Metals

& Mining
in Russia
Industry overview and
investment opportunities

September 2016
Metals & Mining in Russia

Overview

The Russian metals and mining industry A number of state secrecy laws were repealed, which
consists of various metals and minerals has led some Russian companies to start reporting
including base metals, coal, iron ore, steel, their reserves and resources according to JORC
precious metals, as well as diamonds. standards.
Russia has huge reserves of major minerals, Russia’s metals and mining industry represents
as the country is the largest in the world in terms around 3%-5% of Russia’s 2015 GDP and also
of geographical area. Russia is ranked among the accounted for 16% of total Russian exports in 2015
world’s leading producers of a great number of (or USD53 billion), the second-largest sector after oil
mineral commodities, and is one of the Top-3 and gas. Most Russian metals production is
countries with the largest reserves of diamonds, exported.
gold, platinum and palladium, coal, and iron ore.
Russia is one of the world’s largest exporters of raw
The country is the world’s largest producer of materials. Its market share of total global exports in
palladium and diamonds and is the second-largest nickel is estimated at around 49% – palladium: 42%,
producer of aluminum, platinum, and nickel. diamonds: 33%, aluminum: 26%, platinum: 13%,
steel: 7% and copper: 4%.
The system of reporting reserves in the Soviet
Union did not include the use of market-based Despite its significance for the economy, metals
economic criteria to establish the feasibility of and mining is a largely privately owned sector, as
developing these reserves using current technology opposed to oil and gas where the share of state
at prevailing market conditions, and was based on ownership is significant. The only state-owned
drilling results only. Moreover, Soviet data on company in the sector among major players is
reserves for some metals was kept in secret. Alrosa, which is the world’s largest diamond
producer.
However, after the collapse of the Soviet Union
Russian companies began seeking exposure to
foreign investors in order to raise financing.
Russia's share in world production Russia's share in world reserves by commodities,
by commodities, 2015 2015

Palladium 38% Diamonds 50%

Diamonds 30% Coal 18%

Platinum 13% Iron ore 16%

Nickel 9% Gold 14%

Gold 8% Nickel 10%

Aluminium 6% Lead 10%

0% 10% 20% 30% 40% 50% 0% 20% 40% 60%

Source: USGS, BP Statistical Review of World Energy, World Source: USGS, BP Statistical Review of World Energy, World
Steel Association, EIU, Companies data, KPMG analysis Steel Association, EIU, Companies data, KPMG analysis

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
2
Metals & Mining in Russia

Base metals

Base metals Aluminium production 13

in Russia in Russia
Al

For the purpose of our analysis the Russian base All Russian production of primary aluminium is
metals market is represented by aluminium, lead, controlled by United Company RUSAL (UC RUSAL),
zinc, copper, nickel and tin. Based on total primary one of the world’s largest aluminium producers, with
metal production at annual average LME prices, the a 7% share of global aluminium production.
market could be valued at USD14 billion in 2015.
The Company’s core asset base is located in Siberia,
The market is primarily represented by aluminium, Russia, which accounted for 95% of the Company’s
nickel, and copper, which in total account for a 96% aluminium output in 2015. The nameplate capacity of
market share. Despite Russia having the third- the Russian assets as at the end of 2015 was 3.76
largest lead reserves in the world and being in the million tonnes/year.
sixth place in terms of tin reserves, the mining and
Despite the declining aluminium price in 2015, the
production of these metals are not particularly well
production of aluminium in Russia was maintained at
developed.
a level similar to 2014. According to the Company’s
In 2015 exports of aluminium, nickel, and copper, data 80% of its 2015 aluminium sales volumes were
and their products (of which Russia is a net exported outside Russia and the CIS.
exporter) amounted to USD14.1 billion, 7% lower
In 2015 UC RUSAL continued to devote much effort
than in 2014. The decrease was mainly conditioned
to cost-cutting initiatives which, together with the
by nickel exports (a 32% year-on-year fall in value),
rouble devaluation, strengthened its position in the
whose price fell by almost 50% in 2015.
left side of the 1st quartile on the global cost curve.
Structure of Russian base metals market
in 2015 Primary aluminium production in Russia
Lead Tin
Zinc 4,500
1% 0% 3,992 4,024 4,000
3% 3,947
4,000 3,724
3,488 3,500 3,600
3,500
3,000
Nickel Aluminium
'000 t

