Embed Size (px)
Citation preview
ADOPTED BY General Assembly of Shareholders
Of JSC Solikamsk Magnesium Works
Protocol № 34
Of « 08 » June 2012
Provisionally Approved by The Board of Directors
Of JSC Solikamsk Magnesium Works
Protocol № 56
of « 02 » May 2012
JOINT-STOCK COMPANY
“SOLIKAMSK MAGNESIUM WORKS”
ANNUAL REPORT
2011
General Director _____________________ Alexei V. Prokopenko
(signature)
Accountant General _____________________ Elena А. Remeslova
(signature)
Seal
Solikamsk
2012
2
TABLE OF CONTENT Page
LETTER TO SHAREHOLDERS 3
GENERAL COMPANY INFORMATION 4 The History of the Company in brief 4
Annual capacities to manufacture main products 4
Registration data 4
Auditor of the Company 5
Holder of the Company’s register of shareholders 5
Membership in organizations and associations 5
PRIORITY ACTIVITIES OF THE COMPANY 6
PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES 6
Activities of the Board 6
Financial results 7
Review of operations 8 Magnesium Operations 8
Pure & alloy magnesium 9
Other products of Magnesium Operations 9
Rare Metals Operations 9
Niobium compounds 10
Tantalum compounds 10
Compounds of rare earths elements 11
Titanium sponge & compounds 11
Chemical Operations 12
Usage of raw materials and energy resources 12
Technical Development and IT-technologies 13
Compliance with International Requirements 14 Compliance with UN embargo on trade with “conflict materials” 14
Compliance with International Code of Conduct for the industry 14
Integrated System for Management of Environment and Quality 14
Operational Safety and Industrial Security 16 Operational Safety 16
Industrial Security 16
Information about the Company’s Licenses 17
Social Responsibility 17 Improvement of welfare and intellectual development of personnel 17
Social Programs 18
POSITION IN THE INDUSTRY 18 Position in the magnesium industry 18
Position in the niobium industry 22
Position in the tantalum industry 25
Position in the rare earths industry 28
Position in the titanium industry 31
Position in chemical industry 33
THE COMPANY’S DEVELOPMENT PROSPECTS 34
RISK FACTORS 34 Risks of the industry 34
Risks of the country and regional risks 35
Financial risks 36
Legal risks 36
Risks of the Company 37
CORPORATE GOVERNANCE 37 Information about Charter Capital of the Company 37
Information about Company’s shareholders 37
Dividend statements 37
List of the Company’s deals that may be referred to as “large deals” under legislation 37
List of the Company’s deals that may be referred to as “deal with interest” under legislation 37
The Board of Directors of the Company 37
Information about the person who holds the position of Exclusive Executive Authority 40
Criteria of determination of fees and amount of fees paid to the person who has the position of Exclusive Executive Au-
thority and to members of the Board
41
Compliance with the Code of Corporate Conduct 41
THE MAIN FINANCIAL RESULTS OF THE COMPANY 42
REPORT OF THE COMPANY’S AUDITOR 43
Annexes (on the Company’s web-site only under link http://smw.ucoz.ru/index/godovye_otchety/0-11)
Annex №1 Conflict Free Raw Materials Purchasing Policy
Annex № 2 Compliance with International Code of Conduct for the industry
Annex № 3 Information about the Company’s licenses
Annex № 4 List of deals with interest
Annex №5 Compliance with Code of Corporate Conduct
3
LETTER TO SHAREHOLDERS
Alexei V. Prokopenko
General Director, JSC Solikamsk Magnesium Works
Markets for main products manufactured by the Company experienced different directions dur-
ing the reporting year, depending on product and market area.
Revival of the global economic activity that was observed since the end of 2010 was slowed at
the beginning of the reporting year by earthquakes and tsunami in Japan those destroyed the in-
dustry and consumption in the country. Market activity was further worsened in the middle of
the year by European financial crisis that is still very far from solution. Series of military con-
flicts and revolutions in the Arabic countries not only destroyed demand in these countries, but
also caused elevated hydrocarbons’ prices those further affected development of the world econ-
omy. As the consequence of these circumstances, growth of the world economy was significantly
below than that was initially expected and market was in standstill at the end of the year. Global
economy forecasts for 2012 - 2014 years were also gradually worsened.
Despite these negative challenges in the world economy, the reporting year was rather favorable
for JSC Solikamsk Magnesium Works. The main factors for the benefit of the Company were
Chinese Government’s policy of restrictions on production and exports of rare earths that caused
multifold price increases for these products, and high build rate in aerospace industry that was
positive for the markets of titanium, niobium and tantalum. Tightening of control of UN embar-
go on trade with tantalum materials from “conflict area” of Democratic Republic of Congo pre-
vented flow of illegal material through Central African countries and kept tantalum market out of
oversupply and prices out of significant drop.
Performance of the Company was above expectations in the reporting year. Total sales revenues
approximately doubled year-to -year, and accounted for 6’510.1 million rubles, equivalent of
222.8 million US dollars - a new absolute record in the history of SMW since 1992, the year of
Russia’s transition to market economy.
Sales income surged to 2’224.2 million rubles, income before taxation reached 1’930.0 million
rubles, while net income accounted for 1’576.7 million rubles compared to losses for all these
indicators in 2010.
Financial conditions of the Company were significantly strengthened and SMW has built a re-
serve to finance certain projects in the coming year those will support sustainable development
of the company in 2012 and beyond.
4
GENERAL COMPANY INFORMATION
The history of the Company in brief
● 14 March 1936: first ingot of primary magnesium metal was produced by the Company. This
historical date is fairly considered as the Date of Birth of Solikamsk Magnesium Works.
● 1946: the Experimental Plant was founded, the first experimental plant inside an operating fa-
cility in the Non-ferrous Industry of the Soviet Union. All of the main basic technologies recent-
ly utilized by CIS magnesium and titanium companies were developed here.
● 1971: Rare Metals Operations were brought on stream. Chlorine generated in Magnesium Op-
erations is used as the main reagent for processing of loparite and other raw materials in these
operations.
● 1978: A line to produce high purity grade niobium and tantalum chemicals for optics and elec-
tronics was brought into operation.
● 1992: state-owned enterprise Solikamsk Magnesium Works was transformed into joint-stock
company Solikamsk Magnesium Works (hereinafter referred to as “SMW”, “Solikamsk”, or “the
Company”).
● 2004: A plant to produce mixed rare earths carbonates was built and put into operation.
● 2009: First stage of titanium sponge project was brought on stream with capacity of 2’500 tons
per annum out of total projected capacity of 5’000 tons per year.
Today, SMW is the oldest operating primary magnesium facility in the world, since all other primary producers with an earlier history of operations left the market, having been unable to compete with newcomers. Solikamsk is a modern, constantly developing company that manufac-tures products conforming to the main domestic and international standards, with an Integrated System for Management of Environment and Quality (ISMEQ) conforming to requirements of ISO 9001: 2008 and ISO 14001:2004 international standards.
Annual capacities to manufacture main products
Magnesium operations
- pure and alloy magnesium – up to 18’200 tons including 16’200 tons output for sales
- potash flux – up to 79’320 tons,
- calcium hypochlorite solution – up to 60’000 tons.
Rare metals operations
Capacity for loparite processing is 13’000 tons that enables the production of: - niobium compounds – up to 855 tons Nb2O5 contained - tantalum compounds – up to 60 tons Ta2O5 contained , - carbonates and oxides of mixed rare earths – up to 3’600 tons TREO contained - titanium sponge and compounds – up to 2’600 tons of titanium (Ti) contained.
Chemical operations
- liquid chlorine in containers – up to 3’000 tons, - lime – up to 20’000 tons,
- calcium chloride solution (32% CaCL2) – up to 72’000 tons.
Registration Data
Complete Name of the Company:
- In Russian: открытое акционерное общество «Соликамский магниевый завод»;
- In English: open joint stock Company «Solikamsk Magnesium Works».
5
Short Name of the Company:
- In Russian: ОАО «СМЗ»;
- In English: JSC «SMW».
Company Location: 9 Pravda Street, 618541, Solikamsk, Perm Region. The Russian Federation.
