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Corporate Presentation November-December 2010

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  • 1. Corporate PresentationNovember-December 2010

2. Disclaimer02This document does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy oracquire securities of Evraz Group S.A. (Evraz) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No partof this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment orinvestment decision whatsoever. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placedon, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of Evraz or any of its affiliates,advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of thisdocument or its contents or otherwise arising in connection with the document.This communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investmentprofessionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (iii) highnet worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all suchpersons together being referred to as relevant persons). Any person who is not a relevant person should not act or rely on this document or anyof its contents.This document contains forward-looking statements, which include all statements other than statements of historical facts, including, withoutlimitation, any statements preceded by, followed by or that include the words targets, believes, expects, aims, intends, will, may,anticipates, would, could or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks,uncertainties and other important factors beyond Evrazs control that could cause the actual results, performance or achievements of Evraz to bematerially different from future results, performance or achievements expressed or implied by such forward-looking, including, among others, theachievement of anticipated levels of profitability, growth, cost and synergy of recent acquisitions, the impact of competitive pricing, the ability toobtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatilityin stock markets or in the price of our shares or GDRs, financial risk management and the impact of general business and global economicconditions.Such forward-looking statements are based on numerous assumptions regarding Evrazs present and future business strategies and theenvironment in which Evraz Group S.A. will operate in the future. By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speakonly as at the date as of which they are made, and Evraz expressly disclaims any obligation or undertaking to disseminate any updates or revisionsto any forward-looking statements contained herein to reflect any change in Evrazs expectations with regard thereto or any change in events,conditions or circumstances on which any such statements are based.Neither Evraz, nor any of its agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of theforward-looking statements contained in this document.The information contained in this document is provided as at the date of this document and is subject to change without notice. 3. Evraz Group in Brief 03 World-class steel and mining company, 14-th largest steel company globally in 2009 Leader in the Russian and CIS construction and railway products markets A lead player in the European and North American plate and large diameter pipemarkets One of the worlds lowest cost steel producers due to production efficiency and highlevel of vertical integration One of the leading producers in the global vanadium market In 2009, Evraz produced 15.3 million tonnes of crude steel and sold 14.3 milliontonnes of rolled products 2009 consolidated revenue amounted to US$9.8 billion; EBITDA was US$1.2 billion GDRs listed on London Stock Exchange; market capitalisation over US$13 billion 4. Evrazs Global Business 04 5. 1H 2010 Financial Highlights 05Consolidated Revenue and EBITDAIn 1H10 Group revenue rose by 38% vs. 1H09, largely US$ mln driven by increase in sales volumes of steel products and10,723 higher average prices 10,000 9,6571H10 Group EBITDA advanced by 147% reflecting8,0006,379 revenue expansion and cost control 6,0005,1334,6391H10 Mining segment EBITDA more than quadrupled, 4,000 3,7062,509 largely due to the growth in iron ore and coal prices2,000 1,154468 769EBITDA margin improved from 10% in 1H09 to 18% in 01H08 2H081H092H091H10 1H10Revenue EBITDA Revenue Drivers in 1H10 vs. 1H09Consolidated Adjusted EBITDAUS$ mln US$ mln7,000 1,121 6,3791,400 1,1546,0006191,20085 815,0004,3691,000 3904,000800 4683,000 600702,000 400 94 7381,000 200 389 00(34)(51)(140)1H09 Revenue Volumes Prices1H10 Revenue-200 1H09 1H10 SteelMining Vanadium Other operations Unallocated subsidiaries & eliminations 6. Cost Dynamics 06 Growth in scrap, coking coal and iron ore prices in 1H Cash Cost*, Slabs & Billets2010 increased steelmakers costs US$/t This cost increase was significantly offset by Evrazs450400 402 430high level of vertical integration into iron ore and coking394 420 341350coal 285300 Consolidated cost, approx. 