20% 41% 2,500

2,000
1,500
1,000
500
Copper -
35%

Note: Tin based on 2014 year Source: EIU

Source: EIU, GKS, Bloomberg, Metaltorg, Companies data,
KPMG analysis

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
3
Metals & Mining in Russia

Base metals

Nickel mining 28 Copper mining 29

and production in Russia Ni and production in Russia Cu

In 2015 Russia was the world’s second-largest Current Russian copper mining and production is
country both in terms of nickel mining (after the split among three leading vertically integrated copper
Philippines) and refined nickel production (after producing companies: Ural Mining and Metallurgical
China). It produced 13.8% of the world’s mined Company (UMMC), Mining and Metallurgical
nickel and 12.1% of global refined nickel Company "Norilsk Nickel” (Norilsk Nickel) and
production. Russian Copper Company (RCC).
Mining and Metallurgical Company "Norilsk Nickel” In 2015 the shares of the above companies in total
(Norilsk Nickel) is the country’s leading metals and Russian refined copper production were 44%, 40%,
mining company and the world’s leading nickel and 17%, respectively.
producer. It accounted for around 92% of 2015
Almost half of Russian copper reserves – around 15
Russian refined nickel production. Another Russian
million t – are concentrated in the Udokan copper
nickel producer, Ufaleynickel, accounted for the
deposit located in Eastern Siberia, which is the
remaining 8%.
largest in Russia and one of the largest copper
According to the EIU, Norilsk Nickel’s production deposits in the world. The Udokan copper deposit is
was hampered in 2015 by the planned closure of owned by Baikal Mining Company, which is under the
old units in its Polar division, and by falling ore control of USM Holding (owned by the Russian
grades at ageing mines. Further restructuring and oligarch Alisher Usmanov). The start of commercial
the decommissioning of old units will reduce refined mining at Udokan is scheduled to commence in 2021
output in 2016. Improvements are likely to be seen and Baikal Mining Company is currently considering
in 2017 when some recovery in demand is financing options.
expected, and after the closure programme has
been completed.

Refined nickel production in Russia Refined copper production in Russia

300.0 1,000 910
266 267 910 911 874 874 896 905
260 887
242 239 240 900
250.0 233 231
800
200.0 700
'000 t

600
'000 t

150.0 500
400
100.0 300
200
50.0
100
- -

Source: EIU Source: EIU

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
4
Metals & Mining in Russia

Iron ore

Iron ore production in Russia Russian exports of iron ore

120 30 28.6

110 106.4
25.2
100.2 97.6
97.1 25 23.6
million of tonnes

100 94.7

million tonnes
91.0 22.3 22.0
90
20 18.2
80
70
15
60
50 10
2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Source: Metal Expert Source: Metal Expert

Iron ore production in Russia in 2015 was flat in Russia has historically been a net exporter of iron
comparison with 2014 volumes, at 97.6 million ore. Export volumes declined in 2011-2015 due to
tonnes. Capacity utilisation for iron ore in the negative price dynamics in global iron ore prices and
Russia industry is close to 90-95%, due to stable lower demand from Chinese and European steel
demand from Russian steel producers and export producers. China remains the largest consumer of
sales. iron ore from Russia, although export volumes to
China are very volatile and depend on spot domestic
Metalloinvest is the largest iron ore producer in
prices in China. In general, the profitability of export
Russia, and controls around 40% of the total
sales of iron ore for Russian companies is lower than
market. Most Russian steel producers are vertically
for domestic shipments and according to Metal
integrated in iron ore. The iron ore market in Russia
Expert export volumes are expected to decrease
is well consolidated: the top-5 major producers
going forward.
control around 90% of the market.
Main export destinations of Russian iron ore,
Key iron ore producers in Russia, 2015 2015

95% 96% Other

38.0 92% 6%
86%
73% Western
Production, mln tonnes Europe China
57% 12% 31%
39% Cumulative market
share Turkey
17.5 Export volume:
15.4 10%
13.0 18.2 million
5.7 tonnes

Ukraine
East
13%
Europe
28%

Source: Metal Expert Source: Metal Expert

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
5
Metals & Mining in Russia

