9 6.4 -

F-109 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

19 Income tax (continued)

As at As at As at 31 December 2014 31 December 2013 1 January 2013 169.6 277.6 448.3 Deferred tax liabilities Property, plant and equipment (429.9) (728.2) (889.1) Other intangible assets (8.5) (21.8) (12.0) Inventories - (32.2) (43.0) Other non-current liabilities (13.7) - - Other - - (5.3)

(452.1) (782.2) (949.4)

Total deferred tax liability, net (282.5) (504.6) (501.1)

The movements in deferred income tax assets and liabilities are presented below:

2014 2013

As at 1 January (504.6) (501.1) Recognized in consolidated statement of profit or loss (15.9) 87.7 Deconsolidation of subsidiaries (Note 23) - (50.1) Translation adjustment 238.0 (41.1) As at 31 December (282.5) (504.6)

The amount of net operating losses that can be utilized each year is limited under the Group’s different tax jurisdictions. The Group has established a valuation allowance against certain deferred tax assets. The Group regularly evaluates assumptions underlying its assessment of the realizability of its deferred tax assets and makes adjustments to the extent necessary. In assessing whether it is probable that future taxable profit against which the Group can utilize the potential benefit of the tax loss carry-forwards will be available, management considers the current situation and the future economic benefits outlined in specific business plans for each subsidiary.

From 1 to 5 years 184.9 56.5 6.3 From 5 to 10 years 420.8 863.8 828.9 No expiration 1,084.8 1,180.9 243.5

1,690.5 2,101.2 1,078.7

Accounting for deferred tax assets assumes best estimates of future tax consequences. A valuation analysis established or revised as a result of the assessment is recorded through deferred income tax expense in consolidated statement of profit or loss. In the second quarter of 2013 valuation models, previously supported deferred tax assets recoverability in Group’s major European entities, were revised based on the results of analysis of economic condition in Europe. The revised models did not support recoverability of a part of these assets of $62.7, which resulted in write-off of previously recognized deferred tax assets in the second quarter of 2013. As at 31 December 2013 figures of these European entities were eliminated from consolidated statement of financial position of the Group (Note 23).

The Group has not recorded a deferred tax liability in respect of temporary differences of $1,061.1 and $1,230.2 for the years ended 31 December 2014 and 2013, respectively, associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.

F-110 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

19 Income tax (continued)

In accordance with Russian legislation, the Group’s key Russian entities, including OJSC NLMK, were integrated in one consolidated tax group for the purpose of assessment and payment of corporate income tax in line with the comprehensive financial result of business operations. The Group’s entities that do not constitute the consolidated tax group assess their income taxes individually.

As at 31 December 2014 and 2013 the Group analysed its tax positions for uncertainties affecting recognition and measurement thereof. Following the analysis, the Group believes that it is likely that all deductible tax positions stated in the income tax return recognised and valuated in accordance with the tax legislation.

20 Finance income and costs

For the year ended For the year ended 31 December 2014 31 December 2013

Interest income on bank accounts and bank deposits 29.5 36.2 Other finance income 7.0 4.4

Total finance income 36.5 40.6

Interest expense on borrowings (178.9) (221.5) Capitalized interest 61.6 121.9 Other finance costs (19.5) (22.3)

Total finance costs (136.8) (121.9)

21 Foreign currency exchange

For the year ended For the year ended 31 December 2014 31 December 2013

Foreign exchange gain on cash and cash equivalents 251.9 55.1 Foreign exchange gain on financial investments 1,249.9 180.1 Foreign exchange loss on financial instruments (33.1) (1.2) Foreign exchange loss on debt financing (898.5) (170.0) Foreign exchange (loss) / gain on other assets and liabilities (82.0) 21.2

488.2 85.2

22 Financial instruments

The Group’s management believes that the carrying values of cash, receivables and payables, and short-term borrowings indicate a reasonable estimate of their fair value due to their short-term maturities. The fair value of investments, excluding equity method investments, is defined using Level 2 inputs, which include interest rates for similar instruments in an active market. Fair values for these investments are determined based on discounted cash flows and approximate their carrying values. The fair value of long-term debt is based on current borrowing rates available for financings with similar terms and maturities and approximates their carrying value.

The Group holds and purchases derivative financial instruments for purposes other than trading to mitigate foreign currency exchange rate risk. Forward contracts were short-term with maturity dates in January, February and November 2013.

F-111 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

22 Financial instruments (continued)

In 2012, the Group entered into Russian ruble / US dollar cross-currency interest rate swap agreements in conjunction with Russian ruble denominated bonds issued by the Group. As a result, the Group pays US dollars at fixed rates varying from 3.11% to 3.15% per annum and receives Russian rubles at a fixed rate of 8.95% per annum. Maturity of the swaps was linked to the Russian ruble denominated bonds redemption, matured on November 2014.

The fair value of foreign currency derivatives is determined using Level 2 inputs. The inputs used include quoted prices for similar assets or liabilities in an active market.

The fair value of forwards is determined as the sum of the differences between the market forward rate in the settlement month prevailing at 1 January 2013 and the appropriate contract settlement rate, multiplied by discounted notional amounts of the corresponding contracts. The fair value of swaps is determined as the sum of the discounted contractual cash flows in Russian rubles and US dollars as at 1 January 2013.

The amounts recorded represent the US dollar equivalent of the commitments to sell and purchase foreign currencies. The table below summarizes the contractual amounts and positive fair values of the Group’s unrealized forward exchange contracts in US dollars.

