Acquisition of an indirect controlling interest in OJSC Raspadskaya by EVRAZ plc

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Acquisition of an indirect controlling interest in OJSC Raspadskaya by EVRAZ plc


EVRAZ plc (LSE: EVR) ("EVRAZ") announces that it has agreed the terms of the acquisition of an indirect controlling interest in OJSC Raspadskaya and its subsidiaries ("Raspadskaya") (the "Acquisition").

  • EVRAZ has agreed to purchase a further 50% interest in Corber Enterprises Limited ("Corber") from Adroliv Investments Limited, a company owned by the sellers (the "Sellers"), which holds an 82% interest in Raspadskaya. EVRAZ has an existing holding of 50% of Corber and, following completion of the Acquisition, will hold an indirect interest of 82% in Raspadskaya’s shares. The remaining 18% of Raspadskaya's shares will remain listed on the Russian Stock Exchange, MICEX-RTS.
  • As consideration for the Acquisition, EVRAZ will (i) issue 132.7 million new shares representing 9.9% of the existing issued share capital of EVRAZ (the "New EVRAZ Shares"); (ii) issue 33.9 million new warrants to subscribe for 33.9 million new shares representing 2.53% of the existing issued share capital of EVRAZ (the " Warrants"), and (iii) pay an amount, in cash, of US$1,949.80 for each of 103,600 ordinary Corber shares, payable in four equal instalments in Q1, Q2, Q3 2013 and Q1 2014. The Warrants may be exercised at any time between 12 months and 15 months after completion of the Acquisition and the Warrants contain customary provisions relating to adjustments. Upon exercise of the Warrants, it is expected that the Sellers would own 11.06% of EVRAZ.
  • Completion of the Acquisition is expected to occur in Q4 2012 subject to receipt of customary regulatory approvals and satisfaction or waiver of other conditions.
  • Raspadskaya is one of Russia’s largest producers of coking coal based on volume of production in 2011 and is located in the Kemerovo region of the Russian Federation. Raspadskaya is already a key supplier of coal to EVRAZ and EVRAZ is Raspadskaya’s largest customer.
  • According to the international consulting firm IMC, as of 31 December 2011, the total proved and probable coal reserves of Yuzhkuzbassugol, EVRAZ’s producer of coking coal, were estimated to be approximately 632 million tonnes. As of 31 December 2011, according to IMC, Raspadskaya had proved and probable coal reserves of 1,314 million tonnes.
  • EVRAZ’s net leverage ratio as at 30 June 2012 was 2.48x. Corber’s net debt at 30 June 2012 was US$330 million and the pro forma net leverage of the combined entity as at this date would have been 2.39x.

Alexander Frolov, CEO, EVRAZ plc, said,

The acquisition will increase EVRAZ’s coking coal self-coverage, which is consistent with EVRAZ's stated strategy of growth in the raw materials for steelmaking.

Raspadskaya is already a key supplier of coal to EVRAZ and EVRAZ is Raspadskaya's largest customer. Through holding an equity interest in Raspadskaya since 10 March 2004 and having directors on the Board of OJSC Raspadskaya, EVRAZ has a clear understanding of the strengths and potential of Raspadskaya's business and is best positioned to benefit from acquiring an indirect controlling interest in Raspadskaya.

Following completion of this acquisition EVRAZ will become the largest producer of coking coal in Russia. We believe that the acquisition of Raspadskaya will generate substantial operational synergies to EVRAZ, including the optimal use of different coal grades in the combined portfolio.

