Production Facilities

Russian Still and Metalware

Russian Steel and Metalware’s steel production facilities are the second largest in the CIS in terms of revenue and output and the fifth largest in the world, with a production or installed capacity of 11.6 million tonnes of crude steel per year as at 31 December 2005. The facilities are fully integrated, occupying approximately 30 square kilometres, with coking, sintering, blast furnaces, steel making, casting, hot and cold rolling and downstream operations for galvanising and pipe production.

The hot phase at Russian Steel and Metalware’s steel production facilities consists of two vacuum degassers; a coke plant; a sintering plant; five blast furnaces, one of which is the largest in Europe; three oxygen converters; two electric arc furnaces, or EAFs; three open-hearth furnaces; seven continuous casting lines; a cogging mill; a continuous billet mill; two hot-strip mills and a heavy plate mill. The cold phase consists of three continuous picking lines, two cold rolling mills and annealing facilities, two tempering mills, two lines for dynamo steel, two galvanising lines, automotive grade galvanising facilities at Severgal, four cold-roll forming lines lines, one colour coating line and six pipe rolling mills.

Steel Production Facilities, Russian Steel and Metalware – Output and Utilisation Rate by Unit

	Actual output			Equipment	Capacity	Utilisation
	(million tonnes per year)			(as at 31 December 2005)		(year ended 31 December 2005)
	2003	2004	2005
Coking plant	4.146	4.200	4.204	7 batteries	4.250	4.204
Sintering plant	7.828	8.188	8.342	8 machines	8.350	8.342
Blast furnaces	7.641	7.922	7.976	5 furnaces	8.134	7.976
Basic oxygen converters	7.962	8.168	8.479	3 furnaces	8.500	8.479
EAFs	0.997	1.092	1.429	2 furnaces	1.467	1.429
Open-hearth furnaces	0.929	1.180	0.895	3 furnaces	1.600	0.895
Continuous casting	8.766	9.234	9.926	7 casters	9.930	9.926
Hot-rolling mills	4.417	4.302	4.898	3 mills	5.000	4.898
Cold-rolling mills	2.329	2.619	2.418	2 mills	2.800	2.418
Section rolling mills	1.690	1.576	1.594	4 mills	2.350	1.594
Cold roll-forming lines	0.148	0.166	0.154	4 lines	0.200	0.154
Continuous pickling lines	2.734	3.009	2.788	3 lines	2.800	2.788
Pipe rolling mills	0.166	0.164	0.189	6 mills	0.200	0.189
Hot-dip galvanising lines	0.484	0.585	0.600	2 lines	0.600	0.600

Cherepovets steel plant. Cherepovets has state-of-the-art facilities with a focus on high value-added flat steel products. The facilities’ total production capacity is 11.6 million tonnes per year.
Coking facilities. The coking plant at the Cherepovets facilities comprises seven coke batteries, with a combined capacity of 4.2 million tonnes per year. Five of these coking batteries are equipped with dry quenching units. Dry quenching technology is used to regenerate a portion of the heat, improve coke quality and reduce pollution. Gas produced by the coke oven is captured and recycled to generate heat in the Cherepovets facilities.

Sinter produced at the Cherepovets facilities has an iron content of 58 percent and low levels of non-metallics and impurities, such as sulphur and phosphorous.

Blast furnace facilities.  There are five blast furnaces at the Cherepovets facilities. Blast Furnace 5 is the second largest in the world, with a capacity of 3.5 million tonnes per year, and is expected to be fully refurbished in 2006, after which capacity is expected to reach 3.6 million tonnes in the second half of 2006. Blast Furnace 4, which recommenced operation in December 2005 after refurbishment and recommissioning, has an installed capacity of 2.2 million tonnes per year. Blast Furnaces 1 and 2, the oldest furnaces, have an installed capacity of 1.2 million tonnes each per year. Blast Furnace 3 has a capacity of 1.7 million tonnes per year.

