2010 Annual Report Severstal

Strength of vertical integration empowered by people
Annual Report and Accounts 2010
Welcome to Severstal Severstal is a global steelmaker with vertical-integration and a focus on emerging markets.
With high-value-added products in attractive niche markets, Severstals corporate strategy is to become one of the global industry leaders by EBITDA, and sustain a leading position by margins and returns on investment.
Severstal is a full-production-cycle operation which includes iron ore, coal and gold mining enterprises, scrap collection, steel mills and rolled product plants, as well as downstream production and distribution businesses. Our primary production facilities are geographically diverse, with locations in Russia, the United States, and a number of other countries, including Ukraine, Kazakhstan, Burkina Faso and Guinea. Severstal comprises three business divisions: Severstal Resources (including our gold business, Nordgold), Severstal Russian Steel, and Severstal International, comprising our North American operations.
Overview 01 Highlights 02 Severstal at a Glance 04 Chairmans Review Business Review 06 Chief Executives Review 08 Severstal Strategy 14 Risk Management 26 Performance Review 32 The Business System of Severstal 38 Severstal Resources 50 Severstal Russian Steel 62 Severstal International 70 Nordgold 78 Corporate Social Responsibility
Governance 83 Board of Directors 85 Board of Directors Report Financial Statements 95 Independent Auditors Report 96 Consolidated income statements 97 Consolidated statements of comprehensive income 98 Consolidated statements of financial position 99 Consolidated statement of cash flows 100 Consolidated statements of changes in equity 101 Notes to the consolidated financial statements
Further Information 172 Shareholder information and financial calendar 174 Contacts
Overview Business Review Governance Financial Statements
Highlights 2010
Severstal capitalised on the improving market conditions efficiently, increasing production and sales volumes, raising margins, benefiting from vertical integration, and expanding its presence in markets with high growth and potential. Through making its asset platform more competitive and strengthening its management team, Severstal is well placed to make the most of the promising new year.
Groups financials Revenue in 2010 (US$)
Further Information
13,573m
(2009 revenue: 9,594m) Profit from continuing activities in 2010 (US$)
3,263m 577m
EBITDA in 2010 (US$)
(2009 EBITDA: 1,589m) Net loss attributable to shareholders in 2010 (US$)
24.0% 0.14
EBITDA margin in 2010 (US$)
(2009 EBITDA margin: 16.6%) Dividend per share in 2010 (US$)
1,427m
Net debt/EBITDA in 2010 (ratio)
(2009 profit from continuing activities: 14m)
(2009 net loss: 1,037m)
(2009 dividend per share: n/a)
1.3
(2009 Net debt/EBITDA: 2.2*)

*excludes Lucchini and North America disposal groups
Severstal Annual Report and Accounts 2010
01
Severstal at a Glance Severstal has three divisions: Severstal Resources, Severstal Russian Steel and Severstal International. Our product portfolio and strategy of focusing on high-value-added products in niche markets enable us to realise greater earnings than many of our peers, and to minimise market and product cyclical risks.
Severstal Resources
Severstal is one of Russias largest producers of iron ore and coking coal. The gold business, consolidated within Severstal Resources in the Nordgold company, is a significant player in emerging markets. Severstal Resources has the capacity and product mix to provide almost all of the iron ore and hard coking coal requirements of our steel operations.
Severstal Russian Steel

Severstal Russian Steel is a leading steel producer in Russia with focus on value-added flat steel products for the construction, automotive, machinery, and oil and gas industries. Severstal Russian Steels Cherepovets Steel Mill is one of the worlds largest stand-alone integrated steelworks by capacity (annual production capacity is about 11.1 million tonnes).
Severstal International
Severstal International is a solid mid-sized US steelmaker with premium customers in the automotive, energy, and construction, industries. The companys Dearborn and Columbus facilities are two of the most advanced in North America, with partial upstream integration into coking coal production through the PBS Coals company also being part of Severstal.
Mining* 1 Vorkutaugol| (Vorkuta, Russia) 2 Karelsky Okatysh (Kostomuksha, Russia) 3 Olkon (Olenegorsk, Russia) 4 PBS Coals (Friedens, Pennsylvania, USA) 5 Severstal Liberia Iron Ore Ltd (Liberia, Putu Range Iron Ore deposit, license) 6 OOO UlughemUgol (Republic of Tyva, Russia, Tsentralnyi field coking coal deposit, license) Gold* 7 Neryungri-Metallic (Yakutia, Russia, subsidiary) 8 M ine Aprelkovo (Transbaikal region, Russia, subsidiary) 9 Buryatzoloto (Buryatia, Russia, subsidiary) 10 Suzdal (Eastern Kazakhstan, field) 11 Taparko (Burkina Faso, subsidiary) 12 Berezitoviy (Amur region, Russia, subsidiary) 13 Societe Miniere de Dinguiraye (Guinea, LEFA gold mine)
*Listed only selected major assets.
Steel products* 14 Cherepovets Steel Mill (Cherepovets, Russia) 15 Izhora Pipe Mill (St. Petersburg, Russia, subsidiary) 16 SMZ-Kolpino (St. Petersburg, Russia, subsidiary) 17 TPZ Sheksna (Vologda, Russia, subsidiary) 18 Gestamp-Severstal-Kaluga (Kaluga, Russia, joint venture) Metalware products* 19 Severstal Metiz (Cherepovets, Russia, subsidiary) 20 Severstal Metiz (Russia, Orel, subsidiary) 21 Severstal Metiz (Russia, Volgograd, subsidiary) Other companies* 22 Redaelli Tecna SpA (Italy, subsidiary) 23 Dneprometiz (Dnepropetrovsk, Ukraine, subsidiary) Scrap processing* 24 Vtorchermet (Cherepovets, Russia, subsidiary) 25 Murmanskvtormet (Murmansk, Russia, subsidiary) 26 Archangelski vtormet (Archangelsk, Russia, subsidiary)
Steel products* 27 Dearborn (Michigan, USA, subsidiary) 28 Columbus (Mississippi, USA, subsidiary)
02
Annual Report and Accounts 2010 Severstal
Overview
Production volumes of steel by Severstal Russian Sales volumes of coal by Steel and Severstal International in 2010 (tonnes) Severstal Resources in 2010 (tonnes)
Business Review
14.7m
(2009 steel production: 12.6m) Sales volumes of iron ore by Severstal Resources in 2010 (tonnes)
11.7m
(2009 coal sales: 9.1m) Sales volumes of gold by Severstal Resources in 2010 (k oz)
Governance
13.8m
(2009 iron ore sales: 13.9m)
603k oz
Financial Statements
(2009 gold sales: 522k oz)
Russia & CIS

3 2 25 1 26 15, 16 14, 17, 19, 24 7
Further Information
18 6 23 20 21 10 9
8 12
Rest of the World
Europe
13 5 11
22
27 4 28
03
Chairmans Review
As a result revenue, margins and profits all grew strongly the Board was pleased to announce a return to the dividend list in the second half of the year. The Board continues to pay close attention to further improving standards of health and safety, with progress also made in this critical area. Capital expenditure rose as we progressed initiatives across the Group. We focus our investment activities on areas where we see the greatest potential for growth and can operate our integrated model in a competitive way on the regional cost curve. We made progress on major projects in Russia which will further strengthen our position in the higher growth automotive, construction and infrastructure sectors. These include the construction of a mini-mill at Balakovo in the Saratov region, due to be completed in 2013, with a production capacity of one million tonnes a year. We took the decision to refocus our North American operations on our Dearborn and Columbus facilities. These are amongst the most efficient in the region and are integrated with our PBS Coals operation, while being well positioned to supply the buoyant automotive sector. After the year end, we announced the sale of our Warren, Wheeling and Sparrows Point facilities. In Europe we also decided that Lucchini does not fit our preferred integrated model and we, therefore, classified it as held for sale.
Christopher Clark Chairman of the Board of Directors
Our strength as an integrated steel and mining group enabled Severstal to make good progress in 2010 as economic recovery gathered momentum and steel prices returned to higher levels.
10 Year Highlights
2001 2003
Consolidation of Russian mining assets within Severstal creates one of the highest levels of raw materials selfsufficiency in steelmaking among Russian players
2005
Severstal stock is listed on MICEX
2007
Severcorr Mini-Mill, one of the most modern steel mini-mills in the US (later renamed Severstal Columbus), begins operation Severstal commences development of the Balakovo Long Product Mini-Mill in Russia as a move to expand its presence in a promising market and enhance the product mix
2006
Initial public offering on the London Stock Exchange Severstal completes the construction of the Izhora Pipe Mill, a large-diameter pipe producer in Russia
2004
Issuing its first Eurobond, Severstal gains international recognition as a reliable public debt borrower Severstal enters the US market following the acquisition of Rouge Steel, forming Severstal North America, now called Dearborn, an integrated steelmaking facility based in Michigan
04
Overview
We continued to achieve high returns from our mining activities, with higher prices and expanded production over the year. We also laid the foundations for future growth with major new greenfield initiatives, including winning licences for new projects in coking coal in Russia and iron ore in Africa. The development of Nordgold demonstrates that we can also generate returns by using our mining and regional competences selectively for other high value minerals. In December we announced a Memorandum of Understanding to establish a joint venture to build an integrated steel plant at Karnataka in India, one of the worlds most attractive growth markets. The joint venture will operate to our integrated model, with self sufficiency in coking coal and locally mined iron ore. Severstal remains committed to high standards of corporate governance. The Board is well balanced between executive and non-executive Directors and scrutinises managements performance against agreed goals. We also seek to continuously evolve the senior management team. In September we announced that Alexander Grubman would assume the role of CEO of Severstal Russian Steel and Vadim Larin the role of CEO of Severstal Resources. Both have extensive experience across our operations and are, therefore, well qualified to ensure we continue to drive efficiency and capture the maximum benefit from our vertically integrated model.
We were very saddened to report the untimely death in December of Anatoly Kruchinin, aged only 50. He joined Severstal in 1982 and gave almost thirty years of distinguished service, culminating in his work as CEO of Severstal Russian Steel. Anatoly was a highly respected and popular colleague who we will miss greatly. The Board would like to express its condolences to his family and friends. We finished 2010 with good momentum, which bodes well for our continued development in 2011. We believe the steel market is likely to remain strong as a result of high raw material pricing and steel product re-stocking. With an increased focus on higher growth market segments, high levels of self sufficiency in coking coal and iron ore, and an expanding emerging market dimension, Severstal is well placed to achieve another year of good progress.
Business Review Governance Financial Statements Further Information
Christopher Clark Chairman of the Board of Directors
2008
Severstal streamlines its corporate structure, creating three divisions: Severstal Russian Steel, Severstal Resources and Severstal International Severstal receives first international mining exposure acquiring PBS Coals, a coking coal producer in Pennsylvania
2009
Severstal introduces a new corporate brand identity reflecting the companys truly global nature and its status as a leader in the metals and mining industry Severstal launches an ERP (Enterprise Resource Planning) project implementing SAP software to increase the efficiency of its key business processes
2010
Severstal consolidates its gold assets within a single structure named Nordgold, a major emerging-markets player Severstal launches its 250,000 tonne capacity new pipe-section mill Severstal TPZ Sheksna, located in the Sheksna industrial zone of Russias Vologda region
05
Chief Executives Review

reflects the hard work and excellence of all our employees. Our people are the heart of Severstal and are critical to our achievements. They have shown great patience and determination during the economic crisis and we will continue to develop their skills further, in an environment focused on industry leading standards of health and safety. Our Mission, Vision and Values initiative promotes excellence in everything we do and ensures we operate to shared goals, values and standards. In 2010, we made another step towards internal efficiency. In line with the international best practice and based on our accumulated experience, we launched the Business System of Severstal, a programme covering the whole company and designed to involve employees in the improvement process as much as possible. We are confident the programme, which focuses on safety, continuous improvements, client orientation and business-process efficiency, will help us raise competitiveness and reach top industry positions.
Alexey Mordashov Chief Executive Officer
Global economic recovery in 2010 brought more visibility and optimism to our business, and we emerged from the economic downturn stronger and with an improved financial performance. The major strengths of our vertically-integrated model, cash generative business and investment programmes, continue to give us a powerful competitive position.
Revenue for the year increased by 41.5% to US$13,573 million as a result of increased sales growth in each of our segments, while profits from continuing operations were US$1,427 million. Central to our revenue growth during the year were sales of steel products to the Russian market, sales of mining products to third parties, and the rapid expansion of our gold business. We produced a strong operating cash flow with US$1,259 million and net debt/EBITDA was 1.3x at the end of the year, below our 1.5x target threshold. During the year we capitalised on improving market conditions by increasing production and sales volumes, maintaining high margins, using the benefits of vertical integration, and further expanding our presence in markets with higher growth potential. Our performance
Strategy
Our key financial objective is to become one of the leaders by EBITDA in the global steel industry, while retaining one of the leading positions by margins and returns on investment. Our vertical integration is the key to these returns, with high self-sufficiency in iron ore and coking coal. The Cherepovets Steel Mill, our Russian asset, is one of the worlds lowest-cost producers, while in the US, we are one of the most modern steel producers. Pricing pressure in the world markets underlines the strength of our vertically-integrated model. We will continue to focus our investment activities on areas where we see the greatest potential for growth, and therefore we will be investing in steel-related mining as well as expanding our Russian steel operations. In our restructured North American assets we aim to invest in creating a wider product offer to higher growth market segments such as automotive. Our wholly-owned indirect subsidiary Nordgold, which runs our gold operations, has grown rapidly into an established producer focused on emerging markets and is a growing contributor to our financial results. We continually review our asset portfolio and strategic development priorities to ensure we generate the highest returns for shareholders from the allocation of capital to development opportunities open to us as an international steel and mining company. We will also target new frontiers to further expand our presence in areas with high growth potential such as India.
Our performance reflects the hard work and excellence of all our employees. Our people are at the core of Severstal and were a critical factor in our achievements
06 Annual Report and Accounts 2010 Severstal
Overview
Investment
Cash capital expenditure in 2010, excluding discontinued activities, totalled US$1,251 million and was in line with our target for the year. We continued to invest selectively across our operations, to expand mining and steel production volumes, increase output of high value-added steel products, improve our operational efficiency and reduce costs. This year we will focus capital expenditure on ongoing projects, on improving operating efficiency, and on ensuring we maintain industry-leading standards of health and safety. Our target investment programme for 2011 is more than US$2 billion approximately twice the level of 2009. We will invest a significant proportion of this in Severstal Russian Steel, with the remainder in Severstal Resources and the North American operations of Severstal International.
In North America our priority is to ensure our assets provide a more flexible and efficient cost base and following the disposal of assets after the year end, we are focusing on our Dearborn and Columbus facilities. Though still challenging, the US steel market gradually recovered in 2010 and, driven by both volumes and prices, revenue from continuing operations was up 26.0% at US$2,912 million and EBITDA was US$86 million. We expect the cost position of Columbus and Dearborn to improve further as a result of a recovering steel market environment and additional investment in their operational efficiency. In 2011 capital investment at Severstal North America will be approximately US$465 million, helping us to unlock value in the US and to optimise our footprint. Our European operations represent Lucchini segment which classified as held for sale as of December 31, 2010. In February 2011, Severstal signed an amendment to Lucchinis share purchase agreement cancelling the buy-back option and the entitlement, for the benefit of the Group, to any gain on a subsequent sale of this stake to a third party. From this date Severstal accounts Lucchini under equity method.
Business Review Governance Financial Statements

Severstal Russian Steel is a world-class, low-cost steel producer which performed strongly throughout the year, helped by higher steel demand, mainly from the domestic market. Revenue rose 42.7% to US$8,815 million due to both volume and price, while EBITDA grew 27.1% to US$1,677 million and EBITDA margin was 19.0%. The domestic market accounted for 61% of the divisions total revenue in 2010 and we aim to increase that percentage this year as Russian steel consumption currently remains below pre-slump levels. Export sales increased by 25.3% and our diversified product mix means we are able to adjust our production and sales to cater for regional and industry trends, and produce higher sales and margins. In line with our plans we completed several major projects during the year including the construction and launch of the Sheksna Pipe Plant, close to our main Russian steelmaking facilities in Cherepovets.
Further Information
Outlook
The steel market is likely to remain strong in the first half of 2011 and an improvement in margins is likely to stimulate increased output globally. As a result, we expect steel and raw material prices to moderate in the second half of the year while production volumes remain high as average capacity utilisation stays below 80%, against a background of solid demand growth. We expect gold prices to remain firm. In Russia and the CIS steel demand is expected to increase by approximately 8% year-on-year in 2011 while in the US the automotive industry will continue to be the best steel-consuming segment in a growing market. Accelerating economic growth in our key markets in 2011 should produce another strong year for Severstal as demand for steel improves and raw material prices rise.
Severstal Resources
Financially, 2010 was one of the strongest years ever for our Resource division. Revenue increased to US$3,484 million due to both volume and prices, and EBITDA totalled US$1,551 million, while the full year EBITDA margin was 44.5%. The results reflected a combination of favourable market conditions, the flexibility of our production and sales team and the effect of the previous years initiatives to increase the efficiency of our operations. Mining activities will continue to provide a strong source of growth and we intend to expand iron ore and coal production as well as other mining operations. Our gold business Nordgold has grown rapidly into an established producer with assets in emerging markets and, following our decision to postpone its initial public offering, we will continue to develop the business.
Alexey Mordashov Chief Executive Officer
07
Severstal Strategy Our strategy is to become one of the global industry leaders by EBITDA and sustain a leading position by margins and returns on investment.
One of Severstals main strategic priorities is to maintain resilience to the industrial cycle through high margins and conservative financial ratios. We target at least 20% EBITDA margin over the cycle as one of the key performance indicators. We also target a net debt/normalized EBITDA* ratio of not more than 1.5. We are happy to report that we successfully achieved both targets in 2010. Thanks to a strong performance of our core assets in Russia, and ongoing restructuring of our facilities in the developed markets, our EBITDA margin increased from 16.6% in 2009 to 24.0% in 2010. By the end of 2010, we reduced 2010 net debt/EBITDA to 1.3, bringing us to a targeted level of financial leverage. We will continue our focus on high-margin, resilient and growing regional and product markets in steel and mining, to ensure that we sustain our meeting of these targets, despite inherent industry volatility.
*Normalized EBITDA average EBITDA from 2004 and till current year.
08
Overview
Severstal growth drivers

Business Review
Severstal is a vertically-integrated steel company focused on high-growth emerging markets.

There are a number of crucial industrial growth drivers which we believe are key to our success, and which will ultimately help us achieve our financial objectives.
Governance
Cost competitiveness We believe that cost competitiveness in every region where we produce steel is a vital element of our success, and a key to industry-leading margins and returns on investments. Our flagship facility, Cherepovets Steel Mill, is one of the worlds largest standalone integrated steelworks by capacity. It has also consistently been ranked as one of the ten lowest-cost steel producing plants in the world. After asset restructuring in the US, and upon the completion of the long-term investment programme in 2011, Severstal Dearborn and Severstal Columbus will be the most efficient and modernised facilities in the US. We will also continue our relentless focus on managing costs in our mining facilities, to counter the global trend of rising mining costs.
Vertical integration Vertical integration is an integral part of our business model. We are one of the few international steel companies with a strong position in both iron ore and coking coal. We are fully self-sufficient in primary steel-related raw materials in Russia, and in the US our local coking coal capacities are more than sufficient to provide full economic integration for our steel plants in North America. We target at least 80% global economic self-sufficiency in both iron ore and coking coal, to secure cost competitiveness, improve total margins, and smooth our performance over the cycle. We build and develop steel assets only in those regions where its possible to get access to competitive raw materials at a price below global benchmarks. We will continue to prioritise investments in raw materials to achieve this selfsufficiency goal, so that our steel production is fully balanced by own iron ore and coking coal.
Presence in consolidated and growing markets The high level of market consolidation secures better production discipline, while our presence in growing markets allows us to increase our revenues and earnings together with our customers, and target emerging high-potential niche segments. Our main regional markets demonstrated excellent growth rates in 2010 on the back of recovery from the global economic crisis: steel demand in Russia grew by approximately 35%, and in the US, by approximately 30% year-onyear, according to the World Steel Association. We have a positive mid-to-long term outlook for all our target regional markets. We expect at least 8% growth in demand for steel in Russia in 2011, and continuing sound growth thereafter, on the back of rising personal incomes and growing demand for modern housing, cars and much-needed infrastructure. After the economic recovery is complete, US steel demand will rise in line with the long-term trend, determined by population growth and the need to build up previously underinvested infrastructure. Our new focus India will be one of the highest growth areas in the next decade, with the annual increase in demand for steel in excess of 7-8% a year for the next decade.
Financial Statements Further Information
09
Severstal Strategy (continued)

Bringing the asset structure in line with our strategic targets
In 2010, we made continuous steps to bring our international asset structure in line with our financial and strategic targets. In Europe, the Group reduced its stake in Lucchini S.p. A. to 49.2%. In North America, the Group sold Northern Steel Group, the processor and distributor of steel products, and also the steelmaking facilities of Warren, OH, Wheeling, WV, and Sparrows Point, MD. The restructuring of our US assets allowed us to focus on the development of the most profitable and resilient parts of our US business Dearborn and Columbus. These facilities were profitable in 2010, by EBITDA, despite economic difficulties and rising raw materials prices. We expect a much stronger performance from these US assets from 2011 and beyond, with the completion of their investment programmes expected by the end of 2011.
Executing our strategy in 2010: steps towards a new Severstal

Sustaining positive momentum in Russia
In 2010, Severstals Russian steel and mining assets performed strongly, aided by the general recovery in demand for steel and the booming raw materials markets. Russian steel assets were nearly fully utilised through the year, with total EBITDA growth of 27.1%. We maintained our strategic focus on the domestic market with the launch of several valuable downstream organic growth initiatives: TPZ Sheksna with 250,000 tonnes of welded tubes and profiles for construction A renovated HDG line in Cherepovets adding 400,000 tonnes of new galvanizing capacity A joint venture stamping facility with Gestamp and joint venture steel service centre with Gonvarri both in Kaluga region, several hundred km from Moscow We also increased our share of the domestic market in the total sales of Severstal Russian Steel from 55.6% to 61.0%. Cost control and recovery in demand allowed us to increase the per-tonne profitability of our steel operations despite rapid inflation in raw materials costs.
Entering new frontiers for our verticallyintegrated business model

We have taken the first steps in our development of a new regional market India. In December 2010 Severstal and NMDC, the leading iron ore producer in India and one of the major global suppliers of iron ore, signed a Memorandum of Understanding to establish a joint venture company to build an integrated steel plant, with a capacity between 2 and 5 million tonnes (to be determined at feasibility stage). The plant will be located in the state of Karnataka, close to the industrial heartland of southern and western India and close to multiple iron ore mines. In line with our strategic priorities for cost leadership and vertical integration, the joint venture intends to have its captive coking coal mining subsidiary in Russia and its iron ore mining subsidiary in India, to ensure long-term supply of all primary raw materials to the proposed steel plant. Strategically, the rapidly expanding Indian market will become one of our main priorities.
10
Overview
Developing our global raw materials base

We continued to develop a portfolio of growth options in steelrelated mining by investing in acquisitions and developing early-stage mining projects internationally. In the Putu iron ore project in Liberia, where Severstal is the majority stakeholder with a 61.5% interest, an independent mineral resource report confirmed estimated natural resources of 2.4 billion tonnes, with approximately 34% iron concentration, twice the initially estimated reserves base. In May 2010, the Group acquired a 16.5% stake in Core Mining which controls exploration licences for the Avima iron ore deposit in the Republic of Congo (Brazzaville) and the Kango iron ore deposit in the Republic of Gabon. Both projects are at an early exploration stage with a significant resources potential of high-grade iron ore with Fe content over 50%. Finally, the Group acquired an exploration and development licence for the Tsentralnyi field in Tyva republic, South Siberia, with a resource potential of 640 million tonnes of high-quality hard coking coal. These developments will offer us a wide range of options to develop our raw materials base in the long term, through a diversified and balanced portfolio of low-cost, high quality deposits. To ensure the self-sufficiency of our projected steel mini-mill operations, in the third quarter of 2010, we completed the acquisition of a 25.6% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS), a research and development company based in Johannesburg, South Africa. IMBS has developed a coal-based Finesmelt technology capable of processing unusable iron ore fines and thermal coal into valuable metallic products similar to DRI/HBI. Currently, IMBS is developing its first commercial project in Phalaborwa, South Africa. As a part of the transaction, we acquired a 51.0% stake in International Iron Beneficiation Group Limited (IIBG), a newly formed company that has an exclusive license to commercialise the technology worldwide (outside of South Africa and neighbouring countries).
Priorities for 2011

One of our key priorities is to strengthen our asset portfolio and to increase profitability in North America, as the local market recovers from the steel demand recession, and we complete the modernisation and expansion of production volumes. Upon the completion of ongoing investments, the total production capacity of Severstal North America will reach around 5.5 million tonnes, almost evenly split between integrated and mini-mill production routes. Severstal Dearborn will launch a new cold-rolling mill, pickling and galvanizing lines, which will make it the regions most modern and technically advanced producer of automotive steel, well positioned to benefit from the ongoing strong recovery of US flat steel market and automotive demand. Severstal Columbus, which demonstrated consistently high utilisation rates and positive annual profitability, even at the bottom of the market, will launch its second phase in Q3-Q4 2011, bringing its total hot-rolled band capacity to 3.1 million tonnes and doubling its galvanized products capacity to 1 million tonnes. We will continue to develop our core Russian steel and raw materials assets. In Russia, we will be engaged in selective growth in highvalue-added products, adding another colour-coating line with 200,000 tonnes of capacity in Cherepovets. We will also maintain our focus on cost control in both steel and mining through a continuous improvement programme, and targeted investments in increasing efficiency and modernisation. We will continue to develop our business platform in India through the partnership with NMDC, and our global portfolio of mining projects in iron ore and coking coal. Our strategy is supported by one more key element, the Business System of Severstal, which we developed in 2010, and which we expect will help us to take leading positions in the industry for financial performance, internal procedures, corporate culture, safety and client relations.
11
Creating a Platform for Growth
Entering new frontiers for our vertically-integrated business model

Maxim Tevs NMDC Project Leader "In 2010, we took the first step in developing our presence in India, a new fast-growing emerging market for Severstal. In December 2010 Severstal and NMDC Ltd, the leading iron ore producer in India, signed a Memorandum of Understanding to establish a 50:50% joint venture company with the objective of building an integrated steel plant in India. The plant will be located in the state of Karnataka and has annual crude steel capacity between 2 and 5 million tonnes, probably constructed in phases. The selected site for the plant is close to the industrial heartland of southern and western India, close to many potential customers and the operating iron ore mines of NMDC. In line with our strategic priorities for cost leadership and vertical integration, the joint venture company proposes to have its captive iron ore mining subsidiary in India as well as having a coking coal mining subsidiary (most probably in Russia). The proposed steel project has a target to become one of the worlds lowest-cost steelmaking plants and would be the only steel greenfield project in India fully-integrated in both iron ore and coking coal raw materials. Severstal and NMDC will conduct the technical and economic feasibility study jointly during 2011, to decide on projects final investment specifications and product portfolio. Both companies have agreed to contribute investment proportional to their equity stakes. We believe in strong partnership with NMDC, one of the most reputable enterprises in India. It has an excellent track record of developing mining business in the county and will be responsible for local institutional support and ensuring iron ore supply. Severstal will provide technical assistance and will be responsible for operational control at the steel plant. Strategically, India is an attractive market for Severstal with strong macroeconomic and industrial fundamentals. Long-term growth in domestic consumption, demographic suitability and a young growing population, progressive urbanisation and rising living standards, all provide the basis for sustainable high economic growth in the country. Being a net steel importer, India has significant potential for growth in demand for steel, particularly due to the need to develop infrastructure. Given favourable market prospects and the structural low-cost advantage of access to abundant high-quality iron ore, the Indian steel sector enjoys high profitability and may provide attractive investment opportunities."
Getting access to one of Russias major coking coal deposits

Dmitry Sakhno Tyva Project Leader "In September 2010, Severstal obtained a licence for further exploration and coal extraction at the Tsentralniy coalfield in the western part of the Ulug-Khemskiy coal basin in the Tyva region, South Siberia. The coalfield is located in Tandinskiy kozhuun (district), 32 km from the capital of the region, Kyzyl city, and has an area of 96 sq. km. Preliminary exploration of the western part of the basin was carried out in 19861988 and resources of the Tsentralniy field were estimated at 640 million tonnes of coking coal. The field has ten coal seams, but 70% of resources are contained in one seam called Ulug, with average thickness of 3.5 metres. The depth of the Ulug seam varies from 250 metres to 500 metres. The coal will be extracted by the underground method. According to the licence agreement, we plan to carry out additional exploration of the coalfield in 20112013 and to start construction of the mine and surface infrastructure in 2015. The annual coal production is expected to reach almost 10 million tonnes by 2019. As a part of the project, Severstal, together with other investors involved in coalfield development in Tyva, and the Russian government, will finance the construction of 400 km of railway connecting the Tyva region with the existing Russian railway network. The Russian government has already allocated US$1.7 billion from its Investment Fund to the project. The railway will be mostly used for transporting coal."
Overview Business Review Governance
Further development of the Putu Range Diversification into a new prospective iron ore project in Liberia market of metallic iron
Alexander Soloviev Putu Range Project Leader "In 2008, Severstal acquired a 61.5% stake in African Iron ore Group Ltd, located only 130 km inland from the deepwater shoreline of eastern Liberia. We are advancing the project in a joint venture with African Aura Mining Inc, which has a 38.5% interest in the project. The project has estimated resources of 2.37 billion tonnes of hematite/magnetite iron ore within the planned pit, with an estimated grade of 34% Fe based on a report issued by SRK Consulting Ltd in February 2011, prepared under the Guidelines of National Instrument 43-101. SRK Consulting also identified the potential for a further 1 billion tonnes to 2.5 billion tonnes of iron ore below the projects existing pit shell. To date, about 41,000 metres have been drilled and further extensive drilling is underway as part of the Bankable Feasibility Study, scheduled for completion in 2014, with interim Pre-Feasibility study being completed by 2012. In 2010, a Mineral Development Agreement for Putu Iron Ore Project was granted and ratified by the Government of Liberia. The MDA sets the fiscal regime for the development and mining of the Putu iron ore project for a period of twenty-five years and is extendable in line with the life of the mine. We expect to start production at the end of 2017, with potential output of at least 20 million tonnes of concentrate. This project will allow us to become a significant player in the iron ore seaborne market." Artem Simonov-Beschinskiy IMBS/IIBG Project Leader "In 2010, Severstal acquired a 25.6% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS), a research and development company based in Johannesburg, South Africa. IMBS has developed a low-cost Finesmelt technology capable of processing iron ore fines and thermal coal into valuable metallic products similar to DRI/HBI. The primary product of the Finesmelt process is a highly metallised metallic iron briquette, which is produced at lower than melting temperatures. The technology is a low-cost electric thermo-chemical technology process that converts 62+% superfine iron-bearing material, such as magnetite and hematite, into high quality metallic iron without agglomeration. The Finesmelt plant design is modular and scalable with limited infrastructure requirements. This makes it possible to achieve comparatively low capital and operating costs. The process is also an environmentally sustainable and has a capacity to use iron ore waste dumps and tailings. The end product represents a high-quality substitute for scrap metal in steel production, primarily for consumption by Electric Arc Furnaces. IMBS has formed a joint venture to implement its first commercial project at Phalaborwa, South Africa, at the site of Rio Tintos Palabora Mining Company. Construction is planned to start in April 2011 and commissioning is planned for early 2012. The initial capacity of the Palamin project is 50,000 tonnes a year of metallised product, and will be further expanded up to at least 500,000 tonnes a year. IMBS aims to produce up to 3.0 million tonnes of the product a year in South Africa by 2017. Industrial Development Corporation (IDC), the state owned investment agency of South Africa, has committed to providing necessary political, economical, and financial support and joined the Palamin project as an equity partner. As part of the transaction with IMBS, Severstal also acquired a 51.0% stake in International Iron Beneficiation Group Limited (IIBG), a newly formed company that has an exclusive licence to commercialise the Finesmelt technology worldwide (outside of South Africa and neighbouring countries)."
Severstal Annual Report and Accounts 2010 13
Risk Management
Severstal top team, managers and employees at each level are responsible for developing and using the risk management system
14
Overview
Severstals operations are subject to certain risks. Our top team, managers and employees at each level are responsible for developing and using the risk management system, and we have a risk management committee to coordinate its implementation, with key managers as its members.
The Board of Directors and top management control the risk management systems effectiveness. We describe the most important risks below. domestic steel demand increased by 37%, which adjusted both capacity utilisation levels and prices. This in turn had a significant positive impact on Severstals 2010 financial results. Although raw materials costs rose in 2010, we benefited as a vertically-integrated producer. The moderate setback of Russias economy during the second half of 2010 (3.0% GDP growth compared to 4.0% for the first half of the year) was partially explained by the summer drought, and had a temporary effect. In 2010, inflation in Russia was 8.8%, almost at the same level as in 2009 (Rosstat). This rate is slightly higher than the forecast level of 78%. One of the main reasons for this is the summer drought and the related growth in food prices. Although the current official inflation forecast for 2011 is 67%, during the first two months of 2011 it has already amounted to 3.2%, and official government agencies do not rule out that the total figure for 2011 could be in double digits. Certain costs of Severstals Russian operations, such as wages, utilities, construction and maintenance costs, are quite sensitive to possible general price increases in Russia. However, due to competitive pressures, we might not be able to transfer fully the increased costs to our customers and to preserve operating margins. But as a value-added producer, we do have a certain customer loyalty as an advantage. Mitigation The geographic diversification of our sales helps to minimise the negative impact of economic risks. The domestic market is our main focus, but our ability to change quickly the geography of our shipments provides more flexibility in reacting to the different challenges of the external environment, and helps us to insure ourselves against a sudden regional crisis. The majority of experts suppose that the global economic crisis is over. Nevertheless, we are monitoring the most important advance indicators of the possibility of an economic slowdown. We are also developing economic scenarios to prepare our management for possible negative changes in the external environment.
Political risks
Severstal performs its main activities in Russia and other CIS states, as well as in North America, Europe, Africa and Asia, and we are registered as a taxpayer in various countries. The overall political climate differs significantly between countries, as do the limitations on business activity, assets expropriation and confiscation rules, monetary systems and their potential negative changes, and the potential for other crisis factors due to government policy. There is a possibility that new trade barriers may be established, which could have a negative impact on our export or import operations. Political risks also include potential conflicts, terrorist acts, social unrest, and the introduction of a state of emergency. All these might influence our activities and although none of them has directly affected our business so far, they could have an adverse effect on our business, financial condition, and the results of our operations. Mitigation The majority of our production facilities and business operations are located in regions and countries with a stable political and social system. All our operational and investment decisions imply proper risk assessment and monitoring on a continuing basis. In those countries where the political situation is unstable, we undertake additional risk mitigation measures, such as specialised types of insurance against political risks.
Further Information
Economic risks
Russia is seriously dependent on the level of world commodity prices. Their decline may cause the price of Severstals shares to fall, and lead to a decrease in the purchasing ability of our customers which, in turn, will have substantial negative consequences for the company. In 2010, the world economy demonstrated an overall upward tendency. According to the International Monetary Fund (IMF), global GDP increased by 3.9% during the year, which is 0.8% higher than expected. Russias GDP in 2010 climbed by about 4% year-onyear, total fixed assets investments increased by 7.5% and recorded industrial production growth was 7.5%. This robust economic and demand recovery had a very significant impact on both pricing and demand for steel products, iron ore and coking coal. In 2010,
15
Risk Management (continued)

Market risks
Industry cyclicality and demand fluctuations The steel and mining industries are cyclical, which may result in adverse fluctuations in the demand for, and prices of, Severstals products. Moreover, the industries in which a large proportion of our customers operate such as the automotive, construction and oil and gas industries are also cyclical in nature, and this too can result in adverse fluctuations in the demand for, and prices of, steel products. Demand for the raw materials necessary for the production of steel products, such as iron ore and coal, is generally correlated with the demand for steel products. The main overriding theme for global steel markets in 2011 will be the impact of higher input costs and the ability of steel makers to pass these on. Particular economic and market factors may also have a significant effect on certain parts of our operations for example, an economic downturn in the US could lead to a decrease in production by automotive manufacturers, resulting in a decrease in demand for our automotive flat steel products. Furthermore, the recent global economic downturn resulted in a decline in demand for, and prices of, steel and iron ore products. Although prices have risen significantly in 2010 in response to the global recovery, there is no guarantee that this recovery will continue. Adverse fluctuations in the demand for our products, or the supply of competing products, may result in overproduction or underproduction, increased costs or general uncertainty in the industry, any of which could have a material adverse effect on our business, financial condition, and the results of our operations. Some of the products of our Russian operations are subject to various trade barriers such as anti-dumping duties, tariffs and quotas in our principal export markets, including the EU and the US. These trade barriers affect the demand for our products by effectively increasing their prices compared to domestically available products. An increase in existing trade barriers, or the imposition of new trade barriers, would cause a significant decrease in the demand for our products in our principal export markets. At present, however, we are not seeing any increases in existing trade barriers in our traditional markets. In 2010, the Russian quotas for delivery to the EU were increased to 3.4 million tonnes (including 0.2 million tonnes of unused quotas for 2009 transferred to 2010), and in 2011 they will be 3.3 million tonnes. Severstal traditionally has a 35% share in these quotas. Mitigation The main factors influencing our activities are steel demand and price recovery in 2010. The recovery on the different markets occurred at different speeds, with the domestic market demonstrating higher growth rates. For example, the Russian Steel Division changed its sales volume balance between the Russian Federation market and export, so that the proportion was 53.3% and 46.7%, respectively, at the end of 2010. In addition, we benefited from entering international markets, as our comparatively low production costs for most products allowed us to offer competitive pricing internationally. Our management has also initiated an Early Warning System project to increase the speed of our reaction to possible market changes. Changes in selling prices One of the specific features of the steel and mining industries is their liability to cyclical changes in steel prices. Positive price conditions which existed before the fourth quarter of 2008 were followed by a sharp fall in prices. The results of our activity are particularly dependent on changes in the price for rolled steel and steel products, in both domestic and foreign markets. After the start of economic recovery, world steel demand increased by 13%, according to the World Steel Association. Steel prices are expected to continue to rise in 2011. Bad weather conditions, complicating coal and iron ore mining and delivery, have already caused these raw materials spot prices to soar, and can increase their contract prices. World steel capacity utilisation remains at a low level (about 75%), but Russian steel capacity utilisation is more than 90%, driving up steel prices. The overall average price for Russian exports of hot rolled coils (HRC) in 2010 soared by approximately 38.3% year-on-year, while the price in the domestic market increased by 30.9%. Mitigation We were able to moderate the negative impact of the adverse economic situation, and to overcome quickly the consequences of the crisis. We made major efforts to manage working capital effectively, increase operational effectiveness, use raw materials and energy effectively, increase labour productivity, control costs closely, focus on customers (the quality of production and service), and increase production of high-value-added goods whose prices are less sensitive to economic fluctuations. We also strengthened our position in most prospective product niches, which have preferable competitive conditions and an attractive balance of supply and demand. Our comparatively low production costs are a mitigating factor for the risk of steel price fluctuations. To reduce the influence of sharp market fluctuations on our revenue, the management has initiated the Foresight project, to improve our understanding of our markets, and the Early Warning System, to predict short-term price fluctuations three months in advance. Fluctuations in the prices of raw materials, energy and services As expected, global raw material supply will remain tight in 2011 and begin to loosen from 2012 as new capacities in the world are commissioned. But delays in the construction of new mines could keep raw material prices high for a longer period, which is negative for steel mills. Severstal requires substantial amounts of raw materials in the steel production process, in particular coal and iron ore. Although our Russian Steel Division has a secure supply of iron ore and coal from Severstal Resources and certain Severstal North America operations have secure iron ore supply through long-term contracts the availability of coal, iron ore and/or slabs for Severstal North America, and the availability of other necessary raw materials such as scrap, may be negatively affected by a number of factors largely beyond our control. These include interruptions in production by suppliers, supplier allocation to other purchasers, price fluctuations and transport costs. In addition, our operations require substantial amounts of other raw materials, including various types of limestone, alloys, refractories,
16
Overview
While developing our forecasting system, one of our main goals was to provide a consistency of economic and industry forecasts. It is also important to remember that the global economy is cyclical, and periods of upturn are usually followed by downturns and vice versa. We use a bottom-up approach, starting with our global and regional GDP through steel and raw materials demand-supply balances, and ending up with a set of coherent price forecasts for steel and raw materials. We also put a lot of effort into controlling our development of accurate forecasts. We systematically compare our views on the market with the opinions of other industry analysts, as well as with our previous forecasts. Alexander Malanichev Head of Strategic Marketing Early Warning System The Early Warning System (EWS) aims to keep up with the most current global economic, industry and market developments. We have identified a set of economic and industrial leading indicators, allowing us to predict pivot points on the global steel and raw materials markets three to six months in advance. As in long-term forecasting, we always consider the opinions of industry analysts as well as those of our company experts. This gives us an understanding of the general industry mood, together with some marginal views, even though our opinion might differ from them both. Also by working on the EWS we constantly track the convergence of short-term and long-term forecasts, and control forecast accuracy through a 90% confidence interval into which all our forecasts fall. If a forecast is out of the interval, we investigate it individually using a fishbone diagram. One of the key applications for the EWS is a discussion at monthly senior management meetings, which helps managers keep track of the recent market situation and align their opinions with the near-term market development. The EWS is also available to anyone in the company by downloading it from an online database called Marketing Information System. Even though professional forecasting is a relatively new function at our company, a lot of positive outcomes are already in place. We now have a centralised forecasting function, allowing our strategy planning to be carried out on a single basis. Also, our forecasts now work out better than a consensus of other analysts and we can develop cyclical forecasts, always reminding the counterparties of the downside risks.
Severstals forecasting system

Market uncertainty is one of the key elements we should closely track and mitigate in order to provide a sustainable basis for strategic decisions. In 2009 we launched a project aimed at building a comprehensive market forecasting system. As of 2010, this system (the Early Warning System), covering both long- and short-term horizons, was largely completed. Long-term forecasting We use long-term forecasting as a basis for developing our strategic business plan. It allows us to have a joint set of consistent assumptions on the future prospects of the global economy, and the mining and steel markets, which we can then use to evaluate all our investment projects. In order to provide a systematic approach to long-term forecasting, we have developed a regulation that defines responsibilities and key dates in the preparation of forecasts, and sets guidelines for their use across all our business units globally. We review our forecasts fully once a year, and update them quarterly considering the most current market changes. We recognise that the future is generally unpredictable, and this is why we concentrate on several possible outcomes following a scenario approach. The scenarios are based on the major uncertainty factors that could most drastically affect our markets.
Further Information
17

oxygen, fuel and gas, and the price and availability of these are also subject to market conditions. We may not be able to adjust our prices to recover the increased cost of such raw materials, so any change in their prices or supply could have a substantial adverse effect on our business, financial condition, and the results of our operations. Our Russian operations obtain significant amounts of electricity and natural gas from external providers, and the supply of electricity is currently the subject of the state price liberalisation programme. In 2010, our Russian operations purchased significant volumes of natural gas from subsidiaries of OAO Gazprom (Gazprom), a government controlled entity, and significant amounts of electricity from the Wholesale Electricity Market. In 2010, gas prices soared by 24%, and in 2011 they are expected to increase by 15%. Whereas electricity prices grew by 9% in 2010, yet are also expected to increase by 15% in 2011. Any interruption in the supply of energy, or a substantial increase in costs, could adversely affect our future profitability if we are unable to pass on higher costs to our customers. Our Russian operations depend on the Russian railway system, and rely predominantly on the rail freight network operated by OAO Russian Railways (Russian Railways) for the transport of raw materials and deliveries of steel products to our facilities, consignment agents and customers. Russian Railways is the predominant company in the Russian railway sector which, together with its subsidiaries, owns the countrys largest fleet of freight rolling stock. It also plays a monopolistic role as the sole railway infrastructure operator, and it enjoys a near monopoly in the provision of locomotive services. In addition, the Russian Government sets rail tariffs and may further increase these tariffs, as it has done in the past. Such increases have resulted in significant rises in our transportation costs, and where possible we now consider alternative delivery methods, such as river and motor transport. Mitigation We manage the sector risks regarding the provision of raw materials and services by establishing long-term mutually advantageous contracts with key suppliers, optimising purchasing processes and continuous inventory management. Most of our purchasing contracts for primary raw materials (pellets, iron ore, coking coal, and coke) are concluded for a period of at least a year. In these contracts we are not subject to the influence of short-term changes in price, except for ferroalloys (quarterly) and scrap (monthly). High reliance on our own iron ore, coking coal and scrap supplies helps mitigate price rises for raw materials.
Competition risks
The markets for steel and steel products are highly competitive. Steel producers are also in competition with producers of substitute materials, particularly in the automotive, construction and packaging industries. Severstals competitors include major international steel producers, some of which are larger or have greater capital resources than we do or, in some cases, they have lower raw materials costs than ours. Our competitors may also have competitive advantages in terms of location and access to key suppliers and transport routes, and our competitive position may be further affected by the recent trend towards consolidation in the steel industry. The highly competitive nature of the industry, combined with excess production capacity for some steel products, has exerted and may in the future continue to exert downward pressure on the prices of some of our products. There can be no assurance that we will be able to compete effectively in the future. Reduction or elimination of trade barriers The Russian Government has enacted various trade barriers, such as import customs duties, specific kinds of duties (including anti-dumping duties) and licensing against imports of foreign steel products. One example is import customs duties on certain steel products imported from outside Russia, excluding countries in the CIS. These customs duties are generally: (i) 5.0% of the customs value of some commodity steel products (for example, rolled steel and steel rod); (ii) 15.0% of the customs value of a variety of value-added products (for example, pipe). These trade barriers provide protection for domestic steel producers in Russia against foreign competition by effectively increasing the prices of imported products compared to domestically available products. However, in the event of Russias entry into the WTO, the Government may be required to reduce or eliminate these trade barriers and there can be no assurance that other similar agreements will not be concluded in the future. The reduction or elimination of trade barriers would increase competition in the Russian steel industry, resulting in lower prices for steel products. On the whole, the Russian market is one of the least protected in terms of trade barriers against import, compared to the key markets the US, the EU and Mexico.
18
Overview Business Review Governance Financial Statements Further Information
We manage the sector risks regarding the provision of raw materials and services by establishing long-term mutually advantageous contracts with key suppliers
19

with borrowings at fixed rates of interest, we are exposed to the effect of the rate at the time of refinancing. There is no assurance that we can pass on the costs associated with interest rate increases in the form of higher prices to our customers. Consequently, such increases may have an adverse effect on our business, financial condition, the results of our operations and our future prospects. Mitigation Diversification of the debt portfolio is the primary tool we use to minimise the potential adverse effects of interest rate fluctuations. We also monitor closely the economic environment and current trends on debt capital markets. At the same time, we make a significant effort to provide maximum flexibility in our debt portfolio for timely adjustments via standalone third-party agreements or embedded derivative structures in loan agreements. We can also use our existing cash cushion to repay debts affected by adverse interest rate changes. Foreign currency exchange rate fluctuations Severstal is exposed to translational and transactional foreign currency exchange rate risks. The translational risks are the result of translating assets and liabilities into currencies other than US dollar amounts for financial reporting purposes. Transactional foreign currency exchange rate risks arise as a result of payments we make or receive that involve foreign currency exchange. Currently, our international operations are balanced with most of our revenues, borrowings and expenses denominated in the same currency. Our Russian operations have revenues denominated in roubles, US dollars and euros, with meaningful fluctuations year on year. Our expenses are mostly in roubles, and our borrowings are in US dollars and euros. As we report our financial results in US dollars and must frequently exchange or translate foreign currency into roubles or roubles into foreign currency fluctuations in foreign currency exchange rates could have a material adverse effect on our business, financial condition, the results of our operations and our future prospects. Mitigation Our existing natural hedge of export sales against financing in US dollars or euros covers much of the existing rouble-dollar exposure of our Russian operations. To manage these opposite cash streams more effectively, we have entered into a number of cross-currency swaps and forward contracts. Credit agreement provisions Credit agreements signed by Severstal include provisions triggering default in the case of material adverse changes or covenant violations. Mitigation We monitor possible credit covenant violations on the basis of our business plan, and request that lenders amend such agreement provisions in advance, to prevent defaults and adverse impacts on our financial statements.
Financial risks
Credit risk
Counterparties risks clients Severstal has developed and implemented policies and procedures to manage credit risks, including credit committees approvals. A bank guarantee from the approved bank is normally required, or credit insurance if credit terms are granted. Letters of credit may be used as well. After the credit committees approval, products may be sold to key customers under deferred payment conditions. Counterparties risks financial institutions The bankruptcy or insolvency of any banks we work with could adversely affect our business. Another banking crisis, or the bankruptcy or insolvency of the banks which hold our funds, could result in a loss of income for several days, or affect our ability to complete banking transactions in Russia and this could have a material adverse effect on our business, financial condition, the results of our operations and our future prospects. Furthermore, any shortages of funds or other disruptions to banking experienced by our banks from time to time could also have a material adverse effect on our ability to complete our planned developments or to obtain the finance we need for our planned growth. Again, this could have a material adverse effect on our business, financial condition, the results of our operations and our future prospects. Mitigation In order to minimise the potential risk of counterparties defaults, our management diversifies the number of our financial counterparts and holds liquid assets in several banks under flexible conditions within certain limits. These limits are determined and approved quarterly by our CFO under a developed and enforced internal procedure. The financial conditions and the surrounding environment of financial counterparts are regularly monitored to foresee counterparties defaults and minimise the potential negative impact. Interest rate fluctuations Interest rates on our debt finance are either fixed or variable, at a fixed spread over LIBOR or Euribor for the duration of each contract. Therefore, in the case of borrowings at a variable rate of interest, we are exposed to the effect of fluctuations in interest rates, and
20
Overview
Mitigation To mitigate technical and technological risks, we choose contractors for the construction and installation of equipment carefully. We regularly assess employees and provide necessary training, and have a company-wide development programme in place. Mergers and acquisitions Severstal has grown rapidly, and we intend to pursue opportunities to grow our operations through further acquisitions. However, there can be no assurance that we will be able to integrate successfully such acquired companies, or identify suitable acquisition targets. In recent years, we have increased our ownership interests in a number of companies, and acquired other companies, businesses and production assets. In particular, Severstal Resources has acquired a number of mining operations, both gold and iron ore, and Severstal International in the US has made several other acquisitions. We may consider future acquisitions of assets or companies that we believe are aligned with our corporate strategy and financial targets and offer significant potential synergies. In particular, we are considering growth opportunities in Africa, specifically in Liberia, Congo, Burkina Faso, Guinea and Gabon, and other emerging markets. The success of past, current and future acquisitions will depend on our ability to manage the assimilation of the acquired assets or companies into our operations. We need to do this despite the inherent difficulties, such as: existing operational inefficiencies, cultural differences, redundancies of personnel, incompatibility of equipment and information technology, production failures or delays, loss of significant customers, problems with minority shareholders in acquired companies and their material subsidiaries, the potential disruption of our own business, the assumption of liabilities relating to the acquired assets or businesses, the possibility that indemnification agreements with the sellers of such assets may be unenforceable or insufficient to cover potential liabilities, the impairment of relationships with employees and counterparties as a result of difficulties arising out of integration, poor records or internal controls, and difficulties in establishing immediate control over cash flows. Furthermore, there can be no assurance that we will be able to achieve the target synergies in our operations with recent or planned acquisitions.
Business Review Governance
Operational risks
Investment effectiveness Severstal will require a significant amount of cash to fund its capital expenditure programme. If we are unable to generate this cash through operations or external sources, this programme may not be completed on schedule, or at all. Steel production and mining are capital intensive businesses. In particular, we have undertaken a capital expenditure programme focused on the modernisation and development of our existing steel production and mining facilities. Thus far, we have cash capital expenditures (excluding Lucchini and the North America disposal groups) of US$ 1.7 billion in 2008, US$ 809 million in 2009 and US$ 1.25 billion in 2010. We plan to rely on cash generated from our operations, and, to a lesser extent, on external financing, to provide the capital needed for the capital expenditure programme. However, there is no assurance that we will be able to generate adequate cash from operations or that external financing, if necessary, will be available on reasonable terms. In addition, our capital expenditure programmes are subject to a variety of potential problems and uncertainties. These include changes in economic conditions, delays in completion or delivery, cost overruns, and defects in design or construction, all of which may create the need for additional cash investment. Furthermore, our capital expenditure programme includes plans to acquire significant amounts of new equipment, including more advanced technologies. While such new production equipment and technologies are aimed at increasing the operational performance of our facilities, there can be no assurance that the equipment will meet its intended production targets on a timely basis, or at all, and this could result in reduced production, delays or additional costs. Moreover, to finance the programme, we may incur a substantial amount of additional debt, and the interest and principal repayments on this may be a significant drain on our cash flow. The failure or delay of our capital expenditure programme or the significant increases in financing costs that may be incurred to fund the programme could have a material adverse effect on our business, financial condition, and the results of our operations.
21
We regularly assess employees and provide necessary training, and have a company-wide development programme in place
22
Overview
Social risks
Severstals business depends on good relations with its employees. A breakdown in these relations and/or restrictive labour and employment laws could have a material adverse impact on us. Although we believe our labour relations with our employees are good, there can be no assurance that a work slowdown or stoppage will not occur at any of our operating units or exploration prospects. At most of our business units, there are collective bargaining agreements in place with labour unions. Any future work stoppages, disputes with employee unions or other labour-related developments or disputes, including renegotiation of collective bargaining agreements, could result in a decrease in our production levels. They could also lead to adverse publicity or an increase in costs, which could have a material adverse effect on our business, financial condition, and the results of our operations. Mitigation We pay special attention to staff support and development programmes. We undertake sociological surveys of employee satisfaction, create the conditions for the development and fulfilment of employees working potential, and implement programmes of social assistance. Activities in different parts of our business include employee healthcare, support for maternity and childhood, catering and recreation organisation, social assistance for retired staff and veterans, staff education and development, and social incentives for the best employees.
Additionally, the value of any business we acquire or invest in may be lower than the amount we pay for it for example, if there is a decline in the position of that business in the market or markets where it operates, or a decline in the market generally. Developed markets, such as Western Europe and the US, may offer lower margins generally, compared to Russia and the CIS. We may not be able to identify suitable acquisition targets, and future acquisitions may not be available to us on terms as favourable as in the past. We may also in the future face significant competition for potential acquisitions. When making acquisitions, it may not be possible for us to conduct a detailed investigation of the nature of the assets we are acquiring for example, due to time constraints in making the acquisition decision and other factors. We may also become responsible for additional liabilities or obligations we did not foresee at the time of the acquisition, such as any financial liabilities entered into by the previous management before completion. Any or all of these difficulties, if they occur, could have a material adverse effect on our business, financial condition, and the results of our operations. A substantial portion of our gold assets were obtained through the acquisition of interests in public companies, and limited due diligence was conducted in connection with such acquisitions.
Further Information
Health, safety and environmental risks