65% of which is Rouble 250 253324denominated, was negatively impacted by 10% Rouble200 224 268appreciation vs. US dollar compared to 1H09150 Increase in cash cost of coking coal concentrate 1H08 2H081H092H091H10resulted from lower production volumes due to SlabBilletpostponed longwall repositioning at the Ulyanovskayamine* Average for Russian steel mills, integrated cash cost of production, EXW Consolidated Cost of Revenue, 1H 2010 Cash Cost, Russian Coking Coal and 7%Iron Ore Products13% US$/t10% 7515%696312%65 56 55 55616% 5%475% 4311%4550 7% 47 4% 5%43 35Iron oreCoking coalScrap1H08 2H081H092H091H10Ferroalloys Purchased semisAuxilliary materialsElectricity Natural gasStaff costs Coal concentrateIron ore products, 58% FeTransportationDepreciation OtherSource: Management accounts 7. Steel: Product Mix Improvement07 Recovery in demand for construction and railway products in Russian market raised the proportion of finishedproducts in the portfolio Share of construction products increased from 25% to 32% Share of semi-finished products fell from 40% to 29% Share of Groups sales volumes in the Russian market increased from 29% to 33% following recovery in domesticdemand Domestic sales of Russian and Ukrainian operations advanced from 44% to 53%Steel Product Sales Volumes by OperationsSteel Product Sales Volumes by Operations Steel Sales Volumes by ProductSteel Sales Volumes by Product000 tonnes 000 tonnes 6,000 5,532 5,1873,000 2,704 5,000 2,4702,500 2,262export 4,000 1,8342,00047% 3,000 56%1,5001,304 974 887 2,0001,000821 1,27653%944 391 436 1,00044% 603500413 279 303 186268domestic00 Russian & North American EuropeanSouth AfricanSemi-Construction RailwayFlat-rolledTubular Other steel Ukrainian finished1H091H10 1H091H10 8. 9 Months and 3Q 2010 Trading Update 08 Revenue for 9M010 and 3Q10 was US$9,729 million and US$3,350 million respectively, compared withUS$7,118 million and US$2,479 million in respective periods of 2009, due to recovery in steel volumes and betteroverall pricing environment 9M10 EBITDA was US$1,766 million, with EBITDA margin of 18.2% (9M09: US$874 million and 12.3%respectively) 9M10 CAPEX was US$584 million Total external steel products sales in 9M10 amounted to 11.4 million tonnes vs. 10.7 million tonnes in 9M09 Coal sales (including intersegment sales) were 7.5 million tonnes, including 1.9 million tonnes of raw coking coaland 3.4 million tonnes of coking coal concentrate Steel Sales by Market Steel Sales by ProductUS$ mlnUS$ mln 2,500 2,4023,500 3,0092,0003,000 1,6601,482 1,544 1,4982,500 1,5002,0312,000 1,7651,679 1,6621,750 1,0771,0329351,000 820 8221,5001,000738 516 500290 500 243 33516600Russia & CISAmericasAsia EuropeAfrica & RoW Semi-Construction Railway Flat-rolled TubularOther 9m 2009 9m 2010finished9m 2009 9m 2010 9. Benefiting from Rising Prices for Iron Ore and Coal09Raw Material Prices (Domestic Markets)Raw Material Prices (Domestic Markets)Volumes of coking coal mined decreased due theUS$/t400 repositioning of longwall at Ulyanovskaya mineMining segment revenue doubled and EBITDA300 quadrupled reflecting the growth in prices 200A decline in coking coal supplies, following the 100 Raspadskaya mine explosion, led to lower external 0 sales of coke and a negative EBITDA effect of approx.Jan- 09 Mar- May-09 09 Jul- 09 Sep-09Nov- 09 Jan-10Mar- 10 May-10 Jul-10Sep- 10 Nov-10 US$5 million per monthScrap, Russia, CPTScrap, USAIron ore concentrate, Russia, ExW Coking coal concentrate, Russia, FCAIron Ore and Raw Coal ProductionMining Segment Revenue* and EBITDA000 tonnesUS$ mln18,0002,01515,0002,1312,351 1,200 1,12012,0004,9985,301 3,655 1,000 9,000 800652 600 6,0003908,809 9,955 9,608400 3,00094 2000 01H092H09 1H10 1H091H10 Revenue EBITDA Iron ore products Raw coking coal Raw steam coal* Includes intersegment sales 10. Recent Market Developments10US$/tEvraz Selling Prices Overall growing trend in steel prices is driven bydemand recovery and increases in input costs 900 International prices for semi-finished steel declined in 800 700May-June