Following the temporary closure of Blast Furnace 5 for relining in 2006, Russian Steel and Metalware estimates that its output of pig iron from its blast furnaces at the Cherepovets facilities will not be sufficient to supply the full capacity of the basic oxygen converters, EAFs and open-hearth furnaces at the Cherepovets facilities. Russian Steel and Metalware intends to reduce this deficit by purchasing pig iron from other steel producers and using 320,000 tonnes of surplus slabs accumulated during the first half of 2006, which is expected to substantially cover any shortfall until the recommissioning of Blast Furnace 5 scheduled for late 2006.

Steel-melting facilities. Crude steel is produced at the Cherepovets facilities in three oxygen converters, each with a capacity of 350 tonnes, two EAFs and three open-hearth furnaces.
There are also seven continuous casters at the Cherepovets facilities. The converter shop is equipped with five radial-curved slab continuous casting machines, and the electric arc shop is equipped with one vertical billet continuous casting machine and one slab continuous casting machine.

As part of its capital programme to improve the quality of the steel, reduce the loss of metal and effect long-term cost reductions, Russian Steel and Metalware began to modernise its steel-melting facilities in 2000. In 2005, Russian Steel and Metalware installed a second EAF and a continuous square billet casting machine in the electric arc shop at the Cherepovets facilities. The second EAF and the additional billet casting machine are capable of producing 1.2 million tonnes of steel per year. The continuation of this programme will involve the decommissioning of the remaining three open-hearth furnaces, the ingot casting lines and cogging facilities. The programme is expected to be completed in 2007.

Flat products rolling facilities. Russian Steel and Metalware’s rolling facilities at Cherepovets consist of three hot-rolling and a cold-rolling shops for flat products.

Hot-rolling Shop 1 is equipped with two combined semi-continuous mills. Mill 2800, which has a capacity of 400,000 tonnes per year, produces thick plates with a thickness of 6.35 to 50 millimetres, which serve as feedstock for Mill 1700, which has a capacity of 800,000 tonnes per year. Mill 1700 produces sheet with a thickness of 0.8 to 8 millimetres and is equipped with four coilers, with a capacity of 2 million tonnes per year.

Hot-rolling Shop 2 is equipped with Mill 2000, a continuous wide-sheet mill with a capacity of 6 million tonnes per year, making it one of the largest hot strip mills in the world, and includes four reheating furnaces and length and width-cutting machines. Mill 2000 is operated on a fully-automated basis and produces sheet with a thickness of 1.2 to 16 millimetres.

Hot-rolling Shop 3 is equipped with Mill 5000, a heavy plate mill located in Kolpino. Mill 5000 produces wide quarto plate for shipbuilding, and strips for pipe manufacturing. Mill 5000 has a capacity of 450,000 tonnes per year, expected to be increased to 850,000 tonnes per year by the end of the year.  Of this increased volume, Russian Steel and Metalware plans to send 500,000 tonnes per year to the Izhorsky Pipe Mill, which was commissioned in July 2006.

The cold-rolling shop, with a capacity of 2.8 million tonnes per year including pickled hot-rolled steel, is equipped with a four-stand continuous rolling Mill 1700 and a five-stand continuous rolling Mill 1700. The shop has three pickling lines, two galvanising lines with zinc and alumozinc coating, two tempering mills, a set of belltype annealing furnaces as well as slitting and cutting lines, and produces cold-rolled sheet with a thickness of 0.25 to 3.2 millimetres.

Long products rolling facilities. Russian Steel and Metalware’s long products rolling facilities at Cherepovets consist of a section shop and a cold-formed shapes shop.