As at As at As at 31 December 2014 31 December 2013 1 January 2013 Notional Fair Notional Fair Notional Fair amount value amount value amount value

US dollars - - - - 34.6 1.2 Euro - - - - 31.9 0.5

- - - - 66.5 1.7

During 2013 gains from forward exchange contracts amounted to $4.6. These gains were included in “Foreign currency exchange gain, net” line in the consolidated statement of profit or loss. The table below summarizes the contractual amounts and positive fair values of the Group’s unrealized cross-currency interest rate swap agreements in US dollars.

As at As at As at 31 December 2014 31 December 2013 1 January 2013 Notional Fair Notional Fair Notional Fair amount value amount value amount value

US dollars - - 83.3 0.6 99.9 7.3

- - 83.3 0.6 99.9 7.3

During 2014 and 2013 losses from cross-currency interest rate swap agreements amounted to $(25.8) and $(6.4), respectively, and were included in “Foreign currency exchange gain, net” line in the consolidated statement of profit or loss.

23 Disposal of companies which are under the Group’s control

F-112 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

23 Disposal of companies which are under the Group’s control (continued)

The Group brought in SOGEPA as a strategic investor in the context of the continuing restructuring of its European assets aimed at further enhancing efficiency and optimizing costs.

The agreement resulted in the loss of control by the Group over NBH and therefore NBH was deconsolidated from the Group consolidated financial statements with effect from 30 September 2013.

Proceeds 122.9 Net assets of NBH at date of disposal (373.8) Fair value of remaining 79.5% of NBH 459.2 Release of cumulative translation adjustment 60.0 Goodwill written off (289.7) Fair value of put / call option (30.0)

Loss on disposal (51.4)

As at the date of the disposal of NBH the Group was preparing its consolidated financial statements in accordance with US GAAP. US GAAP consolidated financial statements showed a gain on disposal of NBH amounting to $18.9. In accordance with IFRS transition rules all translation adjustments related to NBH were reclassified to retained earnings (Note 31), which resulted in change of result on disposal to $(51.4). Reconciliation of US GAAP and IFRS results of NBH disposal is as follows:

US GAAP gain on disposal of NBH 18.9 Less release of cumulative translation adjustment as at 1 January 2013 (70.3)

IFRS loss on disposal (51.4)

Information about the Group’s operations with NBH is disclosed in Note 26.

The carrying amounts of assets and liabilities of NBH as at the date of disposal were as follows:

Current assets Cash and cash equivalents 76.7 Trade and other accounts receivable 329.5 Inventories 609.4 Other current assets 14.3 1,029.9 Non-current assets Property, plant and equipment 980.7 Deferred income tax assets 149.1 Other non-current assets 3.7 1,133.5 Total assets 2,163.4

F-113 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

23 Disposal of companies which are under the Group’s control (continued)

Current liabilities Trade and other accounts payable, including: (624.7) - accounts payable to NLMK Group (422.2) Short-term borrowings, including: (302.2) - loans from NLMK Group (0.1) (926.9) Non-current liabilities Long-term borrowings, including: (531.9) - loans from NLMK Group (76.6) Deferred income tax liability (199.2) Other long-term liabilities (131.6) (862.7) Total liabilities (1,789.6)

Equity 373.8

Information on NBH’s operations from 1 January 2013 to the date of disposal is as follows:

Revenue 1,047.1 Cost of sales (973.3) Income tax expense (53.0) Loss for the period (276.7)

Summarized financial information for NBH before impairment losses is as follows: As at As at 31 December 2014 31 December 2013

Current assets 921.9 993.0 Non-current assets 935.3 1,101.2

Total assets 1,857.2 2,094.2

Current liabilities (1,054.3) (819.4) Non-current liabilities (488.6) (963.0)

Total liabilities (1,542.9) (1,782.4)

Equity 314.3 311.8

The Group’s share in NBH’s net loss for the year ended 31 December 2014 and from the date of disposal to 31 December 2013 amounted to $(193.5) and $(54.2), respectively, and is included in “Share in net losses of associates and other companies accounted for using the equity method” line in the consolidated statement of profit or loss.

F-114 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

23 Disposal of companies which are under the Group’s control (continued)

Deferred tax assets and deferred tax liabilities of NBH as at the date of disposal refer to the temporary differences originated from the following:

Net deferred tax liability (50.1)

Fair value of options

Changes to NLMK Belgium Holdings’ ownership structure and governance

NBH board of directors is increased to include four representatives of NLMK Group and three representatives of SOGEPA. SOGEPA will also receive board seats at production subsidiaries of NBH.

Earlier, in December 2014, the Group made a conversion of existing loans given into NBH share capital in the amount of EUR 220 million with a corresponding reflection in the consolidated financial statements for the year ended 31 December 2014. These contributions did not change Group’s share in NBH. These investments are also a part of the agreement signed in March 2015.

F-115 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

24 Segment information

The Group has five reportable business segments: Russian flat products, Foreign rolled products, Russian long products, Mining and Investments in associate entity NBH (Note 23). These segments are combinations of subsidiaries, have separate management teams and offer different products and services. The above five segments meet the criteria for reportable segments. Subsidiaries are consolidated by the segment to which they belong based on their products and management.

Intersegmental operations and balances include elimination of intercompany dividends paid to Russian flat products segment by other segments and presented within line “Profit / (loss) for the year” together with other intercompany elimination adjustments, including elimination of NBH liabilities to the Group companies (Note 26). NBH deconsolidation adjustments include full elimination of sales of NBH with further recognition of the Group’s sales to NBH and elimination of unrealised profits (Notes 4, 26), recognition of investment in associate (Note 4), recognition of impairment and share of loss arising for NBH and other consolidation adjustments.