We value the strong expertise of the management team and we are happy that Mr Kozovoy, who has been the chief executive officer of Raspadskaya since December 1993, and has successfully helped to transform it into one of the largest coal mining companies in Russia, will stay in this position until at least the end of 2013

Summary of the Conditions to the Acquisition

The Acquisition is subject to certain conditions and other terms, which are summarised below, and completion will only occur if, among other things, the following events occur on or before 15 January 2013 or such later date as EVRAZ and Raspadskaya agree:

a) EVRAZ having received pre-transfer merger clearance from the Russian Federal Antimonopoly Service in connection with the Acquisition;

b) the share prices of EVRAZ or Raspadskaya not falling below certain pre-agreed levels; and

c) satisfaction or waiver of certain other conditions, including, without limitation, the receipt of authorisations, orders, confirmations, consents, clearances, permissions or approvals required under any law of any jurisdiction either without conditions or subject to conditions which are acceptable to EVRAZ (acting reasonably).

On the basis that all the conditions as outlined above are satisfied or waived, the Acquisition is expected to complete in Q4 2012.

Settlement, Listing and Dealings of the New EVRAZ Shares

The New EVRAZ Shares issued to the Sellers pursuant to the Acquisition will rank pari passu in all respects with the EVRAZ shares in existence at the date of this announcement.

Applications will be made:

  • to the UKLA for the New EVRAZ Shares to be admitted to listing on the Official List; and
  • to the London Stock Exchange for the New EVRAZ Shares to be admitted to trading on the Main Market.

A conference call for investors and analysts to discuss the Acquisition hosted by Alexander Frolov, CEO, and Giacomo Baizini, CFO, will commence on Thursday, 4 October 2012 at:

1:30 pm (London Time)
4:30 pm (Moscow Time)
8:30 am (New York Time)

Conference call dial-in details:

0 800 694 0257 in the UK (toll-free)
8 10 800 2097 2044 in Russia (toll-free)
1 866 966 9439 in the USA (toll-free)

+44 (0) 1452 555 566 International Dial-in

Conference ID 36652333

To avoid any technical inconveniences it is recommended that participants dial in 10 minutes before the event start time.

The conference call playback will be available until 5 October 2012.

Participants requesting the playback should dial:

0 8717 000 145 in the UK
1 866 247 4222 in the US
+44 (0) 1452 550000 International Dial-in

and enter the Code 36652333 followed by the # sign.

The presentation will be available on the Company’s website shortly before the call.

For further information:

Investor Relations:
London: +44 207 832 8990 Moscow: +7 495 232 1370

Media Relations:
Oleg Kuzmin
VP, Corporate Communications
London: +44 207 832 8998 Moscow: +7 495 937 6871

Information on EVRAZ

EVRAZ is a vertically integrated steel, mining and vanadium business with operations in the Russian Federation, Ukraine, USA, Canada, Czech Republic, Italy and South Africa. EVRAZ is among the top 20 largest steel producers in the world based on crude steel production of 16.8 million tonnes in 2011. In 2011 EVRAZ sold 15.5 million tonnes of steel products. A significant portion of the Group's internal consumption of iron ore and coking coal is covered by its mining operations. As at 31 December 2011, according to IMC, EVRAZ had total proved and probable reserves of approximately 632 million tonnes of coal. During 2011, EVRAZ extracted 6.3 million tonnes of raw coking coal, and 3.0 million tonnes of raw steam coal, and produced 6.5 million tonnes of coking coal concentrate and 0.9 million tonnes of steam coal concentrate. EVRAZ's total assets stood at US$16,975 million as at 31 December 2011 and at US$17,432 million as at 30 June 2012.The EBITDA for 2011 was US$2,898 million and the H1 2012 EBITDA was US$1,175 million.

Information on Raspadskaya

Raspadskaya is one of Russia's largest producers of coking coal based on volume of production in 2011. Raspadskaya conducts its business through OJSC Raspadskaya and 11 of its key subsidiaries located in the Kemerovo region of the Russian Federation. Raspadskaya extracted 6.3 million tonnes of raw coking coal and produced 3.8 million tonnes of coking coal concentrate in 2011. As of 31 December 2011, Raspadskaya had proved and probable coking coal reserves of 1,314 million tonnes, coking coal measured resources of 1,809 million tonnes and coking coal inferred resources of 262 million tonnes, according to IMC.
Corber’s total assets stood at US$2,150 million as at 31 December 2011 and at US$2,078 million as at 30 June 2012. The 2011 Adjusted EBITDA for 2011 was US$318 million and the H1 2012 Adjusted EBITDA was US$99 million.