The section shop is equipped with a medium-section Mill 350, with a capacity of 1 million tonnes per year; a small-section Mill 250, with a capacity of 750,000 tonnes per year; thermo-strengthening equipment; two wire rod Mill 150, each with a capacity of 600,000 tonnes per year; and Mill 280, which is currently not operational. The section shop is able to produce wire rod with a diameter of 5.5 to 11.0 millimetres, round-shape profile with a diameter of 12 to 100 millimetres, angles with a flange width of 20.0 to 75.0 millimetres and a thickness of 4.0 to 9.0 millimetres, reinforcement bars with a diameter of 6.0 to 40.0 millimetres, hexagonal bars of grades 12.0 to 48.0 and channels of grades 6.5 to 10. Wire rods are produced in coils. The section shop has an aggregate capacity of 2.35 million tonnes, but the maximum output that can be produced by the section shop with the existing product mix is 1.7 million tonnes.

The cold-formed profiles shop produces a range of different shaped profiles: closed profile, S-shape profile, E-shape profile, trough-shape profile, angle profile and others. It also has six pipe mills that can produce pipes with circular, oblong and semi-oblong, square and rectangular cross sections of a wide range of sizes.

Severgal. Severgal is Severstal’s 75 percent joint venture with Arcelor since 2001 and has a focus on high-quality galvanised auto body sheet products.

In commercial operation since December 2005, Severgal is a galvanising plant with a projected galvanising capacity of 400,000 tonnes per year. Russian Steel and Metalware’s total investment related to this plant was approximately US$210 million. Severgal can produce galvanised-steel sheet with a thickness of 0.4 to 2.0 millimetres and a width of 900 to 1,850 millimetres. Russian Steel and Metalware currently uses this plant to produce ExtragalTM steel sheet product coated with zinc-iron alloy and intends to begin production of Galvallia steel. Severgal’s production for the first half of 2006 was approximately 87,600 tonnes.

Severgal is strategically located close to several major domestic automotive greenfields, including Nissan and Toyota in St. Petersburg, with estimated project units of 50,000 each in 2008, and Volkswagen in Kaluga, with estimated project units of 115,000 in 2007.

Izhorsky Pipe Mill. The Izhorsky Pipe Mill is Russian Steel and Metalware’s large diameter pipe project for the oil and gas industry. The project is designed to produce pipes meeting the requirements of domestic and international customers, including Gazprom and OAO Transneft as well as a number of Russian oil companies.

The construction of the Izhorsky Pipe Mill in Kolpino, next to Mill 5000, included three-layered anti-corrosion coating technology and was completed in July 2006. Mill 5000 was modified to produce strips manufactured by its steel segment to feed the project. When fully utilised, the Izhorsky Pipe Mill is expected to have a capacity of 600,000 tonnes per year of large diameter pipes with three-layered anti-corrosion coating, diameters ranging from 610 millimeters to 1420 millimeters and 18 meters in length. Pipes of this length are not currently produced in Russia.

The project was financed through a mixture of internal and external financing, including EBRD financing, at a total estimated construction cost of approximately US$300 million.

Severstal-Metiz. Severstal-Metiz is a subsidiary of Severstal and forms part of Russian Steel and Metalware. Severstal-Metiz is the leading downstream wire drawing and metal processing business in Russia, with a market share of more than one-third of total domestic metalware production, approximately 53 percent of Russia’s metalware exports and 6 percent of metalware manufacturing in Europe.

Severstal-Metiz operates large wire drawing and metal processing operations in Cherepovets, Orel and Volgograd, as well as the recently acquired Carrington plant in the UK and the Dneprometiz plant in Ukraine, and produces more than 26,000 products, including rod, nails, cold-drawn steel, steel rope, netting and fastenings. Including these recent acquisitions, Severstal-Metiz now has a total maximum annual production of approximately 1.2 million tonnes.

Severstal North America

Severstal North America is focused primarily on high-quality flat products, with a production capacity of 3.037 million tonnes of crude steel per year. The facility is fully integrated and is located in Dearborn on an industrial site adjacent to Ford’s stamping, engine, frame, paint and assembly plants. The facility comprises blast furnaces and steel making, casting, hot and cold rolling facilities, as well as two downstream galvanising joint ventures to produce high-quality, flat-rolled carbon steel products consisting of hot-rolled, cold-rolled and galvanised steel.