F-116 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

24 Segment information (continued)

Information on segments’ profit or loss for the year ended 31 December 2014 and their assets and liabilities on this date is as follows:

Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 345.9 5,684.1 1,446.9 2,015.0 1,462.4 0.1 - (558.7) 10,395.7 Intersegment revenue 721.8 2,187.9 367.7 - 54.9 - (3,277.4) (54.9) - Cost of sales (347.5) (5,667.2) (1,578.4) (1,896.7) (1,375.3) (0.1) 3,004.6 471.6 (7,389.0) Gross profit / (loss) 720.2 2,204.8 236.2 118.3 142.0 - (272.8) (142.0) 3,006.7 Operating profit / (loss)* 576.3 874.2 242.3 21.4 (215.9) (2.2) (124.1) 215.9 1,587.9 Net finance income / (costs) 27.9 (9.1) (82.9) (37.2) (21.3) 1.0 - 21.3 (100.3) Income tax expense (193.6) (221.9) (19.0) 27.2 11.1 (0.2) 45.1 (11.1) (362.4) Profit / (loss) for the year 763.0 1,426.3 (96.3) (154.6) (243.4) 6.4 (652.5) (275.3) 773.6 Segment assets 1,948.9 8,902.9 1,367.9 1,491.9 1,857.2 99.7 (3,611.8) (1,707.3) 10,349.4 Segment liabilities (480.0) (4,138.9) (996.3) (1,956.0) (1,542.9) (27.6) 4,016.6 1,032.4 (4,092.7) Depreciation and amortization (63.6) (538.5) (106.6) (82.7) (101.1) (2.1) - 101.1 (793.5) Capital expenditures (195.0) (279.8) (51.2) (17.9) - (18.7) - - (562.6) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

F-117 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

24 Segment information (continued)

Information on segments’ profit or loss for the year ended 31 December 2013 and their assets and liabilities on this date is as follows:

Inter- Investments in segmental NBH deconsoli- Russian flat Russian long Foreign rolled associate entity operations and dation adjust- Mining products products products NBH All other balances ments Total Revenue from external customers 372.2 6,240.6 1,328.2 1,693.0 1,446.9 0.6 - (263.1) 10,818.4 Intersegment revenue 978.8 1,623.8 388.1 1.7 5.8 - (2,992.4) (5.8) - Cost of sales (423.0) (6,655.5) (1,507.8) (1,795.7) (1,327.6) (0.3) 2,826.3 217.7 (8,665.9) Gross profit / (loss) 928.0 1,208.9 208.5 (101.0) 125.1 0.3 (166.1) (51.2) 2,152.5 Operating profit / (loss)* 787.1 (254.6) 324.8 (42.3) (244.9) (8.1) 10.3 36.5 608.8 Net finance income / (costs) 23.3 52.1 (107.3) (37.0) (18.5) 1.0 - 5.1 (81.3) Income tax expense (118.1) (85.8) (5.5) 6.0 (81.7) (0.2) 1.6 28.7 (255.0) Profit / (loss) for the year 766.2 167.1 197.3 (61.4) (347.6) 0.8 (574.9) 16.7 164.2 Segment assets 2,382.5 13,223.2 2,799.6 1,476.3 2,094.2 62.8 (3,912.6) (1,673.0) 16,453.0 Segment liabilities (177.0) (6,021.3) (1,996.5) (1,692.2) (1,782.4) (53.1) 4,366.1 1,301.9 (6,054.5) Depreciation and amortization (71.5) (553.1) (88.0) (74.8) (112.6) - - 28.9 (871.1) Capital expenditures (125.7) (391.5) (179.8) (48.5) - (10.8) - - (756.3) * Operating profit / (loss) before equity share in net losses of associates and other companies accounted for using the equity method of accounting, impairment and write-off of assets

Geographically, all significant assets, production and administrative facilities of the Group are located in Russia, USA and Europe.

F-118 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties

(a) Operating environment of the Group

The political and economic turmoil witnessed in the region, including the developments in Ukraine have had and may continue to have a negative impact on the Russian economy, including the weakening of the Russian ruble. At present, there is an ongoing threat of sanctions against Russia and Russian officials the impact of which on Russian economy, if they were to be implemented, are difficult to determine at this stage. These events may have a significant impact on the Group’s operations and financial position, the effect of which is difficult to predict.

(b) Market risk

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The interest rate risk profile of the Group is follows:

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Fixed rate instruments

Financial assets 2,103.5 2,363.9 1,932.6 - cash and cash equivalents (Note 3) 549.2 970.0 951.2 - short-term financial investments (Note 5) 621.3 484.6 108.6 - trade and other accounts receivable less allowance (Note 6) 791.7 904.8 854.4 - long-term financial investments (Note 5) 141.3 4.5 18.4

Financial liabilities (2,366.9) (3,508.3) (3,630.5) - trade, other accounts payable and dividends payable (Note 10) (464.7) (712.3) (950.1) - short-term borrowings (Note 11) (302.5) (525.0) (1,114.7) - long-term borrowings (Note 11) (1,599.7) (2,271.0) (1,565.7)

F-119 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties (continued)

As at As at As at 31 December 2014 31 December 2013 1 January 2013 Variable rate instruments

Financial assets - 78.4 - - short-term financial investments (Note 5) - 0.4 - - long-term financial investments (Note 5) - 78.0 -

Financial liabilities (866.3) (1,394.5) (2,007.6) - short-term borrowings (Note 11) (501.8) (611.7) (723.1) - long-term borrowings (Note 11) (364.5) (782.8) (1,284.5)

A change of 100 basis points in interest rates for variable rate instruments would have insignificantly change profit and equity (about $11 and $17 for the years ended 31 December 2014 and 2013, respectively).

Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

US dollar Euro

Net foreign currency position (676.3) 87.1

F-120 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties (continued)

US dollar Euro

Net foreign currency position (806.3) (259.9)

Sensitivity analysis

Sensitivity is calculated by multiplying a net foreign currency position of a corresponding currency by percentage of currency rates changes.

A 25 percent strengthening of the following currencies against the functional currency as at 31 December 2014 and 2013 would have increased / (decreased) equity by the amounts shown below, however effect on profit for the year would be different due to foreign exchange gain from intercompany operations (Note 21).

For the year ended For the year ended 31 December 2014 31 December 2013

US dollar (169.1) (201.6) Euro 21.8 (65.0)

A weakening of these currencies against the functional currency would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.

Commodity price risk

Commodity price risk is a risk arising from possible changes in price of raw materials and metal products, and their impact on the Group’s future performance and the Group’s operational results.

To mitigate the corresponding risks the Group also uses formula pricing tied to price indices for steel products when contracting raw and auxiliary materials.

F-121 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties (continued)

Credit risk is the risk when counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.

The Group’s management reviews ageing analysis of outstanding trade receivables and follows up on past due balances.

The Group’s maximum exposure to credit risk by class of assets reflected in the carrying amounts of financial assets on the consolidated statement of financial position is as follows:

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Cash and cash equivalents (Note 3) 549.2 970.0 951.2 Trade and other accounts receivable (Note 6) 791.7 904.8 854.4 Short-term financial investments (Note 5) 621.3 485.0 108.6 Long-term financial investments (Note 5) 141.3 82.5 18.4

Total on-balance sheet exposure 2,103.5 2,442.3 1,932.6

Financial guarantees issued (Note 26(d)) 611.6 790.6 -

2,715.1 3,232.9 1,932.6

Analysis by credit quality, based on international agencies’ credit rating of bank balances and term deposits as well as short-term and long-term bank deposits is as follows:

As at As at As at 31 December 2014 31 December 2013 1 January 2013 Bank balances and term deposits AAA-BBB 504.9 837.6 864.5 BB-B 38.9 122.0 78.7 Unrated and cash on hand 5.4 10.4 8.0

549.2 970.0 951.2

Short-term and long-term bank deposits AAA-BBB 549.2 370.3 106.0 BB-B 0.2 10.4 6.9 Unrated - - 3.3

549.4 380.7 116.2

F-122 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties (continued)

As at 31 December 2014, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 669.3 49.3 290.9

Overdue, including: 132.7 20.4 18.5 - up to 1 month 60.1 6.8 0.9 - from 1 to 3 months 31.2 3.6 0.5 - from 3 to 12 months 11.7 5.3 4.9 - over 12 months 29.7 4.7 12.2

802.0 69.7 309.4

Allowance (28.6) (9.6) (20.4)

Net of allowance 773.4 60.1 289.0

As at 31 December 2013, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 730.7 55.9 529.2

Overdue, including: 171.0 25.8 30.1 - up to 1 month 67.2 7.4 0.9 - from 1 to 3 months 43.8 4.8 0.6 - from 3 to 12 months 5.3 2.5 2.3 - over 12 months 54.7 11.1 26.3

901.7 81.7 559.3

Allowance (39.3) (19.3) (25.1)

Net of allowance 862.4 62.4 534.2

F-123 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

25 Risks and uncertainties (continued)

As at 1 January 2013, trade, other receivables and advances given to suppliers were overdue as indicated below with accruals of corresponding allowance after due dates:

Trade accounts Advances given to Other accounts receivable suppliers receivable

Undue 680.5 80.9 548.2

Overdue, including: 166.8 41.6 103.4 - up to 1 month 61.0 9.5 0.6 - from 1 to 3 months 36.2 5.6 0.4 - from 3 to 12 months 32.7 7.9 91.8 - over 12 months 36.9 18.6 10.6

847.3 122.5 651.6

Allowance (48.6) (18.8) (27.7)

Net of allowance 798.7 103.7 623.9

As at 31 December 2014 and 2013 and 1 January 2013 the Group does not have trade and other accounts receivable which was overdue and not impaired.

(d) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources.

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Less than 1 year 877.6 1,269.1 1,880.1 From 1 to 2 years 719.7 1,396.0 2,064.8 From 2 to 5 years 1,442.7 1,998.0 602.1 Over 5 years 8.7 29.1 605.8

Total borrowings 3,048.7 4,692.2 5,152.8

As at 31 December 2014 and 2013 and 1 January 2013 the Group does not have significant trade and other accounts payable with maturity over one year and its carrying amount approximates its fair value.

(e) Insurance

F-124 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

26 Related party transactions

(a) Sales to and purchases from related parties

For the year ended For the year ended 31 December 2014 31 December 2013 Sales NBH group companies 985.7 227.7 Other related parties 7.7 9.1

Purchases Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 375.9 411.3 Other related parties 60.6 16.3

(b) Accounts receivable from and accounts payable to related parties

As at As at As at 31 December 2014 31 December 2013 1 January 2013 Accounts receivable and advances given NBH group companies 300.9 294.2 - Other related parties 17.5 36.8 39.9

Accounts payable Universal Cargo Logistics Holding group companies (companies under the common control of beneficial owner) 2.3 15.2 6.5 Other related parties 25.2 6.3 0.4

As at As at As at 31 December 2014 31 December 2013 1 January 2013

Loans, issued to NBH group companies (Note 5) 209.6 185.6 - Deposits and current accounts in PJSC Bank ZENIT and OJSC Lipetskcombank (companies under the significant influence of the Group’s controlling shareholder) 36.5 92.4 77.1

Interest income from deposits and current accounts in PJSC Bank ZENIT and OJSC Lipetskcombank for the years ended 31 December 2014 and 2013 amounted to $3.5 and $3.3, respectively.