Steel

Crude steel production in Russia Russian exports of steel products

75 30 28.0 28.0
71.5 71.1 25.0 25.0 25.0
70.2 23.0
69.0 25
68.9

million tonnes
70
66.9
million tonnes

20
64% 64%
65 68% 72% 70% 68%
15

60 10

55 5 36% 32% 36%

32% 28% 30%
0
50 2010 2011 2012 2013 2014 2015
2010 2011 2012 2013 2014 2015 Flat steel Long steel
Source: Metal Expert Source: Metal Expert

Russia is the fifth-largest producer of steel in the Russia is one of the key exporters of steel products
world, with total steel volumes of 71 million tonnes in the global market. Despite negative steel price
in 2015 (4% of global output). Despite the ongoing dynamics over the past three years, Russia remains
crisis in the global steel industry and a weak pricing very competitive on global export markets due to
environment, steel production volumes in Russia relatively low cash production costs, as a result of the
were relatively stable due to export sales. vertical integration of steelmakers in iron ore and
coking coal and a weakening rouble.
The Russian steel industry is well consolidated: the
six-largest steelmakers control around 80% of the Domestic demand for steel in Russia is expected to
market. The largest producers are NLMK, MMK, fall by 10% in 2016. The decline in domestic sales
Evraz and Severstal. should be compensated by higher export sales
volumes.

Russia’s market share in world steel

Key players, 2015 production, 2015
74% 81% Other South America
68% Russia
12.9 4% 5% 3%
12.2 11.9
Production, mln
11.5 North
tonnes
Cumulative America
52%
market share 7%
35%
4.5 4.3 Europe
13% China
18%
50%

Asia
(excluding
China)
18%

Source: Metal Expert Source: World Steel Association, 2016

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
6
Metals & Mining in Russia

Coal – thermal coal

Mining of thermal coal in Russia Volumes of thermal coal exports

+3% +3%
280 140 128.3
274.0 274.0
275

million tonnes
120 111.2 113.8
268.1
million tonnes

270 265.6 266.1 99.0 124.6

265 100 87.4
260 80
255
250 247.6 60
245 40
240
20
235
230 0
2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Source: Metal Expert, March 2016 Source: Metal Expert, March 2016

In 2015 thermal coal production in Russia reached The Russian thermal coal sector has historically
274 million tonnes, which exceeded the 2014 level been dominated by SUEK, which remained the
by 3%. The rise in production was chiefly supported production leader in 2015.
by producers from the Far Eastern Federal district.
The Asian Region demonstrated strong demand for
The key drivers of thermal coal mining growth in
Russian thermal coal in 2015, which resulted in an
Russia were Mechel and UK Zarechnaya, which
export increase of 3%. In 2015 a new promising
showed growth of 10% and 23% respectively.
export destination emerged – Malaysia, which
It is expected that in 2016 key coal mining demonstrated a respective increase of 70% vs. 2014.
companies will increase coal production or keep it
stable due to new capacity expansion.
Russian thermal coal – main export destinations,
Key players, 2015 2015
Ukraine
79% 80% 82% 2%
69% 72% 75%
65% Other
97.4 60% 7%
50% Turkey
7%
36% Production, mln tonnes
Cumulative market share
Europe
38.7 Export volume: 45%
29.0 12.7 11.0 9.3 8.6 8.4 128.3 million
tonnes

Asia
39%

Source: Metal Expert, March 2016 Source: Metal Expert, March 2016

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
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Metals & Mining in Russia

Coal – coking coal

Mining of coking coal in Russia Coking coal export volumes

80 +2% -12%
75.2 25
73.8 73.9 21.5 20.8

million tonnes
million tonnes

75
71.5 20 17.9 18.4
17.5
70 14.2
15
64.9
65 63.1
10

60 5

55 0
2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Source: Metal Expert, March 2016 Source: Metal Expert, March 2016

Coking coal production reached 75 million tonnes in Despite the recent fall in export volumes, to 18 million
2015, which exceeded the 2014 production level by tonnes in 2015, Europe remained a large consumer
2%. of coking coal (3 million tonnes in total). In 2015
demand from the Asian Region remained stable
In 2015 Evraz remained the biggest coking coal
(Japan, South Korea, India). In 2015 the main
producer in Russia, producing 20.5 million tonnes.
consumer of Russian coal was South Korea, which
Vorkutaugol became the second-largest producer,
increased its purchase of Russian coal to 3.3 million
followed by Mechel.
tonnes.
In 2016 it is expected that Russia will witness a
decrease in coking coal production, due to negative
dynamics in the metallurgic industry.
Russian coking coal – main export destinations,
Key players, 2015 2015
Turkey Other
79% 4%
73% 3%
20.5 66%
58%
43% Production, mln
tonnes
27% Cumulative market
12.0 11.1 share Ukraine
27% Export volume:
5.9 5.8 18.4 million Asia
4.1 tonnes 54%

