About Mechel PAO

Mechel PAO, through its subsidiaries, engages in mining, steel, and power businesses. The company includes various logistical and marketing companies that help it to deliver and market its products. The company has freight seaports in Russia on the Sea of Japan (Port Posiet) and on the Sea of Azov (Port Temryuk), as well as a freight river port on the Kama River, a tributary of the Volga River in central Russia (Port Kambarka). The company also has a fleet of freight railcars and long-haul trucks. The company has a network of overseas subsidiaries, branches, warehouses, service centers and agents to market its products internationally, and it has a Russian domestic steel retail and service subsidiary with regional offices in 39 cities throughout Russia. Segments Mining This segment produces metallurgical coal (coking coal, pulverized, or finely crushed, coal for injection (PCI) and anthracite), steam coal, iron ore and iron ore concentrate, coke and chemical products. This segment primarily consists of the company’s coal, iron ore and coke production facilities in Russia. It also includes certain transportation and logistics facilities and engineering operations. The company’s subsidiary Southern Kuzbass Coal Company and its subsidiaries operate coal mines located in the Kuznetsky basin, near Mezhdurechensk in Western Siberia. These mines include four open pit mines and three underground mines. Another of its subsidiaries, Yakutugol, operates coal mines located in the Sakha Republic in Eastern Siberia, consisting of three open pit mines. The company’s mining segment also provides coal washing services to its coal mining subsidiaries. Korshunov Mining Plant operates two open pit iron ore mines and a concentrating plant located near Zheleznogorsk-Ilimsky, a town in the Irkutsk region in Eastern Siberia. This segment also produces significant amounts of coke, both for use by its subsidiaries in the steel segment and for sales to third parties. In 2008, the company established Mechel Mining, a wholly-owned subsidiary, in which it consolidated coal, iron ore and coke assets of its Mining segment (Southern Kuzbass Coal Company, Korshunov Mining Plant, Yakutugol, Moscow Coke and Gas Plant and Mechel Coke and certain other companies). Mechel Mining Management, a wholly-owned subsidiary of Mechel Mining, acts as the sole executive body of the company’s subsidiaries in the Mining segment. This segment produces coking coal and other types of metallurgical coal (anthracite and PCI), steam coal, middlings, coking coal and steam coal concentrates, as well as coke and chemical products, iron ore and iron ore concentrate. This segment also includes certain transportation and logistics facilities and engineering operations. Its coal operations consist of Southern Kuzbass Coal Company and Yakutugol, which together produced 9.6 million tonnes of raw coking coal, 4.3 million tonnes of raw steam coal and 2.0 million tonnes of raw anthracite in 2020. The company’s coke operations consist of Moscow Coke and Gas Plant and Mechel Coke, which together produced 2.7 million tonnes of coke in 2020. Its iron ore operations consist of Korshunov Mining Plant, which produced 7.0 million tonnes of iron ore and 2.1 million tonnes of iron ore concentrate in 2020. Products Coking Coal and Metallurgical Coal: Southern Kuzbass Coal Company produces bituminous coal. The premier product is a low phosphorous, low sulfur semi-soft to semi-hard coking coal used to produce coke for the iron and steel industry. Other products produced by Southern Kuzbass Coal Company include PCI and anthracite. Yakutugol produces hard coking coal of low-volatile content, and Elgaugol OOO produces hard coking coal of high-volatile content. Steam Coal: Southern Kuzbass Coal Company and Yakutugol produces steam coal as part of their product mix. Steam coal is primarily used for the generation of electricity in coal-fired power stations. Coke: Coke is used in blast furnaces as a main source of heat, as a reducing agent for iron and as a raising agent for charging material in the smelting process. It is a product prepared by pyrolysis (heating in the absence of oxygen) of low-ash, low-phosphorus and low-sulfur coal charging material. The company offers customers coke from its Moscow Coke and Gas Plant and Mechel Coke. Chemical Products: Chemical products are hydrocarbon products obtained as a by-product of coke production. The company produces chemical products in its subsidiaries Moscow Coke and Gas Plant and Mechel Coke. The company offers its customers coal tar, coal benzene and other compounds. Worldwide, coal tar is used in various applications, including in the production of electrode pitch, pitch coke, coal-tar