Raspadskaya's principal coal mining and coal processing operations consist of three underground mines, one open-pit mine and the Raspadskaya coal concentrate preparation plant. Raspadskaya's ability to produce large volumes of coking coal concentrate has resulted in many large Russian steel companies, such as EVRAZ, MMK, NLMK and several other Russian metallurgical and coke producing companies such as Koks, Mechel and Urals Steel, relying on Raspadskaya to supply their coke producing plants with a large proportion of the coal products that are required to operate their businesses. Raspadskaya has its own coal and coal concentrate transportation network which connects Raspadskaya's production complex to the federal railway network at the Mezhdurechensk railway station.

The senior management of Raspadskaya includes (i) Gennady Kozovoy, the current chief executive officer of Raspadskaya Coal Company who assumed this position in April 2003 and previously served as Raspadskaya's general director from December 1993 till June 2003, and (ii) Alexander Vagin, the chairman of Raspadskaya's board of directors who has served in such capacity since December 1993 and assumed the role of first deputy CEO of Raspadskaya Coal Company in March 2004. Whereas Mr Kozovoy following completion of the Acquisition will remain as Raspadskaya’s CEO until at least the end of 2013, Mr Vagin will resign as Chairman of Raspadskaya and leave its board of directors but remain with Raspadskaya as deputy CEO.

This announcement is not intended to and does not constitute or form part of, and should not be construed as, any offer, invitation or recommendation to purchase, sell or subscribe for any securities in any jurisdiction and neither the issue of the information nor anything contained herein shall form the basis of or be relied upon in connection with, or act as an inducement to enter into, any investment activity. This announcement does not purport to contain all of the information that may be required to evaluate any investment in EVRAZ, Raspadskaya or any of their securities and should not be relied upon to form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This announcement is intended to present background information on EVRAZ, Raspadskaya, their business and the industries in which they operate and is not intended to provide complete disclosure upon which an investment decision in respect of, or other response to the Acquisition, could be made.

This announcement does not constitute a prospectus or prospectus equivalent document.
The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions, and therefore persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement has been prepared for the purposes of complying with English law and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.

No regulatory clearance in respect of the New EVRAZ Shares has been, or will be, applied for in any jurisdiction other than the UK.

The New EVRAZ Shares may not be offered, sold, resold, delivered or distributed, directly or indirectly, in, into or from Australia, Canada or Japan or to, or for the account or benefit of, any resident of Australia, Canada or Japan absent an exemption from registration or an exemption under relevant securities law

Notice to US investors

This announcement is not an offer of securities for sale, offer to purchase or a solicitation of an offer to purchase the shares of EVRAZ in the United States.

The New EVRAZ Shares, which will be issued in connection with the Acquisition, have not been, and will not be, registered under the US Securities Act or under the securities law of any state or other jurisdiction of the United States. The New EVRAZ Shares may not be offered or sold in the United States absent registration under the US Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act

Cautionary Note Regarding Forward-Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of EVRAZ and Raspadskaya and certain plans and objectives of EVRAZ with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aims", "continue", "will", "may", "should", "would", "could", or other words of similar meaning. These statements are based on assumptions and assessments made by EVRAZ and/or Raspadskaya in light of their experience and their perception of historical trends, current conditions, future developments and other factors they believe appropriate. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future and the factors described in the context of such forward-looking statements in this document could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct and you are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this document. Neither EVRAZ nor Raspadskaya assumes any obligation to update or correct the information contained in this document (whether as a result of new information, future events or otherwise), except as required by applicable law.

There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates and future business combinations or dispositions