Europe
12%

Source: Metal Expert, March 2016 Source: Metal Expert, March 2016

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
8
Metals & Mining in Russia

Gold

Gold reserves in Russia Gold mining and production

Russia has the second-largest reserves in the

world, with a total amount of gold reserves of 8,053
tonnes.
Russia has gold deposits in 32 regions. Deposits in
Siberia and the Far East hold up to 84% of the
country’s measured gold reserves, the majority of
which are located in Irkutsk Region, Magadan
Region, Krasnoyarsk Territory, the Sakha Republic,
and Chita Region.
The company Polyus Gold enjoys the biggest The volume of gold mined by Russian companies
reserve base among the top gold producers has been on the rise for a number of years. In 2015
operating in Russia. gold production in Russia rose by 2% to a record
Sukhoi log is one of the world’s largest 10.4 million oz (including by-product / secondary gold
undeveloped gold deposits, and has forecast production). The production from primary gold
B+C1+C2 category reserves of 1,953 tonnes of deposits increased by 2% to 8.3 million oz.
gold. A tender for it could be held in 2016, however Exports on average amount to 2.57 million oz of gold
this has been postponed many times in the past. annually.

Mining and production of gold in Russia

12 CAGR of mining 5.9%

10
million oz

10.2 10.4

8 9.0
7.9 8.1 8.3
7.4 7.6
6 7.1 7.0
6.2 6.6

0
2010 2011 2012 2013 2014 2015
Mining Production

Source: Union of Gold Producers of Russia

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Metals & Mining in Russia

Gold

Key players

The top-10 gold mining companies in Russia

comprise 70% of the Russian market. The leading
gold producer in Russia, Polyus Gold, produced
1.75 million oz in 2015, which was an increase of
4% on its output in comparison with 2014. Polyus
Gold owns 13 gold deposits, five of which are
among the largest deposits in Russia. In 2016
Polyus Gold expects to produce 1.76-1.8 million oz
of gold.
In 2015 gold was mined in 26 regions of the
country, and six of these produced more than 75%
of the total gold mined.
The leading producing regions were Krasnoyarsk
Region (1.6 million oz), Amur Region (0.9 million
oz), and Chukotka (0.88 million oz).

Key players, 2015

Polyus Gold

Polymetal
23%
33% Kinross Gold

Petropavlovsk

Yuzhuralzoloto
11%
Nordgold

2% Highland Gold Mines

3% 10%
5% Vysochayshy
6% 7%
Other

Note: Total amount calculated based on volumes without by products / secondary gold
Source: Union of Gold Producers of Russia

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Metals & Mining in Russia

Platinum Group Metals

and Diamonds

Platinum and palladium Diamonds

Russia has the second-largest platinum and Russia is the largest diamond producer in the world,
palladium reserves in the world, with total reserves with a total amount of reserves exceeding 1 billion
amounting to 35 million oz. cts (according to the Russian reserves classification
code).
Russia was also ranked second in the world in
platinum and palladium production in 2015. In 2015 Alrosa is the leading diamond mining company in
Russia produced 2.4 million oz of palladium and Russia, and accounts for 95% of extraction. It
0.67 million oz of platinum. Compared with 2014 develops 16 placer deposits and 11 kimberlite pipes.
platinum fell by 4% and palladium output
Alrosa’s diamond production stood at 38.3 million cts
subsequently fell by 6%.
in 2015, representing 29% of global diamond output.
The leading platinum-group metal producer in Compared to 2014 output rose by 6%.
Russia is Norilsk Nickel. It owned a number of the
Alrosa plans to increase mining to 41 million carats in
largest deposits, which in total produced practically
2019, with average annual rough diamond supply
all palladium and three-quarters of platinum output
rates going up by from 3.5% to 4% per year.
in Russia. At Norilsk Nickel the production of
Severalmaz and Udachny are the key production
platinum from the company’s Russian operations
growth drivers.
was up 2% to 656 oz in 2015, while the output of
palladium amounted to 2.58 million oz in 2015, Alsrosa is controlled by the government (43,9% -
remaining almost unchanged on the previous year. Russian Government, 25% - Government of the
Republic of Sakha) and is included in a privatisation
The second-biggest Russian producer of platinum
plan. It is anticipated that 10,9% stake will be placed
is Russian Platinum.
in 2016.
Norilsk Nickel forecasts that its Russian palladium
production will be in the range of 2.29-2.39 million
oz in 2016, a decline of 7-11% in 2015.