Severstal operates industrial facilities that contain heavy metals or hazardous substances liable to present significant risks to the health or safety of neighbouring populations and to the environment. In this respect, we have in the past and may in the future incur liability for having caused injury or damages to persons or property, or for polluting the environment. Although we have made provisions for such potential liability, there can be no assurance that the amounts covered by such provisions will be sufficient in the future, due to the intrinsic uncertainties involved in projecting expenditures and liabilities relating to health, safety and the environment.
23

Achieving environmental compliance at sites that are currently in operation, or that have been decommissioned, entails a risk that could generate substantial financial costs for us. The competent authorities have made, are making, or may in the future make, specific requests that we carry out environmental improvement works. These include cleaning up and rehabilitating sites, and controlling emissions at sites in Europe where we are currently operating, or where we have operated in the past. We may have to incur significant costs to fulfil these obligations, and these could have a material adverse effect on our business, financial condition, and the results of our operations. Additional or stricter environmental rules and regulations may significantly increase the cost of compliance. Our steel-making plants and mining operations involve potential environmental problems, including the generation of pollutants and the storage and disposal of wastes and other hazardous materials. As a result, we must comply with stringent regulatory requirements necessitating the commitment of significant financial resources, and we expect that the global trend towards stricter environmental laws and regulations will continue. Any significant increase in the cost of complying with such environmental rules and regulations in the future could have a material adverse effect on our business, financial condition, and the results of our operations. Mitigation We have a unified health, safety and environmental protection policy. This includes efficient HS&E management systems and standards, setting objectives and targets, and identifying, assessing and managing HS&E hazards and risks. We have also introduced, into all parts of Severstal, responsibilities for senior and line management in implementing the HS&E policy and monitoring its performance. In addition, we have brought in improved practices, technology and equipment to prevent injuries, ill health and adverse environmental impacts. We have also organised employee training programmes. The HS&E management systems at each entity cover risk management, contingency and recovery planning, information and communications, training and other relevant elements.
Legislation and regulatory risks

Taxes Severstals effective tax rate and financial condition could be affected by the Russian tax status of our non-Russian subsidiaries. Russian tax laws do not provide detailed rules on the taxation of foreign companies. It is possible that with the evolution of these rules, or changes in the approach of the Russian tax authorities, the non-taxable status in Russia of some or all of our foreign companies may be challenged. We believe that our interpretation of the relevant tax legislation is and will be sustainable. Moreover, we believe we have accrued all applicable taxes. However, the interpretations of the relevant authorities could differ, and if they were successful in enforcing their interpretation, the effect could have a negative impact on our financial position. Property law The legal framework relating to the ownership and use of land and other real property in Russia is not yet sufficiently developed to support the private ownership of land and other real estate to the same extent as is common in some of the more developed market economies of North America and Europe. Land use and title systems rely on complex traditional ownership systems. As a result, the title of land that Severstal might invest in may be unclear or in doubt. Moreover, the validity of our right to the title or use of our properties may be successfully challenged or invalidated due to technical violations or defects in title. Such instability creates uncertainties in the operating environment in the emerging market nations, which could hinder our long-term planning efforts and may prevent us from carrying out our business strategy effectively and efficiently. If the real property we own or lease is found not to comply with all applicable approvals, consents, registrations or other regulations, we may lose the use of such real property, and this could have a material adverse effect on our business, financial condition, and the results of our operations.
24
Overview
Administrative sanctions We have expanded our operations through the acquisition of companies that are incorporated and operating in Russia, or by acquiring assets that are located in Russia, such as the mining companies that currently comprise Severstal Resources. Some of these acquisitions are, or were, subject to the prior approval or subsequent notification requirements of the FAS, or its predecessor agencies. Certain portions of these requirements are worded vaguely, and there can be no assurance that we will be able to comply fully or that the FAS will not challenge our past compliance, which could result in administrative sanctions, required divestitures or limitations on our operations. Any such sanctions, divestitures or limitations would have a material adverse effect on our business, financial condition, and the results of our operations. Licence agreements Our business depends on the continuing validity of our licences, the issuing of new licences and our compliance with the terms of our licences, including subsoil licences for our mining operations in Russia. Regulatory authorities exercise considerable discretion in the timing of licence issuing and renewal, and in monitoring licensees compliance with licence terms. Requirements imposed by these authorities may be costly and time-consuming, and may result in delays in starting or continuing exploration or production operations. Moreover, legislation on subsoil rights remains internally inconsistent and vague, and the acts and instructions of licensing authorities, and the procedures by which licences are issued, are often arguably inconsistent with legislation. In addition, our business outside of Russia also depends on the continuing validity of licences, the issuing of new licences and compliance with the terms of such licences, which may involve uncertainties and costs for us. Any or all of these factors may affect our ability to obtain, maintain or renew the necessary licences. If we are unable to obtain, maintain or renew the necessary licences or can obtain or renew them only with newly introduced material restrictions we may be unable to benefit fully from our reserves, and this could have a material adverse effect on our business, financial condition, and the results of our operations.
Mitigation We base our activities, Russian and international, on strict adherence to all applicable laws and regulations tax, customs, and currency control. We ensure monitoring and timely, appropriate reaction to changes, and strive to maintain constructive dialogue with regulators on issues of interpreting and implementing laws and regulations. In particular, we work with Russian federal and local authorities, and participate in the Russian Union of Industrialists and Entrepreneurs and various ad hoc governmental committees. Our international activities are analysed both by in-house lawyers and respectable local or international law firms. We always hold negotiations with government bodies, such as anti-trust, financial and securities market authorities, in good faith and in strict compliance with their regulations, to maintain long-term constructive dialogue.
Our comparatively low production costs for most products allowed us to offer competitive pricing internationally
25
Performance Review
EBITDA 2010 (US$)
3,263m
(2009 EBITDA: 1,589m)
Revenue 2010 (US$)
13,573m
(2009 revenue: 9,594m)
EBITDA margin 2010 (US$)
24.0%
(2009 EBITDA margin: 16.6%)
Notable drivers of revenue growth in 2010 were sales of steel products to the Russian market, sales of mining products to third parties, and accelerating quarter-to-quarter gold sales globally on the back of the rapid expansion of our gold business
Overview
Our outstanding performance in 2010 reflected our efficient vertically-integrated asset structure and improving market conditions. Revenue was US$13,573 million, up 41.5% on 2009; EBITDA was US$3,263 million, 105.3% higher than the previous year.
Revenue drivers
In 2010, crude steel production increased by 16.6% compared to 2009, and reached 14.7 million tonnes. In 2010, revenue was US$13,573 million, up 41.5% on 2009. Severstals Revenue
US$ million
Severstal North Americas contribution to Group revenue, after intersegment transactions, fell from 24.1% in 2009 to 21.5% in 2010 due to a challenging market. Severstals revenue by segment*, 2010 * Including interdivision adjustments of a US$1,637.3 million for 2010 and US$769 million for 2009.
Share of segment sales in total sales (without intersegment sales) 12 m 2010 12 m 2009
Severstal Russian Steel division Severstal North America division Severstal Resources division
63.9% 21.4% 14.7%
63.9% 24.1% 12.0%
EBITDA drivers
EBITDA was US$3,263 million, up 105.3% on the previous year. Severstals EBITDA
US$ million
Further Information
2009 2010
9,594 13,573
2009 2010
1,589 3,263
Notable drivers of revenue growth in 2010 were sales of steel products to the Russian market, sales of mining products to third parties, and accelerating quarter-to-quarter gold sales globally on the back of the rapid expansion of our gold business. Segments contribution to Group revenue growth in 2010, US$ million
14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 600 1,613 13,573 (870)
2,636
2010 EBITDA was strongly driven by Severstal Resources. For the first time in the Companys history the contribution of Severstal Resources and Severstal Russian Steel at the EBITDA level were almost equal for the year. Severstal Russian Steel EBITDA totaled US$1,677 million versus US$1,551 million generated by Severstal Resources. In Q4 2010, Severstal Resources EBITDA exceeded that of Severstal Russian Steel: US$510 million versus US$406 million, respectively. This reflected a much improved mining environment supported by the growing contribution of our gold segment. The Group EBITDA margin increased from 16.6% to 24.0%. Segments input to Group EBITDA growth in 2010, US$ million
3200 3,263 (42)
9,594
2200 358
Revenue 2009 Russian Steel Division Severstal Severstal North America Resources Division Division Intersegment Revenue 2010
200 1,158
1,589 1200
In 2010, Severstal Russian Steel contributed 63.9% of Group revenue, after inter-segment transactions, and remained the most important division by share of revenue. Severstal Resources share of Group revenue, after inter-segment transactions, increased to 14.7% in 2010 compared to 12.0% a year earlier. This increase was due to favorable market conditions and a growing contribution from the gold segment. Revenue rose 86.2% to US$3,484 million (FY 2009: US$1,871 million) and EBITDA was up 294.7% to US$1,551 million (FY 2009: US$393 million).
200
EBITDA 2009 Russian Steel Division Severstal North America Division Severstal Resources Division Intersegment EBITDA 2010
27
Performance Review (continued)

Cash flow drivers
Operating cash flow remained high with US$1,259 million generated in 2010. We had a strong cash position with US$2,025 million in cash and short-term deposits as at December 31, 2010. Cash flow in 2010*, US$ million
5,000
1,259 (1,582)
Severstals capex by segment, 2010 (%)

45 40 35 30 25 20 15
4,000
2,949
10
(393) (208) 2,025
3,000
5 0 -5 Severstal North America* Severstal Russian Steel Severstal Resources Lucchini (discontinued operations) Intersegment adjustments
2,000
1,000 0
December 2009 Cash & ST Deposits Operating CF Investing CF Financing CF Cash of discontinued operation December 2010 Cash & ST Deposits
Major investments In line with our plans, the following expansion projects were completed or advanced in 2010: In June 2010, we completed construction and launched the Sheksna Pipe Plant (TPZ-Sheksna) close to our main Russian steelmaking facilities in Cherepovets. The plant is capable of producing 250,000 tonnes of electric welded pipes and other profiles for the construction industry per year. We invested US$22.5 million in this project in 2010 out of the total investment of US$146.9 million. In July 2010, the Gestamp-Severstal-Kaluga Stamping Facility was commissioned in the Kaluga Region, one of the biggest Russian centers of high-quality automotive steel demand. The plant produces body components for the Volkswagen plant located in the same area. Target annual output is 13 million stamped parts. Total investment into this joint-venture with Gestamp, an international producer of metal components for the automotive industry was about 89 million. Total investment into this joint-venture with Gonvarri, part of Gestamp was about 40 million. In December 2010, we commissioned a new hot dip galvanizing line at the Cherepovets Steel Mill with annual production capacity of 400,000 tonnes of galvanized products. We invested US$41.3 million in this project in 2010, out of a total target investment of US$86.7 million. At Cherepovets Steel Mill, we spent US$43.2 million on the construction of the second colour-coating line, adding 200,000 tonnes of value-added capacity upon completion in 2011.
* Net cash from operating, investing and financing activities includes negative US$598 million of net cash flow from discontinued operations related to Lucchini and North America disposal groups: December 2009 cash includes US$96 million of short-term deposits; December 2010 cash includes US$13 million of short-term deposits; December 2009 cash includes Lucchini and North America disposal groups.
Capital investments
Our cash capital expenditures in 2010 totaled US$1,251 million (capital expenditures including discontinued operations totaled US$1,366 million) and were in line with our target for the year, as we continued to invest selectively across our operations in order to expand mining and steel production volumes, increase output of high-value-added steel products, improve our operational efficiency and reduce costs. Severstals capital investments (US$ million)
Segment 2010 2009 Change yearon-year %
Severstal North America* Severstal Russian Steel Severstal Resources Lucchini (discontinued operations) Intersegment adjustment Total capex
*Including discontinued operations.
342 576 434 15 (1) 1,366
238 369 242 133 (4) 978
43.7 56.1 79.3 (88.7) n/a 39.7
28
Overview
We are continuing the construction of the Balakovo Long Product Mini-Mill in central Russia. This has an expected capacity, upon completion in 2013, of one million tonnes per year of long products for the construction and infrastructure industries. We invested US$162.2 million in this project in 2010, out of a total planned investment of US$693.0 million. At Vorkutaugol, we invested US$11.1 million to develop our own electric power generation and washing plants processes (US$7 million and US$4.1 million, respectively). Once completed in 2011, the captive electric power station will reduce our electricity purchase costs substantially. Also at Vorkutaugol, we invested US$26.4 million in the Usinskoe deposit, a major coking coal reserve, which we will develop. Also at Vorkutaugol, we invested US$ 21.8 million in longwall mines and washing plants (US$17 million and US$4.8 million, respectively). Capital expenditure on longwall coking coal mines was US$3.9 million in Komsomolskaya deep mine, US$2.5 million in Severnaya deep mine, US$0.4 million in Vorkutinskaya deep mine, US$5.1 million in Zapoliarnaya deep mine, US$4.5 million in Vorgashorskaya and US$0.6 million to explore Yunyaginskiy open pit. Capital expenditure on washing plants amounted to US$2.9 million at Pechorskaya washing plant, US$1.4 million at Severnaya washing plant and US$0.5 million at Vorkutinskaya washing plant. In our gold business, we installed additional processing capacity and made operational improvements at the Berezitovy and Suzdal assets. We spent US$11.9 million at Berezitovy and US$4.5 million on other small projects. We invested US$63.8 million in developing our iron ore open pits: US$48.2 million at Karelsky Okatysh and US$15.6 million at Olkon. Additionally, we invested US$8.0 million to improve railway transport infrastructure, mainly at Karelsky Okatysh. We spent about US$14.5 million on equipment for beneficiating plants at Karelsky Okatysh (US$6.9 million) and Olkon (US$7.6 million). We also invested US$3.3 million in the pellet plant at Karelsky Okatysh, and US$2.3 million in iron mines at Olkon, and US$7.9 million in other workshops. In our North American division, we spent US$125.0 million on an ongoing pickle line project and tandem cold rolling mill, and US$44.0 million on an ongoing hot-dip coating line in Dearborn. Both of these will help to produce value-added products. We also spent US$68.0 million on Phase II in Columbus, a mill capable of producing 1.5 million tonnes of crude steel.
Consolidating our gold business was the main focus of our cash flow investment in 2010. We spent US$460.5 million on taking a 93.4% stake in Crew Gold Corporation and US$152.1 million on acquiring a 21.1% stake in High River Gold Mines Ltd, raising our total shareholding in this company to 72.6% at the year end. Other notable 2010 investments included the acquisition of a licence for a coking coal deposit in the Tyva republic in Russia for US$19.7 million. We also purchased, for a total consideration of US$7.5 million, a 25.6% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS), a research and development company based in Johannesburg, South Africa. 2011 target CAPEX Our capital expenditure will continue in 2011 to start operations of our ongoing projects, improve operating efficiency, and ensure that we maintain industry-leading standards of health and safety. Our target investment programme for 2011 is US$2 billion, which is approximately 43% higher than our target level in 2010, and twice the target level in 2009. A major part of this years expenditure will be invested in Severstal Russian Steel, with the remainder in Severstal Resources and Severstal International (North America).
29
Performance Review (continued)

Liquidity and debt position
Severstal adheres to a conservative treasury approach on managing our debt portfolio. Positive relationships with the banking community and proven access to domestic and international debt capital markets allow us to form a well diversified financing structure not reliant on a single market or source of financing. Debt structure as of 31 December 2010, %
70 60 50 40 30 20 10 0 Public debt Private debt 58% 42%
Liability Management & new issue

In October 2010, we took advantage of favourable market conditions and successfully completed the liability management and new issue transaction. The new 7-year Eurobond issue of US$1,000 million was placed under a US$3,000 million Participation Note Programme on October 25, 2010. With significant market demand, the book was 5.4 times oversubscribed and the transaction was priced below the initial price guidance at a historically low coupon rate for the company of 6.7%. The majority of the borrowed funds were used to refinance existing debt, including the partial repurchase of the US$1,250 million Loan Participation Notes due in 2013. This was structured as a Modified Dutch Auction to optimise the premium, with the target amount increasing from an original US$450 million to US$706 million. The combination of the above transactions allowed us to extend the maturity profile of our debt, and reduce interest expense in the coming years. Debt maturity schedule*, US$ million
2,500
The Companys development strategy is backed by long-term financing with a comfortable maturity profile. In 2010, the Company conducted several successful public deals which allowed it to extend the maturity:
2,000
706
High yield bonds

In February 2010, despite the relatively high market volatility in the US and Europe Severstal Columbus successfully placed US$525.0 million of senior secured notes at an original issue discount of 2% and an annual coupon rate of 10.25% maturing in 2018. The order book was two times oversubscribed. The proceeds were used to refinance outstanding debt obligations originally incurred to finance construction at Severstal Columbus.
1,500
1,000 1,331 500 0 2011 2012 847
1,599 1,048 650 53 2013 2014 2015 52 2016 2017 2018+ 537
Ruble bonds
In February 2010, we issued a US$498.0 million ruble-denominated bonds, maturing in 2013 at a coupon rate of 9.75%. The offering was 3.7 times oversubscribed, allowing a coupon rate to be fixed below the initial price guidance. We used the proceeds to refinance short-term debt.
* Excluding accrued interest and unamortised balance of transactional costs
Due to our solid financial performance, there was a rapid improvement in leverage metrics, and we are meeting our long-term target of net debt to EBITDA at below 1.5 times.
30
Overview
Gross and net debt as of 31 December 2010, US$ million

7,000 6,142 6,000 5,831 Net debt/EBITDA 6x Gross debt Net debt 5x
Liquidity position as of 31 December 2010*, US$ millions

2,500 248 2,000 Cash Short-term debt to be repaid Unused committed credit lines
Business Review
5,000 4,116 4,000 2.2x 1.3x 2,000 3,476
4x 1,500 3x 2,025 1,000 2x 500 625** 0 164 Liquidity Q111 211 Q211 Q311 331 Q411 42% 58%
Governance
3,000
1x
1,000
End 2009
End 2010
0x
Note: Figures as of 31 December 2009 and 31 December 2010 exclude Lucchini and North America disposal groups.
* Excluding accrued interest and unamortised balance of transactional costs ** US$492 million in Q3 2011 represent RUB bond put option; maturity can be extended by an additional year
Further Information
In 2010, we maintained significant cash balances. During the whole year, the average amount of cash and short-term deposits on hand was above US$2 billion, and the average availability of committed credit lines was about US$400 million. Traditionally, we keep our cash balances and availability of committed credit lines above our short-term obligation (debt maturities for 2011 are US$1,331 million, excluding accrued interest and unamortised balance of transactional costs). A strong liquidity position helps us retain operating and financial flexibility, and support stable development.
In 2010, we also tightened our policy for managing liquidity risk to minimise the potential negative impact of counterparty default.
31
The Business System of Severstal

Following the development of the Mission, Vision and Values of Severstal in 2009, in 2010, we made another step forward towards internal efficiency. We worked out a set of principles and tools named the Business System of Severstal implanting desired behavior models among the employees and, as a consequence, enable cultural transformation of Severstal, as well as achievement of the companys strategic goals.
2009 2010 2011 onwards
Reversal creativity matrix developed Values, corporate mission and vision Key business project
Choosing key patterns for company development: Labour safety Customer orientation Production efficiency Corporate culture and personnel development Decision-making speed and business processes Defining goals and objectives by development lines, creating and implementing initiatives Communicating and solving various discrepancies in goals across several lines of development
Formulating basic Business System principles Creating uniform culture for production units
Integrating key elements of the Business System into production and management processes. Deploying programs to implement initiatives by specific lines of development in the division
32
Overview
The Business System is a logical follow-up to the previous development phases. Severstal has always focused on production efficiency and implemented several projects in this segment: Total Optimization of Production (1998), Production Consulting (2000), Continuous Improvement (2009). The Business System is a logical development of previous improvement efforts
Business Review
Total production optimisation

1998
Production consulting
2000
Continuous improvement
2009
Business system
Governance
2010
Goals
Reducing production costs and waste the most cost-effective way possible Involving the most capable production managers in the improvement process
Further reduction of production costs and waste, improvement in product quality Including a wider range of production managers and employees in various segments
S tabilising all production processes, minimising production variances S triving to achieve maximum efficiency of labour, equipment, energy use
Integration of individual projects into a uniform improvement system Improved management structure for business units based on best practices Maximum employee involvement in improvement processes
Further Information
Tools
Cost analysis and classification Collecting and analysing cost reduction proposals Implementing fastest-yielding proposals Tracking the effects of the implemented proposals
Implementing basic lean production tools Systemic performance management Using regular audits Creating a permanent infrastructure Creating quality teams
Implementing a wide range of lean production tools Comprehensive standardisation of production processes Two-level programme infrastructure controlled by experts in lean production
Creating improvement initiatives with a view to key lines requirements (development, safety, customer orientation, values) Changing labour payment system while setting ambitious goals Comprehensive audit of the improvement system Wholesale training of officers and senior employees in many segments
33
The Business System of Severstal (continued)

In 2010, Severstal identified five key lines of development within the Business System: 1. Labour Safety 2. Building a Customer-Oriented Organization 3. Continuous Improvement 4. Severstal People 5. Business Standard We established a Unified Business System development centre to integrate these projects and develop harmonised methods for doing so. These methods look at seven areas: skills tracking, motivation, target-setting, standardisation, communications, skill development, and audits. Our approach to implementation prevents project teams competing for personnel, enables even distribution of assignments among line managers and reduces the number of reports and amount of paperwork. At the same time, the uniform project implementation makes it possible to keep all the unique features. Project details: The Continuous Improvement project focuses on developing structural competitive advantages for Severstal in the global market. Its foremost objectives include establishing self-sustained continuous improvement systems on site, increased labour and equipment efficiency, reduced production losses, improved product quality, implementing best practices and changing employees mentality and behaviour in the workplace.
Pillars of the Severstal Business System
Business System Continuous Improvement
Building a CustomerOriented Organisation
Business Standard
Labour Safety
Lean production tools are particularly important as they help employees eliminate seven classic types of waste, those resulting from overproduction; products transported between processing stages; unnecessary product movements within the same production stage; delays in spare parts and materials arriving; over-processing; excessive inventory; making defective products and re-processing them. Managers and employees are both trained in lean production tools.
Severstal People
In 2011, we will implement the five Business System projects simultaneously in production, making it possible to achieve specific goals for each of the projects and ensuring common changes in employee behaviour and cultural transformation.
34
Overview
The confirmed financial benefits of the project for the Russian Steel division in 2010 were US$52 million. The projects success is proven by changes in the Cherepovets Steel Mill Flat Rolled Shop No 2. In 2011, production volume at the mill 2000 is expected to increase by 363.1 million tonnes due to reduced downtime as a result of decreased roll changing time and introduction of standard rolling speed and pauses between product units. The Labour Safety project aims to eliminate death at the workplace by 2015 and achieve a leading position by major injury rate indicators (LTIFT, LTIFR) in Russia, and in the longer term at a global level. The project focuses on deploying an efficient occupational safety management system that should help employees development in safe behaviour skills. Work on this project includes three units: creating safe labour conditions, involving employees in labour safety work, and engraining safe behaviour skills. We have developed eleven methods to train line management and employees in various lines of activities. For example, safe behaviour audits help to assess risks correctly and avoid unsafe employee actions in the future. The main goal of the Building a Customer-Oriented Organisation project is to involve all employees in systemic customer orientation events to increase our customer orientation. This project improves absolute and relative customer satisfaction levels, helps to assess and increase corporate process efficiency, improves understanding of internal clients by employees, and leads to economic benefits by increasing the sale price compared to benchmark pricing trends. We used annual customer questionnaires to develop about 200 organisational and investment activities to improve product quality, delivery flexibility and performance, achieve speedier resolving of customer requests and awareness of order progress.
Under the project, the motivation and target-setting systems were modified in several business units (production and technical directorate, sales directorate). New targets focus on improving customer satisfaction levels. We reorganised marketing service and assigned a new function to manage customer expectations. By consolidating the project methods and implementing them together within production, we managed to get the system online enabling communication of customer requests to production units. Our subsidiary marketing companies started implementing the customer orientation principles. The Severstal People project looks to create a single-minded business team focused on solving common corporate tasks and sharing its values. We implement this project in three ways at once: we create transparent and easy-to-grasp HR management processes, ensure a worthwhile working environment, and promote dialogue (a system of internal communications and feedback) with employees. Within the first group of objectives, we created processes for recruiting, evaluating and developing employees in accordance with the corporate values model, developed a recruitment and engagement process for managers, and implemented a performance, development and continuity management system. In 2010, we started a new training programme for managers called Achieving More Together. The Russian Steel Division, in cooperation with McKinsey and Hay Group, started implementing an organisational efficiency and compensation project.
35
The Business System of Severstal (continued)

Within the second group of objectives, we established a social and living standard, and approved an action plan to improve working conditions for employees, repaired locker rooms, shower rooms, and premises for shift meetings, improved the quality of employee delivery in their workplaces, provided comfortable working clothes and personal protection equipment, repaired walkways and galleries etc. To promote dialogue with employees, we adopted a Code of Business Conduct, and are also developing feedback routes, and we perform annual cultural monitoring which we follow up with a corrective action plan. The Business Standard programme, as one of the crucial elements of the Severstal Business System, focuses on increasing business-process efficiency and improving information transparency when making management decisions, as well as significant cost reduction and cultural transformation. The programme is based on the SAP ERP platform. In 2010, we implemented several projects designed to improve operational processes, within the scope of the Business Standard Programme: We opened a Unified Service Centre (USC) in the Russian city of Yaroslavl to provide accounting and tax accounting services, IFRS transaction accounting, treasury operations, HR accounting, wage and withholdings tracking, and wage calculations for Severstal Resources. This technology enables us to develop business while minimising the costs of supporting geographically dispersed business units. Vorkutaugol launched an Equipment Maintenance & Repair programme enabling the management of repair quality, as well as control and analysis of the engineering status of equipment and specific units. For cost-saving, new functionality ensures reliable technical accounting, strategic analysis and planning of M&R expenses. EM&R automated management and control enable tracking mandatory performance of scheduled preventative activities: maintenance and repair of mining equipment. In addition to decreasing the number of forced outage cases and bringing direct economic benefits for the company, the new system will also improve industrial safety levels. Equipment maintenance and repair is a harmonised process for the Mining Division and Russian Steel Division. Those processes have already provided the impetus for serious organisational and methodological changes: Merging service companies Simplifying warehousing structure Establishing harmonised accounting principles by Russian Accounting Principles, IFRS, Tax Accounting By July 2011, the Business Standard Programme is scheduled for launch at the Russian Steel Division. By 2012, we expect over 9,000 of Severstal employees to be working in the programme.
36
Severstals Information Technology

As for improvements in business continuity, we have reconstructed all major data centres to provide the highest level of durability for all business-critical services and applications. We can confirm the potential for significantly reducing operational costs after the pilot project in IP Telephony. The transfer of internal phone communications, especially between different cities and countries, to within the corporate WAN proved to be the right choice.
Information systems
The main area of focus in 2010 was improving internal communications services. The goal is to provide a standard company-wide software solution. With the use of the latest software technologies this approach also gave us the opportunity to get rid of several different legacy applications which performed the same task in different business units. We have implemented new intranet portal services in cooperation with the start of operations of the Shared Service Centre. To provide better control and improve current business processes, we have developed a new information system for PBS Coals. This experience proved to be very successful, so after solving the task of the integration with ERP, we will consider introducing this solution to other mining business units.
Evgeny Charkin Chief Information Officer
IT can be considered as one of the most crucial functions for Severstal business processes integration, efficiency and business continuity. 2010 was the year of significant results in terms of infrastructure modernization, application implementation as well as of the corporate governance in IT function.
Infrastructure
The key drivers for infrastructure development in 2010 were: Business Standard project; Further improvement in the Business Continuity sphere; and Operational cost reduction. These topics found the reflection in different successful IT projects. We have built full infrastructure to meet all requirements of the Business Standard project. This resulted in a significant increase in server capacity and telecommunication channels bandwidth and scale.
Further Information
IT governance
The main result of 2010 in IT governance was the transfer of the IT service provision from outsourcing to in-house at Severstal North America. We have transferred all major services previously supplied by external IT providers, to a team of local and corporate IT staff and implemented new call centres within the Shared Service Centre. This reduced IT operational costs significantly.
Goals for 2011

In 2011 Severstal IT will face the following challenges: SAP ERP implementation; Start of the Unified Communications implementation; and Start of implementing the Manufacturing Execution System (MES).
37
Severstal Resources forms the basis of Severstals balanced and verticallyintegrated business model. With a focus on high-value-added products, such as export-quality iron ore pellets and hard coking coal concentrate, Severstal Resources sold 13.8 million tonnes of iron ore and 11.7 million tonnes of coal in 2010.
Severstal Resources
38
Revenue 2010 (US$)
3,484.3m 1,550.9m
An increase of 86.2% on 2009 An increase of 294.2% on 2009
EBITDA 2010 (US$)
39
Severstal Resources (continued)
Severstal Resources forms the basis of Severstals balanced and vertically-integrated business model. With a focus on high-value-added products, such as export-quality iron ore pellets and hard coking coal concentrate, Severstal Resources sold 13.8 million tonnes of iron ore and 11.7 million tonnes of coal in 2010.
Severstal Resources has the capacity and product mix to provide almost all the iron ore and hard coking coal requirements for the Russian Steel divisions steel operations.
Karelsky Okatysh is in Kostomuksha, in the Karelia Republic of north-western Russia. It mines magnetite quartzite ores and produces high-quality iron ore pellets with an iron concentration between 63% and 65%. Karelsky Okatysh operates two major deposits with an estimated life of 34 years, based on our estimates of JORC reserves plus expected reserves extension. The average iron concentration of reserves at Karelsky Okatysh is approximately 29%. Olkon is in the Murmansk region of north-western Russia. It mines magnetite-haematite quartzite ores and produces high-quality iron ore concentrate. Currently, ore mining is carried out in five open pits. In 2010, Olkon acquired two additional mining licenses for deposits totalling around 44 million tonnes of non-JORC reserves estimated according to the Russian method in A, B, C1 and C2 categories, and suitable for open-pit mining. Olkons deposits have an estimated life of 19 years, based on our estimates of JORC reserves plus reserves extension. Liberias Putu Range iron ore project has estimated resources of 2.37 billion tonnes of iron ore in the existing pit at Putu, with an estimated 34% iron concentration based on a report issued by SRK Consulting Ltd in February 2011 prepared under the Guidelines of National Instrument 43-101. SRK Consulting Ltd also identified potential for up to 2.5 billion tonnes more of iron ore below the projects existing pit shell. Extensive drilling is currently underway as part of the Bankable Feasibility Study, scheduled for completion in 2014. We expect production to start in 2017, with a potential output of at least 20 million tonnes of concentrate. This project will allow us to become a significant player in the iron ore seaborne market.
Iron ore production

Our iron ore business comprises two iron ore extracting complexes: Karelsky Okatysh, which produces iron ore pellets, and Olkon, which produces iron ore concentrate. We also have an iron ore project in Africa: the Putu Range project in south-eastern Liberia, for which we have signed a mineral development agreement with the Government of Liberia. In May 2010, we acquired a 16.5% stake in Core Mining Limited, which controls exploration licences for the Avima iron ore deposit in the Republic of Congo (Brazzaville) and the Kango iron ore deposit in the Republic of Gabon. Both projects are at an early exploration stage with a significant resources potential of high-grade iron ore with an Fe content over 50%.
40
Overview
Coal production
Our coal business comprises Vorktaugol in Russia and PBS Coals in the United States. The Vorkutaugol mine is near Vorkuta in the Komi Republic in northeast European Russia. It operates the Vorkutskoye and Vorgashorskoye coal deposits, with an estimated life of 45 and 20 years respectively, based on our estimates of JORC reserves plus expected reserves extension. The business comprises five longwall mines, an open pit mine and three washing plants. It extracts coking and steam coal. Premium grade coking coal accounts for a high proportion of the Vorkutaugol reserves. In 2010, Vorkutaugol had run of mine of 12.6 million tonnes and plans to increase this to 13 million tonnes by 2013. PBS Coals is a coking and steam coal producer in the United States operating several surface and underground mining complexes near Somerset, Pennsylvania. PBS Coals had a total output of 3.4 million tonnes in 2010. According to a report by the John T. Boyd Company dated 30 May 2008, under the Guidelines of National Instrument 43-101, estimated coal reserves and resources are approximately 49 million tonnes and 223 million tonnes respectively. PBS Coals is favourably located in relation to Severstals steel producing facilities in North America and export seaborne markets. In September 2010, we obtained a licence for further exploration and coal extraction at the Tsentralnyi coalfield in the western part of the Ulug-Khemskiy basin in the Tyva Republic, Russia. This licence was granted by Rosnedra, the Federal Agency of Subsoil Use and will give us access to an estimated 639 million tonnes of high quality hard coking coal. It also expands our access to new markets.
Vadim Larin Severstal Resources, Chief Executive Officer
"2010 was one of the strongest years ever for our mining division, due to a combination of favourable market conditions, the flexibility of our production and sales team, and the effect of last years initiatives to increase the efficiency of our operations.
Our mining activities will continue to provide a strong source of growth and we intend to expand iron ore and coal production as well as other mining operations. In 2010, we laid a solid foundation for future growth with new mining greenfield projects in Russia and Africa. In 2010, we won a licence for a large coking coal deposit in Russia and made progress obtaining permits for our Putu Range iron ore greenfield project in Liberia, Western Africa. In February 2011, an independent mineral resource report estimated a doubling in resources in Putus iron ore deposits to 2.4 billion tonnes. We are now working on a feasibility study at this asset, and intend to build a sizeable iron ore complex. At the same time, our gold production business has rapidly grown through acquisitions and organic growth over the last three years into an established gold producer with assets in emerging markets. In 2010, it contributed a total of US$372.8 million to the Resources Divisions EBITDA, or 24.0%, and the full-year EBITDA margin was 49.4%. Having announced on 11 February 2011 that we have postponed Nordgolds initial public offering, we will continue to develop the business. We are confident that given its strong fundamentals, Nordgold will meet our predicted growth targets".
Further Information
Gold production
Our gold business is consolidated under Nordgold, our 100% gold-mining subsidiary. Nordgold is an established pure-play gold producer focused on emerging markets, with eight producing mines, two development projects, five advanced exploration projects and a broad portfolio of early exploration projects and licences located across West Africa in Guinea and Burkina Faso, Kazakhstan and the Russian Federation. Since starting operations in 2007, Nordgold has grown through acquisition and organically, increasing its production (including gold equivalent ounces of silver) from approximately 21,000 oz to approximately 589,000 oz in 2010. It targets production of over a million ounces from its operating mines and development projects on a fully consolidated basis by 2013. At 1 November 2010, Nordgolds resource base consisted of 23 million oz of gold resources on a fully consolidated basis and 103 million ounces of silver resources (represented by a 50% interest in the Prognoz silver deposit) classified as measured, indicated and inferred, according to JORC and 8.9 million oz classified proven and probable gold reserves.
Ferroniobium production
In 2010 we decided to stop Ferroniobium production and sell this kind of our business.
41

Brief world iron ore market overview
In 2010, the global iron ore market fully recovered from the crisis reaching 1,753 million tonnes and growing by 13% year-on-year, as steel production rebounded in developed countries and demand in China continued to grow. Global iron ore consumption 2005 2010, million tonnes
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 616 521 713 715 912 867 837 899 1,388 722 937 957 854 1,528 1,650 1,672 China 1,559 Excluding China 1,753
One of the key themes in 2010 was a recovery in demand from developed countries. Chinas iron ore imports actually decreased last year by 17 million tonnes, or 2.7%, from 2009. This was the first time in 10 years Chinas iron ore imports dropped. Among the developed countries, EU and US imports increased by 47 million tonnes and 10 million tonnes, respectively, and South Korean and Japanese imports (the biggest contributors to Asia ex-China imports) increased by 35 million tonnes. On the supply side, the biggest players in the international market were Australia, Brazil and India which together exported 808 million tonnes of iron ore in 2010, or 78% of global iron ore. 2010 was pivotal for the global iron ore industry, as it moved away from the 40-year old annual benchmark system. A new quarterly contract system was introduced, which offers more transparency and is based on an average spot price (CFR China) over the last quarter, lagging one month minus average freight for a previous month. Iron ore prices in 2010 exceeded all-time highs, reaching US$115 per tonne for fines and US$152 per tonne for pellets, FOB Brazil. This represented increases of 64% and 76%, respectively, on 2009. Iron ore price, FOB Brazil, USD/tonnes
160 Carajas fines, 66% Fe 140 120 100 80 60 40 20 0 BF Pellet, 65.7% Fe
Source: AME, Severstal Analysis
Source: AME, Severstal analysis
The international iron ore trade volume reached 1,031 million tonnes in 2010, a 9% increase on 2009. China, as the largest player, imported 611 million tonnes of iron ore last year, or 59% of the total international trade volume. The other big importers of iron ore were the EU, Japan and South Korea, with a combined 31% share of the global iron ore imports. International iron ore trade in 2009-2010, million tonnes (63% Fe)
1,040 1,020 1,000 35 980 25 960 944 940 920 900
20 09 Oth ers Ch ina No rth Am e rica Asi ae x-C hin a EU dem and in 2 01 0 CIS Ind ia Afr No ica rth Am eric a O the Sup r s ply in 2 00 9 Au stra lia Bra zil
47
1,031
69
Demand Supply
2005
2006
2007 Source: SBB
2008
2009
2010
Note: year from Jan 1 to Dec 31
Note: year from Jan 1 to Dec 31 Source: SBB
12 -17
10 4
-14 -3
-3
9 944
Russia is the worlds fourth largest iron ore producer, with a significant resource base. In 2010, Russian iron ore output reached 101 million tonnes, 6% more than in 2009. In both years, most output was consumed domestically and about 25% was exported.
De ma nd in
Source: AME, Severstal analysis
42
Sup ply =
Overview
Brief world coking coal market overview

In 2010, there was strong demand with insufficient supply in the global coking coal market. The global economy, steel demand and production recovered, and with serious supply issues in Russia, Indonesia and Australia, there was a global coking coal shortage. As with iron ore, there was a change of pricing mechanism for coking coal, with most contracts switching from an annual to quarterly system. As a result, 2010s JFY contract price gained 68% on 2009 to reach US$217 per tonne FOB Australia for premium hard coking coals. The international coking coal trade reached 249 million tonnes in 2010, up 12% on 2009. This growth was mainly driven by steel production recovery in Japan and the EU, the two largest coking coal importers. The total increase of coking coal exports to Asia (excluding China) and the EU accounted for 11 million tonnes, or 10% year-on-year. International coking coal trade in 2009-2010, million tonnes
260 11 249 15 Demand Supply
250 10
240 5 -2
10 4 222 4
230
The expected shortage of globally traded coking coal supply has led to numerous plans for capacity expansions through brownfield and greenfield projects in Australia, Canada, the US, Russia, Mongolia and Mozambique. However, new projects are restricted by road and port infrastructure bottlenecks, and the availability of capital funding. In terms of pricing environment, the coking coal market is similar to iron ore, and in 2010 the annual benchmark contract system was replaced by the quarterly one. In 2010, premium hard coking coal prices reached US$195 per tonne FOB Australia on average, representing a 13% growth from 2009. In JFY contract terms, 2010 price grew by 68%, reaching US$217 per tonne FOB Australia. Premium hard coking coal price, FOB Australia, USD/tonne
300
Further Information
-0.5 -1.5 222
220
210 200
EU Ch i na Asi ae Sup x-C ply hin =D a em and in 2 01 0 Au stra lia Mo ngo No lia rth Am eric a 20 09 Oth ers Sup ply in CIS Oth ers 20 09 CIS
250
De ma nd in
200
150
Source: AME
100
In supply, the international coking coal market is dominated by Australia, with a 55% market share. The other key exporting countries include the US, Canada, Mongolia and Russia. In 2010, Russias coking coal output grew 24% to 56 million tonnes. Of this 30% (17 million tonnes) was exported. Last year coking coal exports were impeded by a number of catastrophes, including the explosion at Raspadskaya mine, and floods in Indonesia and Australia. Nevertheless, in 2010, total Australian coking coal exports increased by 15 million tonnes or 12% year-on-year. Mongolia exported 14 million tonnes of coking coal in 2010, mostly to China, representing a three-fold increase. It is worth mentioning that the US, a swing-supplier, also exported 2 million tonnes more coking coal last year.
50 0 2005 2006 2007 2008 2009 2010
Note: year from Jan 1 to Dec 31 Source: SBB
43

Key performance indicators
In 2010, revenue from Severstal Resources increased by 86.2%, to US$3,484.3 million. This was mostly due to higher sales volumes and product prices on the back of improving market conditions. Revenue drivers in 2010, US$ million
3,500 692 80 157 40 3,484
to the 2010 EBITDA increment, with an EBITDA margin of gold product at 49.4%. OAO Karelsky Okatysh added US$451 million to the 2010 EBITDA increment, with an EBITDA margin of pellets at 54.2%. OAO Olkon added US$87 million to the 2010 EBITDA increment, with an EBITDA margin of iron ore concentrate at 43.5% in 2010. Vorkutaugol added US$393 million to the 2010 EBITDA increment, with an EBITDA margin of coal product at 44.3%. EBITDA drivers in 2010, US$ million
2,000 1,800 1,600 1,400 1,235 48 -38 -209 -17 -38 1,551
2,800 172 1,871
462
10
2,100
1,400
1,200 1,000
700 0 Revenue Volume 2009 coal Price coal Volume Price Volume iron ore iron ore gold Price gold Other* Revenue 2010
800 600 400 200 0 393 177
* Other includes revenues from non-core business, like delivery services
EBITDA Sales 2009 volumes
Sales prices
Sales ProductionProduction structures volumes expenses
G&A
Other
EBITDA 2010
EBITDA amounted to US$1,550.9 million, 294.2% higher than in 2009, and the EBITDA margin increased from 21.0% in 2009 to 44.5% in 2010. Our gold business added US$137.2 million
The average number of Severstal Resources employees in 2010 was 26,568 1,167 less than in 2009.