Severstal North America’s primary operations consist of two operating blast furnaces, two BOF vessels, two ladle refining facilities, one vacuum degassing facility and two continuous casters. The finishing operations include a hot-strip mill, three pickle lines, a tandem mill, one temper mill, a hot dip galvanising line and an electrogalvanising line.

Blast furnace facilities. Blast furnace “C” has a working volume of 1,500 cubic metres. The furnace was relined in 1991 and is scheduled to be modernised and expanded in 2007. It is expected that the furnace will be shut down for 105 days, during which time Severstal North America will have decreased hot metal and slab production and will rely more heavily on purchased slabs.

Severstal North America currently plans to source its increased slab needs during the shutdown of blast furnace “C” through increased purchase of slabs from Lucchini, Russian Steel and Metalware and/or other external sources.

Blast furnace “B” has a working volume of 794 cubic metres. It was relined in 1997 and its campaign is capable of extending into 2010.

Steel making facilities. The BOF has two 235 tonne converters. There are two slab continuous casting machines. One is a twin strand, curved mould machine with a metallurgical length of 26.5 metres, and the other is a single strand, curved mould machine with a metallurgical length of 23.5 metres.

Rolling facilities. The hot strip mill has three walking beam furnaces, four roughing stands and seven finishing stands. It has a capacity of 3.3 million tonnes per year.

Severstal North America has three pickle lines, two of which have maximum line speeds of 305 metres per minute and a maximum coil weight of 22.7 tonnes. The third line has a maximum line speed of 762 metres per minute and a maximum coil weight of 25.0 tonnes. The total capacity of the pickle lines is 1.5 million tonnes per year.

The tandem cold mill is a four stand by four high mill. The maximum line speed is 975 metres per minute and the maximum coil weight is 27.2 tonnes. It has a capacity of 1.6 million tonnes per year.
Severstal North America’s temper mill is one stand four high design. The maximum rolling speed is 858 metres per minute and the maximum coil weight is 27.2 tonnes. The temper mill has a capacity of 0.8 million tonnes per year.

Severstal North America has two annealing processes: hydrogen batch annealing and hydrogen-nitrogen, or HN, batch annealing. The hydrogen batch annealing facility consists of 26 bases with 17 furnaces and a stacking height of 5.28 metres. The HN batch annealing facility has 86 bases with 34 furnaces and a stacking height of 3.95 metres. The primary fuel used for both annealing processes is natural gas.

Galvanising facilities. Severstal North America owns 50 percent of a electrogalvanising line, or Double Eagle, through a joint venture with US Steel. Double Eagle is the world’s largest electrogalvanised line, with a capacity of 800,000 tonnes per year, approximately one-half of which is dedicated to Severstal North America. This facility has 42 plating cells and can coat on one or two sides at a thickness of 0 to 100 grams per square metre. The facility can coat the substrate with either pure zinc or a zinc-iron alloy.

Severstal also owns 48 percent of a hot dip galvanising line Spartan through a joint venture with Worthington Steel of Michigan. Spartan produces hot dip galvanised sheet steel sold to unexposed automotive and service centre customers and has a capacity of 410,000 tonnes per year, approximately 330,000 tonnes of which are dedicated to Severstal North America. It can coat at a thickness of 30 to 150 grams per square metre. Severstal North America supplies 100 percent of the substrate to Spartan.

Lucchini

Piombino. Piombino has an overall production capacity of 2.9 million tonnes of crude steel and 2.2 million tonnes of long products per year.

The Piombino plant’s production facilities include one coke oven battery with 45 ovens and an annual capacity of 530,000 tonnes, one blast furnace with an annual capacity of 2.4 million tonnes of crude steel and three basic oxygen converters and four continuous casting machines: one for slab casting with an annual capacity of 800,000 tonnes and three for billet and bloom casting of various sizes and shapes.

The rolling facilities include one rolling mill for rails, one for wire rod and two for bars. The Piombino plant is located near a seaport and has its own dock with loading equipment for all types of raw materials and finished products.