Platinum and palladium production in Russia Diamond production in Russia

60
4 Palladium Platinum
50 44.4
40.3
million cts

37.9 38.3
3 40 34.9 35.1 34.9

2.7 2.7 2.6 2.6

30
2 2.6 2.4 2.5
mln oz

20
1
10
0.8 0.8 0.8 0.8 0.7 0.7 0.7
- -
2010 2011 2012 2013 2014 2015 2016e 2010 2011 2012 2013 2014 2015 2016e
Source: Johnson Matthey Source: Kimberley Process

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11
Metals & Mining in Russia

Mergers and Acquisitions

In 2015 there were 31 M&A deals in the metals & Such a surge in value was conditioned by an
mining sector, with a total value of USD7.5 billion, increased number of transactions and a significant
or 13.5% of the Russian M&A market value (the Polyus Gold International deal, ranked the second
third-largest sector in terms of M&A market value). largest among Russian M&A deals in 2015. The gold
To compare, in 2014 the metals & mining industry producer, whose shares ceased trading on the LSE
witnessed 20 transactions with a total value of in December 2015, went private, with the acquirer
RUB5.3 billion (6.7% of the Russian M&A market). Wandle Holdings Limited (Suleyman Kerimov),
In 2015 M&A activity in the metals & mining sector buying out 59.8% of Polyus Gold International’s stock
was on the rise, despite a 29% fall in the domestic from the company’s minority shareholders.
M&A market value in general.
In 2015 market indicators demonstrated a partial
rebound following a fall of 56% in the sector’s M&A
market value in 2014, which was largely caused by
low commodity prices and restricted access to
capital, forcing Russian major players to focus on
the disposal of overseas assets to reduce debt
burdens

Largest metals and mining sector deals, 2015-2016

Target Acquirer Vendor % acquired Value, USD mln

Polyus Gold International Wandle Holdings Limited n/a 59.8% 5,694

EVRAZ Plc EVRAZ Plc Existing shareholders 7.2% 336

Polymetal International Otkritie Holding Sumeru Gold BV 7.4% 232

Alcoa Metallurg Rus Lainen Alcoa, Inc 100.0% 160

United Spiral Pipe EVRAZ Plc POSCO 35.0% 150

Bystrinsky project Highland Fund (China) Norilsk Nickel 13.3% 100

M&A value, USD bln M&A value by type, 2015, USD bln M&A volume
-56% 0.1, +55%
0.2,
Inbound
Outbound

+42% -9%

31
12
22 20
7.5
5.3
7.2,
Domestic

2013 2014 2015 2013 2014 2015

Source: KPMG analysis

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Metals & Mining in Russia

Key players

Base metal producers

UC Rusal shareholders structure
Minority investors
UC Rusal 10%
Glencore
Geography — Headquarters: British Isles (Jersey), 9%
Cyprus
— Production facilities: 40 plants in 13 En+ group
countries Sual Partners LTD LTD
16% 48%
Production, — Aluminium: 3,645 million tonnes
2015 (2015) ONEXIM
— The world’s largest producer, with a Holdings LTD
7% share in 2015
17%
Key financial — Revenue: 8,117
indicators, — EBITDA: 1,609 Source: Bloomberg
2015, USD — Net debt: 8,189
million — Market capitalisation: 4,616
Norilsk Nickel shareholders structure
Norilsk Nickel
Minority UC Rusal
Geography — Headquarters: Moscow 28%
investors
Production, — 266,406 tonnes of nickel (96% of 43%
2015 Russian and 13% of world
production)
— 369,426 tonnes of copper (55% of
Russian and 2% of world
production) Crispian investment Interros
— Also engaged in the production of LTD (Roman (Vladimir
precious metals (44% of world Abramovich Potanin)
palladium production and 14% of 6% 23%
world platinum production)
Key financial — Revenue: 8,542
indicators, — EBITDA: 4,296 Source: Bloomberg
2015, USD — Net debt: 4,212
million — Market capitalisation: 21,775