(d) Financial guarantees issued

As at 31 December 2014 and 2013 guarantees issued by the Group for borrowings of NBH group companies’ amounted to $611.6 and $790.6, respectively, which is the maximum potential amount of future payments, paid on demand of the guarantee. Corresponding guarantees were accounted for within the Group as at 1 January 2013. As at 1 January 2013 the Group did not have guarantees issued for the loans of companies outside the Group. No amount has been accrued in these consolidated financial statements for the Group’s obligation under these guarantees as the Group assesses probability of cash outflows, related to these guarantees, as low.

F-125 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

26 Related party transactions (continued)

The maturity of the guaranteed obligations is as follows: As at As at As at 31 December 2014 31 December 2013 1 January 2013

Less than 1 year 528.9 176.8 - From 1 to 2 years 61.8 533.3 - Over 2 years 20.9 80.5 -

611.6 790.6 -

(e) Contributions to non-governmental pension fund and charity fund

Total contributions to a non-governmental pension fund and charity fund in 2014 and 2013 amounted to $9.1 and $6.5, respectively. The Group has no long-term commitments to provide funding, guarantees or other support to the abovementioned funds.

27 Commitments and contingencies

(a) Anti-dumping investigations

(b) Litigation

No further appeal is possible in these claims.

Recently there are still few court proceedings initiated by the non-controlling shareholder of OJSC Maxi-Group going on in certain European courts and related to the claim filed to ICA Court in January 2010. In April 2014 the French court decided to execute a decision of the court of Russia (which was cancelled in Russia) on the territory of France. In December 2014 the Parent Company claimed the appeal on this decision. The Group’s management considers the probability of unfavourable outcome and cash outflow in connection with these court proceedings is low and accordingly, no accruals in relation to these claims were made in these consolidated financial statements.

In the third quarter of 2014 the Group received about $104.0 in course of bankruptcy proceedings which were the result of execution of the decision taken by Russian court in 2012. This amount is included in “Gains on investments” line in the consolidated statement of profit or loss.

F-126 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

27 Commitments and contingencies (continued)

(d) Capital commitments

Management estimates the outstanding agreements in connection with equipment supply and construction works amounted to $620.8, $498.6 and $712.5 as at 31 December 2014 and 2013 and 1 January 2013, respectively.

(e) Social commitments

(f) Tax contingencies

Starting from 1 January 2015 new provisions aimed at deoffshorisation of Russian economy were included in Russian tax legislation. Particularly, the following new concepts were introduced: controlled foreign companies’ rules, beneficial ownership concept for applying the preferential terms of international tax treaties concluded by Russian Federation, Russian tax residency concept for foreign entities, taxation of indirect sale of immovable property located in Russia. Management analyses the impact of new tax provisions on Group’s activity and implements the required actions in order to comply with new Russian tax requirements. Given that the practice of implementation of new provisions aimed at deoffshorisation of Russian economy has not yet formed, the impact of these changes on the financial position and the results of the Group’s operations cannot be reliably estimated.

As at 31 December 2014, management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency and customs positions will be sustained.

F-127 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

27 Commitments and contingencies (continued)

(g) Major terms of loan agreements

28 Significant accounting policies

(a) Basis of consolidation

Subsidiaries

Subsidiaries are consolidated when the Group obtains control over an investee and terminates when the Group ceases to have control over the investee.

F-128 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Associates and other companies accounted for using the equity method of accounting

Investments in associates and other companies accounted for using the equity method of accounting are initially recognised at cost (fair value of the consideration transferred).

Disposals of subsidiaries, associates or other companies accounted for using the equity method of accounting

F-129 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

(b) Cash and cash equivalents

Restricted cash balances comprise balances of cash and cash equivalents which are legally or contractually restricted from withdrawal.

(d) Value added tax (VAT)

Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debt, including VAT.

(e) Inventories

Inventories are recorded at the lower of cost and net realisable value (the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses).

Inventories include raw materials designated for use in the production process, finished goods, work in progress and goods for resale.

Release to production or any other write-down of inventories is carried at the weighted average cost.

The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity).

Other costs are included in the cost of inventories only to the extent they were incurred to provide for the current location and condition of inventories.

F-130 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

(f) Property, plant and equipment (PP&E)

Measurement at recognition

Subsequent measurement

Property, plant and equipment items are carried at cost less accumulated depreciation and recognised impairment losses.

Subsequent expenditures

Other subsequent expenditures are capitalised only when they increase the future economic benefits embodied in these assets.

All other expenses are treated as costs in the consolidated statement of profit or loss in the reporting period as incurred.

Property, plant and equipment line of the consolidated statement of financial position also includes capital construction and machinery, and equipment to be installed.

If PP&E items include major units with different useful lives, then each individual unit of the related asset is accounted for separately.

F-131 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Borrowing costs

Borrowing costs are capitalised from the date of capitalisation and up to the date when the assets are substantially ready for utilisation or sale.

When funds borrowed for common purposes are used to purchase an asset, capitalised borrowing costs are determined through multiplying the capitalisation rate by expenses related to the asset.

All other borrowing costs are attributed to expenses in the reporting period when incurred and recorded in the consolidated statement of profit or loss in the “Finance costs” line.