Lucchini’s Trieste plant has an installed capacity of 800,000 tonnes of crude steel per year and focuses solely on the production of high quality pig iron. The plant consists of one coke oven battery, one sintering plant, two blast furnaces (one of which is currently idle), each with an annual capacity of 400,000 tonnes, and a casting machine.

Lucchini’s Lecco wire-rod plant consists of a single rolling mill, with an annual production capacity of 330,000 tonnes.

Ascometal. Ascometal is a European leader in long speciality steel operating and operates four integrated EAF-based plants, two cold finishing centres and a distribution centre in France. Ascometal’s facilities are strategically located near scrap collection and processing centres. Ascometal has a production capacity of 1.2 million tonnes of special bar quality steel.
Sidermeccanica. Sidermeccancia is one of Europe’s leading rolling stock materials manufacturers, with a fully integrated manufacturing process from scrap to final assembled wheel sets.

Steel Production Facilities, Lucchini – Output by Unit

Plant	2003	2004	2005
Piombino	(thousand tonnes)	(thousand tonnes)	(thousand tonnes)
Coking plant	903	921	932
Blast furnace	2,165	2,212	2,198
Continuous casting (steel prod.)	1,876	1,924	1,883
Rollings mills (finished goods)	1,276	1,376	1,134
Ascometal
Continuous casting + ingots (steel prod.)	1,109	1,161	1,154
Rollings mills (finished goods)	948	971	970
Total steel production	2,985	3,085	3,037

Severstal Mining

Karelsky Okatysh. Karelsky Okatysh is located in Kostomuksha in the Karelia Republic in the northwest of Russia. It mines low-grade magnetite-quartzite ores and produces high-quality iron ore pellets with an iron content of 64 to 66 percent. Karelsky Okatysh operates four major deposits that have an estimated life of 44 years. The average iron content of the reserves at Karelsky Okatysh is approximately 29 percent. The increase in medium term forecast for pellet prices, together with the efficiency improvements that have been made at the Kostomuksha operation, have boosted the production capacity of Karelsky Okatysh to 30 million tonnes of ROM ore per year.

The most valuable production asset of Karelsky Okatysh is its large pelletiser. It enables valorisation of fines into pellets (pellets trade at a premium to fines). The pelletiser has three production lines, each with a capacity of up to 4 million tonnes per year. The total capacity of the three lines is approximately 11 million tonnes.  However, Severstal believes that this capacity could be increased to 12 million tonnes per year with relatively minor investments and operational debottlenecking.

Kostomuksha. The arch shaped Kostomuksha deposit consists of three sections, with a total strike extent of 13,000 metres. The depth of the open pit at its largest section reaches 400 meters below sea level with a stripping ratio of 1.13 in 2005. The Fe content in the ore is medium (29 percent total Fe, 24 percent Fe magnetite). However, it is well suited for relatively simple magnetic beneficiation and the deposit produces high quality fines (68 percent Fe) and pellets (65 percent Fe). The Kostomuksha deposit has a capacity of 24 million tonnes of ROM ore at 29 percent Fe per year.

Korpanga. A new mine is under construction at the Korpanga deposit, which consists of east and west sections. It is an isoclinal synform that has been refolded into a plunging anticline along a northeast-southwest axis. The west and east sections form the two flanks of the plunging anticline, and have respective strike lengths of 3,800 metres and 3,000 metres. The ore qualities at Korpanga are similar to the Kostomuksha deposit.

The Korpanga deposit is expected to add 7.5 million tonnes of ROM ore at 29 percent Fe per year.

Extracted ore is delivered to the beneficiation plant by railway. The beneficiation plant is located 7 kilometres from Central Section and 25 kilometres from Korpanga. The current design capacity of the beneficiation plant is 9.6 million tonnes of fines (representing 28 million tonnes of input ore). Severstal believes that this capacity could be increased to 11.7 million tonnes per year by 2008 with a relatively minor amount of investment. The planned investment would include installation of dry magnetic separation equipment at the open pits to reduce the waste feed into the crushers. The plant beneficiation consists of 2 crushing lines and 12 beneficiation circuits with primary magnetic and secondary gravitational separation equipment.