Coal producers
Mechel shareholders structure

Minority
investors
Mechel 45%
Geography — Headquarters: Moscow

Production, — 23.2 million tonnes of coal

2015 — 4.1 million tonnes of pig iron
— 4.3 million tonnes of steel
Key financial — Revenue: 3,521 Igor Zyuzin
indicators, — EBITDA: 558 55%
2015, USD — Net debt: 7,049 Source: Bloomberg
million — Market capitalisation: 377
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Metals & Mining in Russia

Key players

Steel and iron ore producers

Severstal shareholders structure

Severstal
Minority
Geography — Headquarters: Cherepovets, Russia investors
— Production facilities in seven
countries 21%

Production, — 11.5 million tonnes of steel (16.7%

2015 of Russian production)
— 9.2 million tonnes of pig iron (17%
of Russian production) Alexey
Key financial — Revenue: 5,962 Mordashov
indicators, — EBITDA: 1,761 79%
2015, USD — Net debt: 837
million — Market capitalisation: 8,560 Source: Bloomberg

NLMK shareholders structure

NLMK
Minority
Geography — Headquarters: Moscow investors
— Production facilities based in 14%
Russia, Europe, and the US
Production, — 15.9 million tonnes of steel (the
2015 largest Russian steel production,
with a 22% share)
Key financial — Revenue: 7,370
indicators, — EBITDA: 1,598 Vladimir Lisin
2015, USD — Net debt: 967 86%
million — Market capitalisation: 7,551
Source: Bloomberg

Evraz shareholders structure

Evraz Minority
investors
Geography — Headquarters: London
— Production facilities in 10 countries 36%
Lanebrook Ltd
Production, — Steel: 14.3 million tonnes (20.7% of (Roman
2015 Russian production) Abramovich,
— Pig iron: 11.9 million tonnes (22% of Alexander
Russian production) Abramov,
Alexender Frolov,
Key financial — Revenue: 8,767 Evgeny Shvidler)
indicators, — EBITDA: 1,388
2015, USD — Net debt: 4,940 64%
million — Market capitalisation: 2,535
Source: Bloomberg

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Metals & Mining in Russia

Key players

Steel and iron ore producers

MMK shareholders structure

MMK Minority
investors
Geography — Headquarters: Magnitogorsk, 13%
Russia
Production, — Crude steel: 12.2 million tonnes
2015 — Pig iron: 10.1 million tonnes
— HVA products: 5.2 million tonnes
Key financial — Revenue: 5,378
indicators, — EBITDA: 1,404
2015, USD — Net debt: 714 Victor Rashnikov
million — Market capitalisation: 4,305 87%

Source: Bloomberg
Metalloinvest
Metalloinvest shareholders structure
Geography — Headquarters: Moscow
Minoruty
Production, — Iron ore: 39.5 million tonnes investors
2015 — Pellets: 23.8 million tonnes 12%
— Crude steel: 4.5 million tonnes
Farhad Alisher
Key financial — Revenue: 4,393 Moshiri
indicators, — EBITDA: 1,288 Usmanov
10% 48%
2015, USD — Net debt: 3,564
million — Market capitalisation: not listed
Vladimir
Skotch
30%

Coal producers Source: Company website

SUEK shareholders structure

SUEK
Vladimir
Geography — Headquarters: Moscow Rashevsky
— Production facilities: 26 plants in 8%
seven Russian regions
Production, — 97.8 million tonnes of coal (26% of
2015 Russian production), of which 46.9
million tonnes are exported (34% of
Russian and 5% of global exports)
Andrew
Key financial — Revenue: 3,378
indicators, — EBITDA: 1,512 Melnichenko
2015, USD — Net debt: 3,123 92%
million — Market capitalisation: not listed
Source: Company website

© 2016 JSC KPMG, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
15
Metals & Mining in Russia

Key players

Gold, platinum group metals,

and diamond producers

Polyus Gold shareholders structure

Polyus Gold Minority
investors
Geography — Headquarters: Moscow 5%
— Production facilities: Six operating
assets in Eastern Siberia and the
Far East
Production, — 2015: 1.75 mln oz (23% of Russia’s
2015 total production)
— 2016 (estimates): 1.76-1.8 mln oz Suleyman
Kerimov
Key financial — Revenue: 2,189 95%
indicators, — EBITDA: 1,247
2015, USD — Net debt: 655
million — Market capitalisation: 7,518 Source: Open Sources