Mineral rights

Depreciation

The range of estimated useful lives of different asset categories is as follows:

Buildings and land and buildings improvements 1 – 91 years Machinery and equipment 1 – 45 years Vehicles 1 – 42 years

Impairment of PP&E is outlined in section (j) “Impairment of non-current assets”.

F-132 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

(g) Leasing

Accounting policies for depreciation of leased assets are consistent with the accounting policies applicable to owned depreciable assets.

(h) Goodwill and intangible assets

Goodwill on associates and other equity-accounted entities is included in the carrying amount of investments in these entities.

Goodwill is measured at historical cost and subsequently stated less accumulated impairment losses.

Impairment of goodwill

F-133 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Disposal of goodwill

Intangible assets

Intangible assets are initially recognised at cost.

If an intangible asset is acquired as a result of a business combination, the cost of the intangible asset equals its fair value at the acquisition date.

None of the intangible assets that constitute the result of research (or implementation of the research stage of an internal project) is subject to recognition. Research expenditures (or at the research stage of an internal project) shall be recognised as an expense when incurred.

If an intangible asset is an integral part of a fixed asset to which it belongs, then it is recorded as part of that asset.

Amortisation

(i) Decommissioning obligation

The Group’s obligations related to assets disposal include estimating costs related to restoration of land in accordance with applicable legal requirements and licenses.

The estimated future costs related to decommissioning are reviewed annually and adjusted as necessary.

F-134 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

(j) Impairment of non-current assets

At each reporting date, the Group determines if there are any objective indications of potential impairment of an individual asset or group of assets.

Intangible assets that are not available for use and intangible assets with indefinite useful lives are tested for impairment at least once a year if their carrying amount impairment indicators are identified.

Recoverable value measurement

Value in use is the present value of estimated future cash flows from expected continuous use of an asset and its disposal at the end of its useful life.

Impairment loss

(k) Pension and post-retirement benefits other than pensions

F-135 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Payments under defined contribution plans are expensed as incurred.

(l) Provisions for liabilities and charges

(m) Call and put options

(n) Income taxes

Current tax

Deferred tax

Deferred tax assets and liabilities are recognised for the differences between the carrying amount of an asset or liability in the consolidated statement of financial position and their tax base.

F-136 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Uncertain tax positions

(o) Dividends payable

(p) Revenue recognition

Revenue from sales of goods and provision of services

Revenue is recorded less of discounts, provisions, value added tax and export duties, and refunds, and after excluding internal Group sales turnover.

F-137 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

Dividend income

Dividend income on investments is recognised when the Group becomes entitled to receive the payment.

(q) Segment information

The Group provides separate disclosures on each operating segment that meets the criteria outlined in paragraph 11 of IFRS 8, “Operating Segments”.

Other activities and operating segments that are not reportable segments are combined and disclosed in “all other segments”.

The accounting policies of each segment are similar to the principles outlined in significant accounting policies.

(r) Financial instruments

Financial assets

Financial assets have the following categories: . loans and receivables; . held-to-maturity investments.

F-138 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Loans and receivables

Held-to-maturity investments

Valuation techniques

Depending on their classification, financial instruments are carried at fair value or amortised cost. Below are the methods and key definitions.

Initial recognition of financial assets

F-139 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

De-recognition

Impairment of financial assets

Impairment of financial assets carried at amortised cost

Accrual of interest income on the reduced carrying value is continued based on the interest rate applied to discounting the future cash flows for impairment loss assessment.

Impairment of financial investments available for sale

F-140 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Financial liabilities

The Group’s financial liabilities include trade and other payables, bank overdrafts, borrowings, financial guarantee agreements and derivative financial instruments.

Financial liabilities are respectively classified as: . financial liabilities at fair value through profit or loss; . borrowings and loans.

Financial liabilities at fair value through profit or loss

Borrowings

Initial recognition of financial liabilities

All financial liabilities are initially recorded at fair value less transaction costs incurred (except for financial liabilities at fair value through the consolidated statements of profit or loss).

De-recognition

A financial liability is de-recognised from the consolidated statement of financial position if it was settled, cancelled or expired.

Financial guarantee agreements

Derivative financial instruments

F-141 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

28 Significant accounting policies (continued)

Offsetting financial instruments

(s) Related parties

29 Critical accounting estimates and judgements

(a) Consolidation of subsidiaries

Management judgement is involved in the assessment of control and the consolidation of subsidiaries in the Group’s consolidated financial statements.

(b) Tax legislation and potential tax gains and losses

(d) Fair value estimation for acquisitions

F-142 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

29 Critical accounting estimates and judgements (continued)

(e) Impairment analysis of property, plant and equipment and goodwill

Accounting for provisions

Accounting for impairment includes provisions against capital construction projects, financial assets, other non- current assets and inventory obsolescence (at least annually).

(f) Accrual of accounts receivable impairment provision

(g) Control and the consolidation or accounting using equity method of accounting of entities in the Group’s consolidated financial statements

Management judgement is involved in the assessment of control and the consolidation or accounting using equity method of accounting of certain entities in the Group’s consolidated financial statements. As at 31 December 2014 the Group owned 79.5% of shares in NBH, however, management had concluded that in the light of giving certain governance rights to the party owing the residual interest in this company, the Group does not control this company, thus the Group’s investment in NBH should be accounted for under the equity method starting 30 September 2013 (Note 23).

30 New or revised standards and interpretations

In 2013 the Group adopted all IFRS, amendments and interpretations which have been in effect since 1 January 2013 and which are relevant to its operations.