Olkon. Olkon is located in the Murmansk region in northwest Russia. It mines low-grade magnetite-quartzite ores and produces high-quality (67.5 percent Fe content) iron-ore fines. Currently, ore mining is carried out in five open pits: Olenegorsky, Kirovogorsky, Baumansky, XVth Anniversary of October and Komsomolsky in conjunction with the new site at the Olenegorsky underground mine, which was built in 2005. The estimated life of deposit reserves and resources is more than 28 years.

There are 133 million tonnes of ore within the existing boundary of the open pit and the remainder will be mined from new underground mines that will extend the current open pits. The average iron content in the Olkon reserves is 28 percent total iron, 23 percent iron magnetite. Olkon produces iron ore concentrate with an average iron content of 65.7 percent. The average stripping ratio was 1.2 in 2005 but will decline due to the increase in underground mining. The original design capacity at Olkon was 12 million tonnes of ore per year. This is expected to increase to 16.5 million tonnes per year in 2008 once the underground mines are fully operational. The ore from the Kirovogorsky, Baumansky, XVth Anniversary of October and Komsomolsky pits is delivered to the beneficiation plant by railway, between 11 and 15 kilometres. The beneficiation plant has a production of 4.0 million tonnes of fines and a capacity of is 5.0 million tonnes of fines, representing 15 million tonnes of input ore. It consists of 2 crushing lines and 12 beneficiation circuits with primary magnetic and secondary gravitational separation equipment. Severstal believes that, with minor amounts of capital expenditure, the plant capacity could be increased to 4.6 million tonnes of concentrate by 2008.

Vorkutaugol. The Vorkutaugol and Vorgashorskaya mines are located near the town of Vorkuta, in the Komi Republic in northeast Russia. The Vorkutaugol and Vorashorskaya mines are separate legal entities but are integrated operations from a production perspective. The mining area of Vorkutaugol consists of five underground mines, with an estimated useful life of at least 33 years, and one open pit located within the Vorkutinskoye deposit. The Vorkutinskoye deposit covers an area of 280 square kilometres and is in the form of a basin with outcrops around the perimeter, dipping towards the centre of the deposit. The Vorgashorskaya mine is located on the adjacent Vorgashorskaya coal deposit approximately 25 kilometres northeast of Vorkuta. Premium grades of hard coking coal account for a high proportion of the Vorkutaugol reserves.

There are three principal seams currently under operation at the Vorkutinskoye deposit. Two of the seams, Triple and Fourth seam, are between 1.5 and 2.5 metres and are suitable to be extracted by conventional longwall shears. The Fifth seam is 0.8 metres thick and is currently extracted by a longwall shear, primarily for degasification of the two thicker seams. However, with the near-term introduction of plough technology, the operating economies of the mining operation at the Fifth seam will improve significantly.

The average ash content in Vorkutaugol is relatively high (32-33 percent), partly due to the extraction of a thin seam with unsuitable mining equipment. The management of Severstal Mining believes that the 2007 installation of new mining equipment to operate these seams will resolve this issue.

Despite the problem with high ash content, the concentrate produced by Vorkutaugol is of high quality, with a majority of output being a premium grade category, medium volatility, high fluidity hard coking coal.

There is only one seam of workable thickness at the Vorgashorskaya mine, which combines the three sub-seams of the Triple, and Fourth seam. The total seam thickness is between 2.7 metres and 3.0 metres. The mine has two high-productivity faces, with an annual production capacity exceeding 2 million tonnes (on a ROM basis). Because Vorgashorskaya does not have its own washing facility, the ROM coals are processed at the central Pechorskaya plant.