oils, naphthalene, as well as boiler fuel. Coal benzene is used by the chemical industry to produce chemical compounds used as raw materials in organic synthesis in the production of synthetic fibers, as well as in the paint and varnish industry. Iron Ore Concentrate: From its Korshunov Mining Plant, the company offers iron ore concentrate with a standard iron content of 62%. Additionally, Yakutugol holds a subsoil license for the Sutamskaya iron ore area located in Yakutia. The company’s coal mines are primarily located in the Kuznetsky basin, a major Russian coal-producing region, and in the Sakha Republic in Eastern Siberia. The coking coal produced by the company’s Russian mines is predominately low-sulfur (0.3%) bituminous coal. Heating values for coking coal range from 6,861 to 8,488 kcal/kg on a moisture- and ash-free basis. Yakutugol Mines The company’s Yakutugol coal mines are located in the Sakha Republic. The Sakha Republic is located in Eastern Siberia and covers an area of 3.1 million square kilometers. Southern Kuzbass Mines The Kuznetsky basin, or Kuzbass, is located in the southeastern part of Western Siberia and is covering an area of approximately 70,000 square kilometers. All of its Southern Kuzbass mines are located in southeast Kuzbass around the town of Mezhdurechensk in the Kemerovo region. The Southern Kuzbass mines include four open pit mines and three underground mines: Sibirginsky Open Pit, Tomusinsky Open Pit, Olzherassky Open Pit, Krasnogorsky Open Pit, V.I. Lenina Underground, Sibirginskaya Underground and Olzherasskaya-Novaya Underground. The company’s Southern Kuzbass mines and the related washing plants produce semi-soft and semi-hard coking coal, anthracite, PCI, and steam coal. Coal Washing Plants The company operates five coal washing plants and one processing unit in Russia. Four of these coal washing plants and one processing unit are located near its coal mines in Southern Kuzbass. One coal washing plant is located near Neryungrinsky Open Pit in Yakutia. The company’s four coal washing plants and one processing unit located near its coal mines in Southern Kuzbass have an aggregate annual capacity of approximately 17.3 million tonnes of ROM coal. These are Krasnogorskaya Washing Plant, Sibir Washing Plant, Tomusinskaya Washing Plant, Kuzbasskaya Washing Plant and Sibirginskaya Processing Unit. These washing plants have aggregate storage capacity for saleable products of 142,700 tonnes, of which 34% is covered storage. Neryungrinskaya Washing Plant located near Neryungrinsky Open Pit has an annual capacity of 9.0 million tonnes. The plant produces coking coal concentrate and middlings. In 2020, its washing plants enriched 15.2 million tonnes of its coal feedstock. The company produces coke nut, which is smaller in size than metallurgical coke and is principally used as a reducing agent in ferroalloys production and for other purposes, and coke breeze, which is even smaller in size and is principally used for sintering iron ore concentrate prior to its use in blast furnaces or as fuel. Additional chemical products, such as coal benzene, coal tar and ammonium sulfate, are obtained as by-products in the coke production process. Iron Ore and Concentrate Production The company’s iron ore operations consist of Korshunov Mining Plant, which operates Korshunovsky Open Pit, Rudnogorsky Open Pit and the Korshunovsky concentrating plant. In 2011-2012, Yakutugol obtained three subsoil licenses for the Pionerskoye iron ore deposit, the Sutamskaya iron ore area and the Sivaglinskoye iron ore deposit in Yakutia. In December 2019, Rosnedra early terminated the subsoil use right for the Pionerskoye and the Sivaglinskoye iron ore deposits due to its failure to meet operational deadlines under the subsoil licenses. In February 2021, Rosnedra filed a cassation appeal, the hearing of which is scheduled for April 2021. The Korshunovsky concentrating plant is located outside of the town of Zheleznogorsk-Ilimsky, 120 kilometers east of Bratsk in the Irkutsk region. Korshunovsky Open Pit is located near the concentrating plant, and Rudnogorsky Open Pit is located approximately 85 kilometers to the northwest of the concentrating plant. Yakutugol holds the subsoil license for the Sutamskaya iron ore area in South Yakutia. The Sutamskaya area is located 210 kilometers south-east of Neryungri. This deposit contains iron ore, which would allow production of iron ore concentrate with 65% iron content. Marketing and Distribution In 2020, the company’s Russian domestic sales were conducted directly by its own production facilities, and its export sales were conducted by Mechel Carbon, based in Baar, Switzerland. Domestic Sales The company sells coking coal concentrate domestically on