Tel: (34253) 5 11 71 Fax: (34253) 5 23 75. E-mail address: [email protected] http: www.smw.ru
Date of State Registration and Register Number: Order of Solikamsk City Administration №
919.1 of 10 November 1992
Key State registration number of juridical person (OGRN): 1025901972580
Date of registration: 10 September 2002
Taxpayer Identification Number (INN): 5919470019
Name of Registering Agency: Inter-regional Inspection № 11 for Perm Region and Komi-
Permiatskiy National District, The Russian Federation Ministry of Taxes.
Registered Activities (codes OKVED): Production of minor non-ferrous metals (27.45), Produc-
tion of minor inorganic chemicals (24.13), Production of castings (27.5), Processing of metallic
scrap & residues (37.10), Building & construction (45.21), Generation, transfer & distribution of
steam and hot water (heating energy) (40.30), Cooking in canteens belonging to enterprises
(55.51), Medical services (85.12), Managing of medical entities (85.11), Managing of sports en-
tities (92.61). The main activity in 2011 - Production of minor non-ferrous metals (27.45).
Sources Of Information About Company: Company’s newspaper “Magnievik”, city’s newspaper
«Solikamskiy rabochiy», Company’s web-site www.smw.ru , RIA ZAO «Interfax» for regular
disclosure of information under statutory requirements.
Representative offices and affiliated branches: not available.
Auditor of the Company
Name: Closed Type Joint-Stock Company Auditing Firm “Legion-Audit”
Location: 42a Kostycheva Street, Proletarskiy Dormitory, 614031, Perm, Post-Office Box (POB)
916. The Russian Federation.
“Legion – Audit” is a member of self-regulatory accredited professional union of auditors “Non-
commercial Professional Partnership «Chamber Of Auditors Of Russia» “ (№ 696 in the register
of the Partnership, ORNZ 10401003022).
Holder of the Company’s register of shareholders
Name: Closed Type Joint-Stock Company “Registrator Intraco”
Address: 64 Lenina Street, 614990, Perm. The Russian Federation
Tel/fax: (342) 233-01-63/233-01-64, web-site www.intraco.ru
License: 10-000-1-00272 of December 24, 2002
Issuing Agency: The Russian Federal Securities Commission
Validity: unlimited
The date of start to be a holder of the Company’s register of shareholders: December 23, 1996
“Registrator Intraco” is a member of Professional Association of Register holders, Transfer
Agents and Depositaries (PARTAD).
Membership in organizations and associations:
1. Tantalum – Niobium International Study Center (TIC) from 1992
2. Verkhne-Kamskaya Chamber Of Commerce from 1995
3. Non-commercial Association of Analytical Centers “Analitika” from 1995
4. Association of Chlorine Industry (Association “RusChlor”) from 2006
5. Inter-state Association “Titan” from 2008
6
6. Self-regulatory Organization Non-commercial Partnership «Union of Architectural &
Designing Organizations of Perm Region” - SRO NP “SAPO” - from 2009
7. Self-regulatory Organization Non-commercial Partnership “ZapadUralStroy” - from 2009
8. Self-regulatory Organization Non-commercial Partnership “Alliance of Builders” - from
2011
9. Council of Kama River Basin for Protection and Renewal of Water Resources-from 2009
10. Non-commercial Partnership “Council of Managing Directors of Enterprises in
Solikamsk City and Solikamsk District” from 2002.
PRIORITY ACTIVITIES OF THE COMPANY
The Charter and the Mission of the Company constitute that priority activities of SMW are to
supply markets with magnesium, chemical and rare metals products, satisfy demand for com-
modities and services, and earn a profit.
Development of SMW in priority areas is performed in compliance with the Company’s Quality
and Environmental Policies, Collective Labor Agreement between Company’s Administration
and Trade Union of Mining & Metallurgical Industry Employees, agreements between SMW’s
Administration and Administration of Solikamsk City.
Following the UN Security Council Resolutions № S/2010/1952 and № S/2010/596 whose im-
pose an embargo on trade with tantalum materials originated in “conflict area” of the Democratic
Republic of Congo (DRC), Solikamsk developed its own Conflict Free Raw Materials Purchas-
ing Policy compliant to the UN Security Council Due Diligence Guidelines.
The Charter of the Company is available on SMW’s official web-site under link
http://smw.ucoz.ru/index/ustav_i_vvvv/0-21, and the Mission, the Quality Policy, the Environmental
Policy, and the Conflict Free Raw Material Purchasing Policy of the Company are available un-
der link http://smw.ucoz.ru/index/sistema_kachestva/0-40 of the same.
PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES
ACTIVITIES OF THE BOARD
Federal Law “About Joint Stock Companies” grants the Board the most important role in devel-
opment and implementation of strategy, in successful financial and operational performance of
the Company as well as in protection of shareholders’ rights. In accordance with the SMW’s
Charter, the Board of Directors is a governing body which generally manages the Company in
the period between General Assemblies of Shareholders.
The Charter and the Statute of the Board of Directors of SMW prescribe the Board to hold its
Sessions in the case of necessity, but at least once per quarter. 7 Sessions of the Board were con-
vened and held during the year including 4 Sessions in the form of assembly and 3 Sessions in
the form of absentee ballot sessions that is permitted by the Charter.
Pursuant to article 65 of Federal Law № 208-FZ of 26 December 1995 “About Joint Stock Com-
panies”, Article 11 of the Charter of the Company, and the Statute of the Board of Directors of
SMW, the following issues were discussed by the Board:
- elections of Chairman, Vice-Chairman and Secretary of the Board;
- discussion of candidates to the Board and Internal Audit Committee nominated by the owners
of not less than 2% of the Company’s shares and inclusion of these persons into voting bulletin
for General Assembly of Shareholders;
- approval of the Company’s Budget;
- approval of the Regulations for the Company’s Budget Formation;
- approval of members’ number and appointment of persons of the Budget Committee;
7
- provisional approval of the Annual Report, annual financial statements, and distribution of
Company’s income (losses) for the reporting year;
- issues connected with convocation and preparation of the General Assembly of Shareholders;
- nomination of the Company’s external auditing firm;
- new edition of the Charter of the Company;
- approval of deals with interest;
- other issues assigned to competence of the Board.
Members of the Board performed its obligations in the interest of the Company, in the good faith
and on the reasonable ground, and actively participated in all the Sessions of the Board.
Activity of the Board was arranged and performed in accordance with the schedule and
fulfillment of the Board decisions was under control.
In the coming years, the Board will be concentrated on improvement of corporate managing and
profitability of the Company as well as on development of sustainable, reliable and competitive
policy in the main markets of products, works and services.
FINANCIAL RESULTS
Markets and prices for main products manufactured by the Company experienced different direc-
tions during the reporting year, depending on product and market area, but the whole 2011 year
was much more favorable for SMW than 2010.
The main negative factors, that affected the Company’s profitability in the reporting year, were
Russian inflation that exceeded inflation in the other countries, elevated prices on energy re-
sources and raw materials, and appreciation of the Russian ruble versus the US dollar and the
Euro.
Sales revenues of SMW, ‘000 RUR
In 2011, total sales revenues of the Company hit a new absolute record since 1992, in the both
terms, ruble and US dollar, and accounted for 6’510.1 million rubles or 222.8 million US dollars
compared to 3’347.7 million rubles or $111.0 million in 2010, representing a growth by a factor
of 1.945 and 2.007 respectively.
Russian sales revenues increased by a factor of 1.463, from 1’882.6 million rubles in 2010 to
2’753.6 million rubles in 2011. The same results denominated in US dollar terms were $62.0
million and $93.9 million respectively, growth by a factor of 1.515, and the home market share
decreased from 56.2% to 42.3%.
2005 2006 2007 2008 2009 2010 2011
Всего продажи/ Total sales revenues 1'676'460 1'973'505 2'541'013 3'117'405 2'526'820 3'347'834 6'510'088
Экспорт/Exports 1'093'533 1'055'732 1'134'373 1'527'942 1'260'331 1'465'208 3'756'492
Россия/Russia 582'927 917'773 1'406'640 1'589'463 1'266'489 1'882'626 2'753'596
0
500'000
1'000'000
1'500'000
2'000'000
2'500'000
3'000'000
3'500'000
4'000'000
4'500'000
5'000'000
5'500'000
6'000'000
6'500'000
8
Export sales revenues, denominated in ruble terms, rose by a factor of 2.564, from 1’465.2 mil-
lion rubles in 2010 to 3’756.5 million rubles in 2011, while growth in US dollar equivalent was
by a factor of 2.631, from $49.0 million to $128.9 million, and share of export sales increased
from 43.8% to 57.7%.