Polymetal shareholders structure

Polymetal Alexander
Nesis
Geography — Headquarters: British Isles (Jersey) 21%
and Saint-Petersburg
Minority
Production, — Gold equivalent production for the investors
2015 year (based on a 1:60 Ag/Au 42% Petr Kellner
conversion ratio) was 1.40 Moz Petr
— Gold production was 861 Koz,, 18%
while silver production was 32.1
Moz Alexander
Key financial — Revenue: 8,542 VTB Mamut’s family
indicators, — EBITDA: 4,296 9% 10%
2015, USD — Net debt: 4,212
Source: Bloomberg
million — Market capitalisation: 3,657
Alrosa shareholders structure
Minority
Alrosa investors
27%
Geography — Headquarters: Mirny (Sakha
Republic) and Moscow Lazard ltd Russian
1% Federation
Production, — 2015 diamond production totalled
2015 38.3 million carats 44%
— Indicatively, in 2015 it sold 30.0 Oppenheimer
million carats funds inc
3% Republic of
Key financial — Revenue: 3,123 Sakha
indicators, — EBITDA: 1,648 25%
2015, USD — Net debt: 2,818
million — Market capitalisation: 8,155 Source: Company website

© 2016 JSC KPMG, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
16
Metals & Mining in Russia

2016 outlook
and opportunities

Russia & CIS Metals & Mining Sector could be in the spotlight

Key trends in 2016

— The outlook for Russian metals companies is mixed, as a further contraction in the Russian
economy in 2016, together with lower metal prices, will be offset by a weakening rouble.
— The rouble currency collapse at the end of 2014 (an approximate 100% devaluation) was the
main positive driver for majority of Russian metals producers in 2015 and resulted in rising
profitability and competitiveness of Russian companies in the global market.
— At the same time, the weakening rouble could be an issue for some metals companies due
to their stretched financial situation, with the majority of loan portfolios denominated in USD.
— We could expect a further deleveraging process in the sector as well as a potential
divestment of remaining foreign assets.

Opportunities

Potential deals to watch in 2016

— State tender of Sukhoy Log gold deposit. Sukhoy Log is one of the world's largest untapped
gold deposits, and is situated in Siberia's Irkutsk Region. The deposit has reserves of 130
million oz of gold and is among the world’s 10-largest deposits. It has remained untapped for
half a century, and in 2016 Russia has finally considered selling its development rights via a
tender.
— Further Polyus Gold transactions. After the delisting of its shares from the LSE in December
2015, Polyus Gold International could become very active in terms of potential M&A deals
with other gold producers in Russia and abroad. The company also requires a strategic
partner to develop its large Natalka gold deposit in the Far East of Russia.
— Potential consolidation in Russian steel industry. Media reported about M&A talks between
Severstal and MMK earlier this year.
— Potential sale of Amurmetal by Russian state-owned VEB Bank. Amurmetal is a 2 mln tons
steel plant (mini-mill), producing semi-finished long products and rebars in the Far East of
Russia.

© 2016 JSC KPMG, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Russia.
17
Contacts
The contacts at KPMG in connection with this report are:

Olga Plevako Lydia Petrashova

Head of Metals & Mining Head of Deal Advisory
Partner Partner
KPMG in Russia and the CIS KPMG Russia and the CIS
T: + 7 495 937 44 77 T: + 7 495 937 44 77
M: + 7 916 244 61 74 M: + 7 916 512 98 90
E: [email protected] E: [email protected]

Dmitry Smolin Dmitry Rudakovskiy

Deal Advisory Deal Advisory
Metals & Mining Metals & Mining
Associate Director Associate Director
KPMG in Russia and the CIS KPMG Russia and the CIS
T: + 7 495 937 44 77 T: + 7 495 937 44 77
M: + 7 916 555 79 97 M: + 7 910 494 09 30
E: [email protected] E: [email protected]

kpmg.ru kpmg.com/app

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can be no guarantee that such information is accurate as of the date it is received or that it will continue to
be accurate in the future. No one should act on such information without appropriate professional advice
after a thorough examination of the particular situation.

© 2016 JSC KPMG, a company incorporated under the Laws of the Russian Federation, a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved. Printed in Russia.
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