Strategy

Our goal is to expand our mining business, both through organic growth as well as acquisitions; to improve our steel segment margins through plant modernization, cost cutting and product portfolio optimization; to maintain our strong position as a producer of carbon long and specialty steel products in Russia; and to capitalize on the synergies deriving from our status as an integrated group. We also intend to leverage our core businesses, where appropriate, with acquisitions of value-added downstream businesses.

The key elements of our strategy include the following:

• Expand our Mining Business. We intend to build on our substantial mining experience to achieve the following goals: develop our existing coal and iron ore reserves, particularly in order to sell more high-quality coking coal and iron ore concentrate to third parties; continue to make selective acquisitions of coal and other mining enterprises, including new subsoil licenses, particularly in Russia and other CIS countries, as strategic opportunities present themselves; maintain our flexibility to internally source raw-material inputs for our steel-making business, depending on price differentials between purchases from local suppliers and sales to foreign and domestic customers.
• Improve our Steel Segment Margins through Plant Modernization, Cost Cutting and Product Portfolio Optimization and Further Enhance our Position as a Low-Cost Producer. We intend to further increase our efficiency and reduce our manufacturing costs by: selectively investing in technology and capital improvements, including expanding our use of continuous casters in our steel-making, optimizing our product portfolio and cuttings costs; preserving our cost advantages in our labor, raw materials and energy inputs; achieving additional savings by fully integrating recent acquisitions into our operations.
• Maintain our Position as a Leading Producer of Carbon Long Products in Russia. We have already built a solid presence in this sector, including a market-leading position in engineering steel and strong sales in rebar and wire rod.  We intend to maintain these positions, including through the addition of new production capacity achieved by targeted, cost-effective capital expenditures.
• Develop our Position as a High-Quality, Low-Cost Producer of Specialty Long Products. We are one of Russia’s primary producers of specialty long products. We believe that this higher-margin business provides us with substantial opportunities to increase our revenues and profitability.
• Further Capitalize upon Synergies between our Core Businesses. In addition to synergies deriving from our status as an integrated group, we believe that additional cost savings and opportunities will arise as we benefit from economies of scale and continue to integrate recent acquisitions, in particular by implementing improvements in working practices and operational methods.
• Selectively Expand our Downstream Capacity. We intend to continue to selectively acquire value-added downstream businesses such as hardware, stampings and forgings producers to help us reach our customer base, including in new markets.
• Selectively Expand our Internal Logistics Capabilities. We intend to selectively expand our internal logistics capabilities, currently centered on our railway freight and forwarding company, and enhanced by our acquisitions of Port Posiet, located on the Sea of Japan, and Port Kambarka to help us optimize our transportation expenses.
• Maintain Strong Export Sales. We intend to maintain our strong relationships with our significant export customers. Although we are focused on maintaining our market position within Russia, export sales, which constituted 53.9% of our total sales in 2004, allow us to diversify our sales and reduce our reliance on the Russian market in the event that it were to experience a downturn.