MMK increases stake in Belon Coal Company

Magnitogorsk Iron and Steel Company ("MMK") announces creation of a strategic alliance with the Belon OJSC.
Creation of the alliance is the result of MMK acquiring 50% stake in company Onarbay Enterprises Ltd, owning 82.6% of the Russian coal-producing company “Belon”.

Key highlights of the transaction include the following:
   ·  Indirect ownership of MMK in a large Russian producer of coal and coal concentrates “Belon” increased to 41.3% for a consideration of USD230.4 m
   · Strategic investment advances MMK’s long-term raw materials security for its steel production
   · The move secures supplies of coal concentrates to MMK  
   · The planned investment will result in Belon’s coal production capacity increasing almost three-fold to 14.4 mln tn pa by 2012
   · The transaction will secure 55% of MMK’s requirement of coking coal, and 60% of steam  coal, by 2012

   Victor Rashnikov, Chairman of the MMK Board of Directors,  said: “This transaction represents a major strategic step for MMK towards our declared goal of securing supplies of essential raw materials. This acquisition gives MMK an opportunity to share in Belon’s profitability and the development of its coal interests, which will meet a sizeable part of our raw material requirement. Strengthening our strategic partnership with Belon will provide us with additional advantages in terms of our competitive ability.”

   Structure of the Transaction

   MMK acquired a 50% interest in Onarbay Enterprises Ltd., the 82.6% owner of Belon Coal Company (“Belon”), Russia. The share package was purchased from Sapwood Investments for USD 230.4 mln. This investment  provides MMK with an important  source of coal supplies for steel production, raising fuel self-sufficiency in line with its long-term strategy.
   As part of a REPO transaction in October of 2007, Sapwood Investments exercised its right of a 10.75% share repurchase of Belon shares from MMK contributing this package to the equity of Onarbay Enterprises Ltd, and thus making it an owner of 82.6% of Belon’s shares.