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Nord Gold may be spun-off from Severstal before end of January

Nord Gold N.V., a subsidiary of OJSC Severstal, may be separated from Severstal Group's integrated steel operations before end of January 2012, Severstal informed.

The separation will be made through the exchange of 100% of Nord Gold shares owned by Lybica Holdings B.V. (Lybica), Severstal's wholly owned indirect subsidiary, for Severstal shares and Severstal GDRs held by Severstal's existing shareholders and GDR holders.

According to Severstal's message conveying the opinion of the Board of Directors, the separation of Nord Gold from Severstal, if implemented as proposed, will allow Nord Gold and Severstal to focus on their respective core areas of activity and to adopt tailored business models, managerial approaches and reporting structures to reflect different positions in markets and geographies where they operate;

Furthermore, the spin-off may enhance Nord Gold's industry profile substantially by positioning it as a new independent pure-play gold producer with a diverse portfolio of producing assets in West Africa, Russia and Kazakhstan and an attractive growth profile, members of the Board of Directors believe.

It may also increase Nord Gold's competitiveness by allowing it to react faster and with more flexibility to changing market developments and create a platform for potential further expansion of Nord Gold's business through acquisitions in emerging markets, including in geographies outside of Severstal's traditional areas of operations.

Finally, the spin off may allow existing Severstal security holders (within limitations of relevant laws) to participate in the ownership of both Nord Gold and Severstal giving regard to shareholder preferences and without requiring additional cash investments from existing investors; and provide future investors with the opportunity to invest in each company with a more homogeneous business and risk profile.

To provide minority shareholders of Severstal with the opportunity to retain their investments in Nordgold, Lybica will give to qualifying minority holders of Severstal shares and Severstal GDRs the option to exchange any number of their Severstal shares and/or GDRs for GDRs in Nordgold (the Minority Exchange).

The Minority Exchange will allow participating minorities to receive Nordgold GDRs representing a proportion of Nordgold's total shares of up to the proportion of Severstal held by minorities, in the aggregate, as of the record date. The proportion of Nordgold's total shares, represented by GDRs, available for the Minority Exchange will not exceed the proportion of Severstal's total shares held by minorities as of the record date.

It is a condition to the Minority Exchange that acceptances be sufficient such that at least 5% of Nordgold's share capital would be held by minority shareholders. If this condition is satisfied, Nordgold will apply to list the Nordgold GDRs on the London Stock Exchange. If this condition is not satisfied, Lybica will not proceed with the Minority Exchange.

Concurrently, Lybica and Rayglow Limited, an entity controlled by Mr. Alexei Mordashov, Severstal's controlling shareholder, have entered into arrangements to exchange Severstal shares and Severstal GDRs owned by Rayglow for shares in Nordgold (the Rayglow Exchange). Under the terms of the Rayglow Exchange, Rayglow has agreed that it will acquire any Nordgold shares not taken up by minorities participating in the Minority Exchange.

As a result of the Minority Exchange and Rayglow Exchange (together the Exchanges), Lybica will receive Severstal shares and/or GDRs equal to approximately 192.9 million or 19.14% of Severstal's total issued shares outstanding.

It is intended that 30 million Severstal shares and/or GDRs acquired by Lybica pursuant to the Exchanges will continue to be owned by Lybica and will be used for general corporate purposes. There are no current plans by Lybica to reissue these shares. It is further intended that the remaining shares and/or GDRs (approximately 162.9 million) acquired by Lybica pursuant to the Exchanges will be transferred to Severstal treasury and cancelled in due course. Lybica does not intend to vote any of the Severstal shares acquired in the Exchanges at Severstal Shareholder meetings.

The exchange ratio for the Exchanges is 100 Severstal Shares or GDRs for 186 Nordgold shares and/or GDRs, after giving effect to a planned 2:1 reverse stock split of Nordgold shares (1 Nordgold GDR represents 1 Nordgold share). The board of directors of Severstal has received fairness opinions from each of Citi and Deutsche Bank as to the fairness, from a financial point of view, of the exchange ratio to Severstal as of 29 November 2011.

The board of directors of Severstal, having considered the terms of the Exchanges and the fairness opinions of Citi and Deutsche Bank, believes that the Exchanges are fair to Severstal from a financial point of view.

Nord Gold N.V. is a subsidiary of OJSC Severstal established in 2010 through the reorganization of the gold mining division of the holding. The company includes 8 operating mines in four countries: Russia, Kazakhstan, Guinea and Burkina Faso along with a number of projects under development and investigation. The consolidated reserves of the company are estimated at 23 million troy ounces of gold and 103 million troy ounces of silver, the proved gold stock is 8.9 million ounces. In 2010, the company extracted about 589 thousand troy ounces of gold (+10.3% from 534 thousand troy ounces in 2009). By 2013, Nord Gold intends to ramp up the output to 1 million troy ounces.

Net profit of Nord Gold N.V. (IFRS) for H1 2011 grew 3.3-fold to $130 million from $39.5 million for the same period of 2010, revenue by 80.7% to $543.4 million from $300.7 million. The normalized EBITDA was $268.3 million growing by 72.4% year-on-year from $155.7 million. EBITDA margin was 49.4% against 51.8% the year before. The company's capital costs increased by 86.4% to $106.6 million from $57.2 million the year before. The cash flow from operations increased twice to $174.3 million about $83.7 million.

Severstal (tax number: 3528000597) is an international mining and metallurgical company focusing on high value added products. The company has considerable experience of acquisition and integration of assets in North America and Europe. It also possesses mining enterprises in Russia providing the company's production assets with raw materials. In 2010, the company's revenue was $13,573 million, EBITDA reached $3,263 million, the steel output was 14.7 million tons. Severstal also produced 589 thousand ounces of gold at its gold mining assets in Western Africa, Kazakhstan and Russia. The company's shares are quoted on the Russian Stock Exchanges RTS and MICEX, its GDRs are listed on the LSE.

Severstal's net loss (IFRS) for H1 2011 was $1.122 billion against a loss of $593 million for the same period in 2010. Revenue increased by 27.1% to $8.110 billion from $6.382 billion, operating profit by 42.7% to $1.627 billion from $1.140 billion, EBITDA by 34.5% to $2.043 billion from $1.519 billion, EBITDA margin was 25.2% against 23.8% the year before.

According to the information and retrieval system DataCapital, Severstal's net profit (RAS) for 9 months 2011 decreased by 22.3% to 14.955 billion Rub. from 19.230 billion Rub. for the same period in 2010. Revenue increased by 27.4% to 192.577 billion Rub. from 151.179 billion Rub., GP by 2.9% to 40.945 billion Rub. from 39.799 billion Rub., pre-tax profit decreased by 39.2% to 14.668 billion Rub. from 24.113 billion Rub.

"AK&M", 02/12/2011


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