There are currently three washing facilities in Vorkuta (Severnaya - located at the Severnaya mine, Vorkutinskaya - located at the Vorkutinskaya mine and central Pechorskaya) with a total capacity of approximately 10 million tonnes per year. In addition, the washing facilities in Cherepovets have an additional production capacity of 1.8 million tonnes per year. The washing process reduces ash content to 8-9 percent, enabling the production of concentrate with a high market value. Coking coal concentrate from Vorkutaugol can be used directly in coke batteries. The most valuable coal is washed on the site at Vorkuta. Middlings are currently shipped and washed in Cherepovets.

Project Vorkuta. Severstal Mining has begun restructuring the four mines at the Vorkutinskoye deposit by connecting them all underground and building a new incline shaft towards the centre of the deposit. This project, Project Vorkuta, is expected to enable the raw coal to be transported by a single conveyor belt to the central washing plant. As part of the restructuring process, the current 10-12 production faces will be reduced to four high productivity faces, including Severnaya, Vorkutinskaya, Komsomolskaya and Zapolyarnaya, resulting in a reduction in the required mining infrastructure.  Severstal expects that this measure will significantly reduce the costs of support operations and increase production levels. Beneficiation of the coal is expected to occur at the revamped Pechorskoye facility, with an expected maximum mining capacity of 14 million tonnes of ROM coal per year. Severstal Mining expects to complete Project Vorkuta by 2008 and realise reduced cash costs of approximately 31 percent by 2010.

Kuzbassugol. Kuzbassugol operates two large underground mines that specialise in the production of medium volatile coking coal and have an estimated useful life of 34 years. The Berezovskaya mine is located in the northern part of the Kuzbass coal field, adjacent to the town of Berezovsky, 30 kilometres north of Kemerovo. The Pervomayskaya mine is located 20 kilometres north of Berezovskaya.

Berezovskaya. The licensed deposit at Berezovskaya extends 12.5 kilometres in a north-south direction and 7.5 kilometres in an east-west direction. A mining license has recently been acquired for the Konyukhtinsky Zapadny deposit, which is located at the southwestern boundary of the Berezovo-Birulinskoe deposit. A mining license has also recently been acquired for the Zhernovsky-3 deposit, located in the central region of the Kuzbass coal field, in the Yerunakovo district, 250 kilometres south of Berezovsky. The deposit extends 8.5 kilometres in an east west direction and 2 kilometres in a north to south direction. Mining capacity is 4 million tonnes of ROM coal per year. The reserves are situated at depths ranging from ground surface level to between 300-400 metres below ground and are predominately made up of semi-hard coking coals (K/KO), except premium hard coking coal reserves for Zhernovsky-3 (Zh). The average ash content in Kuzbassugol is moderate (18-23 percent).

In 2004 and 2005, Severstal Mining acquired two new deposits at Kuzbassaugol: Zhernovsky-3 and Konyukhtinsky Zapadny. These deposits have a production potential of 4.5 million tonnes.
A new coal washing plant, which is to be owned by Severstal Mining, was recently constructed at Berezovskaya. The new washing plant is expected to have a production capacity of 4.5 million tonnes and has been operational since September 2006. It is intended that the new plant will wash all coal from the Berezovskaya and Pervomayskaya mines.

Pervomayskaya. The mine currently operates at two faces. The total design capacity of the mine is around 1.8 million tonnes per year. Severstal believes that the capacity of the mine can be further increased by up to 2.5 million tonnes through the replacement of the vertical shaft with an incline shaft and through selective debottlenecking. The work to replace the current shaft with an incline shaft is near completion and will be operational by 2007. Currently, the Berezovskaya mine outsources the washing of its coals to third parties. Pervomayskaya has a licensed area extending some 10 kilometres in a north-south direction and 3 kilometres in an east-west direction.

There are three operational seams within the boundaries of the Pervomayskaya mine, with seam XXI now almost exhausted. Current workings at seam XXVII are at a depth of around 400 metres beneath the surface, and at around 300 metres at seam XXIV. Implementation of new degasification and ventilation technology will in future years enable the reserves at deeper levels to be extracted efficiently. The total design capacity is similar to Berezovskaya at approximately 1.8 million tonnes per year.