The following new standards and amendments have been issued that are mandatory for the annual periods beginning on or after 1 January 2015. In particular the Group has not early adopted the following standards and amendments: . IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:

F-143 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

30 New or revised standards and interpretations (continued)

- Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. . Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to seven standards. IFRS 2 was amended to clarify the definition of a “vesting condition” and to define separately “performance condition” and “service condition”. The amendment is effective for share-based payment transactions for which the grant date is on or after 1 July 2014. IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July 2014. IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets when segment assets are reported. The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the impact of discounting is immaterial. IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model. IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity (“the management entity”), and to require to disclose the amounts charged to the reporting entity by the management entity for services provided.

F-144 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

30 New or revised standards and interpretations (continued) . Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to four standards. The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods presented. IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint arrangement itself. The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39 or IFRS 9. IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination. . Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016). This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. . Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this amendment, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. . IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2017). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. . Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016). The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. . Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary. . Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). The amendments impact four standards. IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from “held for sale” to “held for distribution” or vice versa) does not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim financials, unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of “information disclosed elsewhere in the interim financial report”.

F-145 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

30 New or revised standards and interpretations (continued)

The Group is currently assessing the impact of the amendments on its financial position and results of operation.

The following new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements once adopted: . Amendments to IAS 19 “Defined Benefit Plans: Employee Contributions” (issued in November 2013 and effective for annual periods beginning 1 July 2014). . Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). . Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). . IFRS 14 “Regulatory Deferral Accounts” (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016). . Amendments to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” (issued in May 2014 and effective for the periods beginning on or after 1 January 2016). . Amendments to IAS 16 and IAS 41 “Agriculture: Bearer plants” - (issued in June 2014 and effective for annual periods beginning 1 January 2016). . Amendments to IAS 27 “Equity Method in Separate Financial Statements” (issued in August 2014 and effective for annual periods beginning 1 January 2016). . Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” (issued in September 2014 and effective for annual periods beginning on or after 1 January 2016). . Annual Improvements to IFRSs 2014 (issued in September 2014 and effective for annual periods beginning on or after 1 January 2016). . Amendment to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception” (issued in December 2014 and effective for annual periods on or after 1 January 2016). . Disclosure Initiative Amendments to IAS 1 “Presentation of Financial Statements” (issued in December 2014 and effective for annual periods beginning on or after 1 January 2016). . The amendment to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” (issued in May 2014 and effective for annual periods beginning on or after 1 January 2016).

31 First-Time Adoption of IFRS

These consolidated financial statements for the year ended 31 December 2014 represent the Group’s first IFRS financial statements. The date of transition to IFRS was 1 January 2013.

The accounting policies summarised in Note 28 were consistently used in the preparation of the consolidated financial statements for the year ended 31 December 2014, related comparatives and the opening balance sheet at the date of transition.

The Group applied IFRS 1 “First-Time Adoption of International Financial Reporting Standards”. IFRS 1 requires retrospective application of all IFRS in effect at 31 December 2014, and establishes mandatory exceptions and voluntary exemptions from retrospective application.

The Group applied the following mandatory exceptions:

Accounting estimates

Accounting estimates used to prepare IFRS financial statements at the IFRS transition date are consistent with estimates made at the same dates under US GAAP (after adjustments for differences in accounting policies), unless there is objective evidence that those estimates were in error.

F-146 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

31 First-Time Adoption of IFRS (continued)

De-recognition of financial assets and financial liabilities

Financial assets and liabilities de-recognised before the transition to IFRS are not re-recognised under IFRS. Management chose not to apply the IAS 39 “Financial Instruments: Recognition and Measurement” de- recognition criteria from an earlier date.

The Group used the following voluntary exemptions:

Business combinations

The Group will not apply IFRS 3 “Business Combinations” retrospectively to any business combinations that took place before its transition to IFRS. The Group shall recognise all assets and liabilities at the IFRS transition date that were acquired or recognised as a result of the past business combinations and shall keep the same classification as in its US GAAP statements.

Borrowing costs

The Group adopted IAS 23 “Borrowing Costs” prospectively from its IFRS transition date. The Group did not restate the borrowing costs component that was capitalised under US GAAP and included in the carrying amount of assets.

Deemed historical cost of property, plant and equipment

At 1 January 2013 the deemed historical cost for some PP&E items was the cost of previous acquisitions. All other fixed assets were accounted for at historical cost. In addition, the cost of PP&E purchased before 2003 was adjusted for the effects of hyperinflation. The effect of this approach was to increase the US GAAP carrying amount of these assets by $165.0 to $11,603.3 under IFRS on the date of the Group’s transition to IFRS as of 1 January 2013.

Reconciliation of shareholder’s equity as at 1 January 2013 and 31 December 2014 with previously reported under US GAAP. As at As at 31 December 2014 1 January 2013

Equity under US GAAP 6,322.9 11,090.3

Effects of changes in accounting policies: Property, plant and equipment: restatement for hyperinflation 72.2 165.0 Property, plant and equipment: impairment and other adjustments (138.4) (58.2)

IFRS equity 6,256.7 11,197.1

Reconciliation of comprehensive loss for the year ended 31 December 2014 with previously reported under US GAAP. For the year ended 31 December 2014

Comprehensive loss under US GAAP (3,689.6)

Effects of changes in accounting policies: Depreciation: restatement of property, plant and equipment for hyperinflation (12.6) Depreciation: impairment of property, plant and equipment and other adjustments (59.8) Cumulative translation adjustment (117.5)

IFRS comprehensive loss (3,879.5)

F-147 OJSC Novolipetsk Steel Notes to the consolidated financial statements as at and for the year ended 31 December 2014 (millions of US dollars)

31 First-Time Adoption of IFRS (continued)

Adjustments

Application of IAS 29 “Financial Reporting in Hyperinflationary Economies” to property, plant and equipment.