the basis of annual framework contracts with monthly or quarterly adjustments to price and quantity. SUE HCS Sakha Republic (Yakutia) is the company’s major domestic customer of steam coal, accounting for 26.0% of its total steam coal sales and 1.2% of its total Mining segment sales in 2020. The majority of coke is sold domestically to the company’s subsidiaries Chelyabinsk Metallurgical Plant and Bratsk Ferroalloy Plant, which accounted for 64.5% of its total coke sales (including intra-group sales) by volume in 2020. Major third-party customers include pig iron, steel and ferroalloy producers located in the Central Region and in the Urals of Russia. The company’s subsidiary, Mecheltrans OOO (Mecheltrans), is a railway freight forwarding company, which owns 54 open cars and leases 10,670 open cars, 140 pellet cars and 331 dumpcars. In 2020, Mecheltrans transported domestically approximately 20.8 million tonnes of its cargo, approximately 76.0% of which was concisted of coal and iron ore feed. Export Sales The company exports coking coal concentrate, PCI and anthracite, steam coal and coke and chemical products. In 2020, the major foreign customer of the company’s Mining segment was POSCO, accounted for 12.8% of its total Mining segment sales. POSCO purchases consisted of PCI and coking coal concentrates. The company’s exports of coking coal concentrate went primarily to Japan, China and South Korea in 2020. In 2020, Sojitz Corporation, POSCO, Shanghai Runhe International Trade Co., Ltd, Kobe Steel and Capella Group Co., Limited were its major foreign customers of coking coal concentrate, accounting for 55.6% of the company’s total coking coal concentrate sales and 19.6% of its total mining segment sales. In 2020, the company’s exports of PCI and anthracite were primarily to South Korea, Europe, Japan and China, which together accounted for 91.8% of its total PCI and anthracite sales and 24.3% of its total mining segment sales. In 2020, the company’s major foreign customers of PCI and anthracite were POSCO, ArcelorMittal, Nippon Steel Corporation, Dongseo E & C Co., Ltd. and Sojitz Corporation. In 2020, the company’s exports of steam coal were primarily to China, Turkey and Vietnam, which together accounted for 57.5% of its total steam coal sales and 2.7% of the company’s total mining segment sales. In 2020, its major foreign customers of steam coal were Unicarbon Limited, LG International, Capella Group Co., Limited, Pacific Minerals Limited and China Asia Enterprise Pte. Ltd. Steel segment This segment includes the production and sale of semi-finished steel products, long products of a range of steel grades, carbon and stainless flat steel products and high value-added metal products, including wire products, ropes, stampings and forgings, structural shapes, beams and rails. Within these product groups, the company is further able to tailor various steel grades to meet specific end-user requirements. It also comprises the production of ferrosilicon, both for internal use and for sales to third parties. The company’s steel segment is supported by its mining segment, which includes coke and iron ore concentrate. Products Pig Iron: Pig iron is an iron alloy with carbon content typically above 2%, which is produced from smelting iron ore feed (sinter, pellets and other ore materials) in the blast furnace. Liquid pig iron is used as an intermediate product in the manufacturing of steel. Pig iron in molten state and cold pig iron can be used as charging material for steel manufacturing in basic oxygen furnaces, electric arc furnaces and in the manufacturing of cast iron in cupolas. Cold pig iron is brittle. The company sells small volumes of pig iron from its Chelyabinsk Metallurgical Plant to third parties. Semi-Finished Products: Semi-finished products typically require further milling before they are useful to end consumers. The company offers semi-finished billets, blooms and slabs. The company offers its customers billets and blooms produced by Izhstal and Chelyabinsk Metallurgical Plant, as well as slabs produced by Chelyabinsk Metallurgical Plant. Long Steel Products: Long steel products are rolled products used in many industrial sectors, particularly in the construction and engineering industries. They include various types of products, for example, rebar, structural shapes (channels, flange beams, rails, special sections and others), calibrated long steel products and wire rod, which could be supplied both in bars and coils in a range of sizes. The company offers its customers a selection of long products produced from various steel grades at Chelyabinsk Metallurgical Plant, Izhstal and Beloretsk Metallurgical Plant. Flat Steel Products: Flat steel products are manufactured