Phase 2 of Technical Upgrading and Development Programme (2007 – 2011)
Key strategic goals of the second phase of the Technical Upgrading Program:
1. To increase crude steel production by 40% from 9 million tonnes per year up to 12.4 million tonnes per year.
The increase in crude steel production volumes will primarily be achieved by the construction of new blast furnace #7, with capacity of 3.4 million tonnes per year. We are also planning to renovate three out of five blast furnaces and BOF (Basic Oxygen Furnace) Shops #1 and #2. The total investment in steel-making segment is planned at approximately USD 2 bn.
2. To develop iron ore and coking coal assets to achieve 100% self-sufficiency of the steelmaking segment in major raw materials, taking into account the projected increase in steel production volumes.
Implementation of Phase 2 of the Technical Upgrading Programme foresees the construction of an iron-ore pellet plant at Stoilensky GOK with an annual production capacity of 3 million tonnes by 2009. It is planned to increase production of iron-ore concentrate in Stoilensky GOK from 12.5 million tonnes up to 15 million tonnes per year.
We acquired the license for the exploration of the Zhernovskoe 1 coal deposit in 2005. We plan the construction of coal mining and processing facilities and relevant infrastructure at this coal deposit in the period between 2006 and 2011.
The total investments in the segment are envisaged at more than USD 1 bn.
3. NLMK plans to increase production of finished flat steel products and balance its value chain through pursuing strategic acquisition opportunities with respect to high quality rolling facilities in the company’s core export markets.
NLMK plans to acquire rolling facilities with capacity of at least 3 million tonnes per year.
In addition, NLMK will enhance its own production facilities. At NLMK’s facilities in Lipetsk, the Technical Upgrading Program provides for substantial investments into the renovation of rolling plants, with both upgrading of existing and building new technological production units.
As for the recently acquired rolling facilities, NLMK plans to modernize production of electrical steel at VIZ Stal facilities in Yekaterinburg as well as the production facilities of DanSteel.
The total investments into modernization of existing rolling assets under the second phase of the Technical Upgrading Program are USD0.9 bln. The major projects are the following:
- Modernization of hot-rolling mill and construction of reversing mill in Lipetsk
- Modernization of electrical steel production
- DanSteel A/S development program
4. To enhance fuel and energy facilities in Lipetsk
The second phase of the Technical Upgrading Program foresees an increase in capacity of the electricity generating facilities in Lipetsk. NLMK plans to generate 60% of its electricity requirements on site by 2011 compared to 38% in 2005. Over 50% of generated electric power will be based on blast furnace and coke gas processing. The company also plans additional projects with respect to fuel and energy facilities.
The total investments into modernization and enhancement of fuel and energy facilities are USD0.3 bln
Total investments in Phase 2 of the Technical Upgrading Program will amount to USD4.4 billion by 2011. The second phase of the Technical Upgrading Program is planned to be financed from cash flow from operating activities and existing cash funds.
The estimated IRR for projects under the second phase of the Technical Upgrading Program is 18%.
In addition we expect to allocate approximately USD 60 million over the next five years for the development of OJSC Tuapse Commercial Seaport (TMTP) that operates one of the largest Russian sea ports in the Black Sea.