2010 2009 Change year-on-year %
Revenue (US$ million) Gross profit (US$ million) Profit from operations (US$ million) Operating margin (%) EBITDA (US$ million) EBITDA margin (%) Average product prices (FCA) (US$/tonne) Coking coal (concentrate) Steam coal Iron ore concentrate Pellets Ferroniobium Gold (US$/oz) EBITDA margin (%) Coal Iron ore concentrate Pellets Ferroniobium Gold
3,484.3 1,702.8 1,247.2 35.8 1,550.9 44.5 143 43 68 103 25,581 1,251 39.2 43.5 54.2 (204.0) 49.4
1,870.8 465.2 91.1 4.9 393.4 21.0 88 40 35 46 25,000 992 5.8 19.0 18.6 12.6 45.5
86.2 n/a n/a n/a n/a n/a 62.5 7.5 94.3 123.9 2.3 26.1 n/a n/a n/a n/a n/a
44
Overview
Sales and marketing

According to Rasmin, Severstal Resources coal businesses are among Russias top five coking coal producers. Our iron ore business is among the leaders in terms of extraction volumes in its respective markets. Specifically, our share of the Russian pellet market, which is a value-added product, increased from 31.9% in 2009 to 32.4% in 2010 (source: Rudprom).
Sales by products, 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year %
Thousand tonnes
US$ million
Coking coal Coking coal concentrate Steam coal Pellets Iron ore concentrate Ferroniobium (tonnes) Gold (ounces)* Total sales by products Other and shipping Total sales revenue Inter-segment transactions
* including gold equivalent ounces of silver
575 7,262 3,896 9,797 4,027 129 602,662
37.7 1,037.6 165.8 1,011.4 275.1 3.3 754.2 3,285.1 199.2 3,484.3
180 5,083 3,885 8,763 5,107 296 521,599 (13,162)
3.5 449.3 154.7 404.7 180.5 7.4 517.6 1,717.7 153.1 1,870.8 (723.9)
219.4 42.9 0.3 11.8 (21.1) (56.4) 15.5 n/a n/a n/a n/a
977.1 130.9 7.2 149.9 52.4 (55.4) 45.7 91.2 30.1 86.2 n/a
(14,317) (1,494.5)
We expect our share of raw materials production for metallurgy (iron ore, coking coal) on the Russian market to increase in 2011. This will be due to our new customer-oriented programmes and changes in the supply chain of our vertically integrated metallurgical holdings. Our share of steam coal on Russian and world markets will also grow.
Sales by products
In 2010, Severstal Resources increased sales across all key products, in Russia and internationally. Year-on-year combined sales in tonnes of coking coal concentrate, iron ore pellets, and gold increased by 42.9%, 11.8% and 15.5%, respectively. Value-added products accounted for the largest part of our sales in 2010. Coking coal concentrate accounted for 29.8% of total sales, pellets for 29.0%, iron ore concentrate for 7.9%, and gold accounted for 21.6%. Coking and steam coal accounted for 1.1% and 4.8% of revenue respectively. Coking coal sales increased by 219.4% in volume and 977.1% in revenue in 2010, compared to 2009, as a result of maximizing sales. Coal concentrate sales increased by 42.9% in volume and 130.9% in revenue, due to increased production volumes at PBS Coals Ltd (volume) and higher prices (revenue). Pellet sales increased by 11.8% in volume and 149.9% in revenue. Iron ore concentrate sales fell by 21.1% in volume due to increased consumption of iron ore pellets at our own Russian steel mill, and increased by 52.4% in revenue. Gold sales increased by 15.5% in volume and 45.7% in revenue, due to the acquisition of Crew Gold Corporation in 2010 (volume) and growth in prices (revenue). The weighted average selling prices for our main products also progressed. Iron ore prices increased by 123.9%, coking coal concentrate by 62.5%, and gold by 26.1% compared to 2009. As a result, revenue was driven by both volume and prices.
Principal markets
Severstal Resources sells its products internally as well as to international and domestic markets. We aim to maintain domestic market share and expand our international market share with high-quality pellets and coking coal concentrate.
45

Russian market
Russia is the principal market for our mining businesses. Our main customer is Severstals Russian Steel division. Our share of sales on the Russian market in 2010 was 60.3% of revenue. The largest part of our revenue on the Russian market resulted from sales of pellets (31.9%), coking coal concentrate (30.2%), gold (18.6%) and iron ore concentrate (13.1%). Favourable market conditions and higher prices significantly added to Severstal Resources financial performance in 2010. For example, prices of coking coal concentrate increased by 67.1% compared to 2009 pellets by 115.1% and gold by 26.1%.
Domestic sales by products 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million
Coking coal Coking coal concentrate Steam coal Pellets Iron ore concentrate Ferroniobium (tonnes) Gold (ounces) Total sales by products Other and shipping Total domestic sales revenue Inter-segment transactions
4 4,562 2,292 6,631 4,027 129 314,907
0.1 633.7 74.4 670.3 275.1 3.3 391.6 2,048.5 52.8 2,101.3
37 3,870 2,147 5,734 5,107 296 308,606 (12,158)
0.9 321.7 60.8 269.6 180.5 7.4 304.4 1,145.3 54.4 1,199.7 (647.5)
(89.2) 17.9 6.8 15.6 (21.1) (56.4) 2.0 n/a n/a n/a n/a
(88.9) 97.0 22.4 148.6 52.4 (55.4) 28.6 78.9 (2.9) 75.2 n/a
(12,219) (1,221.8)
Export
Exports accounted for 39.7% of our total sales by revenue in 2010. The main reason for this increase was continuous development of our gold business and PBS Coals. The principal exports were coking coal concentrate (29.2%), gold (26.2%) and pellets (24.7%). The main destinations were Europe, the US and the CIS (mostly to Ukraine and Belarus). The export market was also favourable, and weve seen similar results. For example, prices on coking coal concentrate have increased by 42.1% compared to 2009; pellets by 141.5% and gold by 25.9%.
Export sales by products, FCA based on discounts/price premium 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million
Coking coal Coking coal concentrate Steam coal Gold (ounces)
571 2,700 1,604 3,166 287,755 (2,098)
37.6 403.9 91.4 341.1 362.6 1,236.6 146.4 1,383.0 (272.7)
143 1,212 1,738 3,029 212,993 (1,004)
2.6 127.6 93.9 135.1 213.2 572.4 98.7 671.1 (76.4)
299.3 122.8 (7,7) 4.5 35.1 n/a n/a n/a n/a
1,346.2 216.5 (2.7) 152.5 70.1 116.0 48.3 106.1 n/a
Pellets Total sales by products Other and shipping Total export sales revenue Inter-segment transactions
46
Overview
Capital expenditure
In 2010, investments in Severstal Resources ongoing business and new projects totalled US$433.8 million. This is almost twice as much as in 2009. The biggest increase in capital expenditure was in the gold mining division (US$170.8 million compared to US$99 million in 2009) and in the Corporate Centre (US$21.4 compared to US$5 million in 2009). We invested US$102.0 million in our coal production (Vorkutaugol US$76.2 million and PBS US$25.8 million). Capital expenditure in iron ore production was US$127.8 million (Severstal Liberia Iron Ore US$28.2 million, Karelsky Okatysh US$72.1 million, and Olkon US$27.5 million). In 2010, we made the following main investments: Coal assets: Vorkutaugol invested US$26.4 million in Usinskoe deposit, identified as one of the major coking coal reserves for further development. Vorkutaugol invested US$ 21.8 million in longwall mines and washing plants (US$17 million and US$4.8 million respectively). Capital expenditure on longwall coking coal mines was US$3.9 million in Komsomolskaya deep mine, US$2.5 million in Severnaya deep mine, US$0.4 million in Vorkutinskaya deep mine, US$5.1 million in Zapoliarnaya deep mine, US$4.5 million in Vorgashorskaya and US$0.6 million to explore Yunyaginskiy open pit. Capital expenditure on washing plants amounted to US$2.9 million at Pechorskaya washing plant, US$1.4 million at Severnaya washing plant and US$0.5 million at Vorkutinskaya washing plant. Vorkutaugol invested US$11.1 million in its own electric power generation and washing plants processes (US$ 7 million and US$ 4.1 million, respectively). Vorkutaugol also invested US$1.6 million in the modernisation and re-equipment of its transportation system. PBS invested US$17.1 million in re-equipping of mines and open pits and US$8.0 million in business and production process development. US$2.6 million was invested in Kimberly Run deep mine production development, and US$0.8 million in process improvement at cleaning plants. Part of the US$0.4 million development budget went towards ongoing SAP implementation. US$0.8 million was invested in licensing currently developed areas, including Schrock Run, Sheep Ridge and others. Corporate Centre invested US$19.7 million into acquiring a licence for a large coking coal deposit in the Tyva republic of Russia.
Iron ore assets: In 2010 we invested US$99.6 million in projects to increase our extraction and refining of iron ore. We invested US$63.8 million in developing open pits: US$48.2 million at Karelsky Okatysh and US$15.6 million at Olkon. We also invested US$ 8.0 million in railway transport infrastructure, mainly at Karelsky Okatysh. We spent around US$14.5 million on equipment for beneficiating plants at Karelsky Okatysh (US$6.9 million) and Olkon (US$7.6 million). We also invested US$3.3 million in the pellet plant at Karelsky Okatysh, and US$2.3 million in iron mines at Olkon, and US$7.7 million in other workshops. Gold assets: Total investments in the gold segment amounted to US$170.8 million in 2010. We invested US$57.3 million in safety projects and re-equipment: US$14.2 million at Crew Gold, US$12.9 million at Buryatzoloto, US$8.8 million at Berezitovy Rudnik, US$8.5 million at NeryungriMetallic and Rudnik Aprelkovo, US$7.5 million at Somita, US$4.7 million at Celtic and Semgeo and US$0.7 million at other assets. A major part of the US$48.1 million investments on expansion were US$31.7 million from Celtic capital expenditure (for the expansion of crushing and milling facilities, acquisition of underground machinery and on developing new BIOX assets). Residual amounts consist of US$11.9 million for development of additional processing capacity in the gold extraction facilities at Berezitovy Rudnik, and US$4.5 million for other small projects. Exploration and evaluation investments in the gold segment totalled US$65.4 million in 2010: US$17.4 million in West Africa, US$17.3 million in Yuzhno-Uguyskaya area at Neryungri-Metallic, US$14.9 million in Buryatzoloto, US$6.7 million in SZRK (Uryakhskoye, Vitimkanskaya, Nerchinskaya, Kunikan and Ostantsovy fields), US$4.5 million in Celtic and US$4.6 million in others. Projects for 2011 In 2011, total investment at Severstal Resources will be approximately US$650 million. Major initiatives will include a project to modernise production equipment across the divisions iron ore mills and coalmines, completion of a thermoelectric power station burning coalmine methane in Vorkuta, exploration of the Putu iron ore deposit in Liberia, continued development of the divisions gold mining assets and a coalmine at PBS Coals.
47

Gold assets: We expect to spend US$289.9 million on gold extraction projects in 2011, including: US$71.2 million on maintenance (safety, facilities balancing and replacing equipment) at Crew Gold (US$37.7 million), Buryatzoloto (US$13.4 million), Neryungri-Metallic and at Rudnik Aprelkovo (US$12.7 million), Celtic (US$3.8 million), Berezitoviy (US$2.8 million) and Somita (US$0.8 million). US$111.7 million capital expenditure on expansion (development) at Burkina Faso entities (US$90.0 million), Celtic (US$7.2 million), Berezitoviy (US$5.8 million), Somita (US$4.1 million), Neryungri-Metallic (US$3.1 million) and Buryatzoloto (US$1.5 million). US$107.0 million on exploration and evaluation at our Western African assets (US$34.2 million), Buryatzoloto (US$23.2 million), Neryungri-Metallic and Rudnik Aprelkovo (US$17.3 million), Crew Gold (US$12.0 million), SZRK (US$9.4 million), Celtic (US$8.6 million), Berezitoviy (US$1.6 million) and Somita (US$0.7 million).
Major projects: Coal assets: Capital investment at Vorkutaugol will go mainly towards extraction, development and washing (US$51.3 million for the long-term and US$51.4 million for maintenance). We are also investing in improved industrial safety measures (US$3.0 million) and renovating production facilities (US$3.6 million). Further investment projects at PBS Coals Ltd will require US$58.1 million. We will also spend US$7.6 million on our Tyva project. Iron ore assets: We plan to spend around US$47.9 million on projects at Olkon. These include the renovation of production facilities (US$12.4 million), investments in long-term development projects and new technology (US$15.7 million), safety measures (US$1.9 million) and maintaining the current level of production (US$17.8 million). Through our investment programme at Karelsky Okatysh, we aim to maintain 2010 production volumes. This includes renovating production facilities (US$16.8 million), maintaining the existing level of extraction (US$57.4 million), investing in long-term development projects and new technology (US$10.5 million), and safety measures (US$1.0 million). We will also spend US$32.0 million on the Severstal Liberia Iron Ore project.
In 2010, investments in Severstal Resources ongoing business and new projects totalled US$433.8 million. This is almost twice as much as in 2009
48
Overview
Costs In 2010, costs in Severstal Resources increased by US$375.9 million, or 26.7%. This was due to a 58.6% material expenses increase as a result of increased production volumes compared to 2009.
2010 2009 Change year-on-year %
Business Review
Cost of sales structure US$ million % of total US$ million % of total
Materials Grinding balls and rods Explosives Metal roll Technological coals Other materials Integral implements and spares Total materials Electric power Gasoline Other energy resources Total energy Staff costs Depreciation and amortisation Services Change in inventories Other Total 34.2 46.5 27.7 64.0 180.5 125.5 478.4 178.2 74.1 86.0 338.3 467.6 254.9 262.8 (41.9) 21.4 1,781.5 2.0 2.6 1.6 3.6 10.1 7.0 26.9 10.0 4.2 4.8 19.0 26.2 14.3 14.8 (2.4) 1.2 100.0 28.4 33.7 16.5 27.5 122.8 72.8 301.7 132.6 57.0 62.2 251.8 399.1 267.2 198.8 14.9 (27.9) 1,405.6 2.0 2.4 1.2 2.0 8.7 5.2 21.5 9.4 4.1 4.4 17.9 28.4 19.0 14.1 1.1 (2.0) 100.0 20.4 38.0 67.9 132.7 47.0
Financial Statements Governance
72.4 58.6 34.4 30.0 38.3 34.4 17.2 (4.6) 32.2 n/a n/a 26.7
Energy
Further Information
49
Our Russian integrated manufacturing facilities are one of the largest in the CIS and offer some of the widest varieties of products.
50
Revenue 2010 (US$)
8,814.8m 1,677.4m
An increase of 42.7% on 2009 An increase of 27.1% on 2009
EBITDA 2010 (US$)
51
Severstal Russian Steel (continued)

We are a leading steel producer in Russia with a focus on value-added flat steel products. Located in northwest Russia, our steel operations have convenient rail access not only to our mining supplies, but also to our Russian customers and Baltic Sea ports.
The Russian Steel Division is one of the largest production units of Severstal. In 2010, it produced approximately 65% of our total crude steel production, manufactured around 57% of our total rolled products output, and around 94% of our total downstream products output, and accounted for 64% of our total revenues. 2010 was a year of solid growth for the Russian Steel Division, with a production volume of 11.1 million tonnes of crude steel in 2010, compared to 9.5 million in 2009. Revenue increased by 42.7% to US$8,814.8 million (FY 2009: US$6,179.1 million) and EBITDA went up by 27.1% to US$1,677.4 million (FY 2009: US$1,319.4 million).
Alexander Grubman Severstal Russian Steel, Chief Executive Officer 2010 was a strong year for the Russian Steel Division. We managed to capitalise fully on the market recovery and flexibly adjust our sales to the fastest growing segments. Growing raw materials prices were partially balanced by our efforts to reduce the cost of production. We integrated some of our operations to improve the efficiencies of their businesses. In line with our plans, we completed several major projects during the year, including the construction and launch of the TPZ-Sheksna pipe plant close to our main Russian steel-making facilities in Cherepovets. This plant is capable of producing 250,000 tonnes per year of electric welded pipes and other products for the construction industry. In July, the Gestamp-Severstal-Kaluga Stamping Facility was commissioned in the Kaluga Region, one of the biggest Russian centres of high-quality automotive steel demand. It produces body components for the Volkswagen plant located in the same area, with target annual output of 13 million stamped parts. In December, a hot-dip galvanizing line with annual capacity of 400,000 tonnes was commissioned at the Cherepovets Steel Mill after reconstruction. Construction of the Balakovo Long Product Mini-Mill continues in the Saratov region (central Russia), with an expected capacity, upon completion in 2013, of one million tonnes per year of long products for the construction and infrastructure industries. The aim of this organic investment is to increase Severstals growth potential in attractive highergrowth market sectors. In 2011, our focus is to increase production and sales volumes and further develop our Continuous Improvement, Customer Care, Safety, Severstal People and other projects of the Business System of Severstal.
Brief world steel market overview

In 2010, world crude steel production reached 1,414 million metric tones. This was a 15% increase on 2009 and a new record for global crude steel production. As before, Russia remained one of the leading steel-producing countries. In 2010, it was ranked as the fourth country, following China, Japan and the US, with a production volume of 67 million metric tonnes of crude steel, a 12% increase on 2009. Global crude steel production by country in 2010, total 1,414 million tonnes
China EU-27 Japan United States Russia India South Korea Ukraine Brazil Turkey Rest of the World
47% 13% 8% 6% 5% 5% 4% 2% 2% 2% 6%
Source: World Steel Association
During 2010, the global crude steel capacity utilisation ratio fluctuated. The average world steel capacity utilisation ratio in 2010 was 77%, compared to 70% in 2009. Annual average HRC prices increased by 2632% on different markets compared to 2009, on the back of appreciating raw materials.
52
Overview
World hot-rolled coil prices, US$/tonne

1,000 900 800 700 600 500 400 2006 2007 2008 2009 2010
USA, spot EU, spot CIS Black Sea, FOB
Severstal SMZ-Kolpino is also included in the Severstal Russian Steel division. It is an industrial complex created for heavy plate processing with an annual production capacity of 80,000 tonnes of plate. The plant provides semi-finished products for machinery, and manufactures large fabricated sections for the construction industry. In July 2010, in order to meet the demands of the automobile and electrical industries, as well as electronics and building industry producers, the Gestamp-Severstal-Kaluga Stamping Facility and the Severstal-Gonvarri-Kaluga Steel Center were commissioned in the industrial cluster of Grabtsevo, in the Kaluga Region. The Severstal-Gonvarri-Kaluga Steel Services Center is designed to produce 170,000 tonnes of rolled metal products per annum. The Gestamp-Severstal-Kaluga Stamping plant is equipped with a number of press lines and creates the entire chain of processing rolled metal products, from coil to car components. With an annual output of 13 million stamped parts, Gestamp-Severstal-Kaluga targets international car manufacturers, including Volkswagen, PSA, and Renault-Avtoframos. The new stamping facility offers additional possibilities for expanding production, enabling us to increase capacity promptly if we need to. Pipe production The Izhora Pipe Mill in Kolpino produces electric longitudinal welded pipes with a designed diameter of 610mm. These can also be produced with diameters from 1,020mm to 1,420mm, and in lengths of 12,000mm to 18,300mm. They have a three-layered anti-corrosion outer coating and a smooth inner coating. The Mill has a unique ability to produce especially long, large-diameter pipes up to a length of 18.3m that offer higher reliability, lower costs and fewer welded joints. Construction of the Izhora Pipe Mill was completed in July 2006. It uses strips manufactured by Rolling Mill 5000 at the Cherepovets Steel Mill, and has a production capacity of 480,000 tonnes of pipe per year. In order to target new market niches, in June 2010 Severstal launched a new pipe works, TPZ-Sheksna in the Sheksna industrial area of the Vologda region. This is designed to produce up to 250,000 tonnes of electric-welded pipes in various diameters, thicknesses and lengths, as well as square and rectangular sections with different cross-sections. It uses semi-finished steel products from the Cherepovets Steel Mill. Investment in the new Sheksna Pipe Plant is entirely consistent with our strategy to concentrate on the production of high-value-added products, and to take advantage of our integrated structure by supplying the plant from our Cherepovets Steel Mill. TPZ-Sheksna is strategically located within reach of both Saint Petersburg and Moscow, where the construction industry is showing significant growth.
Source: CRU, SBB
Key production facilities

The Russian Steel Divisions primary steel production facility is the Cherepovets Steel Mill, located in Cherepovets, in north-west Russia. It also includes the Izhora Pipe Mill, located in Kolpino, the new pipe works, TPZ-Sheksna, located in the Sheksna industrial area of the Vologda region, and the Metalware segment, which operates from multiple sites across Russia, Ukraine and Italy. These locations give the Russian Steel Division strategic proximity to river ports and railways, providing logistically favourable access to raw material sources and customers. Severstal Russian Steel also comprises ferrous scrap recycling businesses, as well as various supporting functions for trading, maintenance and transportation. Steel production The Cherepovets Steel Mill is one of the worlds largest standalone integrated steelworks by capacity (annual production capacity is about 11.1 million tonnes), and is a low-cost steel producer with an excellent geographic location. It produces a wide range of flat and long rolled products, including hot and cold-rolled flat products, galvanized and colour-coated products and long-steel applications. Rolling Mill 5000, located in Kolpino, produces hot-rolled plates and strips. Automotive grade galvanizing line (Severgal), incorporated as a shop within the Cherepovets Steel Mill, produces high-quality galvanized auto body sheet products, coated with zinc-iron alloy. In commercial operation since December 2005, it has a capacity of 400,000 tonnes per year, and can produce galvanized-steel sheet to a thickness of 0.4 to 2.0 mm and a width of 900 to 1,850 mm. Severgal is strategically located close to several major domestic automotive greenfield production facilities, including Nissan and Toyota in St. Petersburg, and Volkswagen in Kaluga.
Further Information
We managed to fully capitalize on the market recovery and flexibly adjust our sales to the fastest growing segments

Metalware production Severstal-Metiz is the metalware producer within the Russian Steel Division. Its factories in Russia focus on manufacturing products such as low-carbon and high-carbon wire rods, nails, cold-drawn steel, steel rope, netting and fastenings. Severstal-Metiz comprises three sites: the Cherepovets site in north-west Russia, the Orel site in central Russia, and the Volgograd site in the Povolzhie region. Our metalware business has additional sites in Ukraine and Italy, each benefiting from locations in developing markets with high concentrations of industrial and retail customers. Currently, our metalware business produces more than 55,000 types of products, including rod, calibrated steel, steel rope, nails, fibre, fastenings, netting, welding materials and metal cord. It has a total maximum production capacity of more than 1.5 million tonnes per year. Scrap collection and processing The Russian Steel Division has its own scrap-processing facilities, allowing it to utilise a wide range of sizes of steel scrap. These facilities are located in several Russian regions, and include special cutting and packaging lines for processing the scrap to make it ready for use in the smelting process. Trading companies The Russian Steel Division makes its domestic sales to regional and other distributors, directly to end-users, or through its trading arm, Trading House Severstal Invest. The regional distribution of its products primarily involves the delivery of steel to the construction and processing industry. The Division conducts its export sales through export-trading subsidiaries, Severstal Export GmbH, AS Severstallat, LLC SeverstalUkraine and ZAO SeverstalBel. This system has enabled it to increase the efficiency of its export operations by minimising its reliance on intermediaries in the sales process and, therefore, reducing its distribution costs. Service companies The main purpose of service companies is to maintain the production processes of Cherepovets Steel Mill, by providing timely, high-quality equipment repairing services. In 2010, for more efficiency, our repairing services were reorganised into four types of activities: equipment repairing services, machine building and construction, implementation of other repairing projects, and designing and developing projects. The Russian Steel Division is the core of the Business System of Severstal The Russian Steel Division has established comprehensive quality control systems at each stage of its production cycle. It currently operates a total quality management system at each of its steel production facilities, which involves organising employees in quality teams. Established in the converter shop at the Cherepovets Steel Mill in 2000, these teams are now in place at all of the Russian Steel Divisions shops. The Division employs techniques to benchmark its performance to best practice and statistical process control, which it began in 2001. Since 2005, the Cherepovets Steel Mill has been developing and implementing a system of statistical production management, and since 2009 it has implemented the Continuing Improvement Programme. The main objective of these quality control systems is to improve the quality of steel by improving technological process parameters. In 2010, the Continuing Improvement Programme evolved into the Business System of Severstal, a pan-Severstal programme designed to establish maximum involvement of employees in the improvement processes. Quality Control The quality control measures employed by the Russian Steel Division have enabled it to maintain a range of products that meet the high standards required in the US, Germany, Japan and other markets, in addition to the modernised Russian oil and pipeline industries. A range of its products have been certified by the Marine Register of the Russian Federation, Lloyds Register, the American Bureau of Shipping, Norske Veritas, Germanischer Lloyd, Bureau Veritas and the Russian River Register. In February 2010, Lloyds Register performed a re-certification audit of the Russian Steel Division, and extended the term of validity of quality management system approval in terms of its compliance with international standards requirements: ISO 9001:2008 until 31 December 2011 and ISO TS 16949-2009 until 29 March 2011. In 2001, the Russian Steel Division received several certificates attesting to the quality of the production output at Mill 5000. Its steel products are also supplied to various offshore oil and gas development projects. Severstal-Metizs three plants in Russia have management quality systems corresponding to the requirements of International Standard ISO 9001. It has a quality standard certification under International Standard ISO/TS 16949:2009 concerning the production of cold-drawn steel and steel shaped profiles. In addition, Severstal-Metiz has a series of certificates attesting to the quality of its products, including welding wire, ropes, railway fasteners, engineering and high-strength fasteners, low-carbon wire for concrete reinforcement, and fibre.
54
Overview

The Divisions strong performance throughout 2010 reflects stronger steel demand, mainly from the domestic market. In 2010, Russian Steels revenue increased by US$2.6 billion. 2010 revenue was driven by both volume and price factors. There was an increase of 42.7% in revenue, due to a 19.7% growth in sales prices compared to the previous year; the average price for steel products increased by US$119 per tonne. Revenue drivers in 2010, US$ million
10,000 8,000 6,179 6,000 4,000 2,000 0
Revenue 2009 Volume Price Mix Other* Revenue 2010
In terms of sales in tonnes, sales volumes of steel products increased by 18.9% (or 1.8 million tonnes) in comparison with 2009, as production volumes achieved the normal level. EBITDA drivers in 2010, US$ million
4,000 3,500 3,000 2,500 1,026 (798) 21 2,000 1,500 1,319 1,000 500 0
EBITDA Sales Sales Sales COS 2009 volume price structure volume COS price Rates COS Other structure FX EBITDA 2010
Business Review
981
176
Governance
1,378 1,039 (97)
316
8,815
(695)
(162)
(155) (36)
1,677
Our 2010 EBITDA increased by 27.1%, and EBITDA per tonne grew by 4.9% to US$154.1. Full year 2010 EBITDA margin declined to 19.0% from 21.4% in 2009 due to increased prices for raw materials acquired mostly from our own mining assets at market prices.
* Other includes revenues from non-core business, like delivery services, sales of energy, heat, coking side products, etc
Key performance indicators 2010 2009
Change year-on-year
% 42.7 34.0 32.3 n/a 27.1 4.9 n/a 19.7 26.4 2.3 24.5 12.4 12.2 15.8 35.3 40.9 21.3 43.6
Revenue (US$ million) Gross profit (US$ million) Profit from operations (US$ million) Operating margin (%) EBITDA (US$ million) EBITDA per tonne (US$/tonne)* EBITDA margin (%) Average steel product price (US$/tonne)* Hot-rolled strip and plate (US$/tonne) Large-diameter pipes (US$/tonne) Cold-rolled flat products (US$/tonne) Galvanized and other metallic coated sheet (US$/tonne) Colour-coated sheet (US$/tonne) Metalware products (US$/tonne) Long products (US$/tonne) Semi-finished products (US$/tonne) Other tubes and pipes, formed shapes (US$/tonne) Average scrap price (US$/tonne)
* Excludes scrap.
8,814.8 2,811.6 1,370.6 15.5 1,677.4 154.1 19.0 723 599 2,041 670 851 1,181 1,063 617 482 711 290
6,179.1 2,097.7 1,035.7 16.8 1,319.4 146.9 21.4 604 474 1,995 538 757 1,053 918 456 342 586 202
The average number of Russian Steel employees in 2010 was 50,541 (full-time equivalent), a decrease of 0.6% compared to 2009. The majority of entities in the Russian Steel Division continued the deliberate downsizing policy. At the same time, the average wage of Russian Steel employees was raised by 15.0% as of 1 April 2010, compared to 2009.

Production results
In 2010, the Russian Steel Division produced 8.7 million tonnes of hot metal (20.3% more than in 2009), and 11.1 million tonnes of crude steel (16.1% more than in 2009).
Production volumes, thousand tones 2010 2009 Change year-on-year %
Total output Hot metal Crude steel Basic oxygen furnaces Electric arc furnaces Total crude steel 9,340 1,746 11,085 8,002 1,546 9,548 16.7 12.9 16.1 8,689 7,223 20.3
Sales by product
In 2010, sales of hot-rolled strip and plate accounted for 40.7% of overall sales volume (31.1% of revenue), cold-rolled flat products accounted for 13.7% of volume (11.7% of revenue), semi-finished products accounted for 12.5% of volume (7.7% of revenue), long products accounted for 6.9% of volume (5.4% of revenue), metalware products accounted for 7.0% of volume (9.5% of revenue), and galvanized and other metallic-coated sheet accounted for 4.8% of volume (5.2% of revenue). Other steel products (tubes, pipes, colour-coated sheet and scrap) accounted for 13.7% of volume and 19.2% of revenue. Other revenues and shipping reached 10.2% of total revenues.
Sales by product 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million
Hot-rolled strip and plate Large diameter pipes Cold-rolled flat products Metalware products Galvanized and other metallic-coated sheet Long products Semi-finished products Other tubes and pipes, formed shapes Colour-coated sheet Scrap Total steel products Other and shipping* Total sales by products Inter-segment transactions
* Includes coking coal
4,569 471 1,541 786 537 773 1,403 490 244 339 11,153 82 11,235 (202)
2,737.4 961.3 1,032.6 835.7 457.1 477.3 676.3 348.2 288.2 98.2 7,912.3 902.5 8,814.8 (142.8)
3,948 390 1,265 683 508 788 839 436 234 289 9,380 - 9,380 (49)
1,872.2 778.0 680.8 626.7 384.3 359.0 287.2 255.4 246.4 58.3 5,548.3 630.8 6,179.1 (44.6)
15.7 20.8 21.8 15.1 5.7 (1.9) 67.2 12.4 4.3 17.3 18.9 100.0 19.8 n/a
46.2 23.6 51.7 33.3 18.9 33.0 135.5 36.3 17.0 68.4 42.6 43.1 42.7 n/a
Sales by market
The Russian Steel Division sells its products in both export and Russian domestic markets. In 2010, the recovery level was high on both the domestic and international markets. The Russian market The Russian Steel Division continues to regard Russia as its most important market. Our main domestic customers include pipe mills, the automotive and machinery industries, construction due to change in building companies. Our share of the Russian market in revenue terms changed significantly (61.0% in 2010 compared to 55.6% in 2009). We aim to increase that percentage going forward, as Russian steel consumption remains below pre-crisis levels. We estimate demand for steel will rise by 8.0% in 2011, driven by key customers in the construction, automotive, and oil and gas industries. In 2010, sales to the Russian market increased by 36.1% in volume terms, while revenues increased by 56.5%, as a result of the major price increase (by 14.9%). Hot-rolled strip and plate accounted for 36.5% of sales volume, long products accounted for 11.8%, cold-rolled flat products accounted for 16.0%, and galvanized and other metallic-coated sheet accounted for 6.7% of sales volume.
56
Overview
The prices for our main products in 2010 grew considerably in comparison with 2009. The prices for hot-rolled strip and plate went up by 18.5%, for long products by 33.6%, and for cold-rolled flat products by 16.4%. The growth in both volume and price are explained mainly by growing demand in all industry sectors in Russia. Additionally, we have increased the share of cold-rolled steel sales, which also had a positive effect on the Divisions average price for steel products in 2010.
Sales by product domestic market 2010 2009 US$ million Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million Thousand tonnes
Business Review
Hot-rolled strip and plate Large-diameter pipes Cold-rolled flat products Metalware products Galvanized and other metallic-coated sheet Long products Others tubes and pipes, formed shapes Colour-coated sheet Total steel products Total sales by products Inter-segment transactions
2,187 469 956 529 402 704 26 384 220 112 5,989 5,989 (15.0)
1,425.4 960.1 630.6 523.9 342.1 432.4 13.2 267.9 258.6 34.5 4,888.7 489.7 5,378.4 (55.0)
1,420 297 609 425 336 649 4 350 214 95 4,399 - 4,399 (21)
781.1 626.8 345.1 351.4 273.6 298.4 2.5 201.8 225.2 19.4 3,125.3 312.2 3,437.5 (33.8)
54.0 57.9 57.0 24.5 19.6 8.5 n/a 9.7 2.8 17.9 36.1 36.1 (28.6)
82.5 53.2 82.7 49.1 25.0 44.9

Semi-finished products
n/a 32.8 14.8 77.8 56.4 56.9 56.5 62.7
Scrap Other and shipping
Further Information
Export markets In 2010, compared to 2009, export sales of steel products increased by 3.7% in volume terms, while revenues increased significantly (by 24.8%) due to substantial price growth (by 20.4%). Our diversified product mix means we are able to adjust our production and sales to cater for regional and industry trends, and produce higher sales and margins. The main contributors to export sales volumes were hot-rolled strip and plate (45.4%), semi-finished products (26.2%) and cold-rolled flat products (11.2%). In 2010, prices in the export market rose for almost all product groups. The main exporting products were hot-rolled strip and plate and semi-finished products. Prices for those products in 2010 went up by 27.6% and 41.2% respectively, compared to 2009.
Sales by product export 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million
Hot-rolled strip and plate Large diameter pipes Cold-rolled flat products Metalware products Galvanized and other metallic-coated sheet Long products Semi-finished products Others tubes and pipes, formed shapes Colour-coated sheet Scrap Total steel products Other and shipping* Total sales by products Inter-segment transactions
* Includes coking coal
2,382 2 585 257 135 69 1,377 106 24 227 5,164 82 5,246 (186.0)
1,312.0 1.2 402.0 311.8 115.0 44.9 663.1 80.3 29.6 63.7 3,023.6 412.8 3,436.4 (87.8)
2,528 93 656 258 172 139 835 86 20 194 4,981 4,981 (28)
1,091.1 151.2 335.7 275.3 110.7 60.6 284.7 53.6 21.2 38.9 2,423.0 318.6 2,741.6 (10.8)
(5.8) (97.8) (10.8) (0.4) (21.5) (50.4) 64.9 23.3 20.0 17.0 3.7 100.0 5.3 n/a
20.2 (99.2) 19.7 13.3 3.9 (25.9) 132.9 49.8 39.6 63.8 24.8 29.6 25.3 n/a
57

Sales by region
Strategically, Russian Steel is building long-term relationships with customers in the CIS and the EU. Deliveries to other regions are carried out primarily on a spot basis, with the exception of sales to tube and pipe makers and automotive producers. Sales to customers in Russia are strategically important for the future sales of Russian Steel. In 2010, the main export regions were Europe (45.4% of export revenue), Asia excluding the Middle East (23.6% of export revenue) and the Middle East (11.9% of export revenue). Sales to other regions amounted to 19.0% of export sales. In comparison with 2009, the main accent on Europe and the CIS countries was maintained. The sales to Asian markets went down due to the recovery of traditionally more profitable markets. Revenues by regions, 2010 Revenues by regions, 2009
Russian Federation 61.0% Europe 17.7% The Middle East 4.7% South-East Asia 4.8% China and Central Asia 4.4% Central & South America 4.1% North America 2.1% Africa 1.2%
Russian Federation 55.6% Europe 18.2% The Middle East 6.4% South-East Asia 4.7% China and Central Asia 10.6% Central & South America 1.9% North America 0.3% Africa 2.3%
Sales by industry
In the domestic market, Russian Steel focuses on selling its products to the construction industries and steel service centres, pipe production, oil and gas, automotive producers and machinery builders, among others. In export markets, sales are primarily to the processing and construction industries, including re-rollers of slabs, hot-rolled and cold-rolled coils. In 2010, construction and processing sales revenue accounted for 54.8% of total sales, while sales to the oil and gas sector accounted for 10.8%, machinery building accounted for 7.2%, and pipe production accounted for 9.4%. Revenues by industry, 2010 Revenues by industry, 2009
Construction and processing Oil & Gas Machinery building Tube- and pipemaking Automotive Other
54.8% 10.8% 7.2% 9.4% 5.8% 12.0%
Construction and processing Oil & Gas Machinery building Tube- and pipemaking Automotive Other
50.4% 11.8% 13.8% 10.1% 5.1% 8.8%
Costs
The cost of sales increased by US$1,921.8 million in 2010 compared to 2009. The main factor in this increase was the growth in sales volume from 9.4 million tonnes to 11.2 million tonnes, resulting in an increase in the cost of sales of US$798 million. Other factors contributing to the total increase in the cost of sales included: changes in the structure of used raw materials due to change in production, which caused the cost of sales to increase by US$162 million changes in labour costs, excluding foreign exchange rate fluctuations, which resulted in a cost of sales increase of US$94 million foreign exchange effect resulted in a cost of sales increase of US$223 million the increase in the price of materials and energy, which caused an increase in cost of sales of US$695 million. In this context, it is worth noting the following positive effects: a decrease in raw materials consumption rates, which had a positive effect of US$21 million on the cost of sales other factors, which had a positive effect of US$29 million on the cost of sales.
58
Overview
2010
2009 Change year-on-year %
US$ US$ Cost of sales structure million % of total million % of total
Business Review
Materials Scrap metal Coal Iron ore Ferroalloys and nonferrous metals Pellets Coke Other materials Total materials Electric power 848.2 864.7 662.1 476.0 535.4 197.5 931.5 4,515.4 200.0 197.5 91.6 489.1 605.8 272.1 229.2 (108.4) 6,003.2 14.2 14.4 11.0 7.9 8.9 3.3 15.5 75.2 3.3 3.3 1.5 8.1 10.1 4.5 3.8 (1.7) 100.0 561.0 502.6 323.0 269.7 206.6 46.3 687.3 2,596.5 142.4 141.3 78.5 362.2 485.6 257.2 140.0 239.9 4,081.4 13.7 12.3 7.9 6.6 5.1 1.1 16.8 63.6 3.5 3.5 1.9 8.9 11.9 6.3 3.4 5.9 100.0 51.2 72.0 105.0 76.5 159.1 326.6 35.5 73.9
Governance Financial Statements
Energy 40.4 39.8 16.7 35.0 24.8 5.8 63.7 (145.2) 47.1 Gas Other energy resources Total energy Staff costs Depreciation and amortisation Services Other Total
Further Information
59

Capital investments
The Russian Steel Divisions capital expenditure programme is designed to increase productivity and efficiency, effect environmental upgrades, replace and refurbish major equipment, and develop its product mix further to produce higher-quality, value-added products, including galvanized steel and cold-rolled products. We invested US$575.6 million in our steel business in 2010. Of this, we spent US$184.7 million on new projects and US$390.9 million on repairing and modernising projects, including US$ 35.8million for the SAP ERP implementation project. Major projects completed in 2010: Pipe welding mill TPZ-Sheksna We invested US$22.5 million in this project in 2010, out of the total investment of US$146.9 million. Having launched this project in June 2010, we expect to produce up to 250,000 tonnes of pipes per year. The plant will produce pipes of various diameters, thicknesses and lengths, as well as square and rectangular sections with different cross-sections. It will make enable us to increase the share of value-added output at Severstal Russian Steel. Gestamp-Severstal-Kaluga Stamping facility Total investments in this join venture with Gestamp, an international producer of metal components for the automotive industry, were about 89 million. From the start of this project, we expect to produce up to 13 million stamped parts per year. The facility will primarily produce auto-stamping parts for international markets. It will enable us to access a new promising market, increasing value-added output. Severstal-Gonvarri-Kaluga Steel Center Total investments in this joint venture with Gonvarri, a part of Gestamp, were about 40 million. Having launched this project in July 2010, we expect to produce up to 170,000 tonnes per year of rolled metal products for the automotive and electrical industries. This entity will use semi-finished products from Cherepovets Steel Mill. Hot-dip galvanizing line at the Cherepovets Steel Mill We invested US$41.3 million in this project in 2010, out of a total planned investment of US$86.7 million. Having completed this project in December 2010, we expect to increase our annual production of galvanized products to 400,000 tonnes.
Main ongoing projects: Expansion: Color coating line 2 We invested US$43.3 million in this project in 2010, out of a total planned investment of US$84.7 million. Upon completion, we expect it to increase our annual production of colour-coated products to 429,000 tonnes. This project started in the fourth quarter of 2007, and we expect it to be completed in the fourth quarter of 2011. Integrated scrap processing in an open site (Phase 2) We invested US$33.5 million in this project in 2010, out of a total planned investment of US$50.3 million. The aim is to ensure we can supply 900,000 tonnes of shredded scrap each year for the Cherepovets Steel Mill. This project started in the fourth quarter of 2007, and we expect it to be completed in the fourth quarter of 2011. Severstal Balakovo Long Product Mini-Mill (a mini-mill in the Saratov region) We invested US$162.2 million in this project in 2010, out of a total planned investment of US$693.0 million. The mill will produce long products for the construction industry, and will have the capacity to make up to 1 million tonnes of rolled products per year. In 2010, construction works relating to the project entered an active phase: subcontractors for the main types of activities were chosen and mobilised; energy was supplied to the construction site; the main technological equipment was delivered; contracts for the construction of the main step-down substation, and for delivery of the auxiliary equipment required for manufacturing, were concluded.
60
Overview
Modernization: Revamping of by-products recovery Shop 2 We invested US$14.6 million in this project in 2010, out of a total planned investment of US$104.7 million. Its aim is to maintain fixed assets. It started in the first quarter of 2007 and we expect it to be completed in the second quarter of 2013. Revamping of coke battery 7 with a dry coke quenching plant We invested US$11.6 million in this project in 2010, out of a total planned investment of US$141.3 million. Its aim is to maintain fixed assets. It started in the first quarter of 2007 and we expect it to be completed in the second quarter of 2013. Strip slitting line (with inspection area) We invested US$11.3 million in this project in 2010, out of a total planned investment of US$16.3 million. Upon completion, we will be capable of producing heavyweight cold rolled coils (slit coil weight up to 25 tonnes), with an annual line capacity of 200,000 tonnes. The project started in the first quarter of 2007, and we expect it to be completed in the first quarter of 2011. Revamping of coiler group 2 to coil X-100 grades with a gauge up to 25mm We invested US$3.6 million in this project in 2010, out of a total planned investment of US$46.0 million. It will enable us to carry out high quality coiling of steel products, up to 250,000 tonnes per year, and to develop new products (100 grade with 16-25mm gauge). The project started in the fourth quarter of 2007, and we expect it to be completed in the third quarter of 2012. Replacement of turbine generator 4 with 20 atm. steam extraction We invested US$3.4 million in this project in 2010, out of a total planned investment of US$30.0 million. Our aim with this is to increase internal power generation. The project started in the first quarter of 2008, and we expect it to be completed in the fourth quarter of 2011. Revamp of the main step-down substation 1 at our electric power supply shop We invested US$3.2 million in this project in 2010, out of a total planned investment of US$31.5 million. Its aim is to maintain fixed assets. The project started in the fourth quarter of 2007, and we expect it to be completed in the third quarter of 2011. Reconstruction of our steam power plants main building We invested US$2.9 million in this project in 2010, out of a total planned investment of US$26.0 million. Its aim is to maintain fixed assets. The project started in the first quarter of 2009, and we expect it to be completed in the fourth quarter of 2013. Revamping of gas cleaning for 9 Boiler We invested US$2.8 million in this project in 2010, out of a total planned investment of US$4.8 million. Its aim is to maintain fixed assets. The project started in the first quarter of 2007, and we expect it to be completed in the second quarter of 2011. Metalware production We invested US$35.1 million in this segment in 2010. The project aims to reduce costs by optimising and revamping facilities, improving product quality, expanding services, and developing new products.
The Russian Steel Divisions capital expenditure programme is designed to increase productivity and efficiency
2010 was an important year for Severstal International. We made decisive steps to bring our international asset structure in line with our financial and strategic targets, to be well-positioned for longterm growth.
62
Revenue 2010 (US$)
2,911.5m 86.4m
An increase of 25.9% on 2009
EBITDA 2010 (US$)
(2009 EBITDA: -113.8m)
63
Severstal International (continued)

In 2010, Severstal International made some major changes, including divesting the European operations and streamlining the North American business to evolve into a stronger and more focused organisation.
We classified as held for sale the Lucchini segment and a number of entities within the North America reporting segment (Severstal Sparrows Point LLC, SSP Railroad LLC, Severstal Warren LLC, Severstal Wheeling Inc and Mountain State Carbon LLC), as at 31 December 2010. This followed our decision to sell these entities within 12 months of the reporting date and to represent the Groups discontinued operations. In Europe: In June 2010, the Group sold its 50.8% stake in the lossmaking Lucchini S.p.A. for a total consideration of 1 (US$1.2 at the transaction date exchange rate). In February 2011, the Group signed an amendment to Lucchinis share purchase agreement with the majority shareholder. This cancelled the buy-back call option and the entitlement, for the benefit of the Group, to any gain on a subsequent sale of this stake to a third party. This allows us to deconsolidate Lucchini, starting from March 2011 financial reporting. In North America, where we operate as Severstal North America (SNA): To focus on our core steel-making strategy, in May 2010, the Group sold Northern Steel Group, engaged in the processing and distribution of steel products in North America, for a total consideration of US$124.0 million. As a result of the re-focusing of our North American business, on 1 March 2011, we entered into a definitive agreement to sell the subsidiary of Severstal North America which owns facilities at Warren, OH, Wheeling, WV, and Sparrows Point, MD. The transaction was completed on March 31, 2011. The sale of the above North American assets is a key component of our strategic refocusing, which centres on the development of our Dearborn and Columbus facilities. These are two of the most technologically advanced plants in North America, with partial upstream integration into coking coal through PBS Coals (Severstal Resource), also a member of the Severstal Group. SNA operations at Columbus and Dearborn delivered positive EBITDA in 2010, despite economic difficulties and rising raw materials prices. At these two plants SNA produced 3.64 million of tonnes of steel, and shipped 3.74 million of tonnes of steel products. Sales revenue from continuing operations in 2010 amounted to US$2,912 million, with EBITDA of US$86 million.
Replace image
Sergei Kuznetsov Severstal North America, Chief Executive Officer 2010 was an important year for Severstal International. We made decisive steps to bring our international asset structure in line with our financial and strategic targets, and to be well-positioned for long-term growth. We remain committed to operating in North America, which we view as a significant and attractive market. Though still challenging, the US steel market gradually recovered in 2010. Our full-year 2010 crude steel output in the US increased by 17.8%, compared to 2009, enabling Severstal North America to sell around 3.7 million tonnes of rolled products, up 14.6% on 2009 figures. Also in 2010, the full-year revenue of Columbus and Dearborn increased by 25.9% to US$2,911.5 million, driven by volumes and prices, with EBITDA totalling $86.4 million, versus negative EBITDA of US$113.8 million in 2009. We expect the cost position of Columbus and Dearborn to improve further as a result of operational improvements, higher production volumes driven by better capacity utilization rates and commissioning of new steelmaking and finishing facilities at both plants. In 2011, the total amount of capital investment at Severstal North America will be approximately US$465 million. We expect much stronger performance of our US assets from 2011 and beyond, with the completion of their investment programmes expected by the end of 2011.
64
Overview
Our 2011 development of the Dearborn and Columbus plants includes a US$465 million modernisation programme, targeting critically exposed applications for automotive customers and other original equipment manufacturers as well as capacity expansion project at the Columbus plant.
Key production facilities Following the changes, our present operations in Severstal North America (SNA) comprise the following assets: Columbus Severstal Columbus is one of the most technologically advanced steel-making facilities in North America. Commissioned in August 2007, it is the newest mini-mill in North America and the only EAF compact strip process (CSP) plant in the world designed to make exposed automotive steels. It focuses on the production of highquality flat-rolled steel, and currently has an annual production capacity of 1.5 million tonnes. Upon completion of the expansion program in 2011 annual capacity will increase to 3.1 million tonnes. It produces a broad range of high-quality hot-rolled, hot-rolled picked and coiled, cold-rolled and galvanized sheet products for customers primarily in the distributor, construction, automotive, appliance, machinery, and pipe and tube markets. It also has the capability to produce non grain oriented electrical and renitrogenised steels, as well as value-added applications for culverts, shipbuilding and line-pipe. Severstal Columbus is strategically located in Columbus, Mississippi. From Mississippis Golden Triangle, it has unparalleled access to rail, truck and water routes that enable it to deliver product throughout the growing south-eastern US manufacturing region and into Mexico, faster and more economically than other steelmakers. Its site of approximately 1,300 acres has been designed to allow for additional on-site steel processing operations, which are being developed independently and through joint venture opportunities. NAFTA LRF product distribution, 2010
Business Review
Brief NAFTA steel market overview