by multiple drafting slabs in forming rolls with subsequent coiling or cutting into sheets. Plates are shipped after hot rolling or heat treatment. Coiled stock could be subject to cutting lengthwise into slit coils or crosswise into sheets. Stainless steel is used to manufacture plates and cold-rolled sheets in coils and flat sheets. Hot-rolled plates and carbon and alloyed coiled rolled products are manufactured at Chelyabinsk Metallurgical Plant. Stampings and Forgings: Stampings are special parts stamped from metal billets. Forgings are special products made through the application of localized compressive forces to metal. Forged metal is stronger than cast or machined metal. The company’s stampings and forgings are offered on a made-to-order basis according to minimum batches depending on the products’ sizes. Its product offerings include rollers and axles used in vehicle manufacturing; gears and wheels; bars; and others. The company’s stampings and forgings are produced at Urals Stampings Plant, including its branch in Chelyabinsk. Wire Products: Wire products are processed from wire rod and are ready for use in manufacturing and consumer applications. The company’s wire products are manufactured at Beloretsk Metallurgical Plant, Vyartsilya Metal Products Plant and Izhstal in Russia and Mechel Nemunas in Lithuania. Its wire products line includes spring wire; rope wire; bearing wire; microwire; precision alloy wire; high and low carbon concrete reinforcing wire; galvanized wire; copper-coated and bright welding wire; strand of various application; various types of nails; steel wire ropes specially engineered for the shipping, aerospace, oil and gas and construction industries; steel wire ropes for passenger and freight elevators; general-purpose wire; steel straps and clips; chain link fences; welded (reinforcing) meshes; and others. Ferrosilicon: Ferrosilicon is used in ferrous metallurgy as a deoxidizer or as an alloying element for production of electrotechnical, spring wire, corrosion-resistant and heat resistant steel grades, or as a pig iron modifier. In nonferrous metallurgy, ferrosilicon is used as a reducing agent for production of nonferrous metals and alloys. The company produces three types of ferrosilicon: with 45%, 65% and 75% silicon content in the alloy. The company offers its customers ferrosilicon produced by Bratsk Ferroalloy Plant. In 2020, the five major customers of the company’s steel products were Russian Railways (long steel products and wire products), EVRAZ plc (EVRAZ)(long steel products, flat steel products, wire products and pipes), Metallservice AO (long steel products, flat steel products and wire products), Steel Industrial Company AO (long steel products, flat steel products, wire products, pipes and forgings) and TH Regionpromservice OOO (wire products, long steel products and flat steel products), which together accounted for 12.3% of its total steel segment sales. In 2020, the five major customers of ferrosilicon were Mitsui & Co., Severstal PAO (Severstal), Novolipetsk Steel PAO (NLMK), Torex-Khabarovsk OOO and RUSAL, which together accounted for 1.7% of the company’s total steel segment sales. Marketing and Distribution The company has a distribution network consisting of Mechel Service and Mechel Service Global, which provide end users in Russia, the Commonwealth of Independent States (CIS) and Europe with its steel products. Mechel Service and Mechel Service Global help it to develop and service its customer relationships by providing specialized technical sales and service to its customers. In 2020, the company’s domestic and export sales were conducted by Mechel Service and Mechel Service Global, respectively, as well as directly by its own production facilities. Domestic Sales The company’s Russian steel production facilities Chelyabinsk Metallurgical Plant, Izhstal and Urals Stampings Plant are located in major industrial areas and have relationships with local wholesale customers. Mechel Service, the company’s steel sales and service subsidiary, has 53 storage sites in 39 cities throughout Russia to serve its end users, which helps it to establish customer relationships by virtue of proximity to both production and customers. In 2020, Mechel Service sold 1.2 million tonnes of the company’s steel products. Export sales Majority of the exports in the company’s Steel segment are made to end users in non-sanctioned countries, with the rest sold to independent distributors and traders, which then resell its products to end users. Its export sales are carried out directly by the company’s own production facilities and through Mechel Service Global’s distribution network. The company’s production facilities supply steel products to the