Growth of sales revenues was observed in all of the main operations of the Company. Sales rev-
enues of Magnesium Operations increased by +4.1%, Rare Metals Operations rocketed by +
239.1%, and Chemical Operations and services surged by +57.0%.
Share of operations in total sales revenues in 2011, % CBRF exchange rate in 2005 – 2011, RUR/USD
Rules for assessment of certain financial indicators were altered in new Rules of Accounting and
the Tax Code of the Russian Federation for the reporting year. Under these new rules, sales in-
come accounted for + 2’224.2 million rubles (+$75.7 million) in 2011 compared to reassessed
loss of – 131.2 million rubles (- $4.3 million) in 2010, and net income captured + 1’576.7 mil-
lion rubles (+ $53.6 million) compared to adjusted loss of – 264.1 million rubles (- $8.7 million)
in 2010.
Profitability of the Company reached + 54.5%, net profitability accounted for + 46.4%, return of
own equity hit +170.4% and profitability of production assets jumped to + 139.7% compared to -
11.2%, -11.2%, -316.9% and – 27.5% for respective indices in 2010.
RESULTS BY OPERATIONS
MAGNESIUM OPERATIONS
14 March of 2011 was the 75th Anniversary from the date when 1st ingot of magnesium was produced by the Company
The production of magnesium metal is the starting point of the processes utilized by Solikamsk.
Chlorine generated in magnesium production is the chemical reagent that is successfully used to
process loparite and other raw materials utilized by the Rare Metals Operations. The range of
commodities produced by the company’s Magnesium Operations includes pure and alloy magne-
sium, potash and carnallite fluxes, processed carnallite, and calcium hypochlorite solution.
Sales revenues of Magnesium Operations in 2005-2011, $ mln
9
Sales revenues of Magnesium Operations increased from 1’850.9 million rubles ($60.9 million)
in 2010 to 1’925.9 million rubles ($65.6 million) in 2011, a moderate growth by +4.1% (+7.7%
in $) year-to-year.
Pure & alloy magnesium
Output and shipments of commodity pure & alloy magnesium decreased in the reporting year
affected by factors of the short supply of carnallite, the main raw material in magnesium produc-
tion process, and increased internal use of the metal in the process of titanium sponge manufac-
ture. Rapid growth of consumption in Russia impacted export sales of magnesium.
Solikamsk shipped to its customers 13’517 mt of pure & alloy magnesium in 2011, -1’944 mt or
-12.6% less than 15’461 mt in 2010.
Shipments to Russian customers increased from 9’307 mt in 2010 to 11’809 mt in 2011 repre-
senting a growth by + 26.9% or by + 2 502 mt, while export shipments dropped by a factor of
3.603 or by – 4’446 mt, from 6’154 mt in 2010 to 1’708 mt in 2011.
Shipments of magnesium products by grades and market areas, mt
Other products of Magnesium Operations
Carnallite flux is used in the process of refining of pure & alloy aluminium and magnesium, pot-
ash flux and slimes of magnesium production (SMP) are used as the covering flux in processes of
aluminium and magnesium scrap recycling, as the component in fertilizer mix, and in the pro-
duction of de-icers, calcium hypochlorite solution is used for paper bleaching and for the pur-
poses of desinfection and waste disposal. Processed carnallite is utilized as the raw material in
production of magnesium metal, chemical compounds and medicinal salts.
Shipments of other products of Magnesium Operations, mt
2005 2006 2007 2008 2009 2010 2011 2011/
2010
Calcium hypochlorite solution 33 924 17 673 7 449 2 723 2 410 2371 2 705 +14.1%
Potash flux, SMP 120 260 118 204 87 495 76 563 40 053 84 557 82 802 -2.1%
Carnallite flux 638 890 961 885 461 519 1 034 +99.2%
Dehydrated carnallite 0 503 1 969 4 914 7 390 2 353 138 - 17.1 р
Carnallite 0 9 835 52 453 50 302 51 442 42 466 - -
RARE METALS OPERATIONS
Loparite is the main raw material utilized in Rare Metals Operations (RMO) of the Company.
This material is a complex titanate-niobate-tantalate of rare earths, alkali and alkali-earth ele-
ments, and it typically contains 35-38% TiO2, 28-30% of rare earths oxides (TREO), 7.5-8%
Nb2O5 and 0.5-0.6% Ta2O5.
As the result of loparite processing, the following products are produced by Solikamsk: car-
bonates and oxides of mixed rare earths; synthetic concentrate, chlorides and oxides of niobium
and tantalum; titanium tetrachloride and titanium sponge.
10
The tonnage of processed loparite was 6’147 mt, an increase by + 808 mt or by +15.1% com-
pared to 5’339 mt processed in 2010. Despite increased loparite supply, capacity utilization for
loparite processing equipment was less than 50%, and Solikamsk additionally processed 1’099
mt of rutile, titanium mineral, to improve this rate. Capacity utilization of equipment to produce
titanium sponge was also improved by that.
Raw materials processing in RMO in 2005 - 2011, mt Sales revenues of RMO in 2005 - 2011, $ million
Sales revenues of the Rare Metals Operations rocketed from 1’226.5 million rubles ($40.2 mil-
lion) in 2010 to 4’159.5 million rubles ($142.7 million) – an absolute record for Rare Metals Op-
erations of the Company since 1992 - representing an upsurge by a factor of 3.391 in ruble terms
and 3.550 in US dollar terms.
Niobium Compounds
Solikamsk shipments of niobium compounds increased from 397.1 mt Nb2O5 contained in 2010
to 430.9 mt Nb2O5 in 2011 representing a growth by + 8.3% year-to-year.
Russian shipments went up from 260.4 mt Nb2O5 in 2010 to 318.8 mt Nb2O5 in 2011 driven by a
surge of State orders, a growth by +22.4% year-to-year, while export shipments of 112.0 mt
Nb2O5 in 2011 was a drop by – 18.0% compared to 136.7 mt Nb2O5 in 2010, despite increased
total output of niobium compounds.
In 2011, SMW shipped 406.2 mt (362.8 mt in 2010) Nb2O5 in the form of technical grade prod-
ucts and 24.6 mt (34.3 mt in 2010) Nb2O5 contained in the form of high purity grade chemicals
for optics and electronics.
Shipments of niobium compounds by applications and market areas, mt Nb2O5 contained
Tantalum Compounds
Market for tantalum compounds in Russia remains steady for the years and covered by ship-
ments of SMW, while commercial scale production of the tantalum metal is not available in Rus-
sia and requirements of the country in the metal are covered by imports.
In 2011, Solikamsk shipped to its customers 27.0 mt tantalum compounds recalculated to Та2О5
content, a drop by – 14.8% or by – 4.0 mt Та2О5 compared to 31.0 mt Та2О5 in 2010, where
11
shipments of technical grade chemicals accounted for 26.7 mt Та2О5 (25.0 mt Та2О5 in 2010),
while shipments of high purity grade compounds for optics and electronics were 0.3 mt Та2О5
(6.0 mt Та2О5 in 2010).
Shipments of tantalum compounds by grade of products and market areas in 2005-2011, mt Ta2O5 contained
Compounds of Rare Earths Elements (REE)
Rare earths carbonate is a semi-product in the production of certain products with natural mix of
REEs, while the vast majority of REEs should be separated to individual elements or group of
elements prior to its further use. Commercial scale REEs separation facilities are not available in
Russia that is that the vast majority of carbonate is exported.
Solikamsk shipped to its customers 1’443.6 mt of RE carbonate recalculated to total rare earths
oxide (TREO) content in 2011,– 51.9 mt TREO or -3.5% less than 1’495.5 mt TREO in 2010.
Home market shipments accounted for 22 mt TREO in 2011 compared to 30 mt TREO in 2010,
therefore remaining 1’421.6 mt TREO in 2011 and 1’465.5 mt TREO in 2010 were exported.
