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MMK

June 20, 2006

Vladimir Shmakov's report at the 10th annual investors' conference "Russia: Look Into The Future"

ShmakovaicThe conference was attended by Oleg Viyugin, head of the Russian Financial Markets Federal Service, Arkady Dvorkovich, head of the Experts Directorate of the Russian President's Executive Office, Anatoly Chubais, head of the Russian Electric Power Grid System (RAO EES), other government officials and top managers from Russia's largest companies and enterprises.

The conference organized by the Renaissance Capital Investment Group featured a report by Vladimir Shmakov, Vice President for Finances and Economics of the MMK Managing Company, in which he gave an account of the company's production and financial achievements and outlined its plans for the near future.

According to Mr.Shmakov, in 2005 MMK produced 10.2 million tons of commercial rolled products, accounting for about 19% of the Russian market. The domestic market has retained its priority status for MMK. Last year, for the first time in MMK's post-privatization history, domestic sales exceeded export sales. Currently about 50% of MMK's domestic sales go to the neighbouring areas located within 500 km of the steel mill, which allows MMK to optimize its transportation costs.

Speaking about MMK's strategies for export sales, Mr.Shmakov underlined the importance of Asia and the Middle East where the company's positions have been traditionally strong. In the short term, MMK plans to build up its presence on these markets, primarily through integration with the region's companies and enterprises, creation of service centres and further development of logistics, including improved relations with ports.

Some of the main strengths of MMK Mr.Shmakov named are the Company's nearly 100% power self-sufficiency and the highest labour productivity among its Russian competitors.

MMK has been implementing a long-term program of modernization and costs optimization, which has allowed a three-fold reduction in the production assets' wear from 90% in 1996 to 30% at present. The company is increasingly shifting its focus to production of higher value added products using state-of-the art environment friendly and power saving processes. In the next few years MMK's investments in its modernization program will be kept up at the same level, while projects aimed at costs optimization will enable the Company to achieve annual savings of approx. USD 400 million.

For 2006 MMK has practically solved the problem of raw materials supplies. According to Mr.Shmakov, the Company has signed a one-year fixed price contract for supplies of iron ore materials produced by the Sokolovski-Sarbaisky Mining Plant (Kazakhstan). Similar agreements are in place  with suppliers of coking coal. Currently longer term contracts are in the making.

As a hedging measure against the risk of supplies interruptions, MMK is contemplating building closer relations with mining enterprises. At the same time Mr.Shmakov believes that acquisition of mining assets would be advisable only in case of a high economic efficiency of such transactions. In the current conditions, given the situation prevailing on the markets, it is not imperative for MMK to divert its investments towards  these ends.

 

 

 

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