The North American Free Trade Agreement (NAFTA) light flat rolled steel market, which includes Canada, Mexico, and the US, is one of the largest and most diverse steel markets in the world. The NAFTA light flat roll market, consisting of hot roll, cold roll, coated sheet, and plate in coils, grew by 42% in 2010 and accounted for 66.4% of all NAFTA market steel consumption. Key factors affecting the NAFTA steel market are overall demand, utilisation of capacity, inventories, exports and imports, and competing materials. GDP growth edged higher by 2.9% in 2010 and NAFTA steel shipments regained momentum with total NAFTA light flat rolled steel demand at 58.89 million metric tonnes. In 2010, the market grew across a wide range of consuming industries. Pipe and tube shipments rose by 29.5% and accounted for 15.7% of the total local steel demand. Driven by the OCTG (Oil Country Tubular Goods) sector, this growth is expected to continue in 2011, and the US rig count should continue to increase. The construction, automotive, agriculture, and energy markets are some of the key drivers of pipe and tube demand. As the nations energy infrastructure is further developed, piping and tubing are expected to be a growing source of steel demand. Automotive shipments rose by 44.6% and accounted for 17.6% of local steel demand. Availability of credit and consumer confidence were key drivers of automotive demand, despite the slow recovery in employment. NAFTA light vehicle production increased from 8.6 million units in 2009 to 11.9 million units in 2010, and is expected to increase to 13.1 million units in 2011. As automotive manufacturers work to build lighter and more fuel-efficient vehicles, high-strength and advanced high-strength steels become increasingly important. Construction shipments rose by 38.5% and accounted for 20.2% of local steel demand. As construction recovers from very depressed levels in 2009 and 2010, GDP and employment growth will drive an improvement in residential and non-residential construction, which will be key in further infrastructure growth. We are beginning to see positive signs of a recovery in non-residential construction. The Architecture Billings Index (ABI), a leading indicator, has gradually improved and is above its break-even point. Distributor shipments rose by 57.7% and accounted for 29% of local steel demand. The key driver in the distributor market is end-user market demand. Distributor shipments grew as the economy recovered and inventories were replenished. As both business and consumer confidence improve and support the general recovery, the distributor market will continue to be key in supply chain management, distribution, and the processing of steel for other markets.
Source: CRU, Global Insight product data, CSM.
Governance Financial Statements Further Information
HR CR Coated PIC
42% 20% 31% 7%
NAFTA LRF market distribution, 2010
Automotive Construction Distributor Pipe & Tube All Other
18% 20% 29% 16% 17%
65

Dearborn Dearborn is located in Dearborn, Michigan. This location gives it strategic proximity to major automotive customers, to the Great Lakes waterways and to three large railroads in North America, providing logistically favourable access to raw materials and customers. Current crude steel capacity at Dearborn is 2.3 million tonnes annually. Dearborns product line includes hot-rolled, cold-rolled and galvanized steel. These products, and in particular the value-added products such as high strength, high-carbon and low-alloy steel, are largely targeted at the automotive industry. Dearborn realises partial upstream integration into coking coal via PBS Coals, a coking and steam coal producer located in the US, which is part of Severstal Resources. It operates several surface and underground mining complexes near Somerset, Pennsylvania. Joint ventures and associates: SNA holds interests in three joint ventures and one associate, established together with other US companies in order to expand our product line and provide services. The joint ventures produce metallurgical coke and galvanized steel, and provide steel processing services. Double Eagle Dearborn owns 50% of the Double Eagle Steel Coating Company, a joint venture with United States Steel Corporation. Double Eagle is the worlds largest electro-galvanizing line, and produces premium quality galvanized sheet steel, primarily for automotive customers. The plant, located in Dearborn, Michigan, has a production capacity of 789,000 tonnes per year, approximately one half of which is dedicated to Dearborn. Spartan Steel Dearborn owns 48% of Spartan Steel Coating LLC, a joint venture with Worthington Steel of Michigan. Spartan Steel produces hot-dip galvanized sheet steel, primarily for automotive and service centre customers. The plant is located in Monroe, Michigan, and has a production capacity of 544,000 tonnes per year, about 80% of which is dedicated to Dearborn. Dearborn supplies nearly 100% of the steel sheet used as substrate for Spartan Steel. Delaco Processing Dearborn owns 49% of Delaco Processing LLC, located in Dearborn, Michigan. Delaco Supreme Tool and Gear Co. owns 51% of Delaco Processing LLC. Delaco Processing specialises in slitting steel strip and sheet up to 1,829mm in width. Mississippi Steel Processing Columbus owns 20% of Mississippi Steel Processing LLC (MSP), which is a steel service centre under construction at Columbus industrial site. MSP is a joint venture with Merlo Holdings Inc. (40%) and Layhill Ventures LLC (40%). Production is expected to begin in the second quarter of 2011 with anticipated annual production of 156,000 tonnes per year.
Key performance indicators of Severstal North America in 2010 (excluding discontinued operations)
Revenue from Dearborn and Columbus went up by 25.9% to US$2,911.5 million (FY2009: US$2,312.5 million) with EBITDA of US$86.4 million, compared to FY 2009 negative of US$113.8 million. Their performance throughout 2010 reflects stronger steel demand. 2010 revenue was driven by both volume and price factors.
66
Overview
Revenue drivers in 2010, US$ million

3,000 2,500 2,000 1,500 1,000 500 0
Revenue 2009 Volume Price Mix Other Revenue 2010
294 327 2,312 (13) (8)
2,912
The main factors behind the EBITDA increase were: US$267.6 million improved sales prices US$79.3 million increased sales volume US$43.7 million manufacturing efficiencies attributed to higher production volumes US$(200.5) million cost increases due to raw material price increases. US$10.1 million other factors. EBITDA drivers in 2010, US$ million
$300 $250 $200 $150 $100 $50 $0 ($50) ($100) ($150) ($113.8)
EBITDA 2009 Sales volume Sales mix Sales pricing ManuManufacturing facturing economics efciences Other EBITDA 2010
$267.6
* Other includes revenues from non-core business, like delivery services, sales of energy, heat, coking side products, etc
$43.7 ($200.5) $79.3 $7.5
$2.6
$86.4
Our full-year 2010 EBITDA margin increased to 3.0% from the negative of 4.9% in 2009, due to market recovery.
Further Information
2010 2009
Change year-on-year %
Production of crude steel (thousand tonnes) Sales of steel products (thousand tonnes) Revenue (US$ million) Gross loss (US$ million) (Loss)/profit from operations (US$ million) Operating margin (%) EBITDA (US$ million) EBITDA per tonne (US$/tonne) EBITDA margin (%) Average steel product price (US$/tonne) * Hot-rolled strip and plate (US$/tonne) Cold-rolled sheet (US$/tonne) Galvanized and other metallic-coated sheet (US$/tonne) Colour-coated sheet (US$/tonne) Metalware products (US$/tonne) Semifinished products (US$/tonne)
*Steel products include semifinished, rolled and downstream products.
3,640 3,742 2,911.5 (0.1) (61.4) (2.1) 86.4 23.1 3.0 764 669 780 899 n/a n/a 500
3,090 3,266 2,312.5 (179.4) (257.8) (11.1) (113.8) (34.8) (4.9) 689 571 691 859 n/a n/a 600
17.8 14.6 25.9 (99.9) 76.2 n/a n/a n/a n/a 10.9 17.2 12.9 4.7 n/a n/a (16.7)
As a part of labor costs reduction initiatives SNA decreased headcount (employees and contractors) by the end of the year 2010 to 2,103, compared to 2,185 in 2009.
67

Sales by products of Severstal North America in 2010 (excluding discontinued operations)
In 2010, sales of hot-rolled strip and plate accounted for 43.0% of total rolled products sales, cold-rolled sheet accounted for 19.4%, and galvanized and other metallic-coated sheet accounted for 37.6%. US domestic sales accounted for 97.8% of total sales, and export sales totalled 2.2% of total sales.
Sales by product export 2010 Thousand tonnes US$ million 2009 Thousand tonnes US$ million Change year-on-year % Thousand tonnes US$ million
Hot-rolled strip and plate Cold-rolled sheet Galvanized and other metallic-coated sheet Color coated sheet Total rolled products Metalware products Total semi-finished products Total steel products Other and shipping Total Hot-rolled strip and plate Cold-rolled sheet Galvanized and other metallic-coated sheet Total rolled products Total semi-finished products Total steel products Total US sales Hot-rolled strip and plate Other and shipping
1,834 711 1,196 3,741 1 3,742 3,742 1,776 699 1,181 3,656 1 3,657 3,657 58 12 15 85 85 85
1,227.8 554.5 1,075.8 2,858.1 0.5 2,858.6 52.9 2,911.5 1,189.7 544.9 1,063.7 2,798.3 0.5 2,798.8 48.2 2,847.0 38.1 9.6 12.1 59.8 59.8 4.7 64.5
1,523 688 1,054 3,265 1 3,266 3,266 1,443 663 997 3,103 1 3,104 3,104 80 25 57 162 162 162
869.5 475.3 905.2 2,250.0 0.6 2,250.6 61.9 2,312.5 819.2 455.3 857.0 2,132.0 0.6 2,132.6 58.9 2,191.5 50.3 19.5 48.2 118.0 118.0 3.0 121.0
20.4 3.3 13.5 n/a 14.6 n/a 0.0 14.6 n/a 14.6 23.1 5.4 18.5 17.8 0.0 17.8 17.8 (27.5) (52.0) (73.7) (47.5) n/a (47.5) n/a (47.5)
41.2 16.7 18.8 n/a 27 n/a (16.7) 27.0 (14.5) 25.9 45.2 19.5 24.1 31.3 (16.7) 31.2 (18.2) 29.9 (24.3) (50.8) (74.9) (49.3) n/a (49.3) 56.7 (46.7)
US sales
Export sales Cold-rolled sheet Galvanized and other metallic-coated sheet Total rolled products Total semifinished products Total steel products Other and shipping Total export sales
68
Overview
Sales and marketing

From 2009 to 2010, total sales volumes increased by 14.6%. Direct sales to automotive manufacturers in 2010 accounted for 30.9% of total revenue, which is 18% higher than 26.2% in 2009. US automotive manufacturers experienced a recovery from the recession in 2010 that resulted in increased steel demand.
Business Review
Production results of Severstal North America in 2010 (excluding discontinued operations)

In 2010, Columbus and Dearborn produced 3,640,000 tonnes of slabs, and shipped 3,742,000 tonnes of steel products.
Production volumes (thousand tonnes) 2010 2009 Change year-on-year %
Governance
Hot metal Crude steel
1,801 3,640
1,527 3,090
17.9 17.8
Capital expenditure (including discontinued operations)
Total capital expenditures in 2010 were US$341.6 million, which is 43.2% more than 2009. Major projects at Dearborn and Columbus were resumed in 2010 as the economy improved. In 2011, the total amount of investment at Severstal North America will be approximately US$465 million. This will include the construction, commissioning and start-up of the second electric arc furnace, continuous caster, tunnel furnace, and pickle line, and the second hot-dip galvanizing line at Severstal Columbus, and the new cold rolling complex and hot-dip galvanizing line at Severstal Dearborn. Upon completion of these capital improvement programmes, combined annual steel-making capacity will reach 5.4 million tonnes, cold rolling capacity at Dearborn and Columbus will increase to 3.6 million tonnes, and galvanizing capacity will reach 2.4 million tonnes.
2011 projects Timeline Expected results
Further Information
Dearborn (New Pickle Line and Tandem Cold Mill) Dearborn (New Automotive Exposed Hot Dip Galvanizing Line) Columbus (Phase II)
Q3 2011 start
Cold-rolling capacity will increase to 1.9 million tonnes Development of high-end automotive products output
Q4 2011 start
Increase in exposed automotive steel capacity by 450,000 tonnes focusing on galvanized and galvannealed products
Q3-Q4 2011 start
Crude steel capacity will double to 3.1 million tonnes Galvanizing capacity will double to 1 million tonnes
Costs
The total cost of sales in 2010 was US$2,911.6 million, which is 16.8% more than in 2009. This is due to increased volumes and the higher cost of raw materials.
69
Since it began, in 2007, Nordgold has grown both by acquisition and organically, increasing its production (including gold equivalent ounces of silver) from approximately 21k oz in 2007 to approximately 589k oz in 2010.
Nordgold
70
Revenue 2010 (US$)
754.2m 372.8m
(An increase of 45.7% on 2009)
EBITDA 2010 (US$)
(An increase of 58.2% on 2009)
71
Nordgold
Nordgold is a 100% Severstal subsidiary and consolidates all the companys gold assets. It operates eight producing mines, two development projects, five advanced exploration projects and a broad portfolio of early exploration projects and licences located across West Africa in Guinea and Burkina Faso, as well as in Kazakhstan and the Russian Federation.
Since it began, in 2007, Nordgold has grown both by acquisition and organically, increasing its production (including gold equivalent ounces of silver) from approximately 21k oz in 2007 to approximately 589k oz in 2010. Nordgold targets production of over 1.0m oz from its operating mines and development projects on a fully consolidated basis by 2013. At 1 November 2010, Nordgolds resource base consisted of 23.0m oz of gold resources on a fully consolidated basis and 103m oz of silver resources (represented by a 50% interest in the Prognoz silver deposit) classified as measured, indicated and inferred, according to JORC, and 8.9m oz of proven and probable gold reserves.
Replace image
Nikolai Zelenski Nordgold, Chief Executive Officer "During 2010, we continued to implement our strategy successfully with the acquisition of Crew Gold, which owned the LEFA gold mine in Guinea. This acquisition adds significantly to both our gold production and our resources. We bought an initial 26.6% stake in February and increased our holding in stages during 2010, giving us ownership of 93.4% of Crew Gold at the end of 2010. We have subsequently acquired 100% of Crew Golds shares. The other significant development during 2010 was the increase in our holding in High River Gold, from 50.1% to 72.6%. High River Gold owns the Irokinda, Zun-Holba and Berezitovy mines in Russia and the Taparko mine and Bissa development project in Burkina Faso. It also has an indirect 50% stake in the Prognoz silver deposit. Prognoz is one of the largest high grade undeveloped primary silver deposits in the world, with current resources of 205m oz of silver. Our spread of mines and countries reduces our risk and increases our security of production. It also allows us to identify more opportunities, create synergies across our sites and transfer technology and people around the business. With a proven management team, a commitment to transparency and a strong balance sheet, we are well placed for the future."
Brief world gold market overview

Demand for gold and hence its price can be significantly affected by macro-economic factors, such as inflation, exchange rates and reserve policies, and by global political and economic events. Gold is often purchased as a store of value in periods of price inflation and weakening currencies. In the last ten years the gold prices were growing on the back of substantial demand. LME annual average gold price, US$/ounce
1,600 1,400 1,200 1,000 800 600 400 200 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg, 2011.
Demand for gold continued to be strong during 2010. The gold price reached a new high of US$1,421 per ounce on 9 November and the average price during the year was US$1,224.5 per ounce, compared to US$972.4 in 2009. 2010 was a year of net official sector purchases as central banks of many emerging economies, including China and Russia, sought to diversify their foreign reserves and increase their gold holdings. In 2010, the global gold mine production grew by 1.8% to 2,626 metric tonnes and total world supply increased by 1.6% to 4,347 metric tonnes.
72
Overview
Operations
We report our business in geographical regions, spread across West Africa (Guinea and Burkina Faso), Kazakhstan and Russia.
Business Review
Geographical breakdown Description 2010 Gold Reserves and sales volumes Resources (000 ounces) (million ounces)
West Africa Somita Crew Gold Development West Africa Celtic and Semgeo Berezitoviy Buryatzoloto Neryungri-Metallic and Aprelkovo Development Russia
* From August to December 2010 only
The Taparko open pit gold mine, in Burkina Faso The LEFA open pit gold mine, in Guinea
127.229 73.252
0.9 5.6
Governance
Mines in development and exploration. The key n/a development project is at Bissa, Burkina Faso The Suzdal underground gold mine and deposits in the Zherek and Balazhal open pit mines, which are under technological review An open pit gold mine in Amur region The Zun-Holba and Irokinda underground gold mines, in the Buryatia Republic Open pit gold mines in the Republic of Yakutia and the Transbaikal region 87.273 2.2
Kazakhstan
Russia 72.965 143.764 98.178 1.4 0.5 3.1
Further Information
Mines in the exploration and evaluation stage. The primary project is at Gross
Strategy
We have a three-pillar strategy: Operational optimisation. We look to maximise production and efficiency, and apply best practice. When we acquire assets, we enhance their culture and strategic focus, and increase their operational performance. Organic expansion and development. We make significant investment in expanding reserves at our current mines and identifying and developing new projects. We use our depth of mining and geological expertise and considerable experience on the ground in our regions. Value-building acquisitions. Our M&A strategy is to build on our established presence in the gold industry by identifying underperforming mines or late-stage development projects, where we can create value through operational improvements or by providing expertise or capital. We will consider acquisitions in our existing regions of Russia, Kazakhstan and West Africa, as well as South America. We exercise financial discipline in valuing targets and look to utilise our managements considerable acquisition experience. While implementing this strategy, we also make sure that we work in the right way. Maintaining the health and safety of our people, protecting the environment and supporting our communities are all fundamental to our business success.

In 2010, Nordgold revenue increased by 45.7%, to US$754.2 million. This was primarily due to higher sales volumes and gold prices. EBITDA was US$372.8 million, 58.2% higher than in 2009, and the EBITDA margin increased from 45.5% in 2009 to 49.4% in 2010. The average number of Nordgold employees during 2010 was 8, 672 people, which was 8.3% higher than in 2009.
2010 2009
Change year-on-year %
Revenue (US$ million) Gross profit (US$ million) Profit from operations (US$ million) Operating margin (%) EBITDA (US$ million) EBITDA margin (%) Average product prices (FCA) (US$/tonne)
754.2 359.7 272.0 36.1 372.8 49.4 1,251
517.6 208.2 147.6 28.5 235.6 45.5 993
45.7 72.8 84.3 n/a 58.2 n/a 26.0
73
Nordgold (continued)
Revenue drivers in 2010 vs 2009, US$million
800 700 600 500 400 300 200 100 0 98.6 517.6 47.2 -7.3 33.9 6.0 58.2 754.2
Revenue Neryungri Celtic and 2009 and Semgeo Aprelkovo
Buryat- Berezitoviy Somita zoloto
Crew Gold
Revenue 2010
EBITDA drivers in 2010, US$ million

400 127.7 350 300 250 235.6 200 150 100 50 0
EBITDA 2009
9.3
-8.6
-14.9 -12.7
-3.4
39.7
0.1
372.8
Major projects in 2010: Our total investments in 2010 amounted to US$170.8 million. We invested US$57.3 million into safety projects and reequipment: US$14.2 million at Crew Gold, US$12.9 million at Buryatzoloto, US$8.8 million at Berezitoviy, US$8.5 million at Neryungri-Metallic and Rudnik Aprelkovo, US$7.5 million at Somita and US$4.7 million at Celtic and Semgeo and US$0.7 million at other assets. The major part of the US$48.1 million investment in expansion was US$31.7 million of Celtic capex (expansion of the crushing and milling facilities, acquisition of underground machinery and on developing new BIOX assets). The residual amount consists of US$11.9 million for developing additional processing capacity in the gold extraction facilities at Berezitoviy and US$4.5 million for other small projects. Exploration and evaluation investments totalled US$65.4 million in 2010 (US$17.4 million at our Western African assets, US$17.3 million at Yuzhno-Uguyskaya area at Neryungri-Metallic, US$14.9 million at Buryatzoloto, US$6.7 million at SZRK (Uryakhskoye, Vitimkanskaya, Nerchinskaya, Kunikan and Ostantsovy fields), US$4.5 million at Celtic and US$4.6 million other). Projects for 2011: We expect to spend US$289.9 million on gold extraction projects in 2011, including: US$71.2 million on maintenance (safety, facilities balancing, replacement of equipment) at Crew Gold (US$37.7 million), at Buryatzoloto (US$13.4 million), at Neryungri-Metallic and at Rudnik Aprelkovo (US$12.7 million), at Celtic (US$3.8 million), at Berezitoviy (US$2.8 million), at Somita (US$0.8 million). US$111,7 million on Capital expenditure on expansion (development) at Burkina Faso entities (US$90.0 million), at Celtic (US$7.2 million), at Berezitoviy (US$5.8 million), at Somita (US$4.1 million), at Neryungri-Metallic (US$3.1 million) and at Buryatzoloto (US$1.5 million). US$107.0 million on exploration and evaluation at our Western African assets (US$34.2 million), at Buryatzoloto (US$23.2 million), at Neryungri-Metallic and at Rudnik Aprelkovo (US$17.3 million), at Crew Gold (US$12.0 million), at SZRK (US$9.4 million), at Celtic (US$8.6 million), at Berezitoviy (US$1.6 million) and at Somita (US$0.7 million).
Prices Volumes, Volumes, sales cash costs
Cost of sales
Administrative costs
Taxes
Others
Forex
EBITDA 2010
Top 8 gold producers, 2010

China Australia South Africa USA Russia Peru Canada Indonesia Other 12% 8% 8% 8% 7% 7% 4% 4% 42%
Source: Gold-Eagle report.
Capital expenditure
In 2010, Nordgold investments in ongoing business and new projects totalled US$170.8 million (compared to US$99 million in 2009). We expect our gold production to continue to increase in 2011, due both to the inclusion of a full year of production at LEFA, and to operational improvements and higher productivity at this mine and at Berezitoviy and Suzdal, where we have installed additional processing capacity.
74
Overview
2010 progress and 2011 priorities

Progress in 2010 Priorities for 2011
Business Review
Operational optimisation
Equipment upgrades at Taparko to improve gold recovery Installed an additional processing plant at Suzdal, to expand mine and plant throughput Installed an additional ball mill at Berezitovy, to expand its processing capacity
Increase the mining rate and plant throughput at Taparko to 1.75 million tonnes of ore in 2011, compared to 1.27 million tonnes in 2010. Increase mine and plant throughput at Suzdal to 500,000 tonnes, compared to 300,000 at acquisition. Increase processing throughput at Berezitotovy to 1.8 million tonnes, compared to 1.05 million tonnes in 2010. Increase production at LEFA to 237.9 thousand ounces of gold, compared with 73.3 thousand ounces of refined gold produced for the period from August to December 2010, and reduce cash costs per ounce.
Organic expansion and development
Continued to invest in development projects, notably Bissa and Gross
Begin the engineering and design phase at Bissa. Invest approximately US$107 million in exploration in 2011, encompassing activity next to existing mines and our licence portfolio in Russia, Guinea and Burkina Faso, in order to expand mine life, increase the overall gold resource base and identify potential new mine development opportunities. Continue to focus on exploration of new resources and development of new greenfield and brownfield projects.
Further Information
Value-building acquisitions
Acquired Crew Gold, which owns the LEFA gold mine in Guinea. Added significantly to both our gold production and our resources Increased our holding in High River Gold, from 50.1% to 72.6%.
Continue to review potential targets.
Nordgold history
Increasing total production from 21k oz in 2007 to 589k oz in 2010 In under four years, Nordgold has evolved into a significant player in the gold market.
2007 2008 2009 2010 2011
April Initiate expansion into gold August Acquire 22% stake in Celtic Resources, which owns the Suzdal and Zherek mines in Kazakhstan October Acquire Aprelkovo and Neryungri mines in Russia, from Arlan
January Increase stake in A year of optimising and Celtic Resources to 100% integrating assets, forming an integrated August Acquire Semgeo, business model which owns the Balazhal mine in Kazakhstan
February Acquire 26.6% stake in Crew Gold, which owns the LEFA mine in Guinea July Increase stake in Crew Gold to 50.2% August Increase stake in High River Gold to 70.4% September Increase stake in Crew Gold to 93.4%. October Increase stake in High River Gold to 72.6% October Increase stake in High River Gold to 72.6%
January Increase stake in Crew Gold to 100% February Intention to list Nordgold on the London Stock Exchange Postpone an initial public offering and premium listing of its ordinary shares on the London Stock Exchange due to unfavourable market conditions
November Acquire 53.8% controlling stake in High River Gold, which owns the Irokinda, Zun-Holba and Berezitovy December Increase stake mines in Russia and the in Celtic Resources to 86.3% Taparko mine and Bissa project in Burkina Faso
2007 2008 Acquire several exploration permits in Russian state auctions

Nordgold (continued)
Board of directors
Nordgold is committed to corporate governance and transparency. We have a strong board and our directors have a wide range of different industry experiences. Our independent non-executive directors are well-respected and bring a wealth of experience which will benefit Nordgold in the years ahead. Philip Baum Chairman Philip Baum joined Nordgold as chairman in October 2010. He also chairs the nomination committee and is a member of the safety and sustainable development committee. Philip had a 31 year career with Anglo American plc, with extensive experience in Africa, Europe, North and South America and Australasia in mining, minerals, heavy industry and financial services. He retired in 2009 as chief executive of the companys ferrous metals division and a member of its executive committee. Philip holds a B.Com., an LL.B. and a higher diploma in tax law from the University of the Witwatersrand. He is also a non-executive director of Ruukki Group plc. Nikolai Zelenski Chief Executive Officer Nikolai joined OAO Severstal in 2004 and was head of Severstal Resources gold division and strategy. Previously, he was an engagement manager in the mining sector at McKinsey & Company. Nikolai holds a master of technical sciences degree from the Saint-Petersburg State Technical University, a Ph.D. in molecular genetics from the University of Texas, and a master of business administration degree from Vanderbilt University (United States). Sergey Zinkovich Chief Financial Officer Sergey joined Severstal in 2005. He was head of the tax department of the Groups mining division and chief financial officer of its gold division. Previously, Sergey worked at BDO Unicon and held various financial management positions in the manufacturing industry. He graduated from the Belarusian State University with a degree in jurisprudence, specialising in financial law. Vadim Larin Non-Executive Director Vadim joined Severstal in 2003 and has managed its coal operations at Intaugol and Kuzbassugol. From August 2007 to September 2010 he was chief executive officer of Vorkutaugol. From 1 September 2010, he became acting chief executive officer of Severstal Resources, division of Severstal Group. Prior to joining the Severstal Group, Vadim worked at McKinsey & Company. Vadim graduated from the Moscow State Institute of Radio Engineering, Electronics and Automation. He also holds an MBA from INSEAD. Alexey Kulichenko Non-Executive Director Alexey joined Severstal in 2005 as chief financial officer of Severstal Resources and was appointed chief financial officer of Severstal in July 2009. Prior to joining Severstal, he held senior management positions at Sun Interbrew and Unimilk, where he was chief financial officer. Alexey graduated from the Omsk Institute of World Economy with a degree in economics. Peter Lester Independent Non-Executive Director Peter joined Nordgold in October 2010 as an independent nonexecutive director. He is a mining engineer with extensive experience in senior operating, development and corporate roles and is currently executive director responsible for corporate development at Citadel Resource Group. Previously he was the executive general manager for corporate development for Oxiana and then OZ Minerals. His activities have covered Australia, South East and Central Asia, the Middle East and the Americas. Peter has a Bachelor of Engineering (Mining-Hons) from the University of Melbourne and is a member of the Australian Institute of Company Directors and the Australian Institute of Mining and Metallurgy. He is also a non-executive director of Toro Energy Limited. David Morgan Independent Non-Executive Director David joined the Company in October 2010 as an independent non-executive director and chairman of the audit committee. Previously, he was executive director of corporate development at Johnson Matthey plc. David is a member of the Institute of Chartered Accountants in England and Wales, and has an MA in mineralogy and petrology from Trinity College, Cambridge. He is chairman of the advisory board of Conduit Ventures Limited and a member of the supervisory board of SFC Energy AG. Michael Nossal Independent Non-Executive Director Michael joined Nordgold in October 2010 as an independent non-executive director and chairman of the remuneration committee. He is a member of the executive committee of Minerals and Metals Group and previously served as director and deputy chief executive officer for En+ Group Ltd, which manages aluminium and power assets. Michael holds a bachelor of science degree from Monash University in Australia and a master of business administration degree from the Wharton School of the University of Pennsylvania.
76
Overview
Reserves and resources

Delivering organic growth by developing our reserves and resources is one of the three pillars of our strategy. Between 2008 and December 2010, we invested US$131 million in exploration. As a result of our investment, we have: increased the reserves and resources at our mines; identified the Gross deposit, with more than 5.4 million ounces of resources; more than doubled resources at Bissa to 2.9 million ounces; and built a portfolio of opportunities with further potential to significantly increase our resource base. At 1 November 2010, our proven and probable reserves stood at nearly 9 million ounces of gold.
Proven and probable reserves (000 ounces) Burkina Faso Guinea Kazakhstan Russia Total
2,280 3,796 684 2,148 8,908
Further Information
At 1 November 2010, we had measured and indicated resources of 12.3 million ounces and inferred resources of 10.7 million ounces, giving us total resources of 23 million ounces. Measured, indicated and inferred resources (000 ounces)
Measured and Indicated
Inferred
Total
Burkina Faso Guinea Kazakhstan Russia Total
3,407 4,822 888 3,229 12,346
1,177 1,096 1,307 7,090 10,670
4,584 5,918 2,195 10,319 23,016
77
Corporate Social Responsibility
Long-term economic and financial success is possible only under conditions of social stability and partnership. Universal and efficient cooperation with business partners, state authorities, work collectives and general public is essential to ensure Severstals steady development.
In our cooperation with these stakeholders, we aim to find the optimum balance between company-wide priorities, priorities of specific regions, and the interests of various social groups. We operate to major principles of social responsibility: Industrial safety and environmental protection Development and social support of people Promotion of socio-economic growth in the regions where we operate. Severstals total social and charitable investments in 2010 were US$45.5 million. Our activities in the sphere of corporate social responsibility were highly commended by experts. We won the Russian Union of Industrialists and Entrepreneurs annual contest: Best Russian Enterprises. Dynamics. Efficiency. Responsibility nomination Social Investments and Projects. Based on corporate charity research by the Vedomosti newspaper, in cooperation with PricewaterhouseCoopers and the non-profit partnership Donors Forum, we were nominated by the Russian Ministry of Economic Development and Trade as the best Programme Promoting the Development of Local Communities and Improvement of the Social Climate in Regions where the Company Operates, for our charitable programme The Road Home.
In a contest for evaluating corporate investment in human capital, named Peoples Investor 2010, we won a nomination for Innovative Approach to Resolving the Issue Pertaining to the Development of Local Communities. Based on the results of the First Rating of Business Partners of Russian Higher Educational Institutions, we were commended in nominations for The Best Practice of Vocational Adjustment of Students of Higher Educational Institutions, The Largest Contribution to the Support of Gifted Students and Young Teachers, and The Largest Youth Employer.
Health, safety and environmental (HSE) policy

Our HSE policy provides a solid basis for our long-term success and leadership in business. We aim to prevent environmental pollution, make efficient use of the power and natural resources we consume, reduce greenhouse gas emissions, and employ efficient waste management practices. There are no circumstances which justify non-compliance with safety requirements, neglect of the health of our employees or damage to the environment. Work safety is a must within Severstal.
78
Overview
Health and safety program

Over the last three years the occurrence rate of industrial injuries at Severstal has reduced more than twofold. In 2010, we embarked on a large long-term project named Labour Safety, aimed at steadily reducing the occurrence rate of industrial injuries. The project calls for the implementation of an efficient labour safety system to make it possible to change the culture of industrial safety, from that of management supervision, to personal commitment from all employees. In 2010, we launched the project at Cherepovets Steel Mill, and by mid-2012 it should be implemented in the whole Russian Steel Division. The idea of the Labour Safety project is that we change the culture of industrial safety by implementing consecutively three major principles: providing safe labour conditions, getting employees involved in safety policies, and teaching safe behaviour. Each of these includes special tools or detailed procedures, such as: evaluating the risk of missions troubleshooting and low cost operations procedure setting labour safety goals for all management levels, and motivation a system for identifying and adjusting hazardous conditions by auditing industrial operations safety, and also through a behavioural safety audit an updated system for investigating accidents and micro trauma an updated system for training and mentoring programmes (allowing work to be done independently) a communications programme promoting safe behaviour; a labour safety roles and responsibilities matrix an updated system for dealing with those who fail to observe labour safety rules. We envisaged that all managers will be trained and individually coached in these procedures, and will use them in their everyday operations. The project also provides for a number of investment programmes: higher standards of sanitary amenities for employees, purchase of modern and quality personal protective equipment, repairs to, and construction of, pathways in the plant compound, installation of safety signs, etc. These will be implemented everywhere.
Environmental protection
In 2010, we spent over US$70.0 million on environmental protection measures, continuing the following: Energy saving and reducing greenhouse gas emissions Reducing atmospheric emissions of pollutants Water supply and waste water treatment Solid waste management. Implementing the long-term energy saving programme has made it possible for the Cherepovets Steel Mill to reduce energy consumption in 2010 by 2.9% compared to 2009. At the same time, steel production rose by nearly 16%. This was due to a number of projects, for example, the large phased investment project, Automated System for Energy Resources Control and Management Interdepartmental Accounting totalling over US$13.5 million. We completed the fourth of five phases in November 2010 and the fifth is scheduled for completion in 2011. The projects goal is to exercise control of the energy consumption of our major production units and, consequently, analyse them and take appropriate measures to reduce non-production costs. The atmospheric air protection programme aims to renovate the gas-cleaning systems for three naphthalene presses (partially completed in December 2010), and also to modernise gas cleaning of the suction systems in the central ferroalloy storage area (work is done in two phases: we completed the first phase, involving the drier drums section, in November 2010, and the second phase covering the crushers section will be completed in the second quarter of 2011). The construction of a new filtering unit for advanced waste treatment in the Cherepovets Steel Mill long product shop is nearing completion. The unit, once commissioned, will make it possible to meet appropriate cleaning standards for facility No.10.
79
Corporate Social Responsibility (continued)

Social support of people
Our activities in the social arena cover employees health improvement, protection of mothers and children, organising employees rest and meal breaks, social assistance to pensioners and veterans, developing and training people and encouragement of the best employees. At 31 December 2010, our workforce numbered 84,891, distributed among the divisions as follows: Last year the Cherepovets Steel Mill completed the construction of residential houses within the Corporate Housing Programme. Housing was provided after payment of an instalment of no less than 15% of the price. Employees pays the balance monthly over 10 years as long as they continue to work for us. Costs for the improvement of living conditions, such as hostel maintenance, and provision of favourable credit facilities for buying housing, were US$5.8 million.
Employee training and development

We strive to create an environment conducive to developing our employees and unlocking their professional potential, promoting a corporate culture based on expertise, personal initiative and responsibility.
Severstal Resources Severstal Russian Steel Severstal International (North America)
32% 65% 3%
Working with young professionals

Various divisions recruit students who suit our requirements, and every year, hundreds of students work as trainees with us. We run business seminars to help selected students learn about Severstal and its values, and get some career guidance. We determine our need for graduates annually. For example, at the Cherepovets Steel Mill we will need 111 graduates in 2011. We select them based on their internship results, and presentation of their degree thesis. We then help them build their careers by promoting them, for example as line managers or technical experts. Our major mining businesses also offer career guidance at local schools, and school students can aim to be selected for special classes where teaching is focused on field-specific disciplines, physics and mathematics. We then encourage them to apply to leading mining universities, and currently we work closely with the Moscow State Mining University. In addition to cooperating with higher educational institutions, we have created training centres at our major businesses in Vorkutaugol, Karelsky Okatysh and Olkon, where we have obtained licences for educational activities. All our businesses budget for technical and professional training.
Improving our employees health is a priority social objective in all our businesses. In 2010, we allocated about $20.0 million to the Severstals Health programme, whose main task is to promote the health of metallurgists. In Cherepovets we have arranged over 34,000 professional medical check-ups under this programme. We have also launched an action plan to improve labour conditions and the treatment-diagnostic process, to reduce the incidence of disease among employees. In 2010, our financing of Severstal Medical Unit programmes exceeded US$16.0 million. In 2010, the Medical Units maternity home won the second national competition, Best Maternity Homes in the Russian Federation. We allocated over US$5.0 million to improve the health of Cherepovets employees in 2010, which enabled over 9,000 metallurgists and their children to improve their health in resorts and country houses/camps, with 5,000 metallurgists undergoing rehabilitation and health improvement in the Rodnik sanatorium. About 15,000 Cherepovets employees enjoy daily meals arranged by Organisation of Working Supplies, where quality services go hand in hand with healthy nutrition principles. As a result, the incidence of digestive disease in 2010 decreased 9.1% compared to 2009. One of the priorities of the Severstals Health programme is to motivate employees and their families to take up sports, and we allocated over US$800,000 to this. In 2010, over 4,000 metallurgists regularly attended 145 health and fitness groups, which accounts for 18% of the total staff of the Cherepovets Metallurgical Works. We organised more than 300 mass sport events, enjoyed by 15,000 participants.
80
Overview
Corporate training programme for managers Achieve More Together

Last year we embarked on a corporate training programme called Achieve More Together, created specifically to improve the quality and efficiency of projects undertaken by Severstals Business System. Its five modules help managers acquire the knowledge and practical skills needed to make changes. It places great importance on inter-modular work (applying acquired skills in the workplace), as well as videoconferences, communication with experts and managers, and support from business unit HR managers.
Career development at Severstal

Severstal employees get ample opportunity for personal and professional growth and development. We encourage their desire to develop and learn, incorporating it into the management culture we promote. We work systemically to identify and satisfy training needs, to help employees acquire the necessary qualifications and competence. Every year, company professionals and managers participate in industrial and functional seminars and conferences, to improve their qualifications and exchange experience with their colleagues. Engineering refresher programmes are intended primarily for employees developing new types of products. Those employees who have vast knowledge of technology and production of our strategic products, can teach others, acting as tutors during advanced qualification courses for foremen, and adaptation seminars for young professionals. Our major businesses have their own centres where employees receive training in the most popular professions. Besides developing their professional skills, employees have an opportunity to improve their management skills and personal performance by participating in relevant programmes organised both by us and by specialist educational institutions. We place great emphasis on identifying potential successful managers among our employees and on training them intensively. We promote opportunities for employees to develop their careers and realise their potential through a system of HR committees, within specific functions, divisions and at company level.
About 300 managers from the Severstal Resource and Russian Steel divisions took part in the programmes first module in October 2010. The second module (February 2011) enabled participants to familiarise themselves with the personnel management system and tools we use, and how to use these in their professional activities. The modules major subjects include organisational structure, personnel selection and adaptation, the cycle of management of business performance and succession, and legal aspects of personnel management. To support production managers who are taking part in the programme, we also see possibilities for their individual development through coaching and command sessions, with ongoing feedback from the programmes experts and coaches. By 2013 the programme will have involved over 1,000 managers.
Further Information
81
Corporate Social Responsibility continued

Development of local communities
We cooperate regionally in strategic social programmes in areas such as employment and career guidance, youth policy, health service, supporting culture and sports, and assisting vulnerable sections of the population. We work mainly through agreements with regional authorities. In 2010, we allocated US$600,000 to developing the infrastructure, education, health service, culture and sports in Vorkuta under a social partnership agreement between the Vorkuta Administration and Vorkutaugol. Vorkutaugol backed the 12th Spartakiad of Northern People and the summer health improvement programme for children. In addition, we finance two major social facilities in the city: Universal Sport Center Olymp and the Miners Palace of Culture. Karelsky Okatysh annually finances the upkeep of the cultural and sports centre Friendship, with more than 90,000 people attending various events. It also provided financial support for childrens educational institutions, sport clubs and schools, organisations for disabled people and veterans. In 2010, it supported important musical events in Kostomuksha, such as the international folklore festival Kanteletar, the International Festival of Chamber Art, the Sergey Ozhigov Art Song Festival, and the International Rock Festival Nord Session. Olkon finances the youth leisure centre Polar Star, one of the most important social facilities in the city. It also supports various festivals, sports and cultural events, which attract a considerable part of the Olenegorsk population. The non-profit partnership Urban Development Agency, which we set up jointly with the Mayors Office in 1999, to encourage small and medium-sized businesses, is performing successfully. Its programmes provide all-round support for beginning and experienced entrepreneurs at all stages, from the conception of a business idea and development of a business plan, to consultancy. The results of its activities in 2010 included 692 new enterprises and 3,372 new jobs; also, 1,144 start-up entrepreneurs were trained and 432 business promotion events held. We supported the First International Festival of Young European Cinema, VOICES, held in Vologda and Cherepovets, which has become one of the milestones of the Year of France in Russia. The festival introduced spectators to young independent European cinema, contributing to pan-European culture.
In support of historical and cultural heritage, we continue to cooperate with the Russian Museum, the Tretyakov Gallery and the Bolshoi Theatre. Among joint projects with the Russian Museum are the exhibitions A Hymn to Labor, Russian Advertisement Poster, Holy Russian Lands; with the Tretyakov Gallery A. Deineka. Work, Build and not Whine!, The Whole World is a Theater. Prints from F.M. Larionovs Collection. We backed the premiere ballet performance of XIX-XX: Petipa/Forsythe/Balanchine in the Bolshoi Theater. A theatrical festival named the Gold Mask was held in Latvia, Riga, for the sixth time, and in 2010 Cherepovets saw for the first time the festivals best shows. In 2010, cooperation with Sergey Andriyakas Watercolour School gave rise to a regional exhibition project Master and Student, which involved the presentation of paintings by artists-schoolmasters and their students in Balakovo, Olenegorsk and Vorkuta; also, watercolour painting master classes were held. In 2010, we continued our programme The Road Home, for the comprehensive prevention of child neglect and social orphanhood in Cherepovets. The programmes 2010 results included 13 child abandonments prevented, threats to the life and health of 910 minors eliminated, 20 orphans placed in foster families, and 4,202 minors receiving social-psychological support.
82
Board of Directors
Overview Business Review
Alexey Mordashov
CEO, Severstal, Member of the Nomination and Remuneration Committee. Year of birth: 1965 Alexey Mordashov has worked for Severstal since 1988. He started his career as a senior shop economist, becoming Chief Financial Officer in 1992. In December 1996, he was appointed as Severstals Chief Executive Officer. In June 2002, Mr. Mordashov was elected Chairman of Severstals Board of Directors and served as Chief Executive Officer of Severstal Group. Since December 2006, he has been Chief Executive Officer of Severstal. Alexey serves on the Entrepreneurs Council of the Government of Russian Federation. In addition, Mr. Mordashov is a member of the Russian-German workgroup responsible for strategic economic and finance issues, and he is the head of the Russian Union of Industrialists and Entrepreneurs (RSPP) Committee of Trade Policy and WTO. Since March 2006 he is a member of the EU-Russia Business Cooperation Council. Alexey is a member of the Atlantic Council Presidents International Advisory Board. Mr. Mordashov earned his undergraduate degree from the Leningrad Institute of Engineering and Economics. He also holds an MBA degree from Newcastle Business School of Northumbria University (Newcastle UK). Alexey was granted an honorary doctorate from the Saint-Petersburg State University of Engineering and Economics in 2001 and from the University of Northumbria in 2003
Sergei Kuznetsov
CEO Severstal International, CEO Severstal North America. Year of birth: 1971 Sergei Kuznetsov started his career in 1994 as an expert in trade operations for steel and steel products at the State Owned Foreign Trade Association Promsyrioimport (Industrial Materials Import/Export). From 1995 to 2001, he worked as a commercial representative at the Steel Trading Section of the Moscow Representative Office of Cargill Enterprises, Inc. He joined Severstal in 2002 to head the Business Planning Group responsible for acquiring foreign assets and developing international projects. In 2004 he was appointed Chief Financial Officer of Severstal North America, and in 2008 became Chief Financial Officer of OAO Severstal. In July 2009 Sergei became CEO of Severstal International and CEO of Severstal North America. Sergei graduated from Bauman Moscow State Technical University in 1994, where he majored in Engineering. In 1998 he received his Finance MBA from California State University, Hayward.
Alexey Kulichenko
CFO, Severstal. Year of birth: 1974
Anatoly Kruchinin
CEO Severstal Russian Steel, CEO Cherepovets Steel Mill. Year of birth: 1960 Anatoly Kruchinin joined Severstal in 1982 and became Chief Power Engineer in 1993. In March 1999 he was appointed Commercial Director, and in January 2002 became Executive Director of Severstal. By July 2002 he was CEO of the company. Following the companys new system of corporate management, from December 2006 he was Chief Executive Officer of Cherepovets Steel Mill, and in April 2008 was appointed CEO of Severstal Russian Steel Division. Anatoly was a graduate of the Ivanovo Power Engineering Institute and held an MBA degree from the National Economic Academy under the Government of Russian Federation. Anatoly Kruchinin passed away in December 2010.
Alexey Kulichenko graduated from the Omsk Institute of World Economy with a degree in economics. In 1996-2003 he worked in Sun Interbrew, starting his career as cash flow economist of Omsk plant Pocap and ending as Efficiency Planning and Managing Director of Sun Interbrew. From 2003 till 2005 Alexey worked as CFO at Unimilk the second largest milk producer in Russia, which joins 20 plants in Russia and Ukraine. From December 19, 2005 to July 2009 he served as CFO of CJSC Severstal Resource. Since May 2006 Alexey is the member of the Board of directors of JSC Vorkutaugol. In July 2009 Alexey Kulichenko was appointed CFO of OAO Severstal.
Mikhail Noskov
Non-Executive Director. Year of birth: 1963
A graduate of the Moscow Institute of Finance, Mikhail Noskov worked at the International Moscow Bank from 1989 until 1993, and was Trade Finance Director of Credit Suisse (Moscow) from 1994 until 1997, when he joined Severstal as Head of Corporate Finance. In 1998 he became Finance and Economics Director, and was appointed as Deputy CEO for Finance and Economics of the Severstal Group in June 2002. From 2007 till 2008 he was Deputy CEO for Finance and Economics of Severstal.
83
Christopher Clark
Chairman of the Board of Directors, Member of the Nomination and Remuneration Committee. Year of birth: 1942 Chris Clark is a leading industrialist and brings extensive business knowledge to the Board. Chriss career spans 40 years at Johnson Matthey plc, the specialty chemicals and precious metals Group, where he became Chief Executive Officer in 1998. He led the Group into the FTSE 100 in 2002. Since his retirement in 2004, Chris has taken a number of non-executive positions. He currently chairs Urenco Limited, the leading international supplier of enriched uranium to the power generating industry. Chris is a graduate in metallurgy; he studied at Trinity College, Cambridge and Brunel University, London.
Ronald Freeman
Independent Director, Member of the Audit Committee. Year of birth: 1939 Ronald Freeman is a member of the Board of Directors, an Advisory Partner and stockholder of the Moscow-based Troika Dialog investment bank. He is also a non-executive member of the board of directors of Volga Gas and of Polish Telecom; and, a member of the Executive Committee of the Atlantic Council. He is a member of the International Advisory Committee of Columbia Law School, Chairman of the Executive Committee of the Pilgrims Society (UK) and Chairman of the International Advisory Board, Kozminski University (Warsaw). Between 1991 and 1997, Ronald was Head of the Banking Department of the European Bank for Reconstruction and Development (EBRD). He was responsible for debt and equity financing in the private sector in 23 countries of the former Soviet Union, with a total annual funds commitment of Euro 2 billion. Prior to that, Ronald was vice-chairman of Citigroup European investment banking and a general partner of Salomon Brothers. Ronald holds a BA degree from Lehigh University, and an LLB from the Law School of Columbia University. He was admitted to the New York Bar.
Martin Angle
Independent Director, Chairman of the Audit Committee. Year of birth: 1950 Martin Angle holds a number of non-executive directorships in addition to OAO Severstal, including in the UK Pennon Group plc, Savills plc and the Chairmanship of the National Exhibition Centre Group Ltd. He also sits on the board of Shuaa Capital psc in Dubai. During his career, Martin has held senior executive positions in investment banking, industry and more recently private equity, where he was an Operational Managing Director of Terra Firma Capital Partners and held various senior positions in its portfolio companies including the Waste Recycling Group Ltd, where he was Executive Chairman, and Le Meridien Hotel Group, where he was Deputy Chairman. Prior to that, Martin was for a number of years the Group Finance Director of TI Group plc, a specialised engineering company in the UK FTSE 100 with activities in over 50 countries. Before that, he spent 20 years in investment banking, where he held a number of senior positions with SG Warburg & Co Ltd, Morgan Stanley and Dresdner Kleinwort Benson. Martin is a graduate in physics, a Chartered Accountant, a Member of the Chartered Securities Institute and a Fellow of the Royal Society of Arts. He also sits on the Advisory Board of the Warwick Business School.
Peter Kraljic
Independent Director, Member of the Audit Committee. Year of birth: 1939 Peter Kraljic is a Director Emeritus at McKinsey, where he spent 32 years and held a number of senior positions until his retirement in 2002. Focused mainly on industrial clients in the chemicals, pharmaceuticals, automotive assembly, and steel and aluminium sectors, he was also a member of McKinseys Shareholders and Personnel Development Committee and has managed the companys activities in France as a General Director. Peter has also written a number of scientific and business articles for publications such as the Harvard Business Review and Le Figaro Economic. He has also recently led special projects aimed at economic growth and job creation in Germany and Brazil. Peter graduated from the University of Ljubljana, Slovenia (Faculty of Metallurgy), and holds a PhD degree from Polytechnic University in Hannover, Germany. He also holds a Masters degree in business management from the INSEAD business school, France.
Rolf Stomberg
Senior Independent Director, Chairman of the Nomination and Remuneration Committee. Year of birth: 1940 Rolf is Chairman of the Supervisory Board of LANXESS AG, Leverkusen, a global chemical company, formed after the reorganisation of Bayer AG. He is Senior Independent Director of medical device producer Smith and Nephew plc, London, and advises a number of German family-owned companies. After nearly 30 years with BP (British Petroleum Co plc) where he became CEO of BPs downstream business and Managing Director on the main board of the company he held a number of directorships in internationally operating companies in Europe such as Reed Elsevier Group, TNT NV, Scania AB, John Mowlem plc and Management Consulting Group plc, as well as on the boards of PE-owned companies. Rolf is an economics graduate with a doctorate from Hamburg University, where he also served as a lecturer. He was Honorary professor at the business school of Imperial College, London, and the Institut Francais de Petrol, Paris. 84 Annual Report and Accounts 2010 Severstal
Board of Directors Report

Severstal remains committed to best practice in corporate governance. Maintaining and further developing the high level of corporate governance in the company is a priority in the current economic environment and is the Boards main responsibility.
Severstal first published its Corporate Governance Code in October 2006, which was approved by the Board. This Code has been prepared following the recommendations of the Code of Best Practice set out in section 1 of the Financial Reporting Councils Code on Corporate Governance. Please refer to www.frc.org.uk for more details. Severstals Corporate Governance Code adheres to the following main principles: Seek to ensure efficient and transparent mechanisms for guaranteeing its shareholders rights and interests conferred by law, the companys Charter and other regulatory documents, and also those recommended by international corporate governance standards. Maintain a policy of equal treatment of all shareholders, irrespective of their nationality, jurisdiction of incorporation, or the size of their shareholding. Seek to guarantee implementation of shareholders rights to participate in company governance by allowing them to take part in meetings, vote on meeting agendas, and obtain timely information about the companys operations, its management bodies and supervisory or auditing bodies. Regard increasing the market value of the companys shares (capitalization) as one of its principal goals. As well as the Corporate Governance Code and Charter of the company, the activities of Severstals management and supervisory bodies are also governed by other corporate documents, such as the General Shareholders Meeting Regulations, Board of Directors Regulations, Board Committees Regulations, Internal Audit Commission Regulations and General Director Regulations. All the principles and rules presented in the companys documents are largely compliant with the UK Corporate Governance Code 2010. Severstal has a standard listing of its depositary receipts on the London Stock Exchange. In the Boards opinion, the Company meets the disclosure and governance standards requirements of the UK Corporate Governance Code 2010 applicable to such listings. Visit www.severstal.com (About Severstal > Corporate Governance > Company documents) for more information. Severstal complies with Russian corporate governance law requirements and meets the corporate governance mandatory requirements of MICEX and RTS (Russia) for the Russian listed B companies, which in turn follow the recommendations of the Russian Corporate Behaviour Code issued by the Russian Federal Securities Commission. The Code is available at www.fkcb.ffms.ru. Table of compliance status with MICEX and RTS mandatory requirements for inclusion and maintenance of shares in the quotation lists of MICEX and RTS, as of the end of 2010
Requirement Compliant/ Non-compliant Explanatory note (reference to the companys internal documents)*
1.1
The Board of Directors shall be formed by the company.
Fully compliant
1) Clause 11.1.4, article 11 of the Companys Charter approved by the Annual General Shareholders Meeting of OAO Severstal dated 15.06.2009 (Minutes 1 dated 16.06.2009). 2) The Companys Board of Directors has been elected at the Annual General Shareholders Meeting of OAO Severstal dated 11.06.2010 (Minutes 1 dated 11.06.2010) The Board of Directors consists of 5 Independent directors: Christopher Clark, Rolf Stomberg, Martin Angle, Peter Kraljic, Ronald Freeman. According to the resolution of the Board of Directors of OAO Severstal dated 11.06.2010 (Minutes 22-2010 dated 11.06.2010), the abovementioned directors shall be deemed Independent (as this term is defined in the clause 1.2 of the Regulations for the Board of Directors of OAO Severstal approved at the Annual General Shareholders Meeting on June 27, 2008 (Minutes 1 dated 02.07.2008)
1.2
The companys Board of Directors shall have at least one Board member fitting the requirements mentioned in the clause 1.2 of Annex 4 (4.6) to these Rules.
Fully compliant
85
Board of Directors Report (continued)

Requirement Compliant/ Non-compliant Explanatory note (reference to the Issuers internal documents) *
1.3
The companys Board of Directors shall form a committee with an exceptional function to assess candidates to the companys auditors, to evaluate an auditors opinion, to assess the effectiveness of internal control procedures and evaluate proposals for improvement of such procedures (Audit Committee) to be headed by a director fitting the requirements mentioned in the clause 1.2 of Annex 4 (4.6) to these Rules. Audit Committee shall comprise only those Board members, who are not deemed to be a sole executive body and (or) collegial executive body of the company.
Fully compliant
Regulations for the committees of the Board of Directors have been approved by the Board resolution dated 15-16.05.2008 (Minutes 22-2008 dated 16.05.2008).
1.4
Fully compliant
According to the resolution of the Board of Directors of OAO Severstal dated 11.06.2010 (Minutes 22-2010 dated 11.06.2010), the Audit Committee has been formed and included the following three Independent directors: Martin Angle, Peter Kraljic, Ronald Freeman. Martin Angle, Independent director, has been elected Chairman of the Audit Committee. 1) Clause 2.5 of the Regulations for the committees of the Board of Directors approved by the Board of Directors on 15-16.05.2008 (Minutes 22-2008 dated 16.05.2008). 2) According to the Board resolution (Minutes 15-2010 dated April 29, 2010), evaluation of the auditors opinion has been submitted as materials to the Issuers Annual General Shareholders Meeting. This requirement is provided for by the clause 2.1.4 of the Regulations for the control over interested party transactions approved by the Board resolution of OAO Severstal on July 01, 2005 (Minutes 35-2005 dated 01.07.2005) and clauses 36-40 of the Code of Practice on Handling Insider Information and on Dealing in Securities of OAO Severstal approved by the Board resolution of OAO Severstal on March 30, 31, 2007 (Minutes 8-2007 dated 03.04 2007). Code of Practice on Handling Insider Information and on Dealing in Securities of OAO Severstal has been approved by the Board resolution of OAO Severstal dated March 30-31, 2007 (Minutes 8-2007 dated 03.04 2007).
1.5
Evaluation of the auditors opinion prepared by the Audit Committee shall be submitted as materials to the Annual General Shareholders Meeting of the Issuers.
Fully compliant
1.6
The companys internal documents shall cover duties of a) the Board members; b) members of collegial executive management body; c) a person executing functions of the sole executive body including managing organization and its executives; and contain information about the shareholding of the companys securities, as well as information about any purchase and (or) sale of the Issuers securities. The companys Board of Directors shall approve a document on handling information about the Issuers operations, dealing in securities of the Company and transactions with such securities, which is not publicly available and disclosure of which may significantly affect market value of the companys securities. The companys Board of Directors shall approve a document to regulate internal control procedures for financial and business operations of the Issuer to be monitored by a separate subdivision of the Issuer. Such a subdivision shall inform the Audit Committee about any breaches revealed.
Fully compliant
1.7
Fully compliant
1.8
Fully compliant
According to the Board Minutes 40-2005 dated 10.08.2005, the Internal Audit Department has been formed to ensure the performance of the Board Audit Committee. On September 20, 2005, General Director of OAO Severstal has issued the Order 595 to establish the Internal Audit Department. Regulations for internal control over financial and business operations have been approved by the Board resolution of OAO Severstal on July 01, 2005 (Minutes 35-2005).
86
Overview
Requirement
Compliant/ Non-compliant
Explanatory note (reference to the Issuers internal documents) *
1.9
The companys Charter shall mention that Notices about the Annual General Shareholders Meeting are to be published at least 30 days before the date of the meeting, unless a longer period is stipulated by the applicable Russian law.
Fully compliant
1) Clause 10.5, article 10 of OAO Severstal Charter (new edition) has been approved at the Annual General Shareholder Meeting of OAO Severstal dated 15.06.2009 (Minutes 1 dated 16.06.2009). 2) Date of the Annual General Shareholders Meeting for 2009 results 11.06.2010. Date for disclosing information about the date of the Annual General Shareholders Meeting (date for disclosing resolutions of the Board of directors) 29.04.2010. Date for publishing Notice about the Annual General Shareholder Meeting for 2010 results 06.05.2010. 3) Date of the Annual General Shareholders Meeting for 2010 results 27.06.2010. Date for disclosing information about the date of the Annual General Shareholders Meeting for 2010 results (date for disclosing resolutions of the Board of directors) 02.03.2011.
Description of the composition and operation of the Issuers administrative, management and supervisory bodies and their committees (as required under DTR 7.2.7) is reviewed below.
General Shareholders Meeting

The companys General Shareholders Meeting is the supreme governing body of Severstal. The General Shareholders Meeting has authority over: changes and addenda to the companys Charter, or approval of a new Charter reorganisation of the company liquidation of the company, appointment of the liquidating commission and approval of intermediate and final liquidation balance sheets the number of members of the companys Board of directors, election of the Boards members and the early termination of their authority the quantity, face value and category of the declared shares and the rights given by these shares increases in the share capital of the company by increasing the face value of shares or by placing additional shares only in cases, when pursuant to applicable law, the share capital may be increased by placing additional shares. This is also the General Shareholders Meetings decision reduction of the companys share capital by reducing shares face value or by acquiring a part of shares with a view to reducing their total quantity, or through redemption of the shares the company acquires or buys formation of the executive body of the company and early termination of its authority election of the companys Internal Audit Commissions members and the early termination of its powers approval of the companys auditor approval of annual statements, annual accounting and reporting documents, including reports on the companys profit and loss accounts distribution of profit, including disbursement of dividends, with the exception of profit distributed as dividends of the results of the first three quarters of the year, and distribution of the companys loss at the end of the fiscal year the procedure for a General Shareholders Meeting split and consolidation of shares adopting decisions on approval of transactions in the cases stipulated by applicable law adopting decisions on approval of major transactions in the cases stipulated by applicable law the companys acquisition of the placed shares decision on participation in financial and industrial groups, associations and other commercial corporations approval of internal documents regulating activities of the companys bodies other matters stipulated by the Federal law On Joint Stock Companies and the companys Charter. Severstals shareholders have the right to: participate in the management of the company participate in General Shareholders Meetings and vote on all questions within its remit and authority receive dividends from the companys activities (provided a relevant decision is taken by the shareholders in a General Shareholders Meeting) receive a part of the companys assets in the event of a liquidation of the company.

Shareholders owning at least 2% of the companys ordinary registered shares can propose items for the Annual General Shareholders Meeting agenda and nominate candidates for the Board of Directors. Such proposals must be submitted to the company within 60 days of the financial year-end. Shareholders owning 10% or more of the companys ordinary registered shares can ask the companys Board of Directors to hold an Extraordinary Shareholders Meeting. Shareholders exercise their rights relating to the companys management by voting at General Shareholders Meetings. In 2010, Severstal held one Annual and one Extraordinary General Shareholders Meetings. Please visit www.severstal.com (About Severstal > Corporate Governance > Shareholder Rights) for more information.
The Board
According to the companys charter, the Board will comprise ten members. The current structure of the Board represents a balance between a Non-Executive Chairman and five Non-Executive Directors of which four are Independent Directors and Executives. Balance on the Board is a prerequisite for good decision-making and governance. The proportion of Independent Directors on the Board guarantees equal regard for the interests of all shareholders. The Board considers all its Independent Directors to be independent, in line with the UK Corporate Governance Code, 2010. Severstals Board comprises Non-Executive Chairman, Christopher Clark; four Independent Directors Ronald Freeman, Doctor Peter Kraljic, Martin Angle, and Doctor Rolf Stomberg; one Non-executive Director, Mikhail Noskov; and three Executive Directors Alexey Mordashov, Sergei Kuznetsov and Alexey Kulichenko.
Board meetings and attendance

Attendance by individual directors at the personal meetings of the Board and its Committees in 2010: Remuneration Audit and Nomination Number of Number of Committee Committee Board Board meetings meetings meetings meetings attended (out attended (out 2 Member of the Board possible attended of 4 meetings) of 3 meetings)
Christopher Clark Ronald Freeman Peter Kraljic Martin Angle Rolf Stomberg Alexey Mordashov Mikhail Noskov Anatoly Kruchinin Sergei Kuznetsov Alexey Kulichenko
1 2
5 5 5 5 5 5 5 4 5 5
5 5 5 5 5 5 5 4 5 5
41 4 4 4 41 21 41
3 31 31 31 3 3
means that the specified Director is not a member of that Committee, although he attended the meetings at the invitation of the Chairman of the Committee; one of the meetings was held via conference call.
Board and Committee members have direct and continuous access to Board and Committee materials via a dedicated electronic system, which also serves as an archive of Board and Committee materials and as a way to vote in Board meetings where members may be participating remotely.
88
Overview
Role of the Severstal Board

Severstals Board of Directors is responsible for the general management and performance of the companys operations, including discussion, review and approval of its strategy and business model, and closely monitoring its financial and business operations by segment and as a whole. The Boards main objective is to run the company in a way that increases shareholder value in the medium and long term. Short-term financial and operational issues, such as debt levels and costs, also receive close attention. The Boards decisions are based on the best interests of all stakeholders. This can mean making difficult decisions in complex situations. The Board is also responsible for disclosure and dissemination of information about the companys operations, and for implementing the companys information policy. The Board has authority in decisions concerning major aspects of Severstals activity, except in matters within the jurisdiction of the General Shareholders Meeting.
Directors new to the Board are given background information on the company when they join. This includes details of its operations and procedures, as well as information on what is required from them in their role according to the companys statutory documents. This includes Severstals Corporate Governance Code, and applicable corporate governance law, best practice to help ensure their early effective contribution to the company. The Board performed a self evaluation of its performance in 2010 based on the individual contribution of the Board members. Such evaluation helped to identify the areas for development and more close attention as well as the strengths of the Board. The performance evaluation questioner contained three sets of questions relating to Board composition and structure, Board meetings and core processes and Board engagement with the companys business issues. The overall results for the evaluation conducted proved to be positive and inspiring. The Board members mentioned several strong characteristics of the Board performance in 2010, those are: appropriate number of the Board members and sufficient individual contribution from the Board members, effective relationship between Chairman and CEO, important contribution by committees to the Board, value of boardroom discussions including those related to financial performance of the company. There were some areas for improvement underlined i.e. Board succession planning and extension of more close communication of the Board members outside the Board meetings.
Key duties:
1. Responsibility for the companys strategic direction. 2. Reviewing the consolidated budget and submitting appropriate recommendations. 3. Reviewing the appointment and compensation policy applicable to the companys senior executives, and making recommendations regarding such a policy. 4. Dividend policy. 5. Approving transactions with interested parties (as this term is defined in accordance with Russian Law) with the value for each such transaction not to exceed 2% of the book value of Severstals assets on the date such a transaction is agreed. 6. Approving transactions of values exceeding 10% of the book value of Severstal assets on the date such a transaction is agreed. 7. Approving transactions to acquire: (i) shares or participation interests, or rights to manage such shares or participation interests (ii) fixed or intangible assets if the amount of the transaction specified in sub-clauses (i) or (ii) exceeds the equivalent of US$500 million. A resolution on the matters set out in clauses 2 and 7 requires a 2/3 majority vote of all members of the Board of Directors.
Company Secretary
Oleg Tsvetkov (PhD, MBA) became company Secretary of Severstal in 2006 after its listing in London. Oleg was awarded Corporate Governance Director Corporate Secretary in 2008 and also headed the list of Directors on Corporate Governance 2010 in the steelmaking sector. The company Secretarys office is responsible for the Board of Directors activities, preparing and holding the General Meetings and meetings of the Board of Directors, disclosure of information, corporate governance advice, communications with shareholders and GDR holders as well as relations with Russian and foreign stock market regulators. The company Secretary is responsible for ensuring the company, its management and officers comply with applicable corporate law, the companys charter and internal documents.
Non-executive Directors
The Board reviews the independence of all Independent and Non-executive Directors annually and has determined that all such directors are independent and have no cross-directorships or significant links that could materially interfere with them exercising their independent judgment. The Independent and Non-executive Directors play a leading role in corporate accountability and governance through their membership of the Remuneration and Nomination and Audit Committees.
Board effectiveness
The roles of Chairman and Chief Executive Officer are separate and their responsibilities are clearly defined in the companys statutory documents and regulated by Russian law. The role of the Chairman is to organise, lead and manage the Board and to convene and preside over Board meetings.
89

Senior Independent Director
Rolf Stomberg is Severstals Senior Independent Director and is also Chairman of the Remuneration and Nomination Committee. His responsibilities include meeting major shareholders and chairing meetings of the Independent and Non-executive Directors when the Chairman is not present.
Key Committees
The Boards key committees are consultative and advisory bodies that deal with issues raised by the Board. Committees may not act on behalf of the Board of Directors and are not management bodies of the company. They have no powers in relation to managing the company. Committee meetings are held as and when necessary, but at least three times a year. Committee decisions are made by a majority vote of all committee members taking part in the meeting. Each member has one vote, and the Committee Chairman has no casting vote in the event of a vote tie.
Terms of appointment
Members of the companys Board of Directors are elected by the shareholders at their General Meeting and remain members until the next Annual General Meeting. If a Board Member elects to terminate his office the whole body of the Board of Directors is re-elected at a General Shareholders Meeting. Those elected to the companys Board of Directors may be re-elected an unlimited number of times.
The Audit Committee

The Audit Committee monitors and reviews risk management processes and supervises the companys financial performance and business operations. The Audit Committee assists the Board of Directors in: monitoring the timeliness, completeness and reliability of financial and other reporting the preparation and submission process risk management, internal control and corporate governance systems. The Audit Committee consists of three Independent Directors, currently Martin Angle, Chairman of the Audit Committee, Ronald Freeman and Dr. Peter Kraljic. In accordance with its terms, the Committee has sufficient recent relevant financial experience, and the overall skills required for financial statements, business risk analysis and financial management skills. No Senior Executive of the company is a member of the Audit Committee. The Audit Committee met four times in 2010. The Chairman of the Audit Committee is continuously in touch with the Chairman, the external audit lead partner, the company CFO and Head of Internal Audit.
Meetings of Non-executive Directors

The Independent and Non-executive Directors meet separately during the year. There were four such meetings in 2010.
Company Charter
Severstals Charter, and any other internal document regulating the activities of the Companys bodies, can be amended or adopted in the new edition by the resolution of the General Shareholders Meeting only, as required by applicable Russian law and the Charter of the company. Decision on the company Charter amendment or adoption in the new edition is taken by a qualified majority shareholder vote at the General Shareholders Meeting.
Share capital
OAO Severstal share capital comprises ordinary shares with a nominal value of RUR 0.01 each. Authorized share capital of Severstal at December 31, 2010, 2009 and 2008 comprised 1,007,701,355 issued and fully paid shares. All shares carry equal voting and distribution rights. There are no restrictions or limitations on voting rights for holders of OAO Severstal shares and GDRs. Equity capital structure as of 31.12.2010
Share, % Shareholders equity capital
Alexey Mordashov* Institutional investors and employees Total
77.97 22.03 100
* T hrough participating in Severstals privatization auctions and other purchases, Alexey Mordashov (the Majority Shareholder) had purchased shares in Severstal such that as at December 31, 2010 he controlled indirectly 77.97% of Severstals share capital and had an option to purchase another 4.96 percent (at December 31, 2009 and 2008 he controlled, directly or indirectly, 82.37% of Severstals share capital)
90
Overview
The Audit Committee: evaluates candidates put forward as the companys external auditors, developing recommendations for the Board regarding the selection of the external auditors develops recommendations for the Board of Directors regarding external auditors fees supervises the scope and results of the auditors work (including the evaluation of the auditors opinion) and its efficiency and objectivity monitoring the independence of the external auditor, taking into account the applicable requirements of professional and regulatory bodies in Russia and the UK reviews the companys regular financial statements and analyses changes in accounting policies and practices, as well as material adjustments based on the audits findings analyses the companys annual report and any other published financial information before submission for approval to the Board of Directors and publication analyses official statements relating to the companys financial performance and reviews of any opinions concerning significant aspects of financial reporting monitors the effectiveness and efficiency of risk management, internal control and corporate governance systems monitors and controls the efficiency of the internal audit function develops and implements an ethical compliance policy for auditors supplying non-audit services, taking into account relevant ethical restrictions applicable to such activities and risk management, internal control and corporate governance systems analyses material changes to existing legislation that affects the companys financial statements, and any findings of supervisory authorities and court proceedings. The Audit Committee also prepares its own evaluation of the auditors opinion on financial statements and provides this evaluation to the Board of Directors and the Annual Shareholders General Meeting.
To ensure the companys financial and business operations are monitored efficiently, the company employs external auditors with no interests in the company verify and approve of the accounts. The Audit Committee monitors the auditors independence. The KPMG external auditor lead partner always participates in meetings of the Audit Committee, reviewing the companys quarterly and annual results. Audit Committee members regularly meet with the external auditor, without management, to discuss matters arising from the audit and review process. There were four of such meetings in 2010. The companys books and records are audited in compliance with the requirements of statutory law and International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB), with respect to financial statements prepared under the International Financial Reporting Standards (IFRS). Such an audit takes place annually and, as of the first quarter of 2007, the companys interim condensed financial statements, prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting, are also reviewed in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity.
91

The Remuneration and Nomination Committee
The Remuneration and Nomination Committees role is to help the company engage qualified professionals to manage the company, and create the incentives necessary to ensure their successful work for the company. It also reviews the remuneration and compensation for senior managers of the company and Independent Board members. The Remuneration and Nomination Committee consists of three members. At least two members, including the Chairman of the Committee, are Independent Directors who are not senior executives of the company. The Remuneration and Nomination Committee: develops general recommendations for the Board of Directors on selecting nominees to the Board of Directors, proposed by the Board of Directors conducts preliminary evaluations of potential nominees to the Board of Directors and provides the Board of Directors with recommendations informs the Board of Directors of any potential nominees to the Board of Directors it is aware of and recommends individual persons for nomination or election to the Board of Directors issues an opinion as to whether a person nominated to the Board of Directors qualifies as an Independent Director develops the system of remuneration and other payments made by the company or at the companys expense (including life and health insurance, and pension plans) for Board members of the company based on members personal contributions to the companys strategic objectives prepares and submits the appointment and remuneration policy for senior executives of the company, including its Chief Executive, as well as providing recommendations on the terms of the contract signed with the Chief Executive reviews Board members performance, including the advisability of nominating respective Board members for another term in office provides recommendations to the Board of Directors regarding material terms of the General Directors contract reviews information given by Board members to be disclosed in accordance with the existing legislation or the Charter for establishing whether such Board members have an interest in any decisions of the company, as well as information related to the circumstances preventing the aforementioned officers from efficiently discharging their duties as members of the Board and any circumstances entailing their loss of independence as a member of the Board of Directors. The Remuneration and Nomination Committee comprises Doctor Rolf Stomberg (Chairman of the Committee), Christopher Clark and Alexey Mordashov. The Remuneration and Nomination Committee met three times in 2010. The Chairman of the Remuneration and Nomination Committee is in regular contact with the Company CEO and Head of Human Relations.
Remuneration of Severstals key managers

Remuneration of the key managers of Severstal totalled US$52.8 million in 2010. This includes salaries, bonuses for 2010, as well as the change in accrued provisions under the long-term incentive programmes. These changes are subject to further adjustments, depending on a range of financial indicators of Severstal and its industry peer group. As at 31 December 2010, those accrued provisions amounted to approximately US$20 million. Remuneration of the Severstals key managers in 2009 was US$19.6 million, while bonuses were minimal and no reserves were made under the long-term incentive programmes.
Sole Executive Body

The authority of the Sole Executive Body of the company is exercised by the Chief Executive Officer, who must be appointed by the General Shareholders Meeting of the company for a three-year period and can be re-elected an unlimited number of times. Alexey Mordashov was re-appointed Chief Executive Officer at the Annual General Shareholders Meeting of OAO Severstal on June 11, 2010. Refer to www.severstal.com (About Severstal > Corporate Governance > Shareholder Rights>Voting results report) for more information. The General Shareholders Meeting can, at any time, adopt a resolution on early termination of the Chief Executive Officers authorities. Chief Executive Officer, among other things, acts on behalf of the company, represents its interests, commits transactions, approves manning schedules, and issues orders and instructions obligatory for all the companys employees. The Chief Executive Officer carries out the day-to-day management of the company and ensures its efficient operation by performing the tasks set by the Board of Directors. The Chief Executive is responsible for the organisation, status and accuracy of accounting practices, timely provision of financial reports to appropriate authorities, and timely provision of information regarding the companys operations to shareholders, creditors and the media. The Chief Executive also cooperates with trade unions to protect the interests of company employees and communicates with government and municipal authorities.
Internal Control and Risk Management Systems

The information required by DTR 7.2.5 regarding the companys Internal Control and Risk Management Systems in relation to the financial reporting process, is included in OAO Severstal Risk Management section.
Overview
OAO Severstal and Subsidiaries

Consolidated financial statements for the years ended December 31, 2010, 2009 and 2008
93
OAO Severstal and Subsidiaries

Consolidated financial statements Years ended December 31, 2010, 2009 and 2008
Contents
Independent Auditors Report 95 Consolidated income statements 96 Consolidated statements 97 of comprehensive income Consolidated statements 98 of financial position Consolidated statements 99 of cash flows Consolidated statements 100 of changes in equity Notes to the consolidated 101-171 financial statements 1. Operations 101 2. Basis for preparation of the 102 consolidated financial statements 3. Summary of the principal 106 accounting policies 4. Revenue 115 5. Staff costs 116 6. Net loss from 116 securities operations 7. Net other operating 117 (expenses)/income 8. Impairment of non-current assets 117 9. Net other non-operating 125 (expenses)/income 10. Taxation 126 11. Related party transactions 128 12. Related party balances 129 13. Cash and cash equivalents 130 14. Short-term bank deposits 130 15. Short-term financial investments 130 16. Trade accounts receivable 130 17. Inventories 130 18. Other current assets 131 19. Long-term financial investments 131 20. Investments in associates 132 and joint ventures 21. Property, plant and equipment 133 22. Intangible assets 135 23. Debt finance 136 24. Other current liabilities 138 25. Retirement benefit liabilities 138 26. Other non-current liabilities 140 27. Share capital 142 28. Discontinued operations 144 and assets held for sale 29. Subsidiaries, associates 146 and joint ventures 30. Segment information 156 31. Financial instruments 162 32. Commitments and 170 contingencies 33. Subsequent events 171
94
Overview
ZAO KPMG Telephone 10 Presnenskaya Naberezhnaya Fax Moscow, Russia 123317 Internet
+7 (495) 937 4477 +7 (495) 937 4400/99 www.kpmg.ru
Independent Auditors Report

Board of Directors OAO Severstal We have audited the accompanying consolidated financial statements of OAO Severstal (the Company) and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at 31 December 2010, 2009 and 2008, and the related consolidated income statements and consolidated statements of comprehensive income, consolidated statements of changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes.
Managements Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audits to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2010, 2009 and 2008, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.
ZAO KPMG 1 March 2011 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
95
OAO Severstal and Subsidiaries Consolidated income statements

Years ended December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars)
Note Year ended December 31, 2010 2009* 2008*
Revenue Revenue third parties Revenue related parties 13,510,930 62,335 9,540,775 53,118 9,593,893 2,384,130 (516,863) (791,505) (150,001) 13,298 (12,160) (30,058) (37,675) 859,166 (88,056) (31,790) 739,320 91,452 (478,453) (204,371) 147,948 (133,960) 15,888,278 177,481 16,065,759 5,523,199 (801,528) (995,732) (153,071) (2,687) (99,876) (43,511) 555,665 3,982,459 (531,975) 79,862 238,945 3,769,291 128,840 (397,915) (262,769) 3,237,447 (490,448) (685,073) 11
4 13,573,265
Cost of sales (9,110,216) (7,209,763) (10,542,560) Gross profit 4,463,049 General and administrative expenses (638,403) Distribution expenses (990,727) Other taxes and contributions (182,351) Share of associates profit/(loss) Net loss from securities operations Loss on disposal of property, plant and equipment and intangible assets Net other operating (expenses)/income Impairment of non-current assets Negative goodwill Net other non-operating (expenses)/income 7 8 29 9 19,401 6 (104,694) (46,748) (15,288) (81,123) (44,444) 103,396 62,687
Profit from operations 2,504,239
Profit before financing and taxation 2,378,672 Interest income Interest expense (630,775) Foreign exchange difference Income tax expense Loss from discontinued operations Attributable to: shareholders of OAO Severstal (576,994) non-controlling interests Weighted average number of shares outstanding during the period (millions of shares) Basic and diluted (loss)/earnings per share (US dollars) Basic and diluted earnings per share continuing operations (US dollars) Basic and diluted loss per share discontinued operations (US dollars) 61,980 1,005.2 (0.57) 1.36 (1.93) Profit before income tax 1,913,980 10 (487,249) Profit from continuing operations 1,426,731
13,988 2,746,999
28 (1,941,745) (1,133,083)
(Loss)/profit for the year (515,014) (1,119,095) 2,061,926 (1,037,240) (81,855) 1,005.2 (1.03) 0.01 (1.04) 2,028,972 32,954 1,007.2 2.01 2.72 (0.71)
* These amounts reflect adjustments made in connection with the presentation of discontinued operations
These consolidated financial statements were approved by the Board of Directors on March 1, 2011.
The accompanying notes form an integral part of these consolidated financial statements.
OAO Severstal and Subsidiaries Consolidated statements of comprehensive income

Year ended December 31, 2010 2009 2008
(Loss)/profit for the year (515,014) (1,119,095) 2,061,926 Other comprehensive loss Foreign exchange difference (242,832) (114,714) (1,097,365)
Governance
Changes in fair value of cash flow hedges Deferred tax on changes in fair value of cash flow hedges Changes in fair value of available-for-sale investments Deferred tax on changes in fair value of available-for-sale investments Fair value adjustment upon acquisition of subsidiary to previously held interest Other comprehensive loss for the year, net of tax Attributable to:
50,876 (7,626)
(2,860) 809 40,466 (4,398)
(13,428) 3,691 4,864 (2,511) 33,020
(199,582)
(80,697) (1,071,729)
Total comprehensive (loss)/income for the year (714,596) (1,199,792) 990,197 shareholders of OAO Severstal (788,924) (1,158,706) 996,061 non-controlling interests 74,328 (41,086) (5,864)
Further Information
OAO Severstal and Subsidiaries Consolidated statements of financial position

December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars)
December 31, December 31, December 31, Note 2010 2009 2008
Assets Current assets: Cash and cash equivalents 13 2,012,662 2,853,376 2,652,888 Short-term bank deposits 14 12,690 95,533 818,545 Short-term financial investments 15 27,463 73,129 112,782 Trade accounts receivable 16 967,837 1,457,651 1,941,876 Accounts receivable from related parties 12 12,359 26,716 63,831 Restricted cash 41,313 Inventories 17 2,366,924 2,974,227 4,271,886 VAT recoverable 278,594 288,032 361,542 Income tax recoverable 39,578 106,019 172,947 Other current assets 18 298,070 285,453 279,707 Assets held for sale 28 3,509,882 24,415 8,872 Total current assets 9,567,372 8,184,551 10,684,876 Non-current assets: Long-term financial investments 19 205,232 128,616 70,342 Investments in associates and joint ventures 20 158,564 143,857 110,907 Property, plant and equipment 21 7,351,835 9,485,480 9,827,392 Intangible assets 22 1,799,776 1,369,204 1,510,658 Restricted cash 61,714 17,541 21,703 Deferred tax assets 10 101,406 239,835 246,541 Other non-current assets 82,620 74,802 41,507 Total non-current assets 9,761,147 11,459,335 11,829,050 Total assets 19,328,519 19,643,886 22,513,926 Liabilities and shareholders equity Current liabilities: Trade accounts payable 897,389 1,378,300 1,528,453 Accounts payable to related parties 12 16,717 16,656 71,960 Short-term debt finance 23 1,422,262 1,478,301 2,038,693 Income taxes payable 41,230 34,150 46,131 Other taxes and social security payable 156,078 209,084 213,315 Dividends payable 17,131 5,704 128,715 Other current liabilities 24 531,736 743,230 868,409 Liabilities related to assets held for sale 28 3,272,354 11,979 4 Total current liabilities 6,354,897 3,877,404 4,895,680 Non-current liabilities: Long- term debt finance Deferred tax liabilities Retirement benefit liabilities Other non-current liabilities 23 4,719,772 5,748,559 6,227,225 10 493,280 394,990 496,379 25 164,555 738,328 722,065 26 276,244 508,266 619,961
Total non-current liabilities 5,653,851 7,390,143 8,065,630 Equity: Share capital 27 3,311,288 3,311,288 3,311,288 Treasury shares (26,303) (26,303) (26,303) Additional capital 1,165,530 1,165,530 1,165,530 Foreign exchange differences (297,219) (52,478) 84,987 Retained earnings 2,780,190 3,436,270 4,488,396 Other reserves 76,411 43,600 27,601 Total equity attributable to shareholders of OAO Severstal 7,009,897 7,877,907 9,051,499 Non-controlling interests 309,874 498,432 501,117 Total equity 7,319,771 8,376,339 9,552,616 Total equity and liabilities 19,328,519 19,643,886 22,513,926 The accompanying notes form an integral part of these consolidated financial statements.
OAO Severstal and Subsidiaries Consolidated statements of cash flows

Year ended December 31, 2010 2009* 2008*
Operating activities: Profit before financing and taxation 2,378,672 739,320 3,769,291 Adjustments to reconcile profit to cash generated from operations: Depreciation and amortization (Notes 21 and 22) 713,005 697,794 837,749 Impairment of non-current assets (Note 8) 81,123 88,056 531,975 Movements in provision for inventories, receivables and other provisions 13,897 (102,844) 222,592 Negative goodwill (79,862) Loss on disposal of property, plant and equipment and intangible assets 46,748 30,058 43,511 Gain on disposal of subsidiaries and associates (Note 29) (314,435) Loss on remeasurement and disposal of financial investments 104,694 12,160 99,876 Share of associates results less dividends from associates (7,701) (13,298) 2,687 Changes in operating assets and liabilities: Trade accounts receivable (150,061) 122,916 (277,421) Amounts receivable from related parties 14,505 28,966 (39,695) VAT recoverable (52,279) 65,907 (64,358) Inventories (501,323) 522,259 (558,184) Trade accounts payable 140,134 24,960 156,218 Amounts payable to related parties 197 (37,446) 11,781 Other taxes and social security payables 34,668 13,721 13,865 Other non-current liabilities 11,020 (199,281) (914) Assets held for sale (3,378) (422) 38,609 Net other changes in operating assets and liabilities (122,518) (62,041) 133,152 Cash generated from operations 2,701,403 1,930,785 4,526,437 Interest paid (excluding banking operations) (569,638) (489,996) (273,835) Income tax paid (325,955) (37,324) (1,035,281) Net cash from operating activities continuing operations 1,805,810 1,403,465 3,217,321 Net cash (used in)/from operating activities discontinued operations (546,636) 207,726 216,540 Net cash from operating activities 1,259,174 1,611,191 3,433,861 Investing activities: Additions to property, plant and equipment (1,118,968) (754,493) (1,649,968) Additions to intangible assets (132,138) (54,231) (70,296) Net (increase)/decrease in short-term bank deposits (46,661) 668,121 (259,880) Additions to financial investments and associates (1,359,140) (258,389) (878,471) Acquisition of entities under common control (41,363) Net cash outflow on acquisitions of subsidiaries (Note 29) (48,485) (3,068,693) Net cash inflow on disposals of subsidiaries (Note 29) 118,647 5,010 671,717 Proceeds from disposal of property, plant and equipment 7,914 30,070 41,978 Proceeds from disposal of financial investments 1,132,838 218,546 832,743 Interest received (excluding banking operations) 96,889 108,238 129,989 Cash used in investing activities continuing operations (1,349,104) (37,128) (4,292,244) Cash used in investing activities discontinued operations (150,162) (193,509) (340,281) Cash used in investing activities (1,499,266) (230,637) (4,632,525) Financing activities: Proceeds from debt finance 3,481,615 2,754,383 6,741,400 Acquisitions of non-controlling interests (455,089) (23,387) (178,225) Disposal of non-controlling interest 5,744 Repurchase of issued shares (591,834) Repayment of debt finance (3,283,340) (3,422,821) (2,930,687) Repayments under lease obligations (5,089) (7,720) (19,763) Dividends paid (130,068) (116,106) (1,346,535) Contributions of non-controlling interests 54,320 Dividend to the Majority shareholder paid by acquired entity under common control (34,036) Cash (used in)/from financing activities continuing operations (386,227) (761,331) 1,640,320 Cash from/(used in) financing activities discontinued operations 98,346 (420,509) 605,882 Cash (used in)/from financing activities (287,881) (1,181,840) 2,246,202 Effect of exchange rates on cash and cash equivalents (104,719) 1,774 (17,192) Net (decrease)/increase in cash and cash equivalents (632,692) 200,488 1,030,346 Less cash and cash equivalents of discontinued operations and assets held for sale at end of the period (208,022) Cash and cash equivalents at beginning of the year 2,853,376 2,652,888 1,622,542 Cash and cash equivalents at end of the year 2,012,662 2,853,376 2,652,888
* These amounts reflect adjustments made in connection with the presentation of discontinued operations
OAO Severstal and Subsidiaries Consolidated statements of changes in equity

Attributable to the shareholders of OAO Severstal Share Treasury Additional capital shares capital Noncontrolling interests
Total
Foreign exchange Retained Other differences earnings reserves Total
Balances at December 31, 2007 Profit for the period Foreign exchange difference Changes in fair value of cash flow hedges Deferred tax on changes in fair value of cash flow hedges Changes in fair value of available-for-sale investments Deferred tax on changes in fair value of available-for-sale investments Fair value adjustment upon acquisition of subsidiary to previously held interest Total comprehensive income for the period Dividends Dividend to the Majority Shareholder paid by acquired entity under common control Repurchase of issued shares Effect of acquisitions and disposals without a change in control Effect of acquisitions and disposals with a change in control Balances at December 31, 2008 Loss for the period Foreign exchange difference Changes in fair value of cash flow hedges Deferred tax on changes in fair value of cash flow hedges Changes in fair value of available-for-sale investments Deferred tax on changes in fair value of available-for-sale investments Total comprehensive loss for the period Dividends Effect of acquisitions and disposals without a change in control Balances at December 31, 2009 Loss for the period Foreign exchange difference Changes in fair value of available-for-sale investments Deferred tax on changes in fair value of available-for-sale investments Total comprehensive loss for the period Dividends Effect of acquisitions and disposals without a change in control Effect of acquisitions and disposals with a change in control Balances at December 31, 2010
3,311,288 3,311,288 3,311,288 3,311,288
(26,303) (26,303) (26,303) (26,303)
1,165,530 1,165,530 1,165,530 1,165,530
1,145,499 (1,060,512) (1,060,512) 84,987 (137,465) (137,465) (52,478) (244,741) (244,741) (297,219)
3,951,116 2,028,972 2,028,972 (1,378,510) (34,036) (79,146) 4,488,396 (1,037,240) (1,037,240) (14,886) 3,436,270 (576,994) (576,994) (140,963) 61,877 2,780,190
(8,864) 1,786 3,010 (1,351) 33,020 27,601 27,601 (2,283) 646 19,840 (2,204) 15,999 43,600 37,242 (4,431) 32,811 76,411
9,573,433 2,028,972 (1,060,512) (8,864) 1,786 3,010 (1,351) 33,020 996,061 (1,378,510) (34,036) (26,303) (79,146) 9,051,499 (1,037,240) (137,465) (2,283) 646 19,840 (2,204) (1,158,706) (14,886) 7,877,907 (576,994) (244,741) 37,242 (4,431) (788,924) (140,963) 61,877 7,009,897
500,353 32,954 (36,853) (4,564) 1,905 1,854 (1,160) (5,864) (8,126) (138,067) 152,821 501,117 (81,855) 22,751 (577) 163 20,626 (2,194) (41,086) (3,501) 41,902 498,432 61,980 1,909 13,634 (3,195) 74,328 (512,945) 250,059 309,874
10,073,786 2,061,926 (1,097,365) (13,428) 3,691 4,864 (2,511) 33,020 990,197 (1,386,636) (34,036) (26,303) (217,213) 152,821 9,552,616 (1,119,095) (114,714) (2,860) 809 40,466 (4,398) (1,199,792) (3,501) 27,016 8,376,339 (515,014) (242,832) 50,876 (7,626) (714,596) (140,963) (451,068) 250,059 7,319,771
100
OAO Severstal and Subsidiaries Notes to the consolidated financial statements

for the years ended December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars, except as otherwise stated)
1. Operations
These consolidated financial statements of OAO Severstal and subsidiaries comprise the parent company, OAO Severstal (Severstal or the Parent Company) and its subsidiaries (collectively the Group) as listed in Note 29. Severstal began operations on August24, 1955 and completed the development of an integrated iron and steel mill in Cherepovets during February 1959 when the first steel was rolled. On September24, 1993, as a part of the Russian privatization program, Severstal was registered as a Joint Stock Company (OAO) and privatized. Through participating in Severstals privatization auctions and other purchases, Alexey Mordashov (the Majority Shareholder) had purchased shares in Severstal such that as at December 31, 2010 he controlled indirectly 77.97% of Severstals share capital and had an option to purchase another 4.96 percent (at December 31, 2009 and 2008 he controlled, directly or indirectly, 82.37% of Severstals share capital). Severstals global depositary receipts (GDRs) have been quoted on the London Stock Exchange since November 2006. Severstals shares are quoted on the Russian Trading System (RTS) and on the Moscow Interbank Currency Exchange (MICEX). Severstals registered office is located at UlMira30, Cherepovets, Russia. The Group comprises the following segments: Severstal Resource (formerly the Mining segment) this segment comprises two iron ore complexes, Karelsky Okatysh and Olkon in northwest Russia, and two coal mining complexes, Vorkutaugol in northwest Russia and PBS Coals Ltd, located in the USA, as well as gold mining assets in the eastern part of Russia, in Africa and in Kazakhstan. Russian Steel this segment consists primarily of the Groups steel production and high-grade automotive galvanizing facilities in Cherepovets; rolling mill 5000 in Kolpino; a large-diameter pipe mill in Izhora (previously reported within the former IPM segment); all in northwest Russia; metalware plants located in Russia, Ukraine and Italy (previously reported within the former Metalware segment); a ferrous scrap metal recycling business operating in northwest and central Russia, as well as various worldwide supporting functions for trading, maintenance and transportation. Severstal North America this segment includes an integrated iron and steel mill, Severstal Dearborn, in the Midwest region; a mini-mill, Severstal Columbus LLC, in the southeast of the USA. The Severstal North America segment also includes three integrated iron and steel mills: Sparrows Point, in the South Atlantic located on the East Coast of the USA, Severstal Wheeling, (formerly the Esmark group of companies) in the Midwest region of the USA, Severstal Warren Inc. (formerly WCI Steel Inc.) in the Midwest region of the USA and a coking coal production facility, Mountain State Carbon LLC, located on the border of the South and Midwest regions of the USA which are classified as held for sale and discontinued operations as at December 31, 2010 (Note 28). Lucchini (discontinued, Note 28) this segment includes two integrated steel producers in Italy, four electric furnace based steel plants in Franceand several processing plants and joint ventures in Italy. All Lucchini segment assets are combined into the Piombino and Ascometal business units based on geographical location (Italy and France respectively). Products of the segment include rails, wire rod, special and high quality bars and commercial slabs. The segment also includes a distribution network serving both business units from locationsprimarily in Western Europe and an engineering research center located in France. A segmental analysis of the consolidated statements of financial position and consolidated income statements is given in Note30.
Economic environment
A large part of the Group is based in the Russian Federation and is consequently exposed to the economic and political effects of the policies adopted by the Russian government. These conditions and future policy changes could affect the operations of the Group and the realization and settlement of its assets and liabilities. International sales of rolled steel from the Groups Russian operations have been the subject of several anti-dumping investigations. The Group has taken steps to address the concerns of such investigations and participates actively in their resolution. A brief description of protective measures effective at Severstals key export markets is given below: Exports of hot-rolled coils and thin sheets from Russia to the USA are subject to minimum prices issued quarterly by the US Department of Commerce andannual quotas. Exports of hot-rolled plates from Russia to the USA are subject to minimum prices established based on the producers actual cost and profit on the domestic market. Severstal is the firstandcurrently onlyRussian company, for which, since September 2005, the hot-rolled platesmarket is open.

The European Union (EU) market is protected by quotas. During the last few years quotas have been raised consistently after adjusting for the effects of EU enlargements, equaling 3,370 million tons in 2010.Severstal traditionally gets approximately 35% of the total Russian quota and strives to utilize it fully because the EU market is a key market for the Group.
2. Basis for preparation of the consolidated financial statements

Statement of compliance
Governance
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Basis of measurement
The consolidated financial statements are prepared on the historic cost basis except for financial instruments at fair value through profit and loss and available-for-sale financial assets stated at fair value. The Groups statutory financial records are maintained in accordance with the legislative requirements of the countries in which the individual entities are located, which differ in certain respects from IFRS. The accounting policies applied in the preparation of these consolidated financial statements are set out in Note3.
Further Information
Critical accounting judgments, estimates and assumptions

Preparation of the consolidated financial statements in accordance with IFRS requires the Groups management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The determination of estimates requires judgments which are based on historical experience, current and expected economic conditions, and other available information. Actual results could differ from those estimates. The most significant areas requiring the use of management estimates and assumptions relate to: useful lives of property, plant and equipment; impairment of assets; allowances for doubtful debts, obsolete and slow-moving inventories; decommissioning liability; retirement benefit liabilities; litigations; and deferred income tax assets.
Useful lives of property, plant and equipment The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. These estimates may have a material impact on the amount of the carrying values of property, plant and equipment and on depreciation expense for the period. Impairment of assets The Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets are impaired. In making the assessments for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating unit. Subsequent changes to the cash generating unit allocation or to the timing of cash flows could impact the carrying value of the respective assets. Allowance for doubtful debts The Group makes allowance for doubtful receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for doubtful debts, management bases its estimates on the current overall economic conditions, the ageing of accounts receivable balances, historical write-off experience, customer creditworthiness and changes in payment terms. Changes in the economy, industry or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the consolidated financial statements.
102

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated)
Allowance for obsolete and slow-moving inventories The Group makes allowance for obsolete and slow-moving raw materials and spare parts. In addition, certain finished goods of the Group are carried at net realizable value. Estimates of net realizable value of finished goods are based on the most reliable evidence available at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring subsequent to the end of the reporting period to the extent that such events confirm conditions existing at the end of the period. Decommissioning liability The Group reviews its decommissioning liability, representing site restoration provisions, at each reporting date and adjusts it to reflect the current best estimate in accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities. The amount recognized as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on the requirements of the current legislation of the country where the respective operating assets are located. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Considerable judgment is required in forecasting future site restoration costs. Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision when there is sufficient objective evidence that they will occur. Retirement benefit liabilities The Group uses an actuarial valuation method for measurement of the present value of post-employment benefit obligations and related current service cost. This involves the use of demographic assumptions about the future characteristics of the current and former employees who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.) as well as financial assumptions (discount rate, future salary and benefit levels, expected rate of return on plan assets, etc.). Litigations The Group exercises judgment in measuring and recognizing provisions and the exposure to contingent liabilities related to pending litigations or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgment is necessary in assessing the likelihood that a pending claim will succeed, or liability will arise, and to quantify the possible range of the final settlement. Because of the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of internal specialists or with the support of outside consultants. Revisions to the estimates may significantly affect future operating results. Deferred income tax assets Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The estimation of that probability includes judgments based on the expected performance. Various factors are considered to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from that estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. In the event that the assessment of future utilization of deferred tax assets must be reduced, this reduction will be recognized in the income statement.
Functional and presentation currency

The presentation currency of these consolidated financial statements is the US dollar. The functional currency is determined separately for each of the Groups entities. For most Russian entities the functional currency is the Russian ruble. The functional currency of the Groups entities located in North America is the US dollar. The functional currency of the majority of the Groups entities located in Western Europe is the Euro. The translation into the presentation currency is made as follows: all assets and liabilities, both monetary and non-monetary, are translated at the closing exchange rates at the dates of each statement of financial position presented; all income and expenses in each income statement are translated at the average exchange rates for the periods presented; and all resulting exchange differences are recognized as a separate component in other comprehensive income.
103

Any conversion of amounts into US dollars should not be construed as a representation that such amounts have been, could be, or will be in the future, convertible into US dollars at the exchange rates used, or at any other exchange rate.
Adoption of new and revised IFRS

A number of new Standards, amendments to Standards and Interpretations were adopted for the year ended December 31, 2010, and have been applied in these consolidated financial statements. The adoption of the pronouncements did not have a significant impact on the Groups consolidated financial statements except for those discussed below.
Governance
Change in accounting policy for business combinations

The Group has adopted revised IFRS 3 Business Combinations and amended IAS 27 Consolidated and Separate Financial Statements, which became effective as at 1 January 2010. Revised IFRS 3 and amended IAS 27 incorporate the following changes that are relevant to the Groups operations: The definition of a business has been broadened, which results in more acquisitions being treated as business combinations. Transaction costs, other than share and debt issue costs, are expensed as incurred. Total comprehensive income/loss is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Revised IFRS 3 and amended IAS 27 have been applied prospectively and therefore there is no impact on prior periods in the Groups 2010 consolidated financial statements.
Change in presentation of the statement of changes in equity

The Group applied amended IAS 1 Presentation of Financial Statements, which became effective as at 1 January 2010. The amended standard requires presentation in the statement of changes in equity of reconciliation, for each component of equity, between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from profit or loss, each item of othercomprehensive income and transactions with owners. The amendment was applied retrospectively by re-presenting the comparativeinformation.
Change in presentation of the statement of cash flows

The Group applied amended IAS 7 Statement of Cash Flows, which became effective for annual periods beginning on or after July 1, 2009. The amendments require presentation of the cash outflows on acquisitions of non-controlling interests as financing activities in the statement of cash flows. The amendments were applied retrospectively to all periods presented.
104

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) New accounting pronouncements
A number of new Standards, amendments to Standards and Interpretations were not yet effective for the year ended December 31, 2010, and have not been applied in these consolidated financial statements.
Standards and Interpretations Effective for annual periods beginning on or after
IAS 1 (Amended) Presentation of Financial Statements IAS 12 (Amended) Income taxes IAS 24 (Revised) Related party disclosure IAS 27 (Amended) Consolidated and Separate Financial Statements IAS 32 (Amended) Financial instruments: Presentation IAS 34 (Amended) Interim financial reporting IFRS 1 (Revised, amended) First-time Adoption of International Financial Reporting Standards
January 1, 2011 January 1, 2012 January 1, 2011 July 1, 2010 February 1, 2010 January 1, 2011
July 1, 2010, January 1, 2011 and July 1, 2011 July 1, 2010 January 1, 2013 January 1, 2011 January 1, 2011 January 1, 2011 and July 1, 2011
IFRS 3 (Amended) Business Combinations IFRS 7 (Amended) Financial instruments: disclosures IFRS 9 Financial instruments IFRIC 13 (Amended) Customer Loyalty Programmes IFRIC 14 (Amended) IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments July 1, 2010 The adoption of the pronouncements listed above is not expected to have a significant impact on the Groups consolidated financial statements in future periods except for those discussed below. IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2013. The new standard is to be issued in several phases and is intended to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement once the project is completed by the end of 2010. The first phase of IFRS 9 was finalised in October 2010 and relates to the recognition and measurement of financial assets and liabilities. The Group recognizes that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on Groups consolidated financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued. Revised IAS 24 Related party disclosure provides a revised definition of a related party which includes new relationships and will likely lead to the increased number of related parties of the Group. Revised IAS 24 becomes mandatory for the Groups 2011 annual consolidated financial statements and requires retrospective application.
Restatement
As discussed in Note 28, these consolidated financial statements have been adjusted for the effects of the discontinued operations. In order to conform to the current years presentation the following reclassifications to prior years were made for the current portion of retirement benefit liabilities (Note 25).
December 31, 2009 2008
(Decrease) in retirement benefit liabilities Increase in other current liabilities
(49,386) 49,386
(57,231) 57,231
105

3. Summary of the principal accounting policies

The following significant accounting policies have been consistently applied in the preparation of these consolidated financial statements throughout the Group.
a. Basis of consolidation
Subsidiaries Subsidiaries are those enterprises controlled, directly or indirectly, by the Parent Company. The financial statements of subsidiaries are included in these consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. The non-controlling interests represent the non-controlling shareholders proportion of the net identifiable assets of the subsidiaries, including the non-controlling shareholders share of fair value adjustments on acquisitions. The non-controlling interests are presented in the statement of financial position within equity, separately from the parents shareholders equity. Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in preparing these consolidated financial statements; unrealized losses are also eliminated unless the transaction provides an evidence of impairment of the asset transferred. Acquisition of Subsidiaries The purchase method of accounting was used to account for the acquisition of subsidiaries by the Group. The initial accounting for a business combination involves identifying and determining the fair values to be assigned to the acquirees identifiable assets, liabilities and contingent liabilities and the cost of acquisition. If the initial accounting for a business combination is incomplete by the end of the period in which the combination is effected, the Group accounts for the combination using the provisional values for the items for which the accounting is incomplete. The Group recognizes any adjustments to those provisional values as a result of completing the initial accounting within twelve months from the acquisition date. As a result goodwill or negative goodwill is adjustedaccordingly. Comparative information for the periods before the completion of the initial accounting for the acquisition is presented as if the initial accounting had been completed at the acquisition date. Accounting for business combinations of entities under common control IFRS provides no guidance on accounting for business combinations of entities under common control. Management adopted the accounting policy for such transactions based on the relevant guidance of accounting principles generally accepted in the United States (US GAAP). Management believes that this approach and the accounting policy disclosed below are in compliance with IFRS. Acquisitions of controlling interests in companies that were previously under the control of the Majority Shareholder are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date on which control was obtained by the Majority Shareholder. The assets and liabilities acquired are recognized at their book values. The components of equity of the acquired companies are added to the same components within Group equity except that any share capital of the acquired companies is recorded as a part of additional capital. The cash consideration for such acquisitions is recognized as a liability to or a reduction of receivables from related parties, with a corresponding reduction in equity, from the date the acquired company is included in these consolidated financial statements until the cash consideration is paid. Parent Company shares issued in consideration for the acquired companies are recognized from the moment the acquired companies are included in these financial statements. No goodwill is recognized where the Group acquires additional interests in the acquired companies from the Majority shareholder. The difference between the share of net assets acquired and the cost of investment is recognized directly in equity. Business combination achieved in stages In a business combination achieved in stages, the Group remeasures its previously held equity interest in the associates or joint ventures at its acquisition date fair value and recognizes the resulting gain or loss, if any, in profit or loss. Investments in associates Associates are those enterprises in which the Group has significant influence, but does not have control over the financial and operatingpolicies.
106

Investments in associates are accounted for under the equity method and are initially recognized at cost, from the date that significant influence commences until the date that significant influence ceases. Subsequent changes in the carrying value reflect the post-acquisition changes in the Groups share of net assets of the associate and goodwill impairment charges, if any, after adjustments to align the accounting policies with those of the Group. When the Groups share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Groups interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Interests in joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharingcontrol. Where a Group entity undertakes its activities under joint venture arrangements directly, the Groups share of jointly controlled assets and any liabilities incurred jointly with other venturers are recognized in its financial statements and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on the accrual basis. Income from the sale or use of the Groups share of the output of jointly controlled assets, and its share of joint venture expenses, are recognized when it is probable that the economic benefits associated with the transactions will flow to the Group and their amount can be measuredreliably. Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the equity method of accounting whereby an interest in jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the Groups share of net assets of the joint venture. The income statement reflects the Groups share of the results of operations of the joint venture. Unrealized gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Groups interest in the joint venture; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Goodwill Goodwill arising on the acquisition of a subsidiary, associate or a jointly controlled entity represents the excess of the cost of acquisition over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary, associate or jointly controlled entity recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill in respect of subsidiaries is disclosed as an intangible asset and goodwill relating to associates and jointly controlled entities is included within the carrying value of the investments in these entities. No goodwill is recognized where the Group acquires additional interests in the acquired companies (acquisitions of non-controlling interest). The difference between the share of net assets acquired and the cost of investment is recognized directly in equity. Where goodwill forms a part of a cash generating unit and the part of the operations within that unit is disposed of, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Negative goodwill represents the excess of the Groups share in the fair value of acquired identifiable assets, liabilities and contingent liabilities over the cost of an acquisition. It is recognized in the income statement at the date of the acquisition.
b. Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of each entity at the foreign exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency of each entity at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated to the functional currency of the entity at the foreign exchange rate ruling at the date of the transaction. Foreign exchange gains and losses arising on the translation are recognized in the income statement.
107

for the years ended December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars, except as otherwise stated) c. Exploration for and evaluation of mineral resources
Expenditures associated with search for specific mineral resources are recognized as exploration and evaluation assets. The following expenditure comprises cost of exploration and evaluation assets: obtaining of the rights to explore and evaluate mineral reserves and resources including costs directly related to this acquisition; researching and analyzing existing exploration data; conducting geological studies, exploratory drilling and sampling; examining and testing extraction and treatment methods; compiling prefeasibility and feasibility studies; activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral recourse.
Overview Business Review Governance Financial Statements
Administration and other overhead costs are charged to the cost of exploration and evaluation assets only if directly related to an exploration and evaluation project. If a project does not prove viable, all irrecoverable exploration and evaluation expenditure associated with the project net of any related impairment allowances is written off to the income statement. The Group measures its exploration and evaluation assets at cost and classifies as tangible or intangible according to the nature of the assets acquired and applies the classification consistently. Exploration and evaluation assets considered to be tangible are recorded as a component of property, plant and equipment at cost less impairment charges. Otherwise, they are recorded as intangible assets, such as licenses. To the extent that tangible asset is consumed in developing an intangible asset, the amount reflecting that consumption is capitalized as a part of the cost of the intangible asset. As the asset is not available for use, it is not depreciated. All exploration and evaluation assets are monitored for indications ofimpairment. An exploration and evaluation asset is no longer classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable and the development of the deposit is sanctioned by management. The carrying amount of such exploration and evaluation asset is reclassified into development asset.
Further Information
d. Development expenditure
Development expenditure includes costs directly attributable to the construction of a mine and the related infrastructure and is accumulated separately for each area of interest. Development expenditure is capitalized and is recorded as a component of property, plant and equipment or intangible assets, as appropriate. No depreciation is charged on the development expenditure before the start of commercial production. To the extent that revenue arises from test production during the development stage, an amount is charged from development expenditure to the cost of sales so as to reflect a zero net gross margin.
e. Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and, for qualifying assets, borrowing costs capitalized. In the case of assets constructed by the Group, related works and direct project overheads are included in cost. The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. Repair and maintenance expenses are charged to the income statement as incurred. Gains or losses on disposals of property, plant and equipment are recognized in the income statement. Depreciation is provided so as to write off property, plant and equipment over its expected useful life. Depreciation is calculated using the straight line basis, except for depreciation on vehicles and certain metal-rolling equipment, which is calculated on the basis of mileage and units of production, respectively. The estimated useful lives of assets are reviewed regularly and revised when necessary.
108

The principal periods over which assets are depreciated are as follows: Buildings and constructions Plant and machinery Other productive assets Infrastructure assets 20 50 years 10 20 years 5 20 years 5 50 years
f. Lease
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases. Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement as a part of interest expense. The depreciation policy for depreciable leased assets is consistent with that for depreciable assets, which are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term or its useful life. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
g. Intangible assets (excluding goodwill)

Intangible assets acquired by the Group are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. Intangible assets are amortized over their estimated useful lives using the straight-line basis and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The table below presents the useful lives of intangible assets: Mineral rights Software Other intangible assets 12 25 years 3 10 years 3 50 years
The major components of the other intangible assets include capitalized favorable contracts and land lease rights. Amortization of intangible assets is included in the caption Cost of sales in the consolidated income statement.
h. Impairment of assets
The carrying amount of goodwill is tested for impairment annually. At each reporting date the Group assesses whether there is any indication of impairment of the Groups other assets. If any such indication exists, the assets recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Calculation of recoverable amount For financial assets carried at amortized cost, the amount of the impairment is the difference between the assets carrying amount and its recoverable amount that is the present value of estimated future cash flows, discounted at the financial assets original effective interest rate. For other assets the recoverable amount is the greater of the fair value less cost to sale and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
109

the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of a held-to-maturity investment, loan or receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
i. Inventories
Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads. Allowances are recorded against slow-moving and obsolete inventories.
j. Financial assets
Financial assets include cash and cash equivalents, investments, and loans and receivables. Cash and cash equivalents comprise cash balances, cash deposits and highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the carrying value of a financial asset held at amortized cost and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognized on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL. Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling in the near future; or it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking. A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial instruments, which are managed and performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis.
110

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net gain or loss recognized in the income statement incorporates any dividend or interest earned on the financial asset. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortized cost using the effective interest method less any impairment. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. AFS financial assets Available for sale financial assets are those non-derivative financial assets that are not classified as financial assets at FVTPL, held-tomaturity or loans and receivables and are stated at fair value. Listed shares that are traded in an active market are stated at their market value. Investments in unlisted shares that do not have a quoted market price in an active market are measured at managements estimate of fair value. Gains and losses arising from changes in fair value are recognized in other comprehensive income with the exception of impairment losses, which are recognized directly in the income statement. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in the equity is included in the income statement for the period. Dividends on AFS equity instruments are recognized in the income statement when the Groups right to receive the dividends is established. Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
k. Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: it has been incurred principally for the purpose of repurchasing in the near future; or it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms a part of a group of financial instruments, which are managed and where performance is evaluated on a fair value basis, in accordance with the Groups documented risk management or investment strategy, and information about the grouping is provided internally on that basis. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability.
111

Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Borrowing costs on loans specifically for the purchase or construction of a qualifying asset are capitalized as a part of the cost of the asset they are financing. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized in the income statement. Derecognition of financial liabilities The Group derecognizes financial liabilities when, and only when, the Groups obligations are discharged, cancelled or they expire.
l. Hedging instruments
The Group holds cash flow hedging instruments in order to hedge the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and which could affect profit or loss. Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss that has been previously recognized in other comprehensive income remains in equity until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount that has been recognized in other comprehensive income is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit orloss.
m. Dividends payable
Dividends are recognized as a liability in the period in which they are authorized by the shareholders.
n. Other taxes and contributions

Other taxes and contributions are taxes and mandatory contributions paid to the government, or government controlled agencies, that are calculated on a variety of bases, but exclude taxes calculated on profits, value added taxes calculated on revenues and purchases and social security costs calculated on wages and salaries. Social security costs are included in cost of sales, distribution expenses and general and administrative expenses in accordance with the nature of related wages and salaries expenses.
o. Income tax
Income tax on the profit for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized in other comprehensive income, in which case it is recognized in other comprehensive income. Current tax expense is calculated by each entity on the pre-tax income determined in accordance with the tax law of the country, in which the entity is incorporated, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is calculated using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting and taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which these assets can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
112

Deferred tax is not recognized in respect of the following: investments in subsidiaries where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future; if it arises from the initial recognition of an asset or liability that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss, initial recognition of goodwill.
p. Provisions
Employee benefits The Group pays retirement, healthcare and other long-term benefits to its employees. The Group has two types of retirement benefits: defined contribution plans and defined benefit plans. Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts in respect of those benefits. The Groups only obligation is to pay contributions as they fall due, including contributions to the Russian Federation State pension fund. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. Defined benefit plans are post-employment benefits plans other than defined contribution plans. The calculation of the Groups net obligation in respect of defined retirement benefit plans is performed annually by management using the projected unit credit method. In accordance with this method, the Groups net obligation is calculated separately for each defined benefit plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to its present value and the fair value of any plan assets is deducted. The discount rate used is the yield at the reporting date on high quality corporate bonds for a respective country that have maturity dates approximating the terms of the Groups obligations. Any actuarial gain or loss arising from the calculation of the retirement benefit obligation is fully recognized in the current years income statement. Other long-term employee benefits include various compensations, non-monetary benefits and long-term incentive program. Decommissioning liability The Group has environmental liabilities related to restoration of soil and other related works, which are due upon the closures of certain of its production sites. Decommissioning liabilities are estimated case-by-case based on available information, taking into account applicable local legal requirements. The estimation is made using existing technology, at current prices, and discounted using a real discount rate. Future decommissioning costs, discounted to net present value, are capitalized and the corresponding decommissioning liability raised as soon as the constructive obligation to incur such costs arises. Future decommissioning costs are capitalized in property, plant and equipment and are depreciated over the life of the related asset. The unwinding of the decommissioning liability is included in the consolidated income statement as interest expense. Ongoing rehabilitation costs are expensed when incurred. Onerous contracts A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognizes any impairment loss on the assets associated with that contract. Other provisions Other provisions are recognized in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
q. Share capital
Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
113

Repurchase of issued shares When share capital recognized as equity is repurchased, the amount of the consideration paid which includes directly attributable costs, is net of any tax effects, and is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.
r. Operating income and expenses

The Group presents profit or loss from operations, which includes various types of income and expenses arising in the course of production and sale of the Groups products, disposal of property, plant and equipment, participation in joint ventures and associates, securities operations and other Groups regular activities. Certain items are presented separately from profit or loss from operations by virtue of their size, incidence or nature to enable a full understanding of the Groups financial performance. Such items, which are included in profit or loss before financing and taxation, primarily include impairment of non-current assets, negative goodwill and other non-operating income and expenses, as, for example, gain or loss from disposal of subsidiaries and associates and charitable donations.
s. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred. Sale of goods Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.
Further Information
t. Interest income
Interest income is recognized in the income statement on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets net carrying amount.
u. Interest expense
Interest expense is recognized in the income statement as it accrues, taking into account the effective yield on the liability.
v. Net income from securities operations

Net income from securities operations comprises dividend income (except for dividends from equity associates), realized and unrealized gains on financial assets at fair value through profit or loss, realized gains and impairment losses on available-for-sale and held-to-maturity investments.
w. Earnings per share

Earnings per share is calculated by dividing the net profit by the weighted average number of shares outstanding during the year, assuming that shares issued in consideration for the companies acquired from the Majority Shareholder were issued from the moment these companies are included in these consolidated financial statements.
114

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) x. Discontinued operations
Discontinued operations are disclosed when a component of the Groups business that represents a separate major line of business or geographical area of operations either has been disposed of during the reporting period, or is classified as held for sale at the reporting date. This condition is regarded as met only when the disposal is highly probable within one year from the date of classification. The comparative income statement is represented as if the operation had been discontinued from the beginning of the comparativeperiod. Assets and liabilities of a disposal group are presented in the statement of financial position separately from other assets and liabilities. Comparative information related to discontinued operations is not amended in the balance sheet.
y. Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Groups other components. An operating segments operating results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The reportable segments amounts in the disclosure are stated before the intersegment elimination and are measured on the same basis as those in the consolidated financial statements, except for non-monetary investments in subsidiaries reported within long-term financial investments, which are translated into the presentation currency at the historic exchange rate. Inter-segment pricing is determined on an arms length basis. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.
z. Government grants
Government grants are recognized when there is a reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Government grants related to assets are presented as a deduction from the cost of the asset.
4. Revenue
Revenue by product was as follows:
Hot-rolled strip and plate 3,964,534 2,741,271 5,165,788 Cold-rolled sheet 1,587,051 1,156,140 1,822,668 Galvanized and other metallic coated sheet 1,532,821 1,289,472 1,839,610 Large diameter pipes Metalware products 961,348 832,397 748,824 686,179 677,955 635,134 470,015 383,727 347,834 288,147 98,222 359,077 624,227 1,204,695 777,303 512,335 527,613 272,176 279,958 217,194 255,103 246,442 58,303 285,720 819,727 190,415 664,436 257,463 631,879 453,069 485,467 359,064 321,317 582,292
Gold Coal and coking coal concentrate Shipping and handling costs billed to customers Semi-finished products Long products Pellets and iron ore Others tubes and pipes, formed shapes
350,636 1,267,869
Colour-coated sheet Scrap Others
13,573,265 9,593,893 16,065,759
115

Revenue by delivery destination was as follows:
Russian Federation 6,203,214 3,955,877 8,878,900 North America 3,131,834 2,448,497 3,047,336 Europe 2,342,231 1,510,840 2,726,643 China and Central Asia South-East Asia The Middle East Central and South America 469,246 454,799 437,766 422,484 111,691 673,182 295,007 418,542 152,643 139,305 252,940 248,736 532,738
275,869 102,597
Africa
13,573,265 9,593,893 16,065,759
5. Staff costs
Employment costs were as follows:
Further Information
Wages and salaries (1,354,102) (1,236,493) (1,528,468) Social security costs (236,408) (205,479) (331,371) Retirement benefit (costs)/gains (10,661) 6,697 (14,646) (1,601,171) (1,435,275) (1,874,485) Actuarial losses recognized (14,886) (343) (7,496)
Staff costs (1,616,057) (1,435,618) (1,881,981) For the year ended December 31, 2010, key managements remuneration totalled US$ 52.8 million (2009: US$ 19.6 million; 2008: US$42.6 million).
6. Net loss from securities operations

Held-for-trading securities
Profit on disposal Remeasurement to fair value Held-to-maturity securities, deposits and loans Loss on disposal Discounting Available-for-sale securities Net (loss)/gain on disposal transferred from equity Dividends received Fair value adjustment of previously held interest upon acquisition of subsidiary
481 (13,982)
742
3,037
(8,420) (106,058) (3,924) (2,701) 2,143 (12,160) (2,359) 1,606 3,898 (99,876)
Impairment (Note 31) (133,969) (5,042) 6,190 41,628
(104,694)
116

7. Net other operating (expenses)/income
Insurance proceeds Gain on termination of a supply contract Other
(15,288) (15,288)
(37,675) (37,675)
430,000 177,000 (51,335) 555,665
In January 2008, an explosion occurred on one of Severstal Dearborns furnaces, blast furnace B. Following the accident, Severstal Dearborn ceased blast furnace B operation. Severstal Dearborn is insured against property damage and business interruption with a combined gross coverage of US$ 500.0 million, subject to customary deductibles. The business interruption insurance covers fixed costs and loss of profits. The entire amount of the insurance coverage of US$ 430.0 million was received in 2008. In February 2008, a long term electricity supply contract between Severstal Dearborn and Dearborn Industrial Generation (DIG) was terminated with a lump sum payment from DIG to compensate Severstal Dearborn for the differential between the contract price and the price Severstal Dearborn will have to pay another electricity supplier for the duration of the original contract. This lump sum payment amounted to US$ 177.0 million. Insurance proceeds and gain on termination of supply contract relate to Severstal North America segment.
8. Impairment of non-current assets
Impairment of property, plant and equipment Impairment of intangible assets (Note 22) Impairment of goodwill (Note 22)
(54,077) (27,046) (81,123)
(45,280) (141,675) (42,776) (390,300)
(88,056) (531,975)
For the purpose of impairment testing, the recoverable amount of each cash-generating unit has been determined based on value in use calculations. The value in use calculation uses cash flow projections based on actual operating results and the business plan approved by management and a corresponding discount rate which reflects the time value of money and risks associated with each individual cash generating unit. Key assumptions management used in their value in use calculations are as follows: For all cash generating units, apart from the Severstal Resource segment, cash flow projections cover a period of five years. Cash flows beyond the five-year period have been extrapolated taking into account business cycles. Cash flow projections for cash generating units of the Severstal Resource segment cover a period which corresponds to the contractual time of the respective mining licenses. Cash flow projections were prepared in nominal terms for all cash generating units, apart from Neryungri Metallic and Mine Aprelkovo, Celtic Resources Holdings Ltd. and Crew Gold Corporation where cash flow projections have been prepared based on real terms. Cash flow projections during the forecast period are based on long-term price trends for both sales prices and material costs specific for each segment and geographic region and operating cost inflation in line with consumer price inflation for each country. Consumer price inflation expectations (in local currency) during the forecast period are as follows in percentage terms:
Russia USA Italy Kazakhstan UK
5.4 7.0 1.3 2.8 1.5 2.0 5.4 7.0 n/a
6.2 8.2 1.4 2.8 0.9 1.6 6.5 8.3 n/a n/a
12.0 1.8 2.0 1.9 2.0 12.0 n/a 2.3 2.0
Guinea 5.0 12.3
117

Discount rates for each cash-generating unit were estimated in nominal terms based on the weighted average cost of capital, apart from Neryungri Metallic and Mine Aprelkovo, Celtic Resources Holdings Ltd. and Crew Gold Corporation where discount rates were estimated in real terms. These rates, presented by segment, are as follows in percentage terms:
Severstal Resource: Russia* Kazakhstan* Guinea* USA Russian Steel: Russia* Italy* 13.3 16.9 15.6 20.1 22.5 17.0 10.5 9.0 16.0 18.7 18.0 16.4 18.5 21.4 17.0 n/a 16.5 23.6 n/a 16.4
Severstal North America 14.4 17.0 18.5 23.7 17.7 18.9

*US$ rate
Further Information
Values assigned to key assumptions and estimates used to measure the units recoverable amount are consistent with external sources of information and historic data for each cash-generating unit. Management believes that the values assigned to the key assumptions and estimates represent the most realistic assessment of future trends.
Severstal Resource segment
Vorkutaugol 2008 An impairment loss was recognized in 2008 in the amount of US$ 128.8 million and was allocated to property, plant and equipment. The following specific assumptions were used in the impairment test: the forecast extraction volumes grow on average at 5% p.a. during the five year period ending 2013 and remain constant thereafter; the forecast has the following growth rates for coking coal prices: an average decline of 16% p.a. in 2009 to 2011; an average growth of 29% p.a. during the next two years and constant at 80% of 2013 prices thereafter; the forecast has the following growth rates for steam coal prices: an average decline of 16% p.a. in 2009 to 2010; an average growth of 10% p.a. during the next three years and constant at 89% of 2013 prices thereafter; operating costs are forecast to decrease by 27% in 2009 compared to 2008 and then increase on average by 9% p.a. during the next four years; thereafter costs remain constant at the 2013 level; pre-tax discount rate of 18.5% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate increases the impairment loss by US$ 21.3 million; a 10% decrease in future planned revenues increases the impairment loss by US$ 341.8 million. 2009 An impairment loss was recognized in 2009 in the amount of US$ 3.7 million in relation to specific items of property, plant and equipment. PBS Coals limited 2008 An impairment loss was recognized in 2008 in the amount of US$ 361.1 million and was allocated fully to goodwill. The carrying amount of goodwill allocated to the cash generating unit before the impairment loss was US$ 477.2 million as of December31, 2008.
118

The following specific assumptions were used in the impairment test: the forecast extraction volumes increase by 22% in 2009, then increase by 10% in 2010 and remain constant at the 2010 levelthereafter; the forecast coking coal prices increase by 1.1% p.a. during the five year forecast period and remain constant thereafter; the forecast steam coal prices increase on average by 2.5% p.a. during the five year forecast period and remain constant at the 2013 level thereafter; operating costs are forecast to increase by 9% in 2009 and then increase on average by 1% p.a. during the next four years; thereafter costs are assumed to be constant at the 2013 level; pre-tax discount rate of 16.4% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate increases the impairment loss by US$ 44.7 million; a 10% decrease in future planned revenues increases the impairment loss by US$ 222.8 million. 2009 As a result of value in use calculation no impairment loss was recognized in 2009. The carrying amount of goodwill allocated to the cash generating unit was US$ 111.0 million as of December 31, 2009. The following assumptions were used in the impairment test: the forecast extraction volumes increase by 30% in 2010, decrease on average by 2% p.a. in 2011 to 2012, increase on average by 26%p.a. in 2013 to 2014 and remain constant at the 2014 level thereafter; the forecast coking coal concentrate prices increase on average by 4% p.a. in 2010 to 2014 and remain constant at the 2014 level thereafter; the forecast steam coal prices increase on average by 2% p.a. during the five year forecast period and remain constant at the 2014 level thereafter; operating costs are forecast to increase by 23% in 2010, decrease on average by 2% p.a. in 2011 to 2012, increase on average by 22%p.a. in 2013 to 2014; thereafter costs are assumed to be constant at the 2014 level; pre-tax discount rate of 16.5% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$34.5million; a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 258.7 million. Specific impairment loss in the amount of US$ 35 million was recognized in 2009 and was allocated to intangible assets. 2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to the cash generating unit was US$ 111.7 million as of December 31, 2010. The following assumptions were used in the impairment test: the forecast extraction volumes increase by 5% in 2011 and remain constant at the 2011 level thereafter; the coking coal concentrate prices are forecast to remain generally constant; the forecast steam coal prices increase on average by 4% p.a. during the five year forecast period, increase by 2% in 2016 and remain constant at the 2016 level thereafter;

operating costs are forecast to decrease by 3% in 2011 and remain constant at the 2011 level thereafter; pre-tax discount rate of 18.0% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$18.5million; a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 210.1 million. Specific impairment loss in the amount of US$ 5.7 million was recognized in 2010 and was allocated to intangible assets. Celtic Resources Ltd. 2008 As a result of value in use calculation no impairment loss was recognized in 2008. The carrying amount of goodwill allocated to the cash generating unit was US$ 37.8 million as of December 31, 2008. The following assumptions were used in the impairment test: the forecast extraction volumes increase on average by 54% p.a. in 2009 to 2010, decline on average by 10% in 2011 to 2012 and remain constant thereafter; the forecast has the following growth rates for gold prices: decline of 17% in 2009; average growth of 12% p.a. in 2010 to 2013; average decline of 5% p.a. during the remaining contractual term of the respective licenses; operating costs are forecast to increase on average by 39% p.a. in 2009 to 2010, further grow on average by 5% p.a. in 2011 to 2012 and remain constant during the remaining contractual term of the respective licenses; pre-tax discount rate of 23.6% (in US$ terms). Management believes that any reasonably possible change in any of these key assumptions would not cause the carrying amount of the cash generating unit to exceed its recoverable amount. 2009 As a result of value in use calculation no impairment loss was recognized in 2009. The carrying amount of goodwill allocated to the cash generating unit was US$ 30.4 million as of December 31, 2009. The following assumptions were used in the impairment test: the forecast extraction volumes increase by 21% in 2010, increase on average by 2% p.a. in 2011 to 2014 and remain constant at the 2014 level thereafter; the forecast has the following growth rates for gold prices: remain stable in 2010; average growth of 5% p.a. in 2011 to 2013; average decline of 4% p.a. in 2014 to 2016 and remain constant during the remaining contractual term of the respective licenses; operating costs are forecast to increase by 44% in 2010, grow on average by 8% p.a. in 2011 to 2014, further increase on average by 4% in 2015 and during the remaining contractual term of the respective licenses; pre-tax discount rate of 17.0% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate gives an impairment loss of US$ 3.6 million; a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 70.6 million. An impairment loss was recognized in 2009 in the amount of US$ 8.5 million in relation to specific items of property, plant and equipment.
Severstal Annual Report and Accounts 2010 120 Overview Business Review Governance Financial Statements Further Information

2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to the cash generating unit was US$ 30.4 million as of December 31, 2010. The following assumptions were used in the impairment test: the forecast extraction volumes increase by 33% in 2011, decrease by 2% in 2012 and remain constant at the 2012 level thereafter; the forecast has the following growth rates for gold prices: increase by 14% in 2011; decrease on average by 3% p.a. in 2012 to 2016 and remain constant during the remaining contractual term of the respective licenses; operating costs are forecast to remain generally constant during the contractual term of the respective licenses; pre-tax discount rate of 16.0% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 2.4 million. Neryungri Metallik and Mine Aprelkovo 2008 As a result of value in use calculation no impairment loss was recognized in 2008. The carrying amount of goodwill allocated to the cash generating unit was US$ 54.5 million as of December 31, 2008. The following assumptions were used in the impairment test: the forecast extraction volumes grow on average at 22% p.a. during 2009 to 2012 and remain constant thereafter; the forecast has the following growth rates for gold prices: decline of 16% in 2009; average growth of 12% p.a. in 2010 to 2013; average decline of 4% p.a. during the remaining contractual term of the respective licenses; operating costs are forecast to increase on average by 9% p.a. in 2009 to 2013 and to grow on average by 1% p.a. during the remaining contractual term of the respective licenses; pre-tax discount rate of 21% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 52.2 million. 2009 As a result of value in use calculation no impairment loss was recognized in 2009. The carrying amount of goodwill allocated to the cash generating unit was US$ 52.3 million as of December 31, 2009. The following assumptions were used in the impairment test: the forecast extraction volumes grow on average by 43% p.a. during 2010 to 2012, increase by 2% in 2013 and remain constantthereafter; the forecast has the following growth rates for gold prices: average growth of 2% p.a. in 2010 to 2014; average decline of 5% p.a. during the remaining contractual term of the respective licenses; operating costs are forecast to increase on average by 29% p.a. in 2010 to 2012, increase on average by 8% p.a.in 2013 to 2014 and remain constant during the remaining contractual term of the respective licenses; pre-tax discount rates of 16.4% (in US$ terms).
121

The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 62.4 million; 2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to the cash generating unit was US$ 52.7 million as of December 31, 2010. The following assumptions were used in the impairment test: the forecast extraction volumes grow on average by 13% p.a. during 2011 to 2021 and remain constant during the remaining contractual term of the respective licenses; the forecast has the following growth rates for gold prices: increase by 14% in 2011; decrease on average by 3% p.a. in 2012 to 2016 and remain constant during the remaining contractual term of the respective licenses; operating costs are forecast to increase on average by 3% p.a. during the remaining contractual term of the respective licenses; pre-tax discount rates of 9.0% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 38.1 million; Crew Gold Corporation 2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to the cash generating unit was US$ 43.2 million as of December 31, 2010. The following assumptions were used in the impairment test: the forecast extraction volumes increase by 19% in 2011, increase by 25% in 2012, increase by 7% in 2013 and remain constant at the 2013 level thereafter; the forecast has the following growth rates for gold prices: increase by 14% in 2011; decrease on average by 3% p.a. in 2012 to 2016 and remain constant during the remaining contractual term of the respective licenses; operating costs are forecast to decrease on average by 5% p.a. during the remaining contractual term of the respective licenses; pre-tax discount rate of 18.7% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 23.6 million. Other units 2009 The impairment loss was recognized in 2009 in the amount of US$ 1.2 million in relation to specific items of property, plant and equipment. 2010 The impairment loss was recognized in 2010 in the amount of US$ 10.1 million in relation to specific items of property, plant and equipment and intangible assets.
122

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) Russian Steel segment
Neva-Metall 2008 An impairment loss was recognized in 2008 in the amount of US$ 29.0 million and was allocated fully to goodwill. The carrying amount of goodwill allocated to the cash generating unit before the impairment loss was US$ 40.0 million as of December31,2008. The following specific assumptions were used in the impairment test: cash flow projections are based on financial forecasts approved by management covering a four year period; volumes are assumed to be constant during the forecast period and thereafter; the forecast sales prices increase by 1% in 2009, increase by 7% p.a. in 2010 to 2012 and remain constant at the 2012 level thereafter; operating costs are forecast to increase on average by 11% p.a. in 2009 to 2012 and remain constant at the 2012 level thereafter; pre-tax discount rate of 22.1% (in US$ terms).
The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate increases the impairment loss by US$ 3.0 million; a 10% decrease in future planned revenues increases the impairment loss by US$ 17.0 million. 2009 As a result of value in use calculation no impairment loss was recognized in 2009. 2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to cash generating unit was US$ 10.6 million as of December 31, 2010. The following specific assumptions were used in the impairment test: cash flow projections are based on financial forecasts approved by management covering a five year period; volumes are assumed to increase on average by 10% p.a. during the forecast period and remain constant at the 2015 level thereafter; the forecast sales prices increase by 8% in 2011, increase on average by 5% p.a. in 2012 to 2015 and increase on average by 1.8% p.a. thereafter; operating costs are forecast to increase by 19% in 2011, increase on average by 5% in 2012 to 2015 and increase on average by 1.8% p.a. thereafter; pre-tax discount rate of 13.3% (in US$ terms). Redaeli Techna S.p.A. 2008 As a result of value in use calculation no impairment loss was recognized in 2008. The carrying amount of goodwill allocated to the cash generating unit was US$ 36.6 million. The following specific assumptions were used in the impairment test: sales volumes are assumed to be stable during the forecast period and thereafter, except for 2010 where an increase of 3% is assumed; forecasted sales prices decrease by 22% in 2009 and then increase by 5% p.a. in 2009 to 2013; thereafter prices remain constant at the 2013 level; operating costs are forecast to increase on average by 7% p.a. in the forecast period and remain constant at the 2013 level thereafter; pre-tax discount rate of 10.5% (in US$ terms).
123

The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 16.7 million. 2009 As a result of value in use calculation no impairment loss was recognized in 2009. The carrying amount of goodwill allocated to the cash generating unit was US$ 33.9 million as of December 31, 2009. The following assumptions were used in the impairment test: the forecast sales volumes increase on average by 19% p.a. in 2010 to 2011 and remain constant thereafter; forecasted sales prices increase on average by 4% p.a. in 2010 to 2014 and remain constant at the 2014 level thereafter; operating costs are forecast to increase by 23% p.a. in 2010, increase on average by 7% p.a. in 2011 to 2014 and remain constantthereafter; pre-tax discount rate of 17.0% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 77.9 million. 2010 As a result of value in use calculation no impairment loss was recognized in 2010. The carrying amount of goodwill allocated to the cash generating unit was US$ 31.4 million as of December 31, 2010. The following assumptions were used in the impairment test: the forecast sales volumes decrease by 7% in 2011, increase on average by 4% p.a. in 2012 to 2015 and remain constant thereafter; forecast sales prices decrease on average by 4% p.a. in 2011 to 2012 and then increase on average by 2% p.a. in 2013 to 2015 and increase on average by 1.8% p.a. thereafter; operating costs are forecast to decrease by 8% in 2011, increase on average by 1% p.a. in 2012 to 2015 and increase on average by 1.8% p.a. thereafter; pre-tax discount rate of 16.9% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 5.1 million; a 10% decrease in future planned revenues causes the carrying amount of the cash generating unit to exceed its recoverable amount by US$ 72.1 million. Scrap processing companies 2009 An impairment loss was recognized in 2009 in the amount of US$ 33.8 million and was allocated to property, plant and equipment in the amount of US$ 26 million and to intangible assets in the amount of US$ 7.8 million.
124

The following specific assumptions were used in the impairment test: the forecast sales volumes increase by 53% in 2010, increase on average by 5% p.a. in 2011 to 2014 and remain constant at the average level of the forecast period thereafter; the forecast scrap prices increase by 30% in 2010, increase on average by 2% p.a. in 2011 to 2014 and remain constant at the average level of the forecast period thereafter as above; operating costs are forecast to increase by 76% in 2010, increase on average by 8% p.a. in 2011 to 2014 and remain constant at the average level of the forecast period thereafter as above; pre-tax discount rate of 15.6% (in US$ terms). The above estimates are particularly sensitive in the following areas: a 1% increase in discount rate increases the impairment loss by US$ 3.5 million; a 10% decrease in future planned revenues increases the impairment loss by US$ 31.7 million. Other units 2008 An impairment loss related to other cash generating units within the segment was recognized in the amount of US$ 13.1 million in 2008 and was allocated to specific items of property, plant and equipment. 2009 An impairment loss related to other cash generating units within the segment was recognized in the amount of US$ 5.7 million in 2009 and was allocated to specific items of property, plant and equipment. 2010 An impairment loss related to other cash generating units within the segment was recognized in the amount of US$ 21.1 million in 2010 and was allocated to specific items of property, plant and equipment in the amount of US$ 10.7 million and intangible assets in the amount of US$ 10.4 million. Severstal North America segment 2010 An impairment loss was recognized in the amount of US$ 44.2 million in 2010 and was allocated to specific items of property, plant and equipment in the amount of US$ 34.1 million and intangible assets in the amount of US$ 10.1 million.
9. Net other non-operating (expenses)/income
Social expenditure Charitable donations Depreciation of infrastructure assets Gain on disposal of subsidiaries and associates (Note 29) Other
(29,651) (15,837) (1,783) 2,827 (44,444)
(17,803) (14,239) (2,496) 2,748 (31,790)
(43,664) (32,277) (4,293) 314,435 4,744 238,945
125

10. Taxation
The following is an analysis of the income tax expense:
Current tax charge (419,610) (109,612) (925,135) Corrections to prior years current tax charge Deferred tax (expense)/benefit Effect of change in statutory tax rate 21,094 (88,733) 9,367 (33,715) 1,289 387,121 46,277
Governance
Income tax expense (487,249) (133,960) (490,448) In 2008, the Russian Government enacted a change in the Russian statutory tax rate from 24% to 20%. The new rate became effective beginning January 1, 2009. The following table is a reconciliation of the reported net income tax expense and the amount calculated by applying the Russian statutory tax rate of 20% (24%: 2008) to reported profit before income tax.
Profit before income tax 1,913,980 Tax charge at Russian statutory rate (382,796) Profits taxed at different rates Corrections to prior years current tax charge Non-tax deductible expenses, net Tax-loss carry forwards expired Reassessment of deferred tax liabilities Effect of change in statutory tax rate 90,363 21,094 (60,362) (4,687)
147,948 3,237,447 (29,590) (776,987) 308,788 9,367 (28,077) (10,662) 57 273,498 1,289 (48,416) (4,477) 18,368 46,277
Changes in non-recognized deferred tax assets (150,861) (383,843)
Income tax expense (487,249) (133,960) (490,448) The composition of the net deferred tax liability based on the temporary differences arising between the fiscal and reporting balance sheets of the consolidated companies, is given below:
Deferred tax assets: Tax-loss carry forwards Intangible assets 279,670 38,077 495 29,965 18,683 68,955 37,705 112,988 426,618 23,368 12,401 54,268 26,306 372,907 28,292 165,234 317,872 55,284 15,515 82,644 28,271 349,782 53,387 88,907 991,662 246,541 Property, plant and equipment Inventory Accounts receivable Provisions Other Gross deferred tax assets Financial investments
586,538 1,109,394 101,406 239,835
Less offsetting with deferred tax liabilities (485,132) (869,559) (745,121) Recognized deferred tax assets
126

Deferred tax liabilities: Property, plant and equipment (560,735) (756,112) (680,148) Provisions Inventory Investments in joint ventures Accounts receivable Financial liabilities Other Less offsetting with deferred tax assets (3,570) (23,177) (38,164) (62) (24,875) (5,166) 485,132 (4,635) (1,560) Intangible assets (322,663) (239,353) (288,120) (97,032) (103,213) (75,096) (19,050) (73,271) 869,559 (79,714) (275) (43,669) (44,801) 745,121
Gross deferred tax liabilities (978,412) (1,264,549) (1,241,500) Recognized deferred tax liabilities (493,280) (394,990) (496,379) Net deferred tax liability (391,874) (155,155) (249,838) The movement in the net deferred tax liability is as follows:
Opening balance (155,155) (249,838) (445,224) Recognized in income statement Recognized in other comprehensive income Business combinations Reclassified to liabilities related to assets held for sale Foreign exchange difference (84,020) (7,626) (93,637) (51,690) 254 78,623 (3,589) 19,649 470,895 1,180 (350,789) 74,100
Closing balance (391,874) (155,155) (249,838) The Group has not recognized cumulative tax-loss carry forwards in the following amounts and with the following expiry dates (stated in millions of US dollars):
In the following year Between one and five years Between five and ten years Between ten and twenty years No expiry
2.9 105.2 127.3 1,836.4 85.5 2,157.3
2.1 125.5 30.5 1,177.0 109.6 1,444.7
1.1 3.4 24.2 46.4 105.1 180.2
Taxable differences, related to investments in subsidiaries where the Group is able to control the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future, amounted to US$ 4,603.4 million at December 31, 2010 (December 31, 2009: US$ 4,139.0 million; December 31, 2008: US$ 4,201.3 million).
127

11. Related party transactions

Sales to related parties:
Sales to associates Sales to joint ventures Sales to other related parties Interest income Purchases from related parties: Purchases from associates: Non-capital expenditures Purchases from joint ventures: Non-capital expenditures Purchases from other related parties: Non-capital expenditures Capital expenditures Interest expense
30,194 859 31,282 18,496 80,831
3,866 372 48,880 17,909 71,027
10,420
Governance
699 166,362 18,082 195,563
60,586 92,739 20,266 6,862 159 180,612
54,550 57,529 60,443 20,782 1,775 195,079
71,206 149,151 145,956 5,215 5,019 376,547
Further Information
128

12. Related party balances

Joint ventures balances
2010
December 31, 2009 2008
Long-term loans Short-term trade accounts payable Associates balances Short-term trade accounts receivable Long-term loans Short-term trade accounts payable Other related party balances Cash and cash equivalents at related party bank and pension fund Short-term deposits with related party bank and pension fund Accounts receivable from other related parties: Trade accounts receivable Advances paid Other receivables Short-term loans Short-term promissory notes Long-term loans Held-to-maturity securities and deposits Available-for-sale securities Short-term trade accounts payable to other related parties: Trade accounts payable Advances received Short-term payables for acquisition of subsidiaries Other accounts payable Debt financing includes the following balances with other related parties: Short-term debt financing Long-term debt financing
34,792 7,959
6,136
5,267
3,046 3,915 6,510
21,804
3,886
346,868 12,627 2,603 5,870 840 487 4,146 7,653 21,599 556 1,692 2,248 4,315 4,315
335,539 26,803 12,560 10,606 3,550 12,697 4,940 3,563 47,916 7,972 600 1,948 10,520 1,324 20 1,344
322,865 115,488 27,796 4,812 31,223 2,952 18,951 15,269 1,485 102,488 38,644 1,353 10,211 16,485 66,693 32,186 1,675 33,861
The amounts outstanding are expected to be settled in cash. The Group did not hold any collateral for amounts owed by related parties. Loans given to related parties were provided at interest rates ranging from nil to 15% per annum, and were given to finance working capital and investments.
129

13. Cash and cash equivalents
2010
December 31, 2009 2008
Petty cash Short-term deposits with maturity of less than 3 months
412
386
552
Governance
Cash at bank 1,043,239 1,840,855 2,163,535 969,011 1,012,135 488,801 2,012,662 2,853,376 2,652,888
14. Short-term bank deposits

Short-term bank deposits totaled US$ 12.7 million at December 31, 2010 (December 31, 2009: US$ 95.5 million, December 31, 2008: US$818.5 million) and consisted of deposits with an original maturity of more than three months but remaining period to maturity of less than one year. The majority of such deposits have an original maturity of less than 6 months, and such deposits are used by the Group to earn investment income, while preserving a high liquidity position. Substantially all such deposits can be withdrawn, in case of necessity, prior to the maturity date with no loss in principal but reduced interest income.
15. Short-term financial investments

Held-for-trading securities:
Further Information
2010
December 31, 2009 2008
Promissory notes and bonds Quoted equity securities Loans Available-for-sale securities Held-to-maturity securities
18,350 3,881 5,232 27,463
25,505 30,893 567 16,164 73,129
27,982 44,489 24,712 6,254 9,345 112,782
16. Trade accounts receivable
2010
December 31, 2009 2008
Customers 1,033,179 1,540,787 2,032,399 Allowance for doubtful debts (65,342) (83,136) (90,523) 967,837 1,457,651 1,941,876
17. Inventories
2010
December 31, 2009 2008
Raw materials and supplies 1,157,403 1,472,724 2,377,183 Work-in-progress Finished goods 517,743 691,778 540,942 731,591 960,561 1,163,112
2,366,924 2,974,227 4,271,886 Of the above amounts US$ 709.3 million (December 31, 2009: US$ 434.3 million, December 31, 2008: US$ 1,987.4 million) are stated at net realizable value. During the year ended December 31, 2010, the Group recognized a US$ 44.8 million release and a US$ 42.5 million allowance to reduce the carrying amount to a net realizable value (December 31, 2009: US$ 136.4 million and US$ 8.2 million, respectively; December 31, 2008: US$ 25.0 million and US$ $ 204.9 million, respectively).
130

18. Other current assets
2010
December 31, 2009 2008
Advances paid and prepayments Other taxes and social security prepaid Other assets
248,067 8,826 41,177 298,070
193,564 23,774 68,115 285,453
188,484 17,346 73,877 279,707
19. Long-term financial investments
Available-for-sale securities Loans Held-to-maturity securities and deposits
155,477 38,935 10,820 205,232
88,778 26,184 13,654 128,616
48,958 19,545 1,839 70,342
131

20. Investments in associates and joint ventures

The Groups investments in associated and joint ventures companies are described in the tables below. The Group structure and certain additional information on investments in associated and joint ventures, including ownership percentages, is presented in Note 29.
2010 December 31, 2009 2008
Governance
Associates Air Liquide Severstal Intex Resources ASA Iron Mineral Beneficiation Services (Proprietary) Ltd Other Joint ventures Spartan Steel Coating LLC Ohio Coatings Company OOO Gestamp-Severstal-Kaluga Double Eagle Steel Coating Company LLC Gestamp Severstal Vsevolozhsk Severstal-Gonvarri-Kaluga LLC Prognoz Serebro LLC Bethlehem Roll Technologies, LLC Todlem S.L. The following is summarized financial information in respect of associates and joint ventures:
2010 December 31, 2009 2008
17,878 14,609 7,177 693
13,829 2,164
10,096 2,219
47,507 18,032 18,476 14,907 10,015 5,547 3,723 158,564
49,082 17,762 16,267 15,623 15,869 6,572 3,916 2,773 143,857
51,552 16,595 19,354 6,765 4,326 110,907
Further Information
Current assets Non-current assets Short-term liabilities Long-term liabilities Equity

227,308 469,438 104,440 174,042 418,265
136,432 463,945 89,184 163,050 348,143
87,144 312,282 70,658 99,852 228,916
Revenues Net income
159,396 14,273
274,673 20,982
305,991 21,512
132

21. Property, plant and equipment

The movements in property, plant and equipment are as follows:
Land and Plant and buildings machinery Other productive assets Infrastructure Construction- assets in-progress Total assets
Cost: December 31, 2007 2,499,880 7,485,450 Reclassifications Additions Business combinations Disposals Business de-combinations Reclassified to assets held for sale Transfer to other assets Transfers Foreign exchange difference Reclassifications Additions Offsetting with government grant Disposals Reclassified to assets held for sale Reclassified from assets held for sale Transfer to other assets Transfers Foreign exchange difference Reclassifications Additions Business combinations Disposals Business de-combinations Reclassified to assets held for sale Transfers from/(to) other assets Transfers Foreign exchange difference (3,513) (27,901) 350,662 23,677 75,259 (9,353) (344) (9) 95,916 (67,424) 468,384 17,917 (16,137) 57,128 (8,314) 518,978 (174,436) 2,804 (5,833) 109,411 1,031,787 11,477,190 7,737 141 (1,355) (336) 2,057,876 2,057,876 78,561 2,668,092 (28,490) (209,427) (2,178) (15) (22,343) (11,741) (3,000) (22,343)
449,623 2,064,508 (14,207) (156,022) (3,827) 228,441 (5,056) (2,976) 965,953
7,766 (1,298,076)
(345,503) (913,674) (1,902) (29,717) (20,566) 164,600 (41,591) (8,592) 2,976 571,352
(19,553) (157,064) (1,503,218) 103,811 1,660,058 14,453,429 742 (12,880) 17,295 (2,184) (811) (5,071) 24,834 904,775 (16,401) (810,375) 904,775 (29,717) (29,158) 2,976 (16,401)
December 31, 2008 2,810,894 9,410,282
(37,954) (125,201)
(17,865) (210,037)
(43,523) (100,916) (18,926) 5,373 (20,215) (22,409) 128,063 162,663 141,435 (99,457)
(7,234) (162,171) 31,510 35,999 185,611 (64,719) (11,195)
December 31, 2009 2,841,832 9,708,310
106,784 1,737,792 14,913,696 1,229,687 1,229,687 (14,609) (145,185)
(42,310) 368,943 15,511 27,821 (1,248) 280,809 5,874 (998) (26,706) (530,701)
(693,951) (3,397,658) (102,788)
(172) (319,585) (4,514,154)
(47,894) (133,004)
(16,786) (199,930)
December 31, 2010 2,171,873 6,708,922
105,606 2,126,601 11,393,811
Of the above amounts of additions to construction-in-progress US$ 42.3 million (2009: US$23.6 million, 2008: US$ 11.6 million) is interestcapitalized.
133

Land and Plant and buildings machinery Other productive assets Infrastructure Construction assets in-progress Total assets
Depreciation and impairment: December 31, 2007 Reclassifications Depreciation expense Disposals Business de-combinations Reclassified to assets held for sale Transfers Impairment of assets Foreign exchange difference December 31, 2008 Reclassifications Depreciation expense Disposals Reclassified to assets held for sale Transfers Impairment of assets Foreign exchange difference December 31, 2009 Reclassifications Depreciation expense Disposals Reclassified to assets held for sale Business de-combinations Transfers Impairment/(reversal of impairment) of assets Foreign exchange difference December 31, 2010 Net book values: December 31, 2008 2,041,438 5,920,512 December 31, 2009 1,921,648 5,631,233 December 31, 2010 1,403,489 3,736,220 273,430 257,098 114,479 32,940 1,559,072 9,827,392 43,472 1,632,029 9,485,480 42,410 2,055,237 7,351,835 562,935 2,317,244 8,411 163,024 (21) (1,497) 146,625 (20,891) 805,799 (95,570) (1,768) (1,096) (10) 876,020 144,963 10,163 62,193 (5,866) (341) (9) (1) 11,914 (28,062) 194,954 7,117 73,352 (12,476) 199 837 (2,103) 261,880 (79,064) 56,998 (4,281) 140 33,307 (2,057) 166,330 73,334 2,317 4,293 (570) (436) 1,941 3,702 (13,710) 70,871 268 2,496 (8,516) 119 469 (2,395) 63,312 (1,141) 1,783 (1,887) (51) 81 (22) 1,121 63,196 89,598 3,188,074
Governance
1,035,309 (15,997) (118,024) (1,930) (4,042) (1,105)
40,863 1,079,124 (11,548) (553,299) 100,986 4,626,037 (9,323) 28,562 (2,877) 841,740 (19,828) 176,243 (57,444) 760,441
(110,021) (389,958) 769,456 3,489,770 50 108,753 (18,050) (14,150) 1,510 89,019 (16,404) 6,740 96,725 (9,369) (15,949) 1,488 5,298 (11,710) (7,435) 657,139 (87,905) (5,678) 7,495 57,356 (33,665) 73,465 604,935 (74,230) (32,337) 3,725 (14,494) (62,560)
Further Information
(11,585) (138,532)
920,184 4,077,077
105,763 5,428,216
(11,337) (101,104) (33,411) (1,961,957) (5,434) 17,310 (1,527) (48,286) 41,399 (76,733)
(225,023) (1,602,879) (100,593)
768,384 2,972,702
71,364 4,041,976
Other productive assets include transmission equipment, transportation equipment and tools.
134

22. Intangible assets

Cost:
Mineral Goodwill rights Software
Evaluation and exploration assets
Other intangible assets
Total
December 31, 2007 Additions Business combinations Disposals Business de-combinations Foreign exchange difference December 31, 2008 Additions Disposals Foreign exchange difference December 31, 2009 Additions Business combinations Transfers from other assets Disposals Business de-combinations Reclass to assets held for sale Foreign exchange difference December 31, 2010 Amortization and impairment: December 31, 2007 Amortization expense Impairment Disposals Foreign exchange difference December 31, 2008 Amortization expense Impairment Disposals Foreign exchange difference December 31, 2009 Amortization expense Impairment Disposals Business de-combinations Reclass to assets held for sale Foreign exchange difference December 31, 2010 Net book values: December 31, 2008 December 31, 2009 December 31, 2010
156,946 588,351 (3,621) (20,747) 720,929 (17,790) 703,139 50,763 (70,943) (3,516)
252,480 3,005 418,935 (168) (4,809) 669,443 4,326 (407) (30,936) 642,426 4,753 476,754 (19,985) (7,440)
36,747 28,058 604 (1,014) (1,580) 62,815 28,530 312 91,657 33,075 7,422 (45,210) (384) 86,560 4,941 5,905 (367) (489) 9,990 8,849 228 19,067 7,143 (10,328) (215) 15,667 52,825 72,590 70,893
168,921 33,650 113,853 (121) (30,502) 285,801 36,485 (3,630) (9,712) 308,944 65,372 (2,135) 372,181 140 842 (29) 3 956 285,801 308,944 371,225
84,425 28,149 (13,270) (12,754) 3,567 (979) 2,936 33,336 903 (3,404) (13,676) (193)
699,519 92,862 (14,573) (3,621) (70,392) 72,908 (5,016) (55,190) 136,536 527,517 8,325 (23,389) (13,676) (13,668)
206,844 1,328,587
293,394 2,032,382
298,918 2,045,084
(118,435) (234,588) 197,449 2,432,141 6,065 17,343 (981) (801) 21,626 62,410 42,776 (113) 5 126,704 24,358 26,204 (4) (13,044) (577) 106,348 12,452 52,112 461,139 (1,520) (2,459) 521,724 115,424 42,776 (113) (3,931) 675,880 85,561 27,046 (2,345) (13,044) (2,169) 632,365
679,443 1,096,508 24 461,139 (4) 461,159 (848) 460,311 (70,943) (1,043) 388,325 259,770 242,828 291,118 1,422 28,864 (172) (1,165) 28,949 44,165 (3,316) 69,798 53,920 (2,312) (337) 121,069 640,494 572,628 975,439
(57,293) (138,564)
271,768 1,510,658 172,214 1,369,204 91,101 1,799,776
135

23. Debt finance
2010
December 31, 2009 2008
Eurobonds 2009 Eurobonds 2013 Eurobonds 2014 Eurobonds 2017 Ruble bonds 2011 Ruble bonds 2013 Severstal Columbus bonds Other issued notes and bonds
375,000 492,176 492,176 525,000 145,984 68,896 106,629
375,000 495,963 31,780 71,592 53,549 102,232
325,000
Governance
543,552 1,250,000 1,250,000 375,000 14,150 191,623 144,912 104,449 (96,257)

1,000,000
Bank financing 2,474,183 4,960,512 5,957,041 Factoring of receivables Other financing Accrued interest
Further Information
Unamortized balance of transaction costs
(81,562) (113,768)
6,142,034 7,226,860 8,265,918 Total debt is denominated in the following currencies: US Dollars 4,188,186 4,389,704 4,967,699 Euro Other currencies 827,305 2,152,251 2,616,523 669,616 15,289 653,339 28,357 34,000 Rubles 1,092,543
6,142,034 7,226,860 8,265,918 Total debt is contractually repayable after the balance sheet date as follows: Less than one year 1,422,262 1,478,301 2,038,693 Between one and five years 3,093,679 5,602,895 5,342,449 After more than five years 1,626,093 145,664 884,776 6,142,034 7,226,860 8,265,918
Bonds issued
In April 2004, Citigroup Germany, a non-related party, issued US dollar-denominated loan participation notes in an aggregate principal amount of US$375.0 million for the sole purpose of financing a loan facility between the Group and Citigroup Germany. The loan is due in April 2014 and bears interest at an annual rate of 9.25% payable semi-annually in April and in October each year. As at December 31, 2010 the amount outstanding under this facility was US$ 375.0 million. In July 2008, the Group issued US$1,250.0 million US dollardenominated bonds maturing in 2013. Bonds bear an interest rate of 9.75% per annum which is payable semi-annually in January and July each year. As at December 31, 2010 the amount outstanding under the facility was US$ 543.6 million. In September 2009, the Group issued US$ 494.0 million bonds denominated in rubles maturing in three years with an option for early redemption, exercisable by the bondholders after two years. Bonds bear an interest rate of 14% per annum, which is payable semiannually in March and September each year. As at December 31, 2010 the amount outstanding under this facility was US$ 492.2 million. In February 2010, the Groups subsidiary Severstal Columbus issued US dollar-denominated bonds in an aggregate principal amount of US$525.0 million maturing in 2018. These bonds bear an interest rate of 10.25% per annum, which is payable semi-annually in Februaryand August each year, beginning in August 2010. As at December 31, 2010 the amount outstanding under this facility was US$525.0 million.
136

In February 2010, the Group issued ruble-denominated bonds in an aggregate principal amount of US$498.0 million maturing in 2013. These bonds bear an interest rate of 9.75% per annum, which is payable semi-annually in February and August each year, beginning in August 2010. As at December 31, 2010 the amount outstanding under this facility was US$ 492.2 million. In October 2010, the Group issued US$ 1.0 billion US dollar-denominated bonds maturing in 2017. Bonds bear an interest rate of 6.7% per annum which is payable semi-annually in April and October each year, beginning in April 2011. These bonds were issued under the Groups newly established US$ 3 billion Loan Participation Note Programme. As at December 31, 2010 the amount outstanding under this facility was US$ 1.0 billion. The proceeds from the bonds issuance were used to fund the purchase of US$706.4 million nominal of Groups US$1,250.0 million Eurobonds in US dollars and for refinancing of certain other Groups debts.
Bank financing
In December 2007 the Group entered into a syndicated facility with the European Bank for Reconstruction and Development (EBRD) (subsequently amended in March 2008), for a maximum principal amount of 600.0 million. The facility expires in 2017 with the outstanding principal amount being amortized from 2009 until the expiration date and bear interest at EURIBOR six month plus 2.0-2.2%. As at December 31, 2010 the amount outstanding under this facility was US$618.4 million. In September 2008, the Group entered into a PXF syndicated facility with mandated lead arrangers for a maximum principal amount of US$2,500.0 million maturing in 2013, with the outstanding amount being amortized from 2010 until the expiration date and bearing interest at LIBOR three month plus 2.35%. As at December 31, 2010 the amount outstanding under this facility was US$880.0 million. Debt finance arising from banks and unused long term credit lines are secured by the following charges: US$ 2,255.0 million (December 31, 2009: US$ 2,081.0million; December 31, 2008: US$2,837.0 million) of the net book value of plant and equipment; US$ 892.3 million (December 31, 2009: US$ 1,267.0million; December 31, 2008: US$2,303.6 million) of current assets and revenues from export contracts; US$ 112.0 million (December 31, 2009: US$ 59.3 million; December 31, 2008: US$ nil) of investments to available-for-sale securities; all Groups ownership in Societe Des Mines de Taparko and Guinor Gold Corporation, 50% of Groups ownership in Mountain State Carbon, the Groups subsidiaries, and investments in Spartan Steel Coating LLC and Double Eagle Steel Coating Company, the Groups joint ventures, at December 31, 2010; all Groups ownership in Berezitovy Rudnik LLC, Societe Des Mines de Taparko, 99.56% of Groups ownership in OJSC Buryatzoloto, 50% of Groups ownership in Mountain State Carbon, the Groups subsidiaries, and investments in Spartan Steel Coating LLC and Double Eagle Steel Coating Company, the Groups joint ventures, at December 31, 2009; all Groups ownership in Berezitovy Rudnik LLC, Societe Des Mines de Taparko, 99.56% of Groups ownership in OJSC Buryatzoloto, 50% of Groups ownership in Mountain State Carbon and 50% ownership in IPM, the Groups subsidiaries, and investments in other associates and joint ventures in the Severstal North America segment at December 31, 2008. A part of the Groups debt financing is subject to certain covenants. The Group complied with all debt covenants, including equity ratios, during the years ended December 31, 2010, 2009 and 2008. At the reporting date the Group had US$350.0 million (December 31, 2009: US$ 537.0million; December 31, 2008: US$950.6 million) of unused long-term credit lines available to it.
137

24. Other current liabilities
2010
December 31, 2009 2008
Advances received Amounts payable to employees Accrued expenses Retirement benefit liability (Note 25) Lease liabilities Derivative financial liabilities Provisions (Note 26) Deferred income Decommissioning liability (Note 26) Onerous contracts Payable for acquisition of subsidiaries and other payables
210,314 189,944 23,786 17,127 7,965 5,713 6,320 61 70,506 531,736
172,855 273,832 31,778 49,386 12,896 22,448 101,919 5,227 17,123 20,415 35,351 743,230
105,611 396,578
Governance
63,718 57,231 23,280 19,110 80,918 3,321 5,308 71,509 41,825 868,409
25. Retirement benefit liabilities

The Group provides for its employees the following retirement benefits, which are actuarially calculated as defined benefit obligations: lump sums payable to employees on retirement, monthly pensions, jubilee benefits, invalidity and death lump sums, burial expenses compensations, healthcare benefits, life insurance and other benefits. The current portion of retirement benefit liabilities is included in caption Other current liabilities. The total amount of the retirement benefit liabilities is presented in the table below:
2010 December 31, 2009 2008
Current portion Non-current portion Total The following assumptions have been used to calculate the retirement benefit liability:
2010
17,127 164,555 181,682
49,386 738,328 787,714
57,231 722,065 779,296
December 31, 2009 2008
Discount rates: Russia USA UK Italy and France Future rates of benefit increase: Russia 5.2% to 6.3% 6.6% to 7.4% Fixed at 0% or 3.5% to 10.0% 2.7% 2.5% 6.3% to 8.2% Fixed at 0% or 4.0% to 10.0% 2.7% 3.0% to 6.0% USA Fixed at 0% UK Italy and France 7.3 to 7.8% 4.75% 8.5% to 8.7% 5.3% to 6.1% 5.7% 4.7% 8.5% to 10.6% 5.3% to 6.5% 6.7% 4.4% to 5.3%
138

The present value of the defined benefit obligation less the fair value of plan assets is recognized as a retirement benefit liability in the statement of financial position.
2010 2009 December 31, 2008 2007 2006
Present value of the defined benefit obligation Fair value of the plan assets Retirement benefit liability The movements in the defined benefit obligation are as follows:
237,109 1,008,654 181,682 787,714
987,418 779,296
495,713 387,398
549,009 442,954
(55,427) (220,940) (208,122) (108,315) (106,055)
Opening balance 1,008,654 Business combinations Benefits paid Interest cost Curtailment Service cost Actuarial loss Foreign exchange difference Closing balance The movements in the plan assets are as follows:

987,418 (69,282) 56,496 35,867 (12,010) 13,701 (3,536)
495,713 526,630 (60,698) 33,065 27,602 25,889 (60,783) 987,418
(55,486) 48,551 20,984 14,416 (12,350)
Reclassified to liabilities related to assets held for sale (787,660)
237,109 1,008,654
Opening balance Business combinations Contributions made during the year
220,940 16,588 (27,944) 10,323 (470) (1,847) 55,427
208,122 40,711 (39,053) 15,998 (5,187) 349 220,940
108,315 117,215 38,637 (28,232) (1,045) (7,252) (19,516) 208,122
Reclassified to assets held for sale (162,163) Benefits paid Return on assets Actuarial loss Foreign exchange difference Closing balance The defined benefit obligation analysis is as follows:
2010
December 31, 2009 2008
Wholly unfunded
143,724 93,385
361,101 647,553
497,129 490,289 987,418
Partly funded Total
237,109 1,008,654
139

The plan assets analysis is as follows:
2010 December 31, 2009 2008
Equity instruments Deposits Shares in mutual funds Cash Government bonds Corporate bonds Other investments Total The Groups best estimate of contributions expected to be paid to the plan in 2011 is US$ 21.7 million.
8,912 4,585 12,479 1,067 2,688 22,747 2,949 55,427
55,160 8,953 14,760 54,260 30,264 55,607 1,936 220,940
38,161 14,946 34,531 75,565 11,557 14,335

19,027 208,122
The overall expected rate of return on pension plan assets is calculated based on the expected long-term investment returns for each category of assets that forms the portfolio. The assessment of expected returns is based on historical returns and predictions of the market for each category of assets in the portfolio in the next twelve months. Expected and actual rates of return on plan assets is presented in the table below:
2010 Actual Expected |||| 2009 Actual Expected || 2008 Actual Expected
Further Information
Russia USA UK
4.0%
4.0%
3.7% to 5.5% 7.5% to 13.1% 3.6%
4.0% to 9.6% 7.5% to 7.8% 3.6%
4.0% 10.0% to 0% 15.0%
16.0% 0% to 3.0% 3.6%
The retirement benefit expenses recognized in the income statement are contained in the caption: Cost of sales, General and administrative expenses allocated proportionally to related salary expenses, except for the interest cost, which is recognized in the caption Interest expense.
26. Other non-current liabilities
2010
December 31, 2009 2008
Decommissioning liability Amounts payable to employees Provisions Derivative financial liabilities Lease liabilities Deferred income Restructured tax liabilities Other liabilities
181,989 29,735 18,271 16,573 2,894 2,610 725 23,447 276,244
262,303 45,755 101,119 26,508 38,211 3,908 1,811 28,651 508,266
254,740 66,479 139,445 11,183 53,174 31,591 758 62,591 619,961
140

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) Decommissioning liability
The Group has environmental liabilities related to restoration of soil and other related works, which are due upon the closures of its mines and production facilities. These costs are expected to be incurred between 2012 2050. The present value of expected cash outflows were estimated using existing technology, and discounted using a real discount rate. These rates, presented by segment, are as follows:
2010 Discount rates,% 2009 2008
Severstal Resource: Russia Kazakhstan USA Burkina Faso Guinea Severstal North America The movements in the decommissioning liability are as follows:
0.0 2.0 0.1 0.9 1.0 3.3 0.6 0.8
0.1 2.4 0.2 0.4 1.7 2.9 1.7 2.9
2.0 2.8 1.0 2.4 6.8 1.8
Opening balance Additional accrual Change in assumptions Interest cost Business combinations Usage of decommissioning liability Foreign exchange difference Closing balance
279,426 9,992 10,585 9,451 (21,762) (1,066) 181,989
260,048 25,666 9,998 (12,157) (4,129) 279,426

December 31,
108,961 (3,841) 18,173 160,775 (4,709) (19,311) 260,048
2010
2009
2008
Current portion Non-current portion
181,989 181,989
17,123 262,303 279,426
5,308 254,740 260,048
141

for the years ended December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars, except as otherwise stated) Provisions
The current portion of provisions is included in the caption Other current liabilities. The total amount of the provisions is presented in the table below:
2010 December 31, 2009 2008
Environmental claims Restructuring Social security claims Other employee related Legal claims Other

2,682 2,555 9,724 3,378 6,252 24,591
36,708 43,671 36,713 28,013 18,633 39,300 203,038

December 31,
42,730 12,664 32,421 22,089 40,034 70,425 220,363
2010
2009
2008
Further Information
Current portion Non-current portion
6,320 18,271 24,591
101,919 101,119 203,038
80,918 139,445 220,363
These provisions represent managements best estimate of the potential losses arising in these cases, calculated based on available information and appropriate assumptions used. The actual outcome of those cases is currently uncertain and might differ from the recorded provisions. The movements in the provisions are as follows:
Opening balance Charge to the income statement Business combinations Usage of provisions Foreign exchange difference Closing balance
203,038 7,919 (14,459) (6,690) 24,591
220,363 58,764 (72,705) (3,384) 203,038
110,876 95,875 49,114 (27,648) (7,854) 220,363
27. Share capital

The Parent Companys share capital consists of ordinary shares with a nominal value of RUR0.01 each. Authorized share capital of Severstal at December 31, 2010, 2009 and 2008 comprised 1,007,701,355 issued and fully paid shares. The nominal amount of initial share capital was converted into US dollars using exchange rates during the Soviet period, when the Government contributed the original capital funds to the enterprise. These capital funds were converted into ordinary shares on September24, 1993 and sold by the Government at privatization auctions.
142

The total value of issued share capital presented in these consolidated financial statements comprises:
Number of shares, thsd. US$000
Share capital at December 31, 2008 1,007,701 3,311,288 Share capital at December 31, 2009 1,007,701 3,311,288 Share capital at December 31, 2010 1,007,701 3,311,288 All shares carry equal voting and distribution rights. During 2008, the Parent Company repurchased 2,499 thousand of issued shares for a total consideration of US$ 26.3 million.
Capital management
The Groups policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. This policy includes compliance with certain externally imposed minimum capital requirements. The Groups management constantly monitors profitability and leverage ratios and compliance with the minimum capital requirements. The Group uses the return on assets ratio which is defined as profit from operations divided by total assets (averaged over the measurement period) and the leverage ratio calculated as net debt, comprising of long-term and short-term indebtedness less cash, cash equivalents and short-term bank deposits, divided by shareholders equity. The level of dividends is also monitored by the Board of Directors of the Group. There were no changes in the Groups approach to capital management during the year.
Dividends
The maximum dividend payable is restricted to the total accumulated retained earnings of the Parent Company determined according to Russian law. On June 27, 2008 a Meeting of Shareholders approved the annual dividend of 4.0 rubles (US$ 0.2 at June 27, 2008 exchange rate) per share and per GDR in respect of 2007. On June 27, 2008 a Meeting of Shareholders approved an interim dividend of 5.2 rubles (US$ 0.2 at June 27, 2008 exchange rate) per share and per GDR for the first quarter of 2008. On September 30, 2008 a Meeting of Shareholders approved an interim dividend of 18.35 rubles (US$ 0.7 at September 30, 2008 exchange rate) per share and per GDR for the first half of 2008. On December 26, 2008 a Meeting of Shareholders approved an interim dividend of 7.17 rubles (US$ 0.2 at December 26, 2008 exchange rate) per share and per GDR for the third quarter of 2008. On June 15, 2009, a Meeting of Shareholders approved the decision not to pay the annual dividend in respect of 2008. On December 20, 2010 an Extraordinary Meeting of Shareholders approved an interim dividend of 4.29 rubles (US$ 0.14 at December 20, 2010 exchange rate) per share and per GDR for the nine months of 2010.
143

28. Discontinued operations and assets held for sale

The Groups discontinued operations represent the Lucchini segment and Severstal Sparrows Point LLC, Severstal Warren LLC, Severstal Wheeling Inc and Mountain State Carbon LLC, which are an operating segment within the North America reporting segment that are classified as held for sale as at December 31, 2010 following managements decision to sell these entities within 12 months after the reporting date. The results of discontinued operations were as follows:
Revenue Expenses Loss on remeasurement of disposal groups to fair value less costs to sell Loss before income tax Income tax (expense)/benefit Loss for the year Attributable to:
4,286,917 3,467,711 6,340,557 (4,841,624) (4,716,896) (6,998,612) (1,300,050) (86,988) 116,102 (27,018) (1,854,757) (1,249,185) (658,055) (1,941,745) (1,133,083) (685,073)
Further Information
shareholders of OAO Severstal (1,940,769) (1,050,041) (711,672) non-controlling interests (976) (83,042) 26,599
Furthermore, there was a cumulative net loss of US$ 46.8 million and gain of US$ 33.0 million recognized in other comprehensive income as at December 31, 2010 in relation to foreign exchange differences and changes in cash flow hedges for the Lucchini segment and the fair value adjustment upon acquisition of subsidiary to previously held interest for the North America disposal group, respectively. The fair value less costs to sell of the Lucchini segment was measured using a combination of valuation techniques. The valuation is sensitive to changes in certain assumptions, including forecast operating results, the market prices of equity instruments, as well as other inputs related to current and future market conditions. The North America disposal group was measured at the fair value less costs to sell determined based on price offers available. The loss on remeasurement of the Lucchini and North America disposal groups to fair value less costs to sell recognized in 2010 in the amounts of US$ 1,010.3 million and US$ 289.8 million, respectively, was allocated to property, plant and equipment and intangible assets within each related disposal group on a pro-rata basis. Included in expenses in 2009 is an impairment loss in the amount of US$ 104.6 million in respect of the Lucchini segment and in the amount of US$ 26.5 million in respect of Severstal Warren LLC. Included in expenses in 2008 is an impairment loss in the amount of US$ 382.6 million in respect of Severstal Warren LLC and in the amount of US$ 621.8 million in respect of Severstal Wheeling Inc.
144

The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs to sell at December 31, 2010, 2009 and 2008 were as follows:
2010 December 31, 2009 2008
Current assets: Cash and cash equivalents Short-term financial investments Trade accounts receivable Accounts receivable from related parties VAT recoverable Income tax recoverable Other current assets 208,928 5,862 711,162 3,835 8,870 13,163 65,429 1,267 5,868 1,617 263 1,627 10,642 46 5,525 1,406 6,977
Inventories 1,135,314
Total current assets 2,152,563 Non-current assets: Long-term financial investments Intangible assets Deferred tax assets Other non-current assets 38,972 70,335 42,964
13,773 13,773 24,415
1,895 1,895 8,872
Property, plant and equipment 1,204,978
Total non-current assets 1,357,319 Total assets 3,509,882 Current liabilities: Trade accounts payable 680,535 4,360 64,433 223,160
2,870 111 8,360 11,341
4 4
Short-term debt finance 1,071,286 Income tax payable Other taxes and social security payable Other current liabilities
Total current liabilities 2,043,774 Non-current liabilities: Long-term debt finance Deferred tax liabilities Retirement benefit liabilities Other non-current liabilities 354,820 53,723 592,772 227,265
638 638 11,979
Total non-current liabilities 1,228,580 Total liabilities 3,272,354
The short-term debt finance included US$ 767.0 million of the Lucchini segment debt finance reclassified to short-term due to breach of finance covenants of related loan agreements.
145

29. Subsidiaries, associates and joint ventures

The following is a list of the Groups significant subsidiaries, associates and joint ventures and the effective ownership holdings therein:
Company 2010 December 31, 2009 2008 Location Activity
Russian Steel segment: Subsidiaries: ZAO Severgal ZAO Severstal SMZ-Kolpino ZAO Severstal TPZ-Sheksna ZAO Severstal Steel Solutions ZAO Severstal Long Products Mill Balakovo OOO SSM-Tyazhmash OAO Domnaremont OOO Severstal-Promservis OAO Metallurgremont OOO Energoremont OOO Electroremont Victory Industries, Inc OOO AviaCompany Severstal Severstal Export GmbH AS Severstallat Latvijas Metals ZAO SeverStalBel Severstal-Ukraine LLC. Armaturu Servisa Centrs SIA ZAO Neva-Metall Upcroft Limited Varndell Limited Baracom Limited ZAO Vtorchermet ZAO Rospromresursy OAO Murmanskvtormet OAO Arhangelskii vtormet ZAO Trade House Severstal-Invest ZAO North Steel Company OAO Rostovmetall ZAO PPTK-1 ZAO RC Group ZAO Izhora Pipe Mill OAO Severstal-Metiz OAO Dneprometiz Carrington Wire Ltd Redaelli Tecna S.p.A. OOO UniFence OOO ChSPZ MKR (UniSpring) OOO Severstal-metiz: welding consumables 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 65.5% 99.9% 75.0% n/a n/a 99.9% 100.0% 99.8% 84.2% 84.2% 100.0% 51.0% n/a 100.0% 100.0% 100.0% 100.0% 85.6% 100.0% 74.6% 75.0% 100.0% 99.9% 95.0% 100.0% 100.0% 100.0% 100.0% 98.7% n/a 100.0% 100.0% 100.0% n/a 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 82.7% 99.9% n/a 100.0% 100.0% 99.9% 100.0% 99.8% 84.2% 84.2% 100.0% 51.0% 84.2% 100.0% 100.0% 100.0% 100.0% 71.2% 100.0% 50.9% 50.0% 100.0% 99.9% 94.6% 100.0% n/a 100.0% 100.0% 98.7% n/a 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 82.7% 99.9% n/a 100.0% 100.0% 100.0% 100.0% 100.0% 50.5% 50.5% 100.0% 51.0% 50.5% 100.0% 100.0% 100.0% 100.0% 85.6% 100.0% 75.1% 75.0% 100.0% 99.0% 87.0% 99.0% n/a 100.0% 100.0% 96.8% 100.0% 100.0% 100.0% 100.0% n/a Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia USA Russia Switzerland* Latvia* Latvia* Belarus* Ukraine* Latvia* Russia Cyprus* Cyprus* Cyprus Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Russia Ukraine UK Italy Russia Russia Russia Hot dip galvanizing Steel constructions Steel constructions Steel constructions Iron & steel mill Repairs & construction Repairs & construction Repairs & construction Repairs & construction Repairs & construction Repairs & construction Repairs & construction Air transport Steel sales Steel sales Steel sales Steel sales Steel sales Steel service center Shipping operations Holding company** Holding company Holding company Processing scrap Processing scrap Processing scrap Processing scrap Metal sales Leasing Leasing Leasing Leasing Wide pipes Steel machining Steel machining Steel machining Steel machining Steel machining Mattress springs Welding consumables
146

Associates: Air Liquide Severstal Joint ventures Todlem S.L. Severstal-Gonvarri-Kaluga LLC OOO Gestamp-Severstal-Kaluga LLC Gestamp Severstal Vsevolozhsk Subsidiaries classified as held for sale: OOO Severstal-metiz: welding consumables 100.0% Carrington Wire Ltd n/a n/a 100.0% 100.0% n/a Russia UK Welding consumables Steel machining 25.0% 50.0% 25.0% 25.0% 25.0% n/a 25.0% 22.5% n/a n/a n/a n/a Spain Russia Russia Russia Holding company Iron & steel mill Production car body components Production car body components 25.0% 25.0% 25.0% Russia Production liquid oxygen
(*) R ussian Steel segment contains Russian production entities, foreign trading companies, which are selling products primarily produced in Russia, and other foreign companies, which either provide services to Russian production entities or are managed from Russia. (**) Upcroft is holding 29.0% of Lucchini SpA.
Severstal North America segment: Subsidiaries: Severstal US Holdings, LLC 100.0% Severstal Dearborn, LLC 100.0% Severstal Columbus, LLC 100.0% Severstal Warren, LLC Severstal Wheeling Inc Severstal Sparrows Point, LLC Mountain State Carbon, LLC Associates: Delaco Processing LLC Joint ventures Spartan Steel Coating LLC Double Eagle Steel Coating company Bethlehem Roll Technologies LLC Ohio Coatings Company Mississippi Steel Processing, LLC Subsidiaries classified as held for sale: Severstal Warren, LLC 100.0% Severstal Sparrows Point, LLC 100.0% Severstal Wheeling Inc 100.0% Mountain State Carbon, LLC 100.0% Lucchini segment (classified as assets held for sale): Subsidiaries: Lucchini SpA Ascometal SAS 49.2% 49.2% 79.8% 79.8% 79.8% 79.8% France France Holding company Steel manufacturing n/a n/a n/a n/a n/a n/a n/a n/a USA USA USA USA Steel mill Steel mill Steel mill Coking coal 48.0% 50.0% 50.0% 50.0% 20.0% 48.0% 50.0% 50.0% 50.0% n/a 48.0% 50.0% 50.0% 50.0% n/a USA USA USA USA USA Hot dip galvanizing Electro-galvanizing Grinding steel mill rolls Tin plate steel Steel service center 49.0% 49.0% 49.0% USA Steel slitting n/a n/a n/a n/a 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 91.8% 100.0% 100.0% 100.0% 100.0% USA USA USA USA USA USA USA Holding company Iron & steel mill Steel mill Steel mill Steel mill Steel mill Coking coal
147

Ascometal GmbH Bari Fonderie Meridionali SpA GSI Lucchini SpA Lucchini Asia Pacific Pte Ltd Lucchini Holland BV Lucchini Iberia SI Lucchini Servizi Srl Lucchini Siderprodukte AG Lucchini USA Inc Servola SpA Sideris Steel SAS Associates: ESPRA SAS Logistica Servola Srl Tecnologie Ambientali Pulite Srl GICA SA Subsidiaries classified as held for sale: Bari Fonderie Meridionali SpA Severstal Resource segment: Subsidiaries: OAO Karelsky Okatysh OAO Olkon Severstal Liberia Iron Ore Ltd OAO Vorkutaugol OAO Mine Vorgashorskaya PBS Coals Limited OOO Neryungri Metallic ZAO Mine Aprelkovo Celtic Resources Holdings Ltd JSC FIC Alel Zherek LLP High River Gold Mines Ltd OJSC Buryatzoloto Berezitovy Rudnik LLC Societe Des Mines de Taparko Semgeo LLP Crew Gold Corporation Societe Miniere de Dinguiraye OAO SPB-Giproshakht Mining Holding Company LLC Lybica Holding B.V. 7029740 Canada Limited Nord Gold N.V. Altcom Limited
49.2% n/a 34.1% 49.2% 49.2% 49.2% 49.2% n/a 49.2% 49.2% 49.2% 17.2% 24.6% 12.2% 12.3% 49.2%
79.8% 79.8% 55.3% 79.8% 79.8% 79.8% 79.8% n/a 79.8% 79.8% 79.8% 27.9% 39.9% 19.9% 19.9% n/a
79.8% Germany 79.8% Italy 55.3% Italy 79.8% Singapore 79.8% Spain 79.8% Italy 51.9% Switzerland 79.8% USA 79.8% Italy 79.8% France 27.9% France 39.9% Italy 19.9% Italy 19.9% Switzerland n/a Italy
Sales Forgings Steel spheres Sales Sales Dormant Sales Sales Asset holding Investment holding Steel scrap Dormant Environmental services Carbon dioxide trading Forgings
Governance
79.8% The Netherlands Investment holding
100.0% 100.0% 61.5% 88.1% 75.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 72.6% 61.6% 72.6% 65.4% 100.0% 93.4% 93.4% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
100.0% 100.0% 61.5% 94.0% 75.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 50.1% 42.6% 49.6% 45.1% 100.0% n/a n/a 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
100.0% Russia 100.0% Russia 61.5% Liberia 94.0% Russia 75.0% Russia 100.0% USA 100.0% Russia 100.0% Russia 100.0% Ireland 100.0% Kazakhstan 100.0% Kazakhstan 53.8% Canada 45.7% Russia 53.3% Russia 48.4% Burkina Faso 100.0% Kazakhstan n/a Canada n/a Guinea 100.0% Russia 100.0% Russia 100.0% Canada
Iron ore pellets Iron ore concentrate Iron ore Coking coal concentrate Coking coal concentrate Coking coal concentrate Gold mining Gold mining Holding company Gold mining Gold mining Holding company Gold mining Gold mining Gold mining Gold mining Holding company Gold mining Engineering Holding company Holding company
100.0% The Netherlands Holding company n/a The Netherlands Holding company n/a The Netherlands Holding company
148

Joint ventures: Prognoz Serebro LLC Associates: Iron Mineral Beneficiation Services Republic of (Proprietary) Ltd 25.6% n/a n/a South Africa Intex Resources ASA 21.7% n/a n/a Norway Research & investing Mining and exploration 50.0% 50.0% 50.0% Russia Silver project
In addition, at the reporting date, a further 51 (December 31, 2009: 45; December 31, 2008: 42) subsidiaries and associates, which are not material to the Group, either individually or in aggregate, have been included in these consolidated financial statements. Information on carrying amounts of associated companies is disclosed in Note 20 of these consolidated financial statements.
Investments in associates and other equity investments

In February 2010, the Group acquired a 26.6% stake in Crew Gold Corporation for a total consideration of US$ 90.3 million. Crew Gold Corporation (CGC) is a mining company based in London, UK. CGC owns and operates a gold mining project in Guinea, West Africa. In May 2010, the Group acquired a 16.5% stake in Core Mining Limited (CML) for a total consideration of US$ 15.0 million. CML is a private company registered in the Isle of Man focused on the exploration, development and operation of iron ore projects in Central and Western Africa, mainly in Republic of Congo (Brazzaville) and Republic of Gabon. In July 2010, the Group acquired an additional 13.8% stake in Crew Gold Corporation for a total consideration of US$ 84.5 million, increasing its ownership interest up to 40.4%. In September 2010, the Group acquired a 21.7% stake in Intex Resources ASA (Intex Resources) for a total consideration of US$ 13.0 million. Intex Resources is a public mining and exploration company listed on Oslo Stock Exchange with its headquarters in Oslo, Norway. Intexs main asset is the Mindoro Nickel Project a substantial nickel laterite deposit in the Philippines. In addition, Intex has two molybdenum assets in Norway, as well as Maniitsoq, a diamond province in Greenland. During 2010, the Group acquired an 11% stake in Sacre-Coeur Minerals, Ltd. (SCM) for a total consideration of US$ 6.2 million, increasing its ownership up to 18.1%. SCM is engaged in the acquisition, exploration and development of properties for the potential mining of gold and metals in South America, initially focusing on exploration for gold on its properties in Guyana. During 2010, the Group acquired a 25.6% stake in Iron Mineral Beneficiation Services (Proprietary) Limited (IMBS) for a total consideration of US$ 7.5 million. IMBS is a research and development company based in Johannesburg, South Africa. IMBS has developed a coal-based Finesmelt technology capable of processing unusable iron ore fines and thermal coal into valuable metallic products similar to DRI/HBI. Currently IMBS is developing its first commercial project in Phalaborwa, South Africa.
Acquisitions of subsidiaries from third and related parties
Acquisitions in 2008 In January 2008, the Group acquired a 91.6% stake in OAO StalMag for a total consideration of US$ 17.6 million. OAO StalMag is a ferroniobium producer whose production will be used by the Groups entities. The acquirees profit since the acquisition date included in the Groups profit for 2008, as well as the revenue and profit of the acquired entity from the beginning of the period to the date of acquisition are insignificant to the Groups revenue and profit for 2008.
149

In May 2008, the Group acquired a 100% stake in Severstal Sparrows Point, LLC (Sparrows Point), for a total consideration of US$818million, subject to certain adjustments of US$ 48 million, resulting in a final consideration paid of US$ 770 million. Sparrows Point is an integrated steel plant on the East Coast of USA with its own deep water port and rail connection to the main East Coast rail networks. The acquirees loss from the beginning of the period to the date of acquisition is insignificant to the Groups profit for 2008. The loss since the acquisition date included in the Groups profit for 2008 amounted to US$ 130.8 million. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$ 766.1 million. In July 2008, the Group acquired a 100% stake in WCI Steel Inc. (re-named to Severstal Warren Inc.) for a total consideration of US$443.1million. WCI Steel Inc. operates a steel mill in Warren, Ohio, and is an integrated producer of flat-rolled steel products, including high carbon, alloy, ultra high strength, and heavy-gauge galvanized steel. The acquirees loss from the beginning of the period to the date of acquisition is insignificant to the Groups profit for 2008. The loss since the acquisition date included in the Groups profit for 2008 amounted to US$ 41.7 million. In addition an impairment loss of US$382.6million has been recognized and was allocated to property, plant and equipment in the amount of US$ 376.0 million and to goodwill in the amount of US$ 6.6 million, as discussed in Note 8. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$ 498 million. In July 2008, the Group acquired a 100% stake in Redaelli Tecna SpA for an approximate total consideration of 35 million (US$54.8million at the transaction date exchange rate). Redaelli Tecna SpA is a manufacturer of high performance wire ropes for industrial hoisting, mining, cableways, material transportation, etc. The acquirees profit since the acquisition date included in the Groups profit for 2008, as well as the revenue and profit from the beginning of the period to the date of acquisition are insignificant to the Groups revenue and profit for 2008. In August 2008, the Group acquired a 100% stake in Esmark (re-named to Severstal Wheeling Inc.) for a total consideration of US$977.8million. Esmark was a manufacturer and distributor of flat rolled and other steel products in the United States. The Group acquired all of Esmarks business, including the remaining 50% stake in Mountain State Carbon LLC previously accounted for under the equity method. The acquirees profit from the beginning of the period to the date of acquisition comprised US$ 29.6 million. The profit since the acquisition date included in the Groups profit for 2008 amounted to US$ 166.9 million. In addition an impairment loss of US$621.8million has been recognized and was allocated to property, plant and equipment in the amount of US$ 557.4 million and to goodwill in the amount of US$64.4 million, as discussed in Note 8. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$1,629.0 million. In August 2008, the Group acquired a 100% stake in Semgeo LLP, operating a gold mine Balazhal in East Kazakhstan for a total consideration of US$ 38.9 million. Management determined that the fair value of the net identifiable assets and liabilities acquired was substantially the same as the book value. The acquirees profit since the acquisition date included in the Groups profit for 2008, as well as the revenue and profit from the beginning of the period to the date of acquisition are insignificant to the Groups revenue and profit for 2008. In November 2008, the Group acquired a 100.0% stake in PBS Coals Ltd, a U.S. coal mining company, for a total cash consideration of US$876.8 million. The acquirees profit from the beginning of the period to the date of acquisition comprised US$ 8.4 million. The loss since the acquisition date included in the Groups profit for 2008 amounted to US$ 4.1 million. In addition an impairment loss of US$ 361.1 million has been recognized and was allocated fully to goodwill, as discussed in Note 8. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$ 184.9 million.
150

In November 2008, the Group acquired a 53.8% stake in High River Gold Mines Ltd. for a total cash consideration of US$ 62.5 million. High River is a gold company with interests in producing mines, mines under development and advanced exploration projects in Burkina Faso and Russia. Two producing mines, Zun-Holba and Irokinda(OJSC Buryatzoloto), are situated in the Lake Baikal region of Russia. Two new open pit gold mines, Taparko-Bouroum (Societe Des Mines de Taparko) in Burkina Faso, and Berezitovy (Berezitovy Rudnik LLC) in Russia, were put into full production in 2008. The acquirees loss from the beginning of the period to the date of acquisition comprised US$ 38.9 million. The loss since the acquisition date included in the Groups profit for 2008 amounted to US$ 5.8 million. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$ 177.0 million. In December 2008, the Group acquired a 61.5% stake in African Iron Ore Group Ltd (re-named to Severstal Liberia Iron Ore Ltd) for a total cash consideration of US$ 32.0 million. Severstal Liberia Iron Ore Ltd. is performing geological survey and exploration of the iron ore deposits in Putu Range, Liberia. Management determined that the fair value of the net identifiable assets and liabilities acquired was substantially the same as the book value. The acquirees profit since the acquisition date included in the Groups profit for 2008, as well as the revenue and profit from the beginning of the period to the date of acquisition are insignificant to the Groups revenue and profit for 2008. Acquisitions in 2010 In July 2010, the Group acquired an additional 9.8% stake in Crew Gold Corporation for a total consideration of US$ 70.9 million, increasing its ownership interest up to 50.2%. Management has not yet completed the estimation of fair values of the acquired assets and liabilities. The final purchase price allocation is expected to be completed within one year starting from the date of acquisition. The acquirees profit from the beginning of the period to the date of acquisition comprised US$ 10.8 million. The acquirees revenue from the beginning of the period to the date of acquisition comprised US$ 140.6 million. The profit since the acquisition date included in the Groups loss for the period amounted to US$ 8.9 million. Revenue since the acquisition date included in the Groups revenue for the period amounted to US$ 98.6 million. During October-November 2010, the Group paid a US$ 7.2 million of contingent consideration in respect of the acquired 61.5% stake in African Iron Ore Group Ltd (re-named to Severstal Liberia Iron Ore Ltd) in December 2008.
151

A summary of assets and liabilities acquired from third and related parties excluding acquisitions from the Majority Shareholder during 2010, 2009 and 2008 is presented below:
Cash and cash equivalents
29,929 6,656 57,366 185,611 476,754 9,644 4,651 (17,271) (51) (93,637) (38,717) (11,339) 502,184 252,125 (41,628) (78,414) (50,763) (48,485)
180,048 579,804 33,391 740,236 147,887 60,521 (585,642) (2,929) (384,180) (410,532) (579,822) (296,819) (271,639) (152,821) (112,809) (33,020)
Governance
Trade accounts receivable Inventories Deferred tax assets Property, plant and equipment Intangible assets
1,397,780 2,668,092
Other current assets Other non-current assets Trade accounts payable Other taxes and social security payable Deferred tax liabilities Retirement benefit liability Other current liabilities Other non-current liabilities Net identifiable assets and liabilities acquired Severstals share of net identifiable assets and liabilities acquired
Further Information
Debt finance (107,412)
3,276,196 3,123,375
Non-controlling interests (250,059) Investments at equity (182,846) Fair value adjustment upon acquisition of subsidiary to previously held interest Consideration: Consideration in cash Consideration of other financial assets Consideration payable Positive goodwill on acquisition of subsidiaries Negative goodwill on acquisition of subsidiaries Net change in cash and cash equivalents
(3,255,971) (17,600) 7,230 (588,351) 292,326
(3,068,693)
Included in negative goodwill in 2008 is US$ 197 million which is the difference between the purchase price and fair market value of the acquired net assets of Sparrows Point LLC. This difference arose primarily due to Severstals competitive position in negotiations based on exclusive USWs (United Steelworkers of America) support in bidding and time restrictions in the administered sales process. Also included in negative goodwill in 2008 is US$ 78 millionwhich is the difference between the purchase price and fair value of the acquired consolidated net assets of High River Gold Mines Ltd. This difference arose primarily due to a lack of High Rivers and its prior shareholders ability to service its debt.
Transactions with Majority Shareholder

During 2008, Severstal completed acquisitions of controlling stakes in a number of companies previously controlled by Severstals Majority Shareholder. These consolidated financial statements take account of such acquisitions as if they had occurred at the beginning of the earliest comparative period presented or, if later, at the date on which control was obtained by the common controlling shareholder.
152