Shipments of rare earths compounds by market areas, mt TREO contained
Titanium Sponge & Compounds
Shipments of titanium sponge & compounds by market areas and products in 2005 - 2011, mt Ti contained
12
Russian market for titanium sponge rapidly increased in 2011, mainly driven by demand from
OAO VSMPO-AVISMA Corporation which did not have enough its own sponge to cover its
obligations before customers of processed titanium products.
In 2011, Solikamsk shipped to its customers 1’694.9 mt of titanium products recalculated to Ti
content that is a growth by +5.9% or +94.9 mt Ti compared to 1’600 mt supplied in 2010.
Shipments of titanium sponge and chemicals to Russian market surged from 643 mt of Ti
equivalent in 2010 to 885.5 mt Ti in 2011 representing an upturn of +37.7% or +242.5 mt Ti
year-to-year, while export shipments accounted for 809 mt Ti in 2011 that is a drop of – 16.0%
or 154 mt Ti compared to 963 mt Ti in 2010.
CHEMICAL OPERATIONS
Shipments of products of Chemical Operations, mt
2005 2006 2007 2008 2009 2010 2011 2010/2011
CaCL2, 32% 57 688 61 735 62 938 50 453 38 914 44 489 53 645 +20.6%
Liquid CL2 784 1 216 1 271 1 328 1 514 1 571 1 566 -0.3%
Lime 9 671 11 947 11 642 11 641 6 561 9 620 19 440 +2.02 times
Lime slurry milk, м3 2 913 1 908 1 243 1 218 658 709 693 -2.3%
USAGE OF RAW MATERIALS AND ENERGY RESOURCES
Raw materials and energy resources are the main expenses of the Company.
Raw Materials
The main raw materials utilized by the Company are
- in Magnesium Operations - carnallite
- in Rare Metals Operations– loparite, and rutile was used as supplemental raw material
- in Chemical Operations – lime stone.
Raw materials’ suppliers are: carnallite - SKRU-1 of ОАО «Uralkaliy», Solikamsk City, Perm
Region, Russia; loparite – ООО «Loverskiy Mining & Concentration Works» (LGOK), town-
ship Revda, Murmansk Region, Russia, rutile – Volnogorskiy GMK, Ukraine, and Iluka, Aus-
tralia; lime stone – AVISMA branch of ОАО VSMPO-AVISMA Corporation and ООО Halo-
polymer - Pashiya, the both located in Perm Region, Russia.
Raw materials receipts, mt
2009 2010 2011 Country of origin
Carnallite 258 212 302 733 243 319 Russia
Limestone 89 343 115 352 139 789 Russia
Loparite 6 628 5 120 6 226 Russia
Rutile - 344 1 200 Ukraine, Australia
Compliance with UN embargo on trade with “conflict materials”
UN imposed an embargo on trade with materials containing tantalum, tungsten, tin and gold
originated in “conflict area” of Democratic Republic of Congo (DRC). Solikamsk did not make
any purchases or processing of raw materials containing tungsten, tin and gold as well as did not
make any purchases of raw materials containing tantalum, other than loparite, in 2009 - 2011.
Energy Resources
Electricity is the main energy resource utilized by Solikamsk, and it is the main cost factor in
Magnesium Operations. Natural gas is directly used in the generation of heating energy, pro-
duction of lime and cell feed preparation. Heavy oil (mazut) is used as the reserve fuel in heat
13
generation and cell feed preparation. Gasoline (benzin) and diesel fuel are the energy sources for
internal-combustion engines in automotive transport employed by SMW.
In 2011, SMW’s expenses on energy resources accounted for 1’192.5 million rubles. This is a
rise of + 20.7% compared to 987.7 million rubles in 2010.
Usage of energy resources in 2011
Unit Quantity Value, ‘000 RUR
Electricity MWh 442 245.450 821 876.4
Natural gas ‘000 m3
74 979 191 082.8
Heavy oil (mazut) mt 648.170 5 728.0
Gasoline (benzin) mt 150.802 4 097.5
Diesel fuel mt 473.754 858.2
Cokes mt 1 754.357 14 107.1
Usage of heating energy:
Self-generated Gcal 291 212.7 154 734.3
Outside Gcal - -
Consumption of fresh water (artesian and river water) was 4.306 million m3 in 2011.
TECHNICAL DEVELOPMENT AND IT-TECHNOLOGIES
In 2011, Solikamsk invested 194.0 million rubles ($6.6 million) in renewing equipment, devel-
oping technology, and improving operational and work safety, it is less by – 5.6% (- 3.0% in
USD) compared to 205.4 million rubles ($6.8 million) in 2010. R&D expenses accounted for
16.7 million rubles, +74.0% above 9.6 million rubles incurred for the same purposes in 2010.
As the result of investments and R&D, the following works were performed and results
achieved:
in Magnesium Operations:
- fluid-bed furnace with capacity up to 50 mt of dehydrated carnallite per day was tested;
- detailed design of electrolytic cell with high ampere density on cathode and variable distance
between electrodes was performed;
- testing operations of electrolytic cell with high ampere density were finished. Electricity con-
sumption was less by 0.82 MWh per 1 mt of magnesium and annual output of magnesium was
higher by 3.5 mt per cell with new cell;
- testing operations of electrolytic cells with use of low resistivity graphite were finished. Elec-
tricity consumption was less by 0.3 MWh per mt of magnesium;
in Rare Metals Operations:
- Nb – containing residues were processed into semi-product for chlorination and niobium oxide
for sale with total Nb2O5 content of 600 kg;
- rare earths concentrates were processed into rare earths carbonate with 2.1 mt TREO contained;
- in titanium sponge production: life-time of retorts was increased from 18 cycles to 22 cycles
and equipment to recycle VM – 4 oil for vacuum pumps was installed that enables to reduce oil
requirement per 1 mt of sponge;
- 237 units for Rare Metals Operations were covered with enamel;
in Chemical and auxiliary operations:
- 700 м3 reservoir for calcium chloride solution was built and put into operations;
- radioisotope level gauges were replaced with ultrasonic gauges;
- artesian water was replaced with recycled water for cooling of pumps for gases and require-
ments in artesian water were reduced by 4’700 м3;
- equipment for shot – blaster were bought;
- environmental measures to protect water and air from pollution were brought into effect.
14
Expenses to develop IT & communication technologies accounted for 20.4 million rubles. This
amount was used to update and replace software, computers and other IT-technics, and install
new IBM blade server with advanced technologies VMware, scaling, clusterization and fault
prediction.
COMPLIANCE WITH INTERNATIONAL REQUIREMENTS
Compliance with UN embargo on trade with “conflict materials”
UN Security Council by its Resolution № S/2010/1952 imposed an embargo on trade with mate-
rials containing tantalum, tungsten, tin and gold (3T&G) originated in “conflict area” of DRC.
UN Security Council Resolution № S/2010/596 includes Due Diligence Guidelines for compa-
nies involved in processing of 3T&G materials enforced to avoid violation of this embargo.
In accordance with these Due Diligence Guidelines, SMW developed its own Conflict Free Raw
Materials Purchasing Policy (see Annex №1 under link http://smw.ucoz.ru/index/godovye_otchety/0-
11) following the methodology provided by Electronic Industry Citizenship Coalition and Global
e-Sustainability Initiative (EICC/GeSI), international organizations whose perform control of
UN embargo on trade with tantalum materials.
Executive Committee of EICC/GeSI assessed SMW’s activities on compliance with Due Dili-
gence Guidelines and found the Company compatible with its requirements. Detailed infor-
mation in this respect is available on under links http://www.eicc.info/CFSProgram.shtml and http://www.conflictfreesmelter.org/
Compliance with International Code of Conduct for the industry
Solikamsk performed self-assessment on compliance with Supplier Code of International Die –
Casting Association (IDCA) and EICC Code of Conduct. As soon as Solikamsk sources both
industries with its products, self-assessment was performed on compliance with the both Codes
and results of this self-assessment are provided in Annex №2 under link
http://smw.ucoz.ru/index/godovye_otchety/0-11.
Integrated System for Management of Environment and Quality
Сертификат ИСО 14001:2004 Сертификат ИСО 9001:2008
15
SMW developed and enforced Integrated System for Management of Environment and Quality
(ISMEQ) covering the both international standards, ISO 9001:2008 “Quality Management Sys-
tem” and ISO 14001:2004 “Environmental Management System”.
Successful maintenance and improvement of this System is an incontestable priority of
Solikamsk. Goals and objectives of the Company in management of quality and environment are
respectively described in Quality Policy and Environmental Policy.
ISMEQ was certified by international certifying organization, TUV International Certification,
on conformance with the both international standards in 2010 and supervisory audit was per-
formed in 2011. Validity of certificates is August 2013.
Since 2007, SMW surveys customers’ satisfaction and loyalty with respect to main products
manufactured by the Company to improve ISMEQ. Customers’ satisfaction is studied using a 9-
point ranking scale while customers’ loyalty is assessed with use a 5-point scale where 9 and 5
are the best values, respectively. The average ranking of customers’ satisfaction was 7.1 point
out of 9, and customers’ loyalty was 3.97 out of 5 in 2011. Those results mean that the Compa-
ny’s products meet “customers’ expectations”.
Customers’ satisfaction and loyalty by product in 2010-2011
In 2011, in addition to earlier customers’ certificates of approval, Solikamsk was awarded with
certificates of OAO “Russian Institute of Light Alloys” (OAO VILS, Moscow, Russia), OAO
“Aircraft Reductors & Transmissions – Perm Motors” (Perm, Russia), Sandvik (Sweden) and
ZIROM S.A. (Romania).
For effective monitoring of quality at each stage of the production process, including environ-
ment and safety, the Company has an analytical laboratory which is equipped with equipment
and devices made by world-leading Swiss, German and Russian manufacturers. It enables SMW
to perform analyses using atomic-absorption (plasma atomization), atomic-emission (ark, spark
and ICP), mass-spectrometry with ICP, potentiometric, X-ray fluorescent, spectral photometric
and classical chemical methods. The accuracy of measuring for certain impurities is 0.01 ppm.
The analytical laboratory of SMW is certified on conformance with international standard
ISO/MEC 17025-1999. The last certification was performed in June of 2007 with certificate va-
lidity until 25 April 2012.
The laboratory is accredited at ROSSTANDART for analysis of pure & alloy magnesium, chem-
ical compositions of niobium, tantalum, titanium and rare earths, drinking water, river water,
waste and recycled waste water, technical gaseous substances, harmful and injurious production
factors (physical and chemical) with test precision conforming to technical requirements.
16
Laboratory Certificate ISO/MEC 17025-1999
OPERATIONAL SAFETY AND INDUSTRIAL SECURITY
Solikamsk is in the process of development of Integrated Management System that covers the
both Company’s indisputable priority areas, operational safety and industrial security, and pre-
pared a draft of the Standard “Integrated Management System For Operational Safety And In-
dustrial Security” that is recently in the process of approval.
Operational Safety
Operational safety is maintained in accordance with internal Company’s “Standard For Opera-
tional Safety”, Chapter VIII “Operational Safety” in Collective Labor Agreement between Ad-
ministration and Trade Union, and Russian statutory requirements in this respect.
In 2011, operational safety expenses accounted for 57.7 million rubles ($2.0 million), including
44.4 million rubles for protection of personnel and 13.3 million rubles for safety techniques.
These expenses do not include compensation paid to personnel in accordance with legislation.
Industrial Security
Industrial Security is maintained by the Company in accordance with Environmental Policy, in-
ternal Company’s “Standard For Surveillance In Production On Compliance With Industrial Se-
curity Requirements”, Russian statutory requirements, and international standards in this respect.
Expenses connected with industrial security accounted for 67.0 million rubles ($2.3 million).
These expenses do not include environmental costs specified for production processes.
Avoidance of pollution is the main issue of concern at the time of design and production deci-
sions.
SMW continuously monitors contamination of air, water, and soil. This measuring helps to act
effectively if pollution exceeds environmental norms. The system for radioactivity control of the
surrounding environment is also developed and maintained that guarantees radiation safety for
the local population. The Company has all permissions for use of natural resources.
SMW developed an environmental program until 2012, dedicated to protecting the water basin
from pollution. In accordance with this program, the quantity of contaminants in waste water
17
should be dropped by 4.9 thousand mt per annum, and water consumption should be lowered by
1.5 million m3 per annum. Remarkable improvement in the purity of waste waters is scheduled
when the environmental program will be completed in whole.
The main objective for manipulation with residues was further processing. 95% of residues gen-
erated by production are processed inside the Company. The Company has licenses for manipu-
lation of dangerous residues as well as quotas for disposal in the surrounding area.
Solikamsk continuously develops and performs actions to reduce air pollution and improves the
efficiency of gas-scrubbing systems. The Company developed processes to reduce chlorine and
hydrogen chloride emissions by 10 to 15% to the year 2012.
In 2011, total air pollution was dropped by – 35.5 mt or -5.2%, volume of recycled water in-
creased by +5% and accounted for 7.6 million m3.
The Company was awarded with laureate degree in competition “The Best 100 Companies in
Russia. Environment and Environmental Management”.
Awards of International Organization “GLOBE International - Parliamentarians for Balanced Environment” and Rus-
sian Parliament and Government
In 2011, SMW will continue its programs connected with protection of water and air from pollu-
tion, building of polygon for disposal of solid wastes & residues, and approval of the border for
sanitary zone.
Information about the Company’s licenses
Certain activities of SMW are subject to licensing. List of the Company’s licenses is provided in
Annex №3 under link http://smw.ucoz.ru/index/godovye_otchety/0-11.
SOCIAL RESPONSIBILITY
Social responsibility is an unavoidable priority of SMW.
The policy of the Company in this area is concentrated on the following incontestable concerns:
improvement of the welfare and intellectual development of personnel; support of the Compa-
ny’s veterans and pensioners; and support of culture, sports and education.
These aspects of social responsibility of SMW are included in the Mission, Quality Policy and
Environmental Policy and in the Collective Labor Agreement between the Company’s Admin-
istration and the Trade Union as well as in agreements between the Company’s Administration
and the Administration of Solikamsk City.
Improvement of welfare and intellectual development of personnel
Employment and salaries
18
OAO Solikamsk Magnesium Works, along with OAO Uralkaliy and OAO Solikamsk Pulp &
Paper Works, ranks among the essential companies in Solikamsk City and maintains the second
position in the city by number of employees.
SMW’s employment and salaries in 2007 – 2011
2007 2008 2009 2010 2011 2011/
2010
Annual average total number of employees, 3’022 3’035 3’096 3’199 3’238 +1.2%
including
Production employees
2’903
2’918
2’984
3’082
3’119
+1.2%
Non-production employees 119 117 112 117 119 +1.7%
Monthly average salaries, rubles/person/month 11’726 14’688 14’396 16’233 20’851 +28.4%
According to ROSSTAT, in 2011, the growth of nominal salaries in the Perm Region, the whole
Russia, and the Russian metallurgical industry was +12.2%, +12.2%, and + 14.4%, respectively.
Consumer’s Price Indices in Russia and the Perm Region were +6.7% and +6.1%, respectively,
while inflation in Russia was + 12.0% in 2011.
The following social support to employees was done by the Company in the reporting year:
- labor tariffs was increased twice a year, first once by + 6% in February and second once by
+5% in July;
- Minimal salaries in the Company were elevated to subsistent wages in the Perm Region.
High growth rate of average salaries was a result of increased bonuses paid in connection with
good performance of the Company during the reporting year.
Training and education of personnel
SMW maintains a system of continuous education and training for its personnel. According to
this system, each employee is educated and trained at least once every three years. Spending by
the Company to train and educate its employees increased from 12.1 million rubles in 2010 to
13.9 million rubles in 2011.
In 2011, 1’016 workers and 98 specialists and managers were involved in training and educa-
tional programs –these represent 35.9% of the total number of employees, and 237 employees
were awarded with higher skill rank. Additionally, 221 managers and specialists were trained
and certified on compliance with the rules of the Federal Services for the Supervision Of Envi-
ronment, Technology And Nuclear.
10 students study in universities and 17 students in colleges at the Company’s expense. 129 em-
ployees study in universities and 95 in colleges out of working hours. More than 260 students of
universities and colleges were trained by the Company at its facilities. The Company has granted
1.6 million rubles of loans to its employees to study in universities themselves or to fund their
children’s studies.
Social programs
Social expenses of the Company rose from 72.3 million rubles in 2010 to 110.9 million rubles in
2011. SMW spent 45.0 million rubles to support social infrastructure (sports, sanatorium, culture
and others) and 22.4 million rubles to support retirees, veterans and other social programs. Pay-
ment of social bonuses to the Company’s employees and certain other expenses accounted for
43.5 million rubles.
POSITION IN THE INDUSTRY
Position in the magnesium industry
End-uses of magnesium
19
Magnesium is a silvery white metal, 1.5 times lighter than aluminium. Magnesium exhibits the
best strength-to-weight ratio and is the lightest among structural metals, and contributes other
important physical and chemical properties. That is that magnesium is widely used in the auto-
motive, aerospace, and electronic industries as well as serves as an alloying additive in the pro-
duction of aluminium alloys. It is also used in the production of vitamins, food additives and
various chemical compounds; in iron and steel desulphurization and modification; as the reduc-
ing agent in the production of certain non-ferrous metals; for cathodic protection of steel con-
structions from corrosion; as the metal for alternative energy sources; and other applications.
Data to estimate distribution of magnesium by end-uses in 2011 was not available to the date of
preparation of this Report.
In 2010, the main end-uses of magnesium were estimated as follows:
1. Aluminium alloying and other uses ~43%
2. Structural uses: magnesium casting, die-casting and wrought products ~30%
3. Desulphurization and modification of iron and steel ~19%
4. Metal reduction of titanium, zirconium and other metals ~8%. This data does not include
magnesium produced and internally consumed in production of titanium sponge inside titanium
– magnesium plants.
Forecasted growth of magnesium consumption is +7.5% per annum during 2011- 2020.
Substitutes for magnesium may be in:
- aluminium alloying –no substitutes, but aluminium alloys with magnesium may be substituted
by polymers, glass, paper and steel in packaging; by magnesium alloys, polymers, composites,
zinc, iron and steel in design of land-based transport and in structural uses; by magnesium alloys,
titanium, steel, polymers and composites in aerospace and electronics; by steel, composites,
wood and polymers in building and construction;
- structural uses – aluminium and zinc alloys, polymers, composites, iron, steel and titanium;
- iron and steel desulfurization – calcium carbide, lime and aluminium;
- titanium sponge production - sodium and calcium metals. Titanium may also be produced by
an electrolytic process and by a process of thermal decomposition of titanium iodide.
World primary magnesium production
World primary magnesium production in 2005 – 2011, ‘000 mt
20
The 203rd
Anniversary of the discovery of the metal called “magnium” by the British scientist Sir
Humphrey Davy was celebrated with historical record of production of the metal.
According to statistics from China, USGS and Solikamsk estimates, primary magnesium produc-
tion increased from 771 thousand tones in 2010 to 786 thousand tones in 2011 (+1.9%). Estimat-
ed distribution of primary magnesium output by countries is provided in the graphs above.
Solikamsk’s share is an estimated 1.7% in the world and 75% in Russia.
Primary magnesium capacities Estimated world primary magnesium capacities, ‘000 mt
Country 2005 2010 2011 2012 2015 2020
South East Asia 816 1 715 1 015 1 225 1 550 2 130
>70 facilities China2 816 1 700 1 000 1 200 1 500 2 000
VCM Malaysia 0 15 15 15 30 30
POSCO South Korea 0 0 0 10 20 100
CIS 58 30 30 29 29 29
Solikamsk1 Russia 18 16 16 15 15 15
VSMPO - AVISMA1 Russia 28 12 12 12 12 12
UKTMK1 Kazakhstan 2 2 2 2 2 2
Kalushsky Mahniy Ukraine 10 0 0 0 0 0
Europe, Middle East and Africa 33 35 35 38 50 50
Dead Sea Magnesium Israel 33 35 35 38 50 50
North America 81 52 63 63 63 72
US Magnesium USA 43 52 63 63 63 72
Hydro Magnesium Canada 48 0 0 0 0 0
Latin America, Australia and Oce-
ania
8 22 22 22 22 22
Rima Industrial Brazil 8 22 22 22 22 22
Total 996 1 854 1 165 1 377 1 714 2 303 1 Does not include magnesium capacities for internal use in titanium sponge production 2 Chinese official statistics for magnesium capacities is not available since 2009. In 2011, Chinese Government performed certi-
fication of capacities under new rules and more than a half of capacities built until 2011 should be scrapped. Estimated capacities
for 2012 – 2020 are conditional and include projects announced until the end of 2011, however, announcements about more and
more new magnesium projects in China are published gradually that makes any forecast unpredictable.
China
China is the largest producing country of primary magnesium in the world – with its share ex-
ceeding 80% of the world total. Thus, economic and political circumstances in this country have
the most essential effect on the entire magnesium market.
As of 1 January 2011, installed primary magnesium capacity in China exceeded 1.7 million
tones, but more than a half of this capacity never entered into operation, and they are no longer
meet national environmental and technical standards for the industry. These outdated capacities
should be scrapped following the concepts for development of the magnesium industry stipulated
in new XII five-year plan (2011-2015).
Inside this five-year plan, the Chinese Government brought into effect a strategy for develop-
ment of the metallurgical industry. Following this strategy, the Government has already elimi-
nated preferential electricity tariffs for energy-intensive industries and imposed a surcharge on
power tariffs for СО2 emissions. New standards for magnesium industry were also developed
and brought into effect. The goal of these standards was to slow growth of capacities in the in-
dustry. However, all these measures had just a little effect on intention to build new capacities,
and expansion of excessive capacities continues
Outside of China:
21
(1) In June of 2010, Hong-Kong based CVM brought into operation 15 thousand tpy magne-
sium facility in Malaysia, but this plant faced technical problems and operated in the test
mode with interruptions and high financial losses until April 2012. In April 2012, the
company restarted facility in commercial mode, and announced plans to reach designed
capacity. Company schedules to increase capacity of the plant up to 30 thousand tpy in
the future.
(2) US Magnesium, USA, announced upgrade of its capacity from 52 thousand to 63.5 thou-
sand mt per annum at the end of 2011. Additional capacity was aimed to supply increased
titanium sponge output at ATI plant located next door to US Magnesium, but, unexpect-
edly, ATI changed its plans to do that, and US Magnesium is mulling now what to do
with additional numbers of magnesium output, whether continue or not. US Magnesium
initially scheduled further growth of capacity up to 72 thousand tpy to 2015, align with
further ATI Ti – sponge capacity expansion, but it is a matter of concerns for the compa-
ny now.
(3) Dead Sea Magnesium, Israel, also announced plans to increase its capacity from 35 thou-
sand tpy in 2011 to 50 thousand tpy by 2015 including 10% increase in 2012.
(4) POSCO, South Korea, announced plans to finish construction of its magnesium plant in
the country with initial capacity 10 thousand tpy in June 2012, and then gradually upgrade
capacity of the plant up to 100 thousand tpy by 2018.
Estimated regional consumption of magnesium
Estimated consumption of magnesium by main consuming countries and areas, ‘000 mt*
2005 2006 2007 2008 2009 2010 2011
Output: 639 678 754 754 606 771 786
Consumption:
China 106 157 263 162 271 270 261
EurAsEC 20 7 12 15 7 15 18
Japan 47 50 48 45 28 39 39
Canada 39 41 22 33 10 36 35
EU-27 159 155 160 154 90 149 140
The United States 137 129 130 143 73 110 109
Others 131 139 119 202 127 152 184
*based on the imports-exports data and estimated production in the country or region. Data may include inventories of unsold
magnesium at hands of producers and/or traders due to lack of information concerning movement of inventories.
Prices in the markets
Prices had different directions in the main markets for magnesium.
Metal-Pages, Metals Week. Price quotes in 2011, $/mt
22
Prices in the US market have been going down during the whole reporting year and Q1 2012.
Price increases were observed in the European and the Asian markets in the first half of the re-
porting year, but then they turned down, affected by debt crisis in Europe, and gradually de-
creased until April 2012. In April 2012, prices became flat and even slightly increased.
Trade remedies
(1) China. Since January 2008, a 10% export tax on pure & alloy magnesium ingots is in effect.
(2) Brazil. Chinese pure & alloy magnesium ingots are subject to $1’090/mt and granular mag-
nesium is subject to $990/mt antidumping duties in the country.
In June 2011, Brazilian Government, following the petition of local magnesium producer, initiat-
ed antidumping duty investigations concerning pure magnesium from Russia. Rate of antidump-
ing duty requested by Brazilian producer exceeds 20%. Neither decision in this respect was pub-
lished by Brazilian Government to the date of compilation of this Report.
(3) The United States. Overall, approximately 100% antidumping duties on magnesium from
China are in effect in the US. One of the Chinese producers had a 111.7% antidumping duty, but
this was dropped down to 0.7% in the last Administrative Review.
In February 2011, during the course of the Sunset Review of the antidumping order on magnesi-
um from Russia, the US International Trade Commission (US ITC) found that revocation of the
antidumping order would not lead to the continuation or recurrence of material injury to the
magnesium industry in the United States and the order was revoked. The magnesium producer in
the US disagreed with the US ITC’s decision and appealed to the Court, asking that the anti-
dumping order remain in effect. The decision of the Court is expected by 2012.
(4) WTO. In January 2012, WTO Court of Appeal, following the petition of the US, Japan and
European Union, issued the decision that a 10% export tax on pure & alloy magnesium ingots,
imposed by Chinese Government in 2008, violates conditions of access of the country in WTO
and should be revoked. In accordance with WTO’s Rules, China has between 15 and 18 months
to adjust its trade policy to this decision. Neither change in Chinese trade policy was observed to
date of compilation of this Report, and it is reasonable to expect that nothing will be changed
until the end of 2012, because amount of this tax is included in the budget of China for 2012.
Position in the niobium industry
End Uses
The niobium (Nb) market is generally divided into two main markets:
(1) Approximately 85-90% of total world niobium consumption, along with other refractory
metals like titanium, vanadium, chromium, molybdenum, nickel and rare earths, is dedicated to
the production of high strength low alloy (HSLA) steels. HSLA steels are mainly used in the
production of pipes for trunk pipelines utilized by the oil and gas industries, bodies of motor ve-
hicles, vessels, rail tracks, architectural structures, and tool steels. The inclusion of Nb into steel
composition is made with the use of so-called HSLA grade ferro-niobium (FeNb). In production
of HSLA grade FeNb, low priced mineral concentrates are used that typically contain 45-65%
Nb2O5. This is the reason why the HSLA grade FeNb market is not attractive for SMW and this
market is not described in this Report.
(2) The remaining 10-15% of niobium is the so-called “pure niobium”. Niobium in two main
forms is used in this market:
- niobium in the form of niobium chemicals. The main products in this market are high purity
oxides (99.8% Nb2O5 and above) that are used in the production of optical glass, fiber optics,
single crystal niobates, multi-layer ceramic capacitors, catalysts, high temperature pigments and
some other applications;
- niobium in metallic form. This includes Nb metal in compositions of vacuum grade FeNb and
NiNb which are used in the production of so-called superalloys and full alloy heat and creep re-
23
sistant stainless steels as well as in the form of pure metal which is used in the production of nio-
bium alloys, mill products, super conductors, and some other applications. Metallurgical grade
niobium oxide (min.99% Nb2O5) is used to produce niobium in metallic form as well as for
some other applications.
It is necessary to stress that the market of HSLA grade FeNb and the market of the pure niobium
each follows its own way, have just a little effect on each other, and even may have opposite di-
rections at the same period of time.
Substitution: The following materials can be substituted for niobium: ceramics, molybdenum,
tantalum, tungten and titanium in high temperature applications; tantalum, lanthanum, hafnium,
polymers, aluminium, and electronic ceramics in optics and electronics; tantalum, tungsten, tita-
nium and silicon in cemented carbides; and molybdenum in catalysts.
Pure niobium market review
The 210th
Anniversary of the discovery of the element originally called as “columbium” by its
discoverer, English chemist Charles Hatchett, was celebrated with further growth of consump-
tion in the market of pure niobium.
Pure niobium shipments of 6’723 mt Nb contained (9’618 mt Nb2O5 contained) in 2011 is a rise
by +13.2% or + 785 mt Nb (+1’123 mt Nb2O5) compared to 5’938 mt Nb (8 494 mt Nb2O5) in
2010 – a new historical record in pure niobium consumption.
Solikamsk operates to different extents in both sectors of the pure niobium market, i.e., in the
market for metallic niobium and the market for high purity niobium compounds, although supply
to the metal market represents the vast majority of SMW’s shipments.
The top suppliers to the metallic pure niobium market are CBMM (Brazil), AS Silmet (Estonia),
and SMW. Together these three companies, in the various forms (Nb metal or alloys, vacuum
grade FeNb/NiNb, and/or Nb oxide), supplied approximately 68% of the global pure niobium
market in 2011. Other suppliers were NAC Kazatomprom (Kazakhstan), H.C. Starck (Germany),
CIF (Brazil), and Chinese producers.
Suppliers to the market for high purity niobium compounds are H.C. Starck (Germany), Cabot
Supermetals (USA), CBMM, OTIC (China) and approximately 10 other Chinese manufacturers,
Mitsui Mining & Smelting (Japan), and SMW.
Assessment of regional markets is hampered by the lack of separate custom codes for niobium
compounds. Companies producing pure niobium and niobium concentrates also prefer to keep
their production data and capacities confidential.
Estimated capacities of the main suppliers to the pure niobium market in 2011, mt Nb2O5 per annum *
Company Country Capacity Products Remarks
Ore suppliers:
Mineracao Taboca SA,
Pitinga mine
Brazil 2’000 FeNbTa (45%Nb) By product of tin ore mining
LGOK Russia 1’000 Loparite
Artisanal miners of Ron-
donia State
Brazil 200 колумбит Попутный продукт обогащения
оловянных руд
DRC 250 Coltan, pyrochlore Эмбарго ООН
Nigeria 260 Coltan
Rwanda 190 Coltan Эмбарго США
Mozambique,
Ethiopia, Burundi
80 Tantalite
Wodgina+Greenbushes Australia 300 Tantalite Operations suspended in 2012
Malaysia, Thailand 200 Tin slags, tantalite,
struverite, columbite
By-products of tin or tin ore pro-
duction
Minmetals – Yichun +
Nanjin Mines
China 150 Tantalite
Ore processors:
СВММ1 Brazil 7’200 Nb oxide, FeNb/ Capacity was upgraded from
24
NiNb, metal 4’800 to 7’200 mt in 2011 - 2012
CIF1 Brazil 100 Nb oxide
AS Silmet Estonia 1’000 NiNb, Nb metal, Nb
oxide
SMW Russia 855 Nb compounds
HCST1 Thailand, Germany 700 Nb compounds for
optics & electronics,
NiNb, Nb carbide
Cabot Supermetals USA 300 Nb compounds for
optics & electronics
UMZ (KazAtomProm) Kazakhstan 250 Nb oxide/metal
Mitsui Mining & Smelt-
ing
Japan 100 Nb compounds for
optics & electronics
OTIC, DSL, others China 3’000 All grades of pure Nb
* USGS – США, DNMP – Brazil, Solikamsk estimates 1 companies process its own ores mined
TIC. Pure niobium shipments in 2005 - 2011, mt Nb2O5 contained
5
Based on the data for 2011 above, Solikamsk’s share accounted for 4.5% in the global pure nio-
bium market and 100% of niobium oxide production in Russia.
Remarkable growth of demand in the pure niobium market was observed in 2011 in all of the
main areas of end-use, and it is forecast that this trend will continue for the period 2012-2014,
driven by surging production in the main niobium-consuming industries like energy generation,
the chemical industry, aerospace, and electronics. Estimated average growth of niobium con-
sumption is between +8% to +10% per annum from 2011 to 2020.
Consumption of niobium in the production of superalloys – which are mainly used in turbines for
jet engines and gas-fueled energy generation facilities as well as in optics and electronics – ac-
counts for more than 70% of the pure niobium market of which the superalloys sector is the main
factor which drives the entire pure niobium market.
The construction of large GasProm pipeline projects from Russia to Europe – North Stream and
South Stream – and the scheduled installation of additional atomic energy generation facilities
will support the growth of niobium use in Europe and in the atomic energy sector.
The remarkable growth in tantalum prices will push 3C manufacturers toward the more intensive
use of tantalum substitutes in capacitor application where niobium-oxide capacitors have the best
capacitance after tantalum capacitors.
