| 1. | Corporate information |
| (a) | Information |
Mechel PAO (“Mechel”, formerly — Mechel OAO and Mechel Steel Group OAO) was incorporated on March 19, 2003, under the laws of the Russian Federation in connection with a reorganization to serve as a holding company for various steel and mining companies owned by two individual shareholders (the “Controlling Shareholders”). During 2006, one of the Controlling Shareholders sold all his Mechel’s stock to the other Controlling Shareholder, Igor Zyuzin, the ultimate controlling party. In accordance with the changes in the Civil Code of the Russian Federation Mechel has registered changes in its Charter on March 17, 2016 and changed its corporate name from Mechel OAO to Mechel PAO. The registered office is located at Krasnoarmeyskaya St. 1, Moscow, 125167, Russian Federation. Mechel and its subsidiaries are collectively referred to herein as the “Group”. Set forth below is a summary of the Group’s primary subsidiaries:
|
Name of subsidiary |
Registered in | Core business | Date control acquired / date of incorporation (*) |
Interest in voting stock held by the Group at December 31, 2017 |
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|
Southern Kuzbass Coal |
Russia | Coal mining | January 1999 | 99.1 | % | |||||||
|
Chelyabinsk Metallurgical Plant (CMP) |
Russia | Steel products | December 2001 | 94.2 | % | |||||||
|
Vyartsilya Metal Products Plant (VMPP) |
Russia | Steel products | May 2002 | 93.3 | % | |||||||
|
Beloretsk Metallurgical Plant (BMP) |
Russia | Steel products | June 2002 | 94.8 | % | |||||||
|
Urals Stampings Plant (USP) |
Russia | Steel products | April 2003 | 93.8 | % | |||||||
|
Korshunov Mining Plant (KMP) |
Russia | Iron ore mining | October 2003 | 90.0 | % | |||||||
|
Mechel Nemunas (MN) |
Lithuania | Steel products | October 2003 | 100.0 | % | |||||||
|
Mechel Energo |
Russia | Power generation and sale |
February 2004 | 100.0 | % | |||||||
|
Port Posiet |
Russia | Transshipment | February 2004 | 97.8 | % | |||||||
|
Izhstal |
Russia | Steel products | May 2004 | 90.0 | % | |||||||
|
Port Kambarka |
Russia | Transshipment | April 2005 | 90.4 | % | |||||||
|
Mechel Service |
Russia | Trading | May 2005 | 100.0 | % | |||||||
|
Mechel Coke |
Russia | Coke production | June 2006 | 100.0 | % | |||||||
|
Moscow Coke and Gas Plant (Moskoks) |
Russia | Coke production | October 2006 | 99.5 | % | |||||||
|
Southern Kuzbass Power Plant (SKPP) |
Russia | Power generation |
April 2007 | 98.3 | % | |||||||
|
Kuzbass Power Sales Company (KPSC) |
Russia | Electricity distribution |
June 2007 | 72.1 | % | |||||||
|
Bratsk Ferroalloy Plant (BFP) |
Russia | Ferrosilicon production |
August 2007 | 100.0 | % | |||||||
|
Yakutugol |
Russia | Coal mining | October 2007 | 100.0 | % | |||||||
|
Port Temryuk |
Russia | Transshipment | March 2008 | 100.0 | % | |||||||
|
Mechel Carbon AG |
Switzerland | Trading | April 2008 | 100.0 | % | |||||||
|
HBL Holding GmbH (HBL) |
Germany | Trading | September 2008 | 100.0 | % | |||||||
|
Mechel Service Stahlhandel Austria GmbH and its subsidiaries |
Austria | Trading | September 2012 | 100.0 | % | |||||||
|
Elgaugol |
Russia | Coal mining | August 2013 | 51.0 | %** | |||||||
|
Elga-road |
Russia | Railroad transportation |
January 2016 | 51.0 | %** | |||||||
| * | Date, when a control interest was acquired or a new company established. |
| ** | In 2016, the Group sold 49% stakes in Elgaugol and Elga-road to Gazprombank. Simultaneously with this transaction, the Group granted to Gazprombank a put option to sell 49% stakes in these companies to the Group. The transaction in fact represents a financial liability, and these entities are consolidated based on 100% ownership (Notes 6 and 11.4). |
| (b) | Business |
The Group operates in three business segments: steel (comprising steel and steel products), mining (comprising coal, iron ore and coke) and power (comprising electricity (generation and transportation) and heat power generation), and conducts operations in Russia, Kazakhstan and Europe. The Group sells its products within Russia and foreign markets. Through acquisitions, the Group has added various businesses to explore new opportunities and build an integrated Group of steel, mining, ferroalloy and power companies. The Group operates in a highly competitive and cyclical industry; any local or global downturn in the industries may have an adverse effect on the Group’s results of operations and financial condition. While the Group will utilize funds from operations, it expects to continue to rely on operating cash flow and long term debt to finance major investment projects, focus on restructuring of the loan portfolio and other financing sources for its capital needs. As discussed in Notes 4 and 5, management believes that the Group will secure adequate financing.