due to seasonal and regulatory factors butstabilised in July 600 Current steelmaking capacity utilisation: 500 400 Russia >95%300 North America >95% 200 Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- Jul- Sep- Nov- Czech Republic 75%09 09 09 09 09 Slabs, Russia, export* 09 10 10 10 10 10 Billets, Russia, export* 10 South Africa >95%Rebars, Russia, FCA Plate, North America, FCA Russian mining assets are running at 75% capacity in * Weighted average contract pricescoal and 90% in iron oreVanadium Prices, FeV, LMB Vanadium expected to perform better than steel asvanadium usage rates in the emerging markets steelUS$/kg Vproduction sector approach the levels of industriallydeveloped countries 40 Increased crude steel production volumes in 4Q10 vs 353Q10 may be offset by seasonal factors, i.e. product30mix shift to lower margin export products due toweaker demand from the Russian construction sector25 4Q10 EBITDA is expected to be in line with 3Q1020EBITDA of US$612 million15 Jan-09Apr-09 Jul-09Oct-09Jan-10 Apr-10Jul-10 Oct-10 11. Consumption of construction steel in Russia 1112 100mln.t.mlm sq.m. 9010 1,01,1 0,81,0800,9 1,681,6 1,31,6 0,81,370 1,4 1,1 0,61,3 1,11,36 0,5 1,160 1,00,90,9 0,80,7504 5,8 6,25,8 6,1405,5 4,5 4,92 4,1 300202007 200820092010B 2011F2012F 2013F 2014FRebar ChannelsAnglesBeams Buildings completion, mln.m2 Recovery of construction steel product consumption began in 2010 Increase of shaped sections demand vs. rebar might be greater in the next years due to infrastructure projects development Russian demand for construction steel is expected to be approx. 10% higher in 2010 than in 2009 Sources: Rosstat, Railway statistics, Customer service statistics, Metal Courier, Rusmet 12. Capital Market Developments 12RUB15bn (equivalent to US$500 million) 3-year bonds issued in March 2010, swapped into US dollars to minimise Rouble currency exposureIn May 2010, Evraz drew down US$950 million 5-year Gazprombank loan and repaid US$1,007million VEB loanIn June-July 2010, Evraz refinanced US$357 million Nordea Bank loan due 4Q10 with new 4-year Nordea loan facilities in the amount US$404 millionRUB15bn (equivalent to US$490 million) 5-year bonds issued in November 20105-year structured credit facility for US$950 million signed in November 2010Proportion of Short-term Debt to Total DebtProportion of Short-term Debt to Total DebtUS$ mln10,000100% 8,4827,923 7,873 8,00080% 6,000 46%60% 4,00025% 40% 22% 2,00020%0 0%30-Jun-0931-Dec-0930-Jun-10Total DebtShort-term Debt, % of Total Debt 13. Successful Debt Refinancing 13 Total debt of approx. US$7.9bn, net debt of US$7.2bn as of 30 September 2010 Consolidated cash balance of not less than US$500 million constantly maintained Declining cost of capital (bond yields have decreased from approx. 10% in October 2009 to around 6%) reflectsimprovements in Evrazs performance and market conditions After recent refinancing there are no significant debt repayments in 2011 and 2012. Pro forma as of 30November 2010, out of US$327 million due in December 2010, US$317 million is rolling debt We intend to further decrease our leverage and extend debt maturities Debt* Maturities Schedule Debt* Maturities Schedule Debt* Maturities Schedule Debt* Maturities Schedule as of 31 December 2008 as of 31 December 2008(pro forma as of 30 November 2010) (pro forma as of 30 November 2010)US$ mlnUS$ mln3,8604,000 4,0003,000 3,0002,365 2,0152,0902,0001,568 1,7332,000 802747 7647001,000 1,00050923 13 11327 322 230 1713 0-2009 20102011 2012 20132014 2015 2016 2017 201820102011 20122013 20142015 2016 2017 2018 Q1 Q2Q3 Q4* Principal debt (excl. interest accrued) 14. Growth Strategy14 Product mix improvements Modernisation of rail mills enabling the production of high value-added products Upgrade of wheel shops Shift to production of American Petroleum Institute certified slabs and other enhanced quality higher margin steel products Product mix expansion geared to local market demand (new rebar grades, beams, pipe blanks, sheet) Exploring opportunities for development of construction steel rolling capacities in regions with high demand Raw material base development Development of a coal deposit in Yerunakovsky region of Kuzbass Expansion of resource base and development of the Mezhegey coking coal deposit and the Eastern field of the Ulug-Khemsky coking coal deposit Increase of own iron ore production and supplementary exploration at existing sites Cost-saving measures Implementation of pulverised coal injection projects at