The Russian Federation has previously experienced relatively high levels of inflation and was considered to be hyperinflationary as defined by IAS 29. As part of the Group’s transition to IFRS, non-monetary assets, non- monetary liabilities and equity items arising from transactions prior to 1 January 2003 were restated in accordance with IAS 29 for the changes in the general purchasing power of the Russian ruble from the dates of the transactions until 31 December 2002. The amounts expressed in the measuring unit current at as 31 December 2002 are treated as the basis for the carrying amounts in these consolidated financial statements. As the characteristics of the economic environment of the Russian Federation indicate that hyperinflation has ceased, transactions after 1 January 2003 are not subject to restatement in accordance with the provisions of IAS 29.

In the preparation of the first IFRS consolidated statement of financial position, (opening balance sheet) calculations have been performed and appropriate adjustments were made to PP&E of $165.0 recognized in US GAAP financial statements with due regard for the requirements of IAS 29 “Financial Reporting in Hyperinflationary Economies” for IFRS purposes.

Impairment of property, plant and equipment under IFRS

As of 1 January 2013, an IFRS PP&E impairment test has been performed. As a result of the analysis using discounted cash flow against undiscounted cash flows under US GAAP an impairment of $38.5 was identified (Note 8). Additionally, an impairment of PP&E of $194.1 was recognized as of 31 December 2014.

The Group’s operating, investing and financing cash flows reported under US GAAP did not significantly differ from IFRS.

32 Subsequent events

In June 2015, the Parent Company declared dividends for the year ended 31 December 2014 of 2.44 Russian rubles per share for the total of $303.9 (including interim dividends for the six months ended 30 June 2014 of 0.88 Russian ruble per share for the total of $133.9) translated at the historical rate and for the three months ended 31 March 2015 of 1.64 Russian rubles per share for the total of $178.7 (at the historical rate).

In July 2015, the Parent Company closed the order book for issuing bonds with a total value of 5 billion Russian rubles, with a maturity period of 10 years and a coupon rate of 11.5% per annum. The terms of issuing provide put option in 1 year.

In September 2015, the Parent Company completed the sales to a company under common control of its full controlling interest in OJSC North Oil and Gas Company (51.0%) for $10.1 cash consideration received in October 2015. Disposal of OJSC North Oil and Gas Company resulted in deconsolidation of assets amounting to $20.4 and liabilities amounting to $20.1. Net assets of the entity as of the date of disposal were $0.3.

In October 2015, the Parent Company closed the order book for issuing bonds with a nominal value of 1,000 Russian rubles per each bond (total value of 5 billion Russian rubles), with a maturity period of 10 years and a coupon rate of 11.1% per annum. The terms of issuing provide put option in 2 years.

In November 2015, the Parent Company has closed a 4-year $400.0 pre-export loan facility at LIBOR +3%. The Group plans to use the proceeds to refinance its short-term debt, as well as for general corporate purposes.

The Group’s management has performed an evaluation of subsequent events and did not find any, except mentioned above, through the period from 1 January 2015 to 8 November 2015, which is the date when these consolidated financial statements are published.

F-148 REGISTERED OFFICE OF THE BORROWER Novolipetsk Steel Pl. Metallurgov 2, Lipetsk 398040 Russian Federation

REGISTERED OFFICE OF THE ISSUER Steel Funding Limited Pinnacle 2 Eastpoint Business Park Dublin 3 Ireland

JOINT LEAD MANAGERS Deutsche Bank AG, ING Bank N.V., J.P. Morgan Société Générale London Branch London Branch Securities plc Winchester House 60 London Wall 25 Bank Street 29, Boulevard Haussmann 1 Great Winchester Street London EC2M 5TQ Canary Wharf 75009 Paris London EC2N 2DB United Kingdom London E14 5JP France United Kingdom United Kingdom

LEGAL ADVISERS TO THE BORROWER As to English and US law: As to Russian law: Debevoise & Plimpton LLP Debevoise & Plimpton LLP 65 Gresham Street Business Center Mokhovaya London EC2V 7NQ Ulitsa Vozdvizhenka, 4/7 United Kingdom Stroyeniye 2 Moscow, 125009 Russian Federation

LEGAL ADVISERS TO THE JOINT LEAD MANAGERS AND THE TRUSTEE As to English and US law: As to Russian law: Linklaters LLP Linklaters CIS One Silk Street Paveletskaya Square 2/2 London EC2Y 8HQ Moscow, 115054 United Kingdom Russian Federation LEGAL ADVISER TO THE ISSUER As to Irish law: Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland

AUDITORS TO THE BORROWER AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, 125047 Russian Federation

PRINCIPAL PAYING AGENT TRUSTEE AND TRANSFER AGENT Deutsche Trustee Company Limited Deutsche Bank AG, London Branch Winchester House Winchester House 1 Great Winchester Street 1 Great Winchester Street London EC2N 2DB London EC2N 2DB United Kingdom United Kingdom

US PAYING AGENT, RULE 144A REGISTRAR AND TRANSFER AGENT REGULATION S REGISTRAR Deutsche Bank Trust Company Americas Deutsche Bank Luxembourg S.A. 60 Wall Street 2, Boulevard Konrad Adenaur, New York, NY 10005 L-1115 Luxembourg United States of America

LISTING AGENT Arthur Cox Listing Services Limited Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland