Severstal announces 2018 capital investment programme

PAO Severstal ("Severstal"; "the Company"), one of the world’s leading vertically integrated steel and steel-related mining companies, today announces its capital investment programme for 2018.

Severstal plans to invest approximately 49.5 billion rubles in 2018, focusing on the key areas of the Company’s strategy. This investment will primarily be aimed at further reduction of costs, increasing the production of high-value added products and further improving customer care. As previously announced, Severstal will also be launching a long-term programme to refurbish the blast furnace production at Cherepovets Steel Mill with cutting-edge technology.

Severstal Russian Steel

Severstal will invest approximately 32.5 billion rubles into its Russian Steel division in 2018, with 18 billion rubles committed to development projects.

One of the most significant projects in 2018 will be the construction of the new Blast Furnace 3, which will require a total of 28 billion rubles of investment over four years. The new blast furnace is scheduled to be launched in 2022 and has planned output capacity of 2.9 billion tonnes. This key project will receive approximately 1.3 billion rubles of investment in 2018, equal to 5.8% of the total value of the project. New technological solutions introduced during the construction process will significantly reduce the environmental impact of the furnace, as well as ensuring its life for a further 25-30 years. Launching the new furnace will increase the Mill’s total pig iron capacity from 11.7 million to 14.6 million tonnes. Moreover, the construction of Blast Furnace 3 will reduce the CAPEX required during the planned maintenance of Blast Furnace 5, which has now been postponed until 2022, and will also eliminate the decline in output due to refurbishment downtime during that period.

Among other Severstal Russian Steel 2018 major investment projects: further modernisation of the mill-2000, which produces 65% of Cherepovets Steel Mill’s total production output, the technical revamping and modernisation of turbine generator No. 5, aimed at improving Severstal’s energy efficiency indicators and project on organisation of wide strip production in CherMK’s Cold Rolling Plant.

Severstal Russian Steel will invest 14.5 billion rubles in maintenance, environmental and health and safety projects in 2018.

Severstal Resources

Severstal will invest approximately 17 billion rubles in its Resources division in 2018, of which 8.4 billion rubles will be invested in asset development. The most significant projects will include the implementation of a new multi-functional safety system at the Vorkutaugol mines and the second phase of the Karelskiy Okatysh mine’s transition to a self-sufficient water-cycle system. The Company will also continue to invest in improving its stripping works. In 2018, 8.8 billion rubles will be invested in the maintenance of Severstal’s coal and iron ore operations.

The Yakovlevskiy mine will receive direct investment of 1.7 billion rubles in 2018, which will allow the Company to increase volumes of iron extraction by 50%, to 1.3 million tonnes.

Severstal will maintain its core focus on safety and ecology in 2018. The Company will invest a further 470 million rubles into measures aimed at safety improvements, and an additional 390 million rubles in environmental projects.

The Company will commit 3.4 billion rubles of investment to digital and IT projects aimed at further improving operational excellence and enhancing the quality of customer service.

Alexey Kulichenko, CFO of Severstal, commented:

“Severstal remains committed to maintaining a responsible approach to investment. This is in line with our strategy and allows the Company to remain unrivaled as the global leader in profitability. In 2018 the relative increase in investments year on year reflects the postponement of some projects as well as entering a more active investment phase for other current initiatives. In recent years Severstal has invested significantly in modernising its high value-added production and renewing its rolling capacities. Our current goal is to improve the hot-end production process in the most efficient way and Severstal’s management team has decided to update the Company’s blast furnace modernisation plan to reflect this approach. The construction and launch of Blast Furnace 3 will enable the Company to reduce CAPEX and avoid a shortage in pig iron, thereby securing Severstal’s supply of the raw material for the coming years”.

The planned investments are preliminary estimates and amounts are subject to adjustments dependent on FX changes. The majority of the Company’s expenditure in 2018 will be in rubles.