the Russian steel mills to eliminate usage of natural gas in blast furnaces and reduce consumption of coking coal. Added effect will be an increase in pig iron production volumes and, therefore, crude steel production Cost saving programmes in place, yielding US$20-30m efficiency gains a year at each plantIncrease in production volumes Reconstruction of 4th converter and 3rd slab machine at NTMK increases crude steel output by up to 0.5 mtpa Considering construction of a second converter shop at NTMK with additional crude steel capacity of 1.5-2.0 mtpa 15. Key Investment Projects15 CAPEX in 2010 expected to be around US$950m vs. US$441m in 2009 Approximately US$550m of 2010 CAPEX to be directed to increasing productivityand development projects, key projects being:ProjectTotal CAPEX Cum CAPEX by 2010 CAPEX Project Targets 31.12.09Reconstruction of rail US$440m US$30mUS$220m Capacity of 950k tonnes of high-speed rails, includingmill at NKMK 450k tonnes of 100 metre rails On-stream by 2013Reconstruction of rail US$55mUS$28mUS$27m Production of higher-quality railsmill at NTMK 550k tonnes capacity On-stream by 2012Pulverised coal injection US$320mUS$0m US$40m Lower coke consumption from 420 to 320 kg/tonne(PCI) at NTMK andZSMK No need for gas consumption On-stream by 2013BOF workshop US$260m US$230m US$20m Modernisation of productionreconstruction NTMK Increasing capacity from 3.8 to 4.2 mtpa On-stream by 2010Reconstruction of CCMUS$60mUS$5m US$40m Modernisation of productionSlab 3 NTMK Further increase in steelmaking capacity from 4.2 to 4.5 mtpa On-stream by 2010Reconstruction of wheel US$100mUS$87mUS$13m Production of higher-quality wheels& tyre mill (heattreatment shop) NTMK On-stream by 2010Development of TBD US$1m Less than US$90m, Maintaining self-sufficiency in high-quality hard cokingMezhegey coal depositincluding license coal after depletion of existing deposits cost On-stream by 2015 16. Summary16 Strategic focus on infrastructure markets and vertical integration into rawmaterials Gradual recovery in the key markets after the crisis Rapidly rising raw material prices provide support for steel prices and createcost pressure, especially for non-integrated steel producers Increase in the proportion of finished products in the mix reflecting demandimprovement in key markets of Russia and North America Focus on operational efficiency, modernisation of existing capacities,development of mining base and integration of international assets Improved demand and stronger pricing environment together with our costleadership leave us well positioned to fully capitalise on the market recovery 17. Appendices 18. 1H 2010 Financial Summary18US$ mln unless otherwise stated 1H 20101H 2009ChangeRevenue6,3794,63938%Cost of revenue (5,296)(4,297) 23%SG&A(750)(595) 26%Adjusted EBITDA*1,154468 147%Adjusted EBITDA margin18%10%Net Profit/(Loss)** (270)(999)EPS (US$ per GDR) (0.64)(2.52)Net Debt***7,1987,783(9)%Short-term Debt***1,740 3,937(56)%Steel sales volumes**** (000 tonnes) 7,714 6,82313% * Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets, revaluation deficit, foreign exchange loss (gain) andloss (gain) on disposal of PP&E. See the appendix on p.29 for reconciliation of profit (loss) from operations to Adjusted EBITDA ** If cost model of accounting for PP&E were applied, net result would have been a profit of approximately US$146 million for the 1H 2010 *** As of the end of the reporting period **** Here and throughout this presentation segment sales data refers to external sales unless otherwise stated 19. EBITDA to FCF Reconciliation19US$ mln1600 1,154 (51)1200 1,103 (258)(101) 744 (308)800(397)400 1251 0AdjustedNon-cash EBITDA Changes in Income tax CF fromInterest and Capex CF from Free cashEBITDAitems (excl. non- working paidoperatingcovenant investing flow*cash items)capitalactivities resetactivities (excl. payments(excl.income tax)capex)*Free cash flow comprises cash flows from operating activities less interest paid, covenant reset charges, cash flows from investing activities 20. Revenue by Geography of Customers 201H 2009 1H 2010Africa & Africa & RoWRoWOther Asian3% Other Asian 3% 7%Thailand11%3%Russia China 28% Thailand Russia5% 4%34%ChinaMiddle East3% 10% Middle East 4% Ukraine 2%EuropeOther CIS9%EuropeUkraine 3% 9% 4%Other CIS Americas Americas 4% 30%24% 21. Cost Structure by Segment 21 Cost Structure of Steel Segment Cost Structure of Steel Segment Rapid rises in coking coal, iron ore and scrap pricescaused an increase in the contribution of raw19% 11%9%materials to steel segment costs8% 11% Vertically integrated model largely protects 12% 10%8%6%5%steelmaking segment from escalation in raw material 5% 10%6% 14%prices5% 11% 13% Exception is scrap prices, although portion of increase 8% 12% 17%is managed through the scrap-based price formula forcertain products 1H091H10Iron oreCoking coal ScrapOther raw materials Semi-finished productsTransportationStaff DepreciationEnergyOther Cost Structure of Mining Segment Cost Structure of Mining SegmentCost Structure of Vanadium Segment Cost Structure of Vanadium Segment18% 19%14% 16%27% 22% 69% 58%26% 25% 15%11%7% 11%10%11% 5%7%13%1% 15% 1H09 1H10 1H091H10 Raw materials Transportation Staff costs Transportation Staff costsDepreciation DepreciationEnergy Other Energy Other 22. Mining: Vertical Integration 22 High level of vertical integration into iron ore sustained and continues to mitigate effect of rising raw material prices Coking coal volumes decreased due to postponement of longwall repositioning at the Ulyanovskaya mine Third quarter volumes depressed due to temporary safety shutdowns and safety inspectionsWashed Coking Coal (Concentrate) Self-Coverage*Iron Ore Self-Coverage* 000 tonnes000 tonnes 117% 12,0006,00010,39710,580 5,2889,955 9,608117%10,0009,011 8,8095,0004,504 84% 4,3174,348 3,679 RASP3,642 8,0004,000 RASP3,0006,000RASP2,0004,000 73%** 2,000 98%96% 91%1,00087%**50%** 0 0 1H092H09 1H10 1H092H091H10 ConsumptionProductionConsumption Production* Self-coverage, %= total production (for coal, plus 40% of Raspadskaya production) divided by total steel segment consumption** Coking coal self-coverage excl. 40% Raspadskaya share 23. 3Q 2010 Production Results23In 3Q10, consolidated crude steel output was 3.9 mt, -9% vs. 3Q09 and -10% vs. 2Q10, mainly due to scheduled repairs and modernisation at Russian production facilitiesCrude steel volumes to be recovered in 4Q as scheduled works are overProduct mix improvement: increase in the finished products volumes construction products: Russia: +3%, Ukraine: +21% railway products: Russia: +34%, NA: +20% flat-rolled products: Europe: +18%, NA: +79% tubular products: NA: +103%.Volumes of semi-finished products decreased by 43% vs. 3Q09 and -22% vs. 2Q10, because of the temporary decline in crude steel output, increasing demand for higher margin products and increase in intercompany consumption of Russia-produced semis for re-rolling at non-Russian mills000 tonnesProduction of Rolled Products1,600-43%+2%1,4001,2001,000 1,229 -4%1,208 1,210+31%8001,433600+103% +29% 1,046400 636589 567 814 525 448200 216 237 342 173117135 1740Semi-finished productsConstruction products Railway productsFlat-rolled products Tubular products Other steel products3Q09 2Q103Q10% - year-on-year comparison 24. 3Q10 Production of Steel Products by Assets 24RussiaNorth America000 tonnes000 tonnes 3,5002,896 2,8452,856700 3,000 122 2,5962,648627 610 79125149600 560 263 76 128 71146 498 2,50032190 43075490 193353 500 216 360 2,000 117237 936868 400139923 1,500 913967300239 186206195 136 1,000200 1,4971,4551,28279905001,1061,10771 94 94100 108 9210494 9300 3Q09 4Q09 1Q102Q10 3Q10 3Q09 4Q09 1Q102Q10 3Q10 Semi-finishedConstruction RailwayFlat-rolled Other steel Construction products Railway productsFlat-rolled productsTubular products Europe South Africa 000 tonnes000 tonnes350 3302993002642847300 250 4248 4250 6 175 6200157200 61541492748 141 26615057 16150 226246205107100 98 9885 9010050 50 49 5062 4849 433333 36 29 00 3Q09 4Q09 1Q10 2Q10 3Q103Q09 4Q091Q10 2Q10 3Q10 Construction productsFlat-rolled productsOther steel productsConstruction products Flat-rolled products Other steel products 25. 9 Months 2010 Trading Update25 Steel Sales by Market Steel Sales by Product000 tonnes000 tonnes 5,0005,000 4,631 4,1124,244 4,0003,7334,000 3,6163,2573,3413,110 3,0003,000 1,9521,9392,0002,000 1,4871,5601,4301,1661,1089001,0001,000528 667 386 445 304 424 00Russia & CIS Americas AsiaEuropeAfrica & RoW Semi- Construction RailwayFlat-rolled Tubular Other finished9m 2009 9m 2010 9m 20099m 2010 26. Adjusted EBITDA26Six months ended 30 June(millions of US dollars) 2010 2009Consolidated Adjusted EBITDA reconciliation(Loss) profit from operations 167(1,046)Add:Depreciation, depletion and amortisation 861782Impairment of assets 38 211Loss on disposal of property, plant & equipment24 25Foreign exchange (gain) loss (74) (68)Revaluation deficit138564Consolidated Adjusted EBITDA 1,154468 27. +7 495 [email protected] www.evraz.com