In January 2008, the Group completed the acquisition of a 100% stake in Baracom Limited for a total consideration of US$ 84.4 million. Baracom Limited owns 79.9% of the voting stock of the holding structure which controls 74.2% of Severstal Columbus, LLC (formerSeverCorr, LLC). Severstal Columbus is a mini-mill which produces high quality steel for motor-car, construction, pipe and engineering industries. In December 2008, the Group completed the acquisition of a 100.0% stake of a trading company, ZAO Trade House Severstal-Invest, for a total consideration of US$ 27.4 million. ZAO Trade House Severstal-Invest owns a 99.0% stake in OOO North Steel Company, an 87.0% stake in OAO Rostovmetall, and a 99.0% in ZAO PPTK-1. In June 2010, the Group sold a 50.8% stake in Lucchini S.p.A. for a total consideration of 1 (US$1.2 at the transaction date exchange rate). The Group continues to consolidate the Lucchini segment primarily due to a call option exercisable within the following five years and a contractual entitlement, for the benefit of the Group, to any gain on a subsequent sale of this stake to a third party. At the transaction date the Lucchini segments net assets were assessed at fair value less costs to sell as disclosed in Note 28.
Disposals of subsidiaries
Disposals in 2008 In February 2008, the Group sold 100.0% of OOO Georesurs to a third party for a total consideration of RUR 100,000 (US$ 4 thousands at the transaction date exchange rate). In April 2008, the Group sold its 97.9%, 99.5% and 100.0% participation in OAO Mine Berezovskaya, OAO Mine Pervomaiskaya and ZAO Zhernovskaya-3 respectively to ArcelorMittal for a total consideration of US$ 652 million. In June 2008, the Group sold its 100% and 40.0% participation in Relco Spzoo and Coimpex Spzoo respectively for a total consideration of 12 million (US$ 18 million at the transaction date exchange rate). In December 2008, the Group sold its 59.4% participation in OAO Metallurgremont to a company controlled by Severstals Majority Shareholder for a total consideration of RUR 75.9 million (US$ 2.7 million at the transaction date exchange rate). Disposals in 2010 In May 2010, the Group sold Northern Steel Group, a group of companies within the Severstal North America segment, for a total consideration of US$ 124.0 million.
153

A summary of assets and liabilities disposed during 2010, 2009 and 2008 is presented below:
Cash and cash equivalents Trade accounts receivable Inventories Financial investments Other assets Property, plant and equipment Intangible assets Assets held for sale Trade accounts payable Other taxes and social security payable Retirement benefit liability Debt finance Liabilities related to assets held for sale Other liabilities Non-controlling interests Consideration in cash Net change in cash and cash equivalents
(49,723) (90,841) (1,547) (16,433) (632) 35,307 5,222 118,647 118,647
(1,498) (3,885) (7,725) (551) (13,470) (7,699)

(3,621) (443,021) 4,833 945 1,117 3,150 88,942 21,661 (360,822) 2,042 (358,780) 673,215 314,435 671,717
Further Information
Net identifiable assets (118,647) Sub-total (118,647) Net gain on disposal
Dilution of Group ownership

In December 2009, the Groups share in High River Gold Mines Ltd decreased from 61.7% to 50.1% as a result of a private placement of 150 million common shares to a third party for a total consideration of US$ 54.3 million.
Acquisitions of non-controlling interests
Acquisitions in 2008 In January 2008, the Group completed the acquisition of a 100% stake in Celtic Resources Holdings Plc. by acquiring the remaining 13.7% stake in the company for a total consideration of US$ 44 million. Celtic Resources Holdings is a mining company based in Dublin, Ireland, which owns and operates gold mines, including the Suzdal Mine (JSC FIC Alel)and Zherek Mine (Zherek LLP)in Kazakhstan. In April 2008, the Group acquired an additional 9.4% stake in Columbus from the former management and a 34.6% stake in OAO Dneprometiz from third parties for a total consideration of US$ 40 million. In August 2008, the Group acquired an additional 4.1% stake in Columbus from the former management for a total consideration of US$16 million. In August September 2008, the Group acquired a 0.9% stake in OAO Vorkutaugol for a total consideration of US$ 5.3 million. In August October 2008, the Group completed the acquisition of 100% stakes in OAO Karelsky Okatysh, OAO Olkon and in OAO Severstal-Metiz by acquiring the remaining 5.2%, 7.3% and 3.0% stakes in entities for a total consideration of US$ 70.6 million, US$ 32.7 million and US$ 9.7 million, respectively.
154

Acquisitions in 2009 In June 2009, the Group acquired all newly issued shares in High River Gold Mines, Ltd. resulting in a 3.5% stake increase. Furthermore, in August 2009, the Group acquired an additional 4.5% stake in High River Gold Mines, Ltd. from non-controlling shareholders for a total consideration of US$ 8 million. In June 2009, the Group completed the acquisition of a 100% stake in Columbus by acquiring the remaining 8.2% stake in the company from the former management for a total consideration of US$ 14.9 million. Acquisitions in 2010 In March 2010, the Group acquired a 20.2% stake in Lucchini S.p.A. from a Lucchini family company for a total consideration of 82.5million (US$ 113.3 million at the transaction date exchange rate). After the acquisition, the Groups share in the capital of Lucchini S.p.A. became 100%. In May 2010, the Group acquired an additional 18.8% stake in High River Gold Mines, Ltd. for a total consideration of US$ 107.3 million, increasingits ownership interest up to 68.9%. In August 2010, the Group acquired an additional stake in High River Gold Mines Ltd. upon exercise of warrants held by the Group for a total consideration of US$ 25.1 million, increasing its ownership interest up to 70.4%. In September 2010, the Group acquired an additional 43.2% stake in Crew Gold Corporation for a total consideration of US$ 214.8 million, increasing its ownership interest up to 93.4%. In October 2010, the Group acquired an additional 2.3% stake in High River Gold Mines Ltd. for a total consideration of US$ 19.7 million, increasing its ownership interest up to 72.6%.
Disposals of non-controlling interests

In November 2010, the Group sold a 5.9% stake in OAO Vorkutaugol for a total consideration of US$ 5.8 million.
155

30. Segment information

Segmental statements of financial position as at December 31, 2010:
Severstal Russian Resource Steel Lucchini Severstal North America Inter segment balances Consolidated
Assets
Governance
Current assets: Cash and cash equivalents 278,679 Short-term bank deposits Short-term financial investments Amounts receivable from related parties Restricted cash VAT recoverable Income tax recoverable Other current assets Total current assets Non-current assets: Long-term financial investments Property, plant and equipment Intangible assets Restricted cash Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities Current liabilities: Trade accounts payable Amounts payable to related parties Short-term debt finance 159,987 6,067 32,996 87,758 12,795 514,542 408,026 175,419 1,301,799 8,234 67,766 17,131 354,597 1,057 2,334,029 3,731,224 153,090 88,894 36,566 4,009,774 9,043,239 2,026,696 2,026,696 (172,847) 1,853,849 329,377 8,305 57,777 554 48,289 1,705,094 2,149,396 1,370,428 53,079 35,553 1,459,060 1,212,621 4,821,077 (173,075) (451,856) 4,147 (473,288) (1,094,072) (673,729) (13,961) 8 (687,682) (5,622,319) 897,389 16,717 1,422,262 41,230 156,078 17,131 531,736 3,272,354 6,354,897 4,719,772 493,280 164,555 276,244 5,653,851 7,319,771 144,123 26,883 1,628,556 1,641,360 24,470 12,958 18,448 861,084 5,615,163 3,573,159 137,918 37,244 38,448 16,982 1,853,849 6,000 64,539 2,174,087 19,229 50,000 47,190 2,361,045 4,821,077 (805,975) (5,548,021) (23,967) 1,269 (6,376,694) 205,232 158,564 7,351,835 1,799,776 61,714 101,406 82,620 9,761,147 Investments in associates and joint ventures 22 3,573 1,700,229 12,668 677,564 613,854 110,524 41,313 1,527,266 220,662 20,570 171,495 10,899 5,107,044 1,853,849 1,853,849 33,754 210,326 39 522,968 10,738 38,216 1,643,991 2,460,032 (653,674) (305,912) (65,670) (2,123) (1,027,379) 2,012,662 12,690 27,463 967,837 12,359 41,313 2,366,924 278,594 39,578 298,070 3,509,882 9,567,372
Trade accounts receivable 143,657 207,707 57,932 8,270 88,360 3,266
Inventories 382,360
Further Information
Assets held for sale
1,173,826
3,496,798 10,279,998 4,670,624 15,387,042
(7,404,073) 19,328,519
Income taxes payable Other taxes and social security payable Dividends payable
Other current liabilities 124,703 Liabilities related to assets held for sale Total current liabilities Non-current liabilities: Long-term debt finance 291,849 Deferred tax liabilities Retirement benefit liabilities Other non-current liabilities Equity Total equity and liabilities 354,151 22,582 204,117 2,859,077 938,848
Total non-current liabilities 872,699
4,670,624 15,387,042
(7,404,073) 19,328,519
156

Assets Current assets: Cash and cash equivalents 126,550 Short-term bank deposits Short-term financial investments Trade accounts receivable Amounts receivable from related parties VAT recoverable Income tax recoverable Other current assets Assets held for sale Non-current assets: Long-term financial investments Investments in associates and joint ventures 70,830 6,572 5,942,956 48,738 3,391,735 113,576 45,563 24,072 9,566,640 14,206,573 8,438 2,164 1,481,522 37,197 73,951 3,932 1,607,204 3,185,267 11,752 86,383 3,262,165 109,137 90,000 45,526 3,604,963 5,249,649 (5,905,360) (29,777) 128,616 143,857 9,485,480 1,369,204 17,541 239,835 74,802 136 19,318 80,993 84,284 52,179 9,491 57,588 2,063,808 89,597 315,927 670,978 28,875 1,129,755 172,336 18,440 127,102 23,115 4,639,933 473,765 567 411,831 3,726 600,883 63,517 5,594 18,180 1,578,063 189,253 5,800 293,849 3,063 996,344 72,494 82,583 1,300 1,644,686 (262,683) (93,232) (11,707) (367,622) 2,853,376 95,533 73,129 1,457,651 26,716 2,974,227 288,032 106,019 285,453 24,415 8,184,551
Inventories 258,952
Total current assets 689,491
Property, plant and equipment 1,379,835 Intangible assets 1,109,294 Restricted cash Deferred tax assets Other non-current assets 17,541 30,321 1,272
Total non-current assets 2,615,665 Total assets 3,305,156 Liabilities Current liabilities: Trade accounts payable 116,088 Amounts payable to related parties Income taxes payable Other taxes and social security payable Dividends payable Liabilities related to assets held for sale Non-current liabilities: Long-term debt finance 674,419 Deferred tax liabilities 251,004 Retirement benefit liabilities 22,828 Other non-current liabilities 187,625 Total non-current liabilities 1,135,876 Equity 1,638,134 Total equity and liabilities 3,305,156 7,355 2,603 56,116 32 Short-term debt finance 240,224
(5,935,137) 11,459,335 (6,302,759) 19,643,886
326,088 92,792 648,419 25,454 75,490 5,672 270,754 11,979 1,456,648 4,198,250 143,053 110,048 25,242 4,476,593 8,273,332 14,206,573
423,598 233 156,672 4,786 57,004 136,922 779,215 1,009,304 3,143 117,123 75,910 1,205,480 1,200,572 3,185,267
512,526 9,756 560,015 1,307 20,474 226,826 1,330,904 1,097,674 488,329 219,489 1,805,492 2,113,253 5,249,649
(93,480) (127,029) (220,509) (1,231,088) (2,210) (1,233,298) (4,848,952)
1,378,300 16,656 1,478,301 34,150 209,084 5,704 743,230 11,979 3,877,404 5,748,559 394,990 738,328 508,266 7,390,143 8,376,339
Other current liabilities 108,728 Total current liabilities 531,146
(6,302,759) 19,643,886
157

Assets Current assets: Cash and cash equivalents 151,122 Short-term bank deposits Short-term financial investments Trade accounts receivable Amounts receivable from related parties VAT recoverable Income tax recoverable Other current assets Assets held for sale Non-current assets: Long-term financial investments Investments in associates and joint ventures 27,401 6,765 5,010,356 10,223 3,475,931 114,121 25,837 18,444 8,654,912 14,099,191 10,993 2,112 1,597,947 25,744 29,369 3,521 1,669,686 4,040,213 91,807 3,313,302 132,830 8,969 146,533 19,583 3,713,024 6,159,120 (4,978,408) (26,968) 70,342 110,907 9,827,392 1,510,658 21,703 246,541 41,507 147 4,476 89,221 62,978 51,336 16,489 45,154 1,543,215 812,598 260,303 809,718 70,190 1,436,198 233,164 137,558 132,463 8,872 5,444,279 663,171 6,163 695,522 8,286 893,736 77,042 7,508 19,099 2,370,527 295,380 5,800 347,415 7,041 1,696,077 11,392 82,991 2,446,096 (158,160) (84,664) (15,270) 2,652,888 818,545 112,782 1,941,876 63,831 4,271,886 361,542 172,947 279,707 8,872
Inventories 261,145
Further Information
Total current assets 682,068
(258,094) 10,684,876
Property, plant and equipment 1,467,180 Intangible assets 1,237,963 Restricted cash Deferred tax assets Other non-current assets 12,734 44,802 (41)
Total non-current assets 2,796,804 Total assets 3,478,872 Liabilities Current liabilities: Trade accounts payable 126,672 Amounts payable to related parties Income taxes payable Other taxes and social security payable Dividends payable Other current liabilities Liabilities related to assets held for sale Non-current liabilities: Long-term debt finance 801,189 Deferred tax liabilities 320,404 Retirement benefit liabilities 47,908 Other non-current liabilities 182,436 Total non-current liabilities 1,351,937 Equity 1,537,771 Total equity and liabilities 3,478,872 3,921 12,121 58,272 33 99,452 Short-term debt finance 288,693
(5,005,376) 11,829,050 (5,263,470) 22,513,926
365,282 132,194 1,221,740 9,656 63,838 128,682 296,262 4 2,217,658 3,900,255 103,856 106,622 8,029 4,118,762 7,762,771 14,099,191
529,653 4,875 247,014 24,354 74,890 159,038 1,039,824 1,069,548 75,514 114,487 125,543 1,385,092 1,615,297 4,040,213
506,846 16,120 438,663 16,315 313,657 1,291,601 1,452,437 453,048 303,953 2,209,438 2,658,081 6,159,120
(85,150) (157,417) (242,567) (996,204) (3,395) (999,599) (4,021,304)
1,528,453 71,960 2,038,693 46,131 213,315 128,715 868,409 4 4,895,680 6,227,225 496,379 722,065 619,961 8,065,630 9,552,616
Total current liabilities 589,164
(5,263,470) 22,513,926
158

Segmental income statements for the year ended December 31, 2010:
Severstal Russian Resource Steel Lucchini Severstal North America Inter segment transactions
Consolidated
Revenue Revenue third parties Revenue related parties Cost of sales Gross profit/(loss) General and administrative expenses Distribution expenses Other taxes and contributions Share of associates profit Net gain/(loss) from securities operations (Loss)/gain on disposal of property, plant and equipment and intangible assets Net other operating (expenses)/income Profit/(loss) from operations Impairment of non-current assets Net other non-operating expenses Profit/(loss) before financing and taxation Interest income Interest expense Foreign exchange difference Profit/(loss) before income tax Income tax expense Profit/(loss) from continuing operations Loss from discontinued operations Profit/(loss) for the year Additional information: depreciation and amortization expense capital expenditures intersegment revenue (incl. in revenue from related parties) 274,074 433,787 1,494,524 287,571 575,633 142,782 37,981 15,183 7,066 237,711 341,620 (1,644,372) 837,337 1,366,223 1,989,723 1,494,527 3,484,250 1,702,757 (138,094) (210,559) (105,989) 3,767 35,457 (29,810) (10,332) 1,247,197 (15,827) (17,933) 1,213,437 8,766 (170,436) 15,165 1,066,932 (204,665) 862,267 862,267 8,610,139 204,615 8,814,754 2,811,554 (423,862) (780,872) (75,802) 2,906 (140,151) (20,337) (2,855) 1,370,581 (21,136) (26,511) 1,322,934 282,853 (469,673) 47,522 1,183,636 (235,830) 947,806 947,806 (1,210,076) 2,911,068 444 2,911,512 (2,911,608) (96) (78,353) (560) 12,728 3,399 1,473 (61,409) (44,160) (105,569) 184 (151,024) (256,409) (58,505) (314,914) (757,845) 13,510,930 (1,637,251) 1,586,085 (51,166) 1,906 704 (3,574) (52,130) (52,130) (188,407) 160,358 (80,179) 11,751 (68,428) 26,176 (42,252) 62,335 (9,110,216) 4,463,049 (638,403) (990,727) (182,351) 19,401 (104,694) (46,748) (15,288) 2,504,239 (81,123) (44,444) 2,378,672 103,396 (630,775) 62,687 1,913,980 (487,249) 1,426,731 (1,941,745) (515,014) (1,637,251) 13,573,265
(1,781,493) (6,003,200)
(1,210,076) (1,072,759)
159

Consolidated
Revenue Revenue third parties Revenue to related parties Cost of sales Gross profit/(loss) General and administrative expenses Distribution expenses Other taxes and contributions Share of associates (loss)/profit Net (loss)/gain from securities operations (Loss)/gain on disposal of property, plant and equipment and intangible assets Net other operating expenses Profit/(loss) from operations Impairment of non-current assets Net other non-operating expenses Profit/(loss) before financing and taxation Interest income Interest expense Foreign exchange difference (Loss)/profit before income tax Income tax benefit/(expense) (Loss)/profit from continuing operations Loss from discontinued operations (Loss)/profit for the year Additional information: depreciation and amortization expense capital expenditures intersegment revenue (incl. in revenue from related parties) 282,506 242,325 723,925 272,726 368,627 44,595 158,002 133,247 246,113 238,476 (2,183) (4,992) (775,625) 957,164 977,683 1,146,856 723,931 1,870,787 465,183 (107,560) (141,936) (85,827) (2) (2,045) (19,955) (16,755) 91,103 (48,691) (7,978) 34,434 1,259 (226,492) (52,047) (242,846) 25,896 (216,950) (216,950) 6,081,434 97,707 6,179,141 2,097,721 (340,902) (638,735) (64,011) 5,084 3,592 (10,906) (16,114) 1,035,729 (39,364) (26,591) 969,774 303,507 (346,705) (152,324) 774,252 (169,672) 604,580 604,580 (411,505) 2,312,485 2,312,485 (2,491,902) (179,417) (71,603) (13,470) (163) 8,216 824 (2,139) (257,752) (1) (257,753) 519 (96,110) (353,344) 11,002 (342,342) (741,979) (768,520) (768,520) 769,163 643 3,202 2,636 (13,707) (21) (2,667) (9,914) 2,779 (7,135) (213,833) 190,854 (30,114) (1,186) (31,300) 20,401 9,540,775 53,118 9,593,893 (7,209,763) 2,384,130 (516,863) (791,505) (150,001) 13,298 (12,160) (30,058) (37,675) 859,166 (88,056) (31,790) 739,320 91,452 (478,453) (204,371) 147,948 (133,960) 13,988 (1,133,083)
(1,405,604) (4,081,420)
Further Information
(411,505) (1,084,321)
(10,899) (1,119,095)
7,105
160

Consolidated
Revenue Revenue third parties Revenue related parties Cost of sales Gross profit/(loss) General and administrative expenses Distribution expenses Other taxes and contributions Share of associates profit/(loss) Net gain/(loss) from securities operations Loss on disposal of property, plant and equipment and intangible assets Net other operating (expenses)/income Profit from operations Impairment of non-current assets Negative goodwill Net other non-operating income/(expenses) Profit before financing and taxation Interest income Interest expense Foreign exchange difference Profit before income tax Income tax (expense)/benefit Profit from continuing operations Profit/(loss) from discontinued operations Profit/(loss) for the year Additional information: depreciation and amortization expense capital expenditures intersegment revenue (incl. in revenue from related parties) 232,943 413,074 1,379,629 467,129 709,199 39,478 162,056 337,828 13,600 225,293 693,926 (3,289) (1,432,707) 1,087,421 2,150,738 1,069,261 1,383,443 2,452,704 1,076,333 (173,906) (180,911) (78,850) 2,548 (7,608) (31,906) 605,700 (489,874) 79,862 293,797 489,485 16,318 (105,084) 97,073 497,792 (183,557) 314,235 314,235 11,850,733 213,051 12,063,784 4,675,744 (506,222) (798,564) (74,221) 3,632 (82,223) (29,836) (10,165) 3,178,145 (42,101) (59,504) 3,076,540 187,104 (282,058) (359,847) 2,621,739 (642,141) 1,979,598 1,979,598 136,459 136,459 2,968,284 94 2,968,378 (3,243,050) (274,672) (125,025) (16,401) (6,319) (6,202) 608,245 179,626 179,626 5,139 (85,492) 5 99,278 344,595 443,873 (816,880) (373,007) (1,419,107) 15,888,278 177,481
(1,419,107) 16,065,759 1,464,901 (10,542,560) 45,794 3,625 144 (20,201) 135 (10,509) 18,988 4,652 23,640 (79,721) 74,719 18,638 (9,345) 9,293 (4,652) 4,641 5,523,199 (801,528) (995,732) (153,071) (2,687) (99,876) (43,511) 555,665 3,982,459 (531,975) 79,862 238,945 3,769,291 128,840 (397,915) (262,769) 3,237,447 (490,448) 2,746,999 (685,073) 2,061,926
(1,376,371) (7,388,040)
161

The following is a summary of non-current assets other than financial instruments and deferred tax assets by location:
2010 December 31, 2009 2008
Russian Federation 5,111,242 4,830,744 4,960,427 North America 2,790,550 3,978,452 4,139,364 Africa Central Asia Europe 988,421 275,463 262,206 256,752 246,720 279,591
Governance
130,269 1,618,873 1,775,158
9,295,945 10,947,027 11,401,260 The locations are primarily represented by the following countries: Lithuania, Italy and Ukraine as at December 31, 2010 and Italy and France (as at December 31, 2009 and 2008) in Europe, the USA in North America, Burkina Faso, Liberia and Guinea in Africa, and Kazakhstan in the Central Asia.
31. Financial instruments

The Groups risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Groups activities. The Groups Board of Directors oversees how management monitors compliance with the Groups risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. Exposure to credit, liquidity, interest rate and currency risk arises in the normal course of the Groups business. The Severstal Resource segment of the Group has not used derivative financial instruments to reduce exposure to fluctuations in foreign exchange rates and interest rates. The use in the Russian Steel and Severstal North America segments of derivatives to hedge their interest rates, commodity inputs and foreign exchange rate exposures were not material to these consolidated financial statements. Management believes that the fair value of its financial assets and liabilities approximates their carrying amounts except for the followingborrowings:
December 31, 2010 Book value Difference
Further Information
Market value
Ruble bonds 2011 Ruble bonds 2013 Eurobonds 2013 Eurobonds 2014 Eurobonds 2017 Severstal Columbus bonds
516,834 514,160 605,044 418,361 561,425
492,176 492,176 543,552 375,000 525,000
24,658 21,984 61,492 43,361 (11,875) 36,425 176,045
988,125 1,000,000
3,603,949 3,427,904
162

December 31, 2009 Market value Book value Difference
Ruble bonds Eurobonds 2014
518,331 377,858
495,963 375,000
22,368 15,663 2,858 40,889
Eurobonds 2013 1,265,663 1,250,000 2,161,852 2,120,963

December 31, 2008 Market value Book value
Difference
Eurobonds 2009 Eurobonds 2013 Eurobonds 2014
325,858 197,048
325,000 375,000
858 (560,416) (177,952) (361,277)
689,584 1,250,000
Bank financing 5,448,072 5,809,349
6,660,562 7,759,349 (1,098,787) The above amounts exclude accrued interest. The market value of the Groups Eurobonds was determined based on London Stock Exchange quotations. The market value of the Groups Ruble bonds was determined based on Moscow Interbank Currency Exchange.
Credit risk
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position and guarantees (see note 32e). The Group has developed policies and procedures for the management of credit exposures, including the establishment of credit committees that actively monitors credit risk. The maximum exposure to credit risk for financial instruments including accounts receivable from related parties was:
2010 December 31, 2009 2008
Cash and cash equivalents 2,012,662 2,853,376 2,652,888 Loans and receivables 1,138,656 1,653,386 2,158,186 Held-to-maturity securities and deposits Available-for-sale financial assets Held-for-trading securities Restricted cash 28,742 155,477 18,350 103,027 125,351 89,345 25,505 17,541 829,729 55,212 72,471 21,703
3,456,914 4,764,504 5,790,189
163

The maximum exposure to credit risk for trade receivables including trade receivables from related parties by geographic region was:
2010 December 31, 2009 2008
Russian Federation
432,626 228,910 202,661 37,311 35,973 26,457 6,121 3,787
404,500 324,492 568,448 28,062 99,159 9,245 16,065 25,943
601,362 395,736 878,778 24,178 32,564 3,353

North America Europe Africa China and Central Asia South-East Asia Central and South America The Middle East
7,879 27,040
973,846 1,475,914 1,970,890
The maximum exposure to credit risk for trade receivables including trade receivables from related parties by type of customer was:
2010 December 31, 2009 2008
Further Information
Industrial consumers Wholesale customers Retail customers Other customers
757,760 1,253,325 1,633,117 122,215 59,769 34,102 159,040 39,956 23,593 296,016 5,813 35,944
973,846 1,475,914 1,970,890
The Group holds bank and other guarantees provided as collateral for financial assets. Amount of collateral held does not fully cover Groups exposure to credit risk.
Impairment losses
The aging of trade receivables including trade receivables from related parties was:
2010 Gross Impairment || December 31, 2009 Gross Impairment || 2008 Gross Impairment
Not past due Past due 0-30 days Past due 31-90 days Past due 91-180 days Past due 181-365 days More than one year
887,212 55,913 18,566 12,410 25,479 41,516
(17,795) 1,178,117 (179) (162) (1,139) (10,948) (37,027) 143,154 55,568 89,670 30,394 64,660
(6,432) 1,302,128 (484) (3,023) (3,118) (19,284) (53,308) 376,301 247,305 84,930 11,310 50,280
(2,238) (2,854) (36,976) (12,650) (2,275) (44,371) (101,364)
1,041,096
(67,250) 1,561,563
(85,649) 2,072,254
The impairment allowance at December 31, 2010 included the impairment allowance in respect of trade receivables from related parties for the total amount of US$ 3.4 million (December 31, 2009: US$ 2 million; December 31, 2008: US$ 10.8 million). At December 31, 2010 trade receivables included accounts in the amount of US$ nil (December 31, 2009: US$ 4.5 million; December 31, 2008: US$ 170.2 million) whose terms of settlements were renegotiated during 2010 (2009 and 2008, respectively). Management of the Group believes that receivables will be repaid in full, thus no impairment loss is recognized.
164

The movement in allowance for impairment in respect of trade receivables including trade receivables from related parties during the years was as follows:
Balance at 1 January Impairment loss recognized Impairment loss reversed Reclassified to assets held for sale Foreign exchange difference Balance at 31 December
(85,649) (101,364) (64,920) 64,584 16,288 2,447 (67,250) (36,333) 51,023 1,025
(46,970) (72,802) 23,654 (5,246)
(85,649) (101,364)
The allowance account in respect of trade receivables including trade receivables from related parties is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the financial asset directly. The allowance for doubtful debts contains primarily individually impaired trade receivables from debtors placed under liquidation or companies which are in breach of contract terms. At December 31, 2010 the Group recognized an impairment allowance in respect of deposit in the amount of US$ 134.0 million (December 31, 2009: nil; December 31, 2008: nil) (Note 6).
Concentration of credit risk
2010 The Group has a concentration of cash and short-term bank deposits with banks AB Russia, OAO Bank VTB, OAO Sberbank Russia and with a related party commercial bank that at December 31, 2010 represented US$ 267.8 million, US$ 393.5 million, US$ 300.0 million and US$168.2 million, respectively. The Group has a concentration of available-for-sale financial assets with Detour Gold Corporation that at December 31, 2010 represented US$ 90.6 million. 2009 The Group has a concentration of cash and short-term bank deposits with banks AB Russia, OAO Bank VTB and with a related party commercial bank that at December 31, 2009 represented US$ 363.0 million, US$ 454.7 million and US$ 306.9 million, respectively. 2008 The Group has a concentration of cash and short-term bank deposits with bank AB Russia and with a related party commercial bank that at December 31, 2008 represented US$ 449.0 million and US$ 384.0 million, respectively.
Liquidity risk
The Group manages liquidity risk with the objective of ensuring that funds will be available at all times to honor all cash flow obligations as they become due by preparing an annual budgets, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
165

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements: December 31, 2010

Carrying amount
Contractual cash flows
less than 1 year 1-2 years 2-5 years
More than 5 years
Non-derivative financial liabilities Debt finance 6,142,034 (7,716,557) (1,784,457) (1,126,555) (2,619,640) (2,185,905) Lease liabilities Derivative financial liabilities 10,859 22,286 (10,860) (28,445) (7,966) (9,377) (842) (5,250) (4,642) (952) (17,646) (14,426) (1,100) (3,502) Trade and other payables 1,025,190 (1,029,186) (1,002,788)
7,200,369 (8,785,048) (2,804,588) (1,137,289) (2,652,664) (2,190,507) December 31, 2009

Carrying amount Contractual cash flows less than 1 year 1-2 years 2-5 years More than 5 years
Non-derivative financial liabilities Debt finance 7,226,860 (8,886,216) (1,862,856) (1,567,264) (5,291,367) (164,729) Lease liabilities Derivative financial liabilities 51,107 48,956 (58,882) (71,026) (13,375) (37,487) (17,474) (18,635) (13,293) (19,142) (741) (20,246) (8,891) (43) Trade and other payables 1,454,830 (1,454,830) (1,435,411)
Further Information
8,781,753 (10,470,954) (3,349,129) (1,616,666) (5,331,496) (173,663) December 31, 2008

Carrying amount Contractual cash flows less than 1 year 1-2 years 2-5 years More than 5 years
Non-derivative financial liabilities Debt finance 8,265,918 (10,019,689) (2,339,252) (1,426,007) (5,319,950) (934,480) Lease liabilities Derivative financial liabilities 76,454 30,293 (91,330) (40,305) (26,394) (19,784) (14,688) (5,156) (10,440) (46,364) (34,999) (10,081) (3,884) (1,874) Trade and other payables 1,813,473 (1,813,473) (1,771,444)
10,186,138 (11,964,797) (4,156,874) (1,456,291) (5,411,394) (940,238) 2010 At December 31, 2010, the Group has a concentration of bank financing with Deutsche Bank AG and European Bank for Reconstruction and Development of US$ 880.0 million and US$ 618.4 million, respectively. 2009 At December 31, 2009, the Group has a concentration of bank financing with Deutsche Bank AG and European Bank for Reconstruction and Development of US$ 1,201.2 million and US$ 803.8 million, respectively. 2008 At December 31, 2008, the Group has a concentration of bank financing with Deutsche Bank AG and European Bank for Reconstruction and Development of US$ 1,201.5 million and US$ 848.5 million, respectively.
166

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) Currency risk
Currency risk arises when a Group entity enters into transactions and balances not denominated in its functional currency. The Group has assets and liabilities denominated in several foreign currencies. Foreign currency risk arises when the actual or forecasted assets in a foreign currency are either greater or less than the liabilities in that currency. The Groups exposure to foreign currency risk was as follows based on notional amounts:
Euro USD GBP December 31, 2010 RUR CHF CAD KZT NOK Other
Available-for-sale financial assets Held-to-maturity securities and deposits Loans and receivables Cash and cash equivalents Restricted cash Debt finance Finance lease liabilities Trade and other payables Derivative financial liabilities Net exposure

210,260 14,082 (236) (192,984)
15,582 944,596 29,337 (662) (94,896) (14,039)
6,920 18,736 596 (3,435) (175) 22,642
33,520 22 (660) (981) 31,901
3,311 (52) 3,259
690 67,322 (10) (52,502)
54,501 54,501
(83,169) (83,169)
310 2,686 (383) 2,613
1,332,624 1,527,205
(853,446) (3,680,171)
(120,504)
510,300 (1,273,048)
December 31, 2009 Euro USD GBP RUR CHF CAD KZT Other
Available-for-sale financial assets Held-to-maturity securities and deposits Loans and receivables Cash and cash equivalents Finance lease liabilities Trade and other payables Derivative financial liabilities Net exposure

22 57,898 325,831 (774) (214,471)
9,356 519,778 (2,185) (88,978) (39,949)
1,926 1,170 (562) 2,534
67,122 (18,304) (24,876) 23,942
2,858 4,083 (140) 6,801
65,516 (101,002) (319) (35,805)
59,010 59,010
4,238 259 (326) 4,171
274,262 1,380,710
Debt finance (1,036,645) (3,923,995)
(593,877) (2,145,263)
December 31, 2008 Euro USD GBP RUR CHF CAD KZT Other
Available-for-sale financial assets Loans and receivables Cash and cash equivalents Finance lease liabilities Trade and other payables Derivative financial liabilities Net exposure
3,994 259,678 713,667 (5,888) (79,509) (11,490)
350 7,005 353 (260) 7,448
39,264 (8,973) 30,291
16,795 (10) 16,785
284 86,214 895 (98,177) (13,519) (24,303)
147 59,232 373 (469) 59,283
7,857 702 (19) (218) 8,322
Held-to-maturity securities and deposits 275,898 367,549 (1,870) (60,736)
211,390 1,384,027
Debt finance (1,275,253) (4,057,559)
(483,022) (1,793,080)
167

for the years ended December 31, 2010, 2009 and 2008 (Amounts expressed in thousands of US dollars, except as otherwise stated) Sensitivity analysis
A 10 percent strengthening of the following currencies against the functional currency at December 31, 2010 would have increased/ (decreased) profit and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and no translation difference into the presentation currency is included. The analysis is performed on the same basis for 2009 and 2008.
Net profit
Euro USD GBP CHF CAD RUR KZT NOK Other
40,241 1,684 294 (3,923) 2,690 4,103 (5,988) 209
(47,509) 203 544 (3,625) 2,890 3,629 385
(36,708) 566 1,276 (1,320) 2,566 3,294 702
(98,234) (170,415) (133,147)
Further Information
A 10 percent weakening of these currencies against the functional currency at December 31, 2010 would have had the equal but opposite effect to the amounts shown above, on the basis that all other variables remain constant.
Interest rate risk

Interest rates on the Groups debt finance are either fixed or variable, at a fixed spread over LIBOR or Euribor for the duration of each contract. Changes in interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt). Management does not have a formal policy of determining how much of the Groups exposure should be to fixed or variable rates. However, at the time of raising new loans or borrowings management uses its judgment to decide whether it believes that a fixed or variable rate would be more favorable to the Group over the expected period until maturity. The Groups interest-bearing financial instruments at variable rates were:
2010 December 31, 2009 2008
Variable rate instruments Financial assets 31,386 539,818 414,398 Financial liabilities (2,279,275) (4,280,828) (4,915,822) (2,247,889) (3,741,010) (4,501,424) Other Groups interest-bearing financial assets and liabilities are at fixed rate.
168

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates would not affect profit or loss.
Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates would have increased/(decreased) profit and equity by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2009 and 2008.
Net profit 100 bp increase 100 bp decrease
December 31, 2010 Financial assets Financial liabilities Cash flow sensitivity (net) December 31, 2009 Financial assets Financial liabilities Cash flow sensitivity (net) December 31, 2008 Financial assets Financial liabilities Cash flow sensitivity (net) 3,149 (37,360) (34,211) (3,149) 37,360 34,211 4,319 (34,249) (29,930) (4,319) 34,249 29,930 251 (18,234) (17,983) (251) 18,234 17,983
Fair value hierarchy

The table below analyses financial instruments carried at fair value, except financial instruments measured at amortized cost, by valuation method. The levels in the fair value hierarchy into which the fair value measurements are categorized were disclosed in accordance withIFRS.
Level 1 Level 2 Level 3 Total
Balance at 31 December 2010 Available-for-sale financial securities Held-for-trading securities Derivative financial liabilities Balance at 31 December 2009 Available-for-sale financial securities Held-for-trading securities Derivative financial liabilities Balance at 31 December 2008 Available-for-sale financial securities Held-for-trading securities Derivative financial liabilities
120,863 120,748 115 69,309 69,309 69,943 25,454 44,489
(4,051) 18,235 (22,286) (15,012) 8,439 25,505 (48,956) 14,845 17,156 27,982 (30,293)
34,729 34,729 11,597 11,597 12,602 12,602
151,541 155,477 18,350 (22,286) 65,894 89,345 25,505 (48,956) 97,390 55,212 72,471 (30,293)
169

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurement in Level 3 of the fair value hierarchy:
Available-for- sale financial securities Held-for- trading securities Derivative financial liabilities
Balance at 31 December 2010 Losses recognized in income statement Purchases of financial instruments Balance at 31 December 2009 Purchases of financial instruments Sales of financial instruments Other movements Balance at 31 December 2008 Purchases of financial instruments Sales of financial instruments Transfers out of Level 3 Other movements Balance at 31 December 2007
34,729 (580) 23,712 11,597 6,567 (4,277) (3,295) 12,602 6,236 (821) (1,256) 8,443
(56,270) 56,270
32. Commitments and contingencies

a. For litigation, tax and other liabilities
The taxation system and regulatory environment of the Russian Federation, Kazakhstan, Burkina Faso and Guinea are relatively new and characterized by numerous taxes and frequently changing legislation, which is often unclear, contradictory and subject to varying interpretations between the differing regulatory authorities and jurisdictions, who are empowered to impose significant fines, penalties and interest charges. Events during recent years suggest that the regulatory authorities within these countries are adopting a more assertive stance regarding the interpretation and enforcement of legislation. This situation creates substantial tax and regulatory risks. Management believes that it has complied in all material respects with all relevant legislation. At the reporting date, theRussian, Kazakhstan, Burkina Faso and Guinea tax authoritieshad madecontingent claimsfor taxes, fines and penalties in the amount of approximately US$ 137.4 million (December 31, 2009: US$ 6.3 million, December 31, 2008: US$ 4 million) to certain of the Groups entities. Management does not agree with the tax authorities claims and believes that the Group has complied with existing legislation in all material respects. Management is unable to assess the ultimate outcome of the claims and the outflow of financial sources to settle such claims, if any. Management believes that it has made adequate provisions forotherprobable tax claims.
b. Long term purchase and sales contracts

In the normal course of business group companies enter into long term purchase contracts for raw materials, and long term sales contracts. These contracts allow for periodic adjustments in prices dependent on prevailing market conditions.
c. Capital commitments
At the reporting date the Group had contractual capital commitments of US$ 1,546.6 million (December 31, 2009: US$1,142.0 million; December 31, 2008: US$1,275.3 million).
d. Insurance
The Group has insured its property and equipment to compensate for expenses arising from accidents. In addition, the Group has insurance for business interruption on a basis of reimbursement of certain fixed costs. The Group has also insured third party liability in respect of property or environmental damage. However, the Group does not have full insurance coverage.
170

for the years ended December 31, 2010, 2009 and 2008 (continued) (Amounts expressed in thousands of US dollars, except as otherwise stated) e. Guarantees
At the reporting date the Group had US$ 38.2 million (December 31, 2009: US$ 43.5 million; December 31, 2008: US$ 42.3 million) of guarantees issued, including guarantees issued for related parties in amount of US$ 10.0 million (December 31, 2009: US$ 26.8 million; December 31, 2008: US$ 18.5 million).
33. Subsequent events

In January 2011, the Group acquired an additional 6.6% stake in Crew Gold Corporation for a total consideration of US$ 32.9 million, increasing its ownership interest up to 100%. In February 2011, the Group signed an amendment to Lucchinis share purchase agreement with Majority Shareholder which cancelled the buy-back call option and the entitlement, for the benefit of the Group, to any gain on a subsequent sale of this stake to a third party.
171
Shareholder information and financial calendar

In Russia, Severstal shares are traded on the RTS and on MICEX stock exchanges. Overseas, they are circulated in the form of depositary receipts, on the London Stock Exchange and through the PORTAL trading system in the US. Severstal shares/GDRs at stock exchanges
Stock Exchange Ticker
Overview
Severstal contribution to key indices
Index
Weight*
RTS MICEX MSCI Russia FTSE Russia IOB

* At the end of 2010 Source: Bloomberg, 2011.
1.53% 3.11% 1.36% 1.71%
Business Review
MICEX, Moscow RTS, Moscow LSE, London
CHMF CHMF SVST
Governance
Share price at MICEX in 2010

600 RUB
According to the consensus of sector analysts, Severstal shares (GDRs) remained solid potential for growth at the beginning of 2011. Severstals GDR price reached $16.85 at the end of 2010, 67% higher than at the beginning of 2010. Market capitalisation grew to US$17.0 billion at 31 December 2010. Severstal shares and GDR turnover increased significantly in 2010: GDR turnover grew more than 170% in US$ at LSE, and Severstal shares turnover increased by more than 169% in RUB at MICEX and approximately 250% in US$ at RTS. Severstals stocks make part of major indices at the stock exchanges where the company is listed. For instance, Severstal is a solid part of MSCI Russia and FTSE Russia IOB at LSE and a sizeable contributor to the MICEX and RTS indices in Russia. Severstal share/GDR performance in 2009-2010
London Stock Exchange 2010 2009
500 400 300 200 100 0

11 Jan 24 Feb 7 Apr 21 May 5 Jul 16 Aug 27 Sept 10 Nov 21 Dec
MICEX
2010
2009
Maximum (closing price), Roubles Minimum (closing price), Roubles At year beginning At year end Change,% Number of trades Turnover, million Roubles Share Price at RTS in 2010
18 USD 16 14 12 10 8 6 4 2 0
11 Jan 9 Feb 17 Mar 14 Apr 17 May 5 Jul
519.21 294.85 303.60 518.19 71% 202,730
259.76 73.85 87.57 253.25 189% 75,497
Maximum (closing price), US$ Minimum (closing price), US$ At year beginning At year end Change,% Number of trades Turnover, US$ mln GDR price at LSE in 2010
18 USD 16 14 12 10 8 6 4 2 0
4 Jan 15 Feb 29 Mar 13 May 25 Jun 6 Aug
17.07 9.35 10.12 16.85 67% 184,970 6,373
9.50 2.21 2.99 9.50 218% 150,160 2,360
3,146,148 1,609,041
8 Sep
21 Oct
6 Dec
RTS
2010
2009
Maximum (closing price), US$ Minimum (closing price), US$

20 Sept 1 Nov 13 Dec
17.10 9.65 10.00 17.10 71% 614 21
8.80 2.40 2.55 8.44 231% 222 6
At year beginning At year end Change,% Number of trades Turnover, US$ million
172
Shareholder information and financial calendar

Credit ratings
Severstal has a clear corporate credit profile and aims to make its position transparent to the market. Significant book oversubscription and interest levels, that were at a historic low for the recent public debt issuances, resulted in a high acceptance and demonstrated confidence from investors. Our credit ratings issued by international rating agencies reflect the ongoing improvements. The company maintains mandated credit ratings by Moodys and S&P. The specific role of rating agencies creates a time lag between an improved profile and any positive impact on the rating. Nevertheless 2010 brought a moderate improvement from post-crisis downgrades in year 2009: in October 2010, S&P revised the outlook to Stable. On the back of the resolution of outstanding issues and a generally better business environment for Severstals market activities, we expect further improvements in the next 12 months. The company has developed sound relations with the agencies, achieved a good understanding and is well on track to strengthen its ratings in the future.
OAO Severstal Moodys Standard&Poors
Credit Rating (Long Term, Foreign Currency) Latest Rating action
Ba3 / Negative 27 May 2009
BB- / Stable 17 February 2011
Dividends
The companys dividend policy is stated at the corporate website and is available at: http://www.severstal.com/eng/ir/shareholder_services/ dividends/ In 2010, following the decision of the Severstal EGM held on December 20, 2010, OAO Severstal paid out a dividend of 4.29 roubles (which is approximately $0.14) per share for the 9 months of 2010. This represents a pay-out ratio of 25% of net profits for the second and third quarters of 2010. On March 1, 2011 the Board of Directors also recommended a dividend of 2.42 roubles (approximately $0.08) per share for the year ended 31 December 2010. This represents approximately 25% of Q4 2010 net profit of continued operations. Approval of the dividend is expected at the Companys AGM which will take place on 27 June 2011. The record date is 22 May 2011.
2011 Financial Calendar

Date* Event
10 February 2011 3 March 2011 28 April 2011 17 May 2011 27 June 2011 July 2011 August 2011 October 2011 Q4 2011 6 7 November 2011 December 2011
Full year 2010 Operational results Full year 2010 IFRS financial statements Q1 2011 Operational results Q1 2011 IFRS financial statements Shareholders Annual General Meeting H1 & Q2 2011 Operational results H1 2011 IFRS financial statements 9M & Q3 2011 Operational results Severstal North America analysts site visit 5-year Anniversary of listing at London Stock Exchange. Investor meetings in London Q3 2011 IFRS financial statements
*Starting from May 2011 the dates are preliminary and may be subject to change.
173
Contacts
OAO Severstal Legal address: 30 Mira St. Cherepovets Vologda Region, 162608, Russia Postal address: 2/3 K. Tsetkin Street Moscow, 127299, Russia Tel: +7 (495) 926 7766 Fax: +7 (495) 926 7761 www.severstal.com
Auditor
ZAO KPMG 10, Krasnopresnenskaya Naberezhnaya, Block C, floor 31, Moscow, 123317, Russia Tel: +7 (495) 937 4477 Fax: +7 (495) 937 4499
Corporate Secretary
Oleg Tsvetkov Tel: +7 (8202) 53 0900 Fax: +7 (8202) 53 2159 E-mail: corporate_secretary@severstal.com
Registrar
ZAO Partnyor Address: 22, Pobedy Ave., Cherepovets 162606, Vologda Region, Russia Tel: +7 (8202) 53 6021 Fax: +7 (8202) 55 3335 Licence no.: 10-000-1-00287 Date of issue: 04.04.2003 r. Expiry date: no expiry date Issued by: FSFM of Russia
Public Relations
Elena Kovaleva Tel/Fax: +7 (495) 926 77 66 E-mail: elena.kovaleva@severstal.com
Investor Relations
Vladimir Zaluzhsky Tel/Fax: +7 (495) 926 77 66 E-mail: vladimir.zaluzhsky@severstal.com
Human Resources Severstal

Tatiana Ovchinnikova Tel: +7 (495) 926 77 61 E-mail: tatiana.ovchinnikova@severstal.com
Human Resources Nordgold

Aishat Chekunova Tel: +7 (495) 981 0910 Fax: +7 (495) 981 0918 E-mail: aa.chekunova@severstalresurs.ru
Corporate Social Responsibility

Natalia Poppel Tel/Fax: +7 (495) 926 77 66 E-mail: natalia.poppel@severstal.com

2010 Annual Report Severstal

Transféré par

Informations du document

Description originale:

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

2010 Annual Report Severstal

Transféré par

Droits d'auteur :

Formats disponibles

Strength of vertical integration empowered by people

Annual Report and Accounts 2010

Overview Business Review Governance Financial Statements

EBITDA in 2010 (US$)

(2009 EBITDA: 1,589m) Net loss attributable to shareholders in 2010 (US$)

EBITDA margin in 2010 (US$)

(2009 EBITDA margin: 16.6%) Dividend per share in 2010 (US$)

(2009 profit from continuing activities: 14m)

(2009 net loss: 1,037m)

(2009 dividend per share: n/a)

(2009 Net debt/EBITDA: 2.2*)

Severstal Annual Report and Accounts 2010

Severstal Russian Steel

Annual Report and Accounts 2010 Severstal

(2009 iron ore sales: 13.9m)

(2009 gold sales: 522k oz)

Russia & CIS

Rest of the World

Severstal Annual Report and Accounts 2010

Christopher Clark Chairman of the Board of Directors

Annual Report and Accounts 2010 Severstal

Business Review Governance Financial Statements Further Information

Christopher Clark Chairman of the Board of Directors

Severstal Annual Report and Accounts 2010

Chief Executives Review

Alexey Mordashov Chief Executive Officer

Severstal Russian Steel

Alexey Mordashov Chief Executive Officer

Severstal Annual Report and Accounts 2010

Annual Report and Accounts 2010 Severstal

Severstal growth drivers

Severstal is a vertically-integrated steel company focused on high-growth emerging markets.

Financial Statements Further Information

Severstal Annual Report and Accounts 2010

Severstal Strategy (continued)

Executing our strategy in 2010: steps towards a new Severstal

Entering new frontiers for our verticallyintegrated business model

Annual Report and Accounts 2010 Severstal

Developing our global raw materials base

Priorities for 2011

Severstal Annual Report and Accounts 2010

Creating a Platform for Growth

Entering new frontiers for our vertically-integrated business model

Getting access to one of Russias major coking coal deposits

Overview Business Review Governance

Financial Statements Further Information

Annual Report and Accounts 2010 Severstal

Business Review Governance Financial Statements

Severstal Annual Report and Accounts 2010

Risk Management (continued)

Annual Report and Accounts 2010 Severstal

Business Review Governance Financial Statements

Severstals forecasting system

Severstal Annual Report and Accounts 2010

Risk Management (continued)

Annual Report and Accounts 2010 Severstal

Overview Business Review Governance Financial Statements Further Information

Severstal Annual Report and Accounts 2010

Risk Management (continued)

Annual Report and Accounts 2010 Severstal

Business Review Governance

Financial Statements Further Information