subsidiaries of Mechel Service Global in Western Europe either directly, or through the logistics center in the Port of Antwerp. Its logistics center in the Port of Antwerp also allows it to sell steel products to manufacturing and service companies on a walk-in basis. In 2020, ferrosilicon sales outside of Russia were principally to Japan. The company sells ferrosilicon based both on long-term contracts and on a spot basis. Distribution Rail transportation is used for majority shipments from the company’s production facilities and warehouses to end customers, wholesale warehouses or seaports. Power segment This segment generates and supplies electricity, heat energy and other power resources to the company’s group companies and to external consumers. It enables it to market electricity and heat energy made from its steam coal, and to maintain the power self-sufficiency of its mining and steel segments. This segment consists of a power generating plant Southern Kuzbass Power Plant and a power distribution company Kuzbass Power Sales Company. Southern Kuzbass Power Plant Southern Kuzbass Power Plant is located in Kaltan in the Kemerovo region, which is in the southern part of Russia’s coal-rich Kuzbass district. It has a total installed capacity of 554 MW and installed heat capacity of 506 Gcal/h. In 2020, the plant generated 1,599.4 million kWh of electricity and 639.7 thousand Gcal of heat energy. The company acquired Southern Kuzbass Power Plant in 2007. Southern Kuzbass Power Plant uses steam coal and middlings as fuel, which are supplied to it mostly from local sources, including the company’s Southern Kuzbass Coal Company. In 2020, it consumed approximately 1.1 million tonnes of steam coal and middlings sourced from Southern Kuzbass Coal Company. The plant sells electricity and capacity on the wholesale market only, as well as heat energy directly to consumers. In Russia, it is common for thermal power plants to produce and sell heat energy, sometimes in the form of industrial steam and sometimes in the form of hot water, for business and residential heating and household use, which is distributed in towns and cities by a network of hot water distribution pipes. Southern Kuzbass Power Plant’s heat energy is distributed at regulated prices in the form of hot water in the cities of Kaltan, Osinniki and Mezhdurechensk. Kuzbass Power Sales Company Kuzbass Power Sales Company is the major power distribution company in the Kemerovo region. Its marketed power volume in 2020 amounted to approximately 9.5 billion kWh. The company acquired Kuzbass Power Sales Company in 2007. Kuzbass Power Sales Company sells electricity on the retail and wholesale markets. The company sells electricity to households, social infrastructure companies, housing and public utilities and large industrial companies. Due to its area of operation, its primary industrial consumers are in the mining and processing industries. It supplies electricity to end consumers directly and also through one agent. Mechel Energo Mechel Energo’s core activity is the supply of in the form of hot water and steam, compressed air, oxygen, nitrogen, liquid nitrogen and liquid oxygen. In addition, it coordinates the supply of energy to the company’s production facilities. The company has a separate business unit in Izhevsk, as well as branches in Chelyabinsk (including production department in Chebarkul), Beloretsk and Vidnoye. Mechel Energo also performs the functions of the sole executive body of its subsidiary Southern Kuzbass Power Plant. Mechel Energo supplies heat energy (in the form of hot water and steam) at regulated prices to its consumers, including residential consumers and commercial customers, in the cities of Vidnoye, Chelyabinsk, Chebarkul, Beloretsk and Izhevsk. Mechel Energo’s sales amounted to approximately 3.4 billion kWh of electricity purchased in the wholesale and retail electricity markets and 3.6 million Gcal of heat energy in 2020. Business Strategy The company’s strategy is aimed at extracting the maximum value from its mining and steel assets. In the mining segment, the company would continue to develop its existing coal reserves, particularly in order to sell more metallurgical coal and coal products to third parties. In the steel segment, the company plans to focus on the Russian rail, engineering and construction markets. Another strategic priority is development of its logistics capabilities. Discontinued Operations In April 2020, the company closed the sale of the Elga coal complex to A-Property OOO. History The company was founded in 2003. It was incorporated in 2003 under the laws of the Russian Federation. The company was formerly knowns as Mechel OAO and changed its name to Mechel PAO in 2016.