Boeing and Airbus, in their 20 years’ outlooks, forecast that 26’000 new civil aircraft will be de-
livered during the period 2010-2029, or an average 1’300 units per annum, and with an average
growth of 4.8% per annum. The most notable growth is expected during 2012-2014, the result
of replacement of old models with new more fuel-efficient models during this period and con-
stantly high fossil fuel prices push this replacement forward.
25
The top three aircraft manufacturers – Airbus, Boeing, and Embraer – shipped 1’215 planes in
2011, -3 planes fewer than in 2010.
Airbus and Boeing schedule deliveries of 1’160 of civil aircrafts in 2012 which is 15% more
than that in 2011.
Airbus, Boeing, Embraer. Aircraft deliveries in 2005 - 2011 and global market forecast 2010-2029, planes
Prices in the pure niobium market
End-quarter prices for raw material (imports) and pure niobium oxide (exports) in China in 2010 – 2012, $/kg *
Товар 10-Q1 10-Q2 10-Q3 10-Q4 11-Q1 11-Q2 11-Q3 11-Q4 11-Q4
/10-Q4
12-Q1
Columbite ** 24.80 38.58 39.68 36.38 35.94 44.09 51.39 48.50 +33.3% 49.27
Nb2O5 99.5% (MG) 37.00 40.50 45.50 46.50 49.50 54.50 64.50 64.50 +38.7% 63.50
Nb2O5 99.9% (OG) 49.00 73.50 73.50 70.50 70.50 71.50 71.50 71.50 +1.4% 69.50
Nb2O5 99.99%(LN) 52.50 71.50 76.50 78.50 78.50 79.50 79.50 79.50 +1.3% 78.50
** Asianmetal *kg Ta2O5 + Nb2O5 cif, MG-metal grade, OG – optical grade, LN – electronic grade
Columbite is one of the main raw materials utilized in producing pure niobium. Columbite prices
(min. 50% Nb2O5 + 5% Ta2O5) – driven by surging demand for pure niobium, the unstable situa-
tion in Africa, and toughening controls by the UN embargo on trade in tantalum raw materials
from the ‘DRC countries’ – jumped in 2011 and pushed prices for all grades of niobium oxide up
and stable prices are expected in 2012.
Trade related issues
Niobium compounds have duty-free status in the CIS and the European Union.
Position in the tantalum industry
End Uses
Similar to the pure niobium market, the tantalum (Ta) market can be divided into the two sec-
tions:
(1) Technical grade tantalum, which is produced, depending on the technology, with the use of
tantalites (min.25% Ta2O5) and columbites (see section on “Prices in the pure niobium market”,
above), metallurgical grade tantalum oxide (min. 99%), or potassium fluortantalate as the feed-
stock, and with the production of tantalum metal in the form of ingots, metallurgical and capaci-
tor grade powders, and tantalum carbide as the final products. This market accounts for 80-90%
of the entire tantalum market. The use of tantalum in the production of capacitor grade powder
accounts for a 40% share in this market, and superalloys and tantalum mill products account for
25% each, while the remaining 10% is occupied by tantalum carbide for hard alloy applications.
(2) High-purity tantalum compounds (min.99.9%) for optics, electronics, and certain other appli-
cation where 10-20% of total tantalum production is used. High-purity tantalum oxides (min.
99.95%) for optics and electronics are the main products in this market.
Solikamsk operates to different degrees in both of the markets described above.
26
Substitutes: The following materials can be substituted for tantalum: niobium, aluminum and ce-
ramics in capacitors; glass, polymers, niobium, platinum, titanium, and zirconium in corrosion-
resistant equipment; hafnium, iridium, molybdenum, niobium, rhenium, tungsten, vanadium and
molybdenum in high-temperature applications and superalloys; niobium, hafnium, lanthanum
and polymers in optics; and niobium, titanium and tungsten in hard alloys.
Tantalum market review
The 209th
Anniversary of the discovery of the element called “tantalum” by its discoverer, Swe-
dish chemist Anders Eckeberg, was marked by a notable growth in demand worldwide.
According to TIC, Ta shipments increased from 2’285 mt Та (2’790 mt Та2О5) in 2010 to 2’646
mt Та (3’231 т Та2О5) in 2011, an increase of + 361 mt Та (441 mt Та2О5) or +15.8% year-to-
year.
TIC. World tantalum processors’ shipments in 2005-2011., mt Та2О5 contained
Following these TIC data for 2011, Solikamsk’s share was 0.8 % of the world tantalum market
and 100% of tantalum oxide production in Russia.
Suppliers to the metallurgical grade tantalum market are H.C. Starck (Germany), Cabot Super-
metals (USA), OTIC (China), UMZ (Kazakhstan), AS Silmet (Estonia), CIF (Brazil), Mitsui
Mining & Smelting (Japan), OTIC and some other Chinese producers, and SMW.
Suppliers to the high purity tantalum compounds market are H.C.Starck (Germany), Cabot Su-
permetals (USA), Mitsui Mining & Smelting (Japan), OTIC (China) and some other Chinese
producers, and SMW.
In contrast to the niobium market where the major processors source their raw materials in their
own countries (CBMM, SMW, CIF, HCST in Thailand), only two companies – CIF and
Solikamsk – and partially HCST and certain Chinese manufacturers are supplied by domestic
sources, while the remaining companies are strongly dependent on import sources.
Similar to operators in the pure niobium market, tantalum processors prefer to keep their capaci-
ty and production confidential, and the most recent publication in this respect is dated 1995. Cer-
tain details are available with respect to mining companies.
Estimated capacities for tantalum mining and processing companies in 2009, mt Та2О5 per annum*
Company Country Capacity, tpy
Ta2O5
Products Remarks
Producers of ores
Wodgina+Greenbushes Australia 850 tantalite Restarted in 2011,
suspended in 2012
Noventa – Marropino Mozambique 150 tantalite Plans capacity expan-
sion
DRC 150 coltan UN embargo
Rwanda 150 coltan
Mineracao Taboca
SA, Pitinga mine
Brazil 200 FeNbTa (4.5% Ta)
Artisanal miners in
Rondonia State
Brazil 20 columbite
27
Nigeria 25 columbite
Malaysia 200 Tin slags, struverite,
tantalite, columbite
Depends on tin produc-
tion
Minmetals – Yichun
+ Taijin
China 250 tantalite
LGOK Russia 70 Loparite
Ore processors:
HCST1 Germany + Thailand 1 000 All grades of Ta prod-
ucts
Cabot Supermetals USA + Japan 600 All grades of Ta prod-
ucts for optics and
electronics
UMZ (Kazatomprom) Kazakhstan 370 Metal
CIF Brazil 200 Ta oxide
AS Silmet Estonia 130 Metal, K2TaF7
Solikamsk Russia 60 Ta oxide for metal,
optics and electronics
Mitsui Japan 100 Compounds for optics
and electronics, metal
OTIC, DSL, другие Китай 500 All grades of Ta prod-
ucts
* USGS – США, DNMP – Бразилия 1 компания покрывает примерно 15-20% потребности в тантале со своего рудника в Таиланде
Altogether, more than 75% of all tantalum is used in the manufacture of optics, electronics and
in the aerospace industry. For this reason, tantalum consumption closely depends on production
in these industries, although consumption of tantalum capacitors has the most notable effect on
the entire tantalum market.
The development of the semiconductor industry is the main indicator of the development of the
electronic market.
According to SIA and certain analytical companies, growth of semiconductor industry accounted
for 0.5% in 2011 compared to 4-5% initially expected, and revised forecast is +2- +3% or less in
2012.
The situation in the aerospace industry is described in the section on “Situation in the niobium
market”, above.
Estimated average growth of tantalum consumption is +6% per annum in 2011 – 2020.
Trade related issues
(1) UN embargo on trade with materials containing tantalum, tungsten, tin and gold originated
from “conflict area” of DRC.
(2) Tantalum compounds from Russia have duty-free status in EU and CIS countries.
Prices in the tantalum market
Tantalite and columbite are the main raw materials in the tantalum market. Columbite prices are
observed in the section “Prices in the niobium market”, above.
Tantalite prices (min. 25% Ta2O5), driven by instable situation in Africa and tightening of UN
embargo on trade with tantalum materials from “conflict area” in DRC, increased in Q1 2011and
tantalum oxide prices went up accordingly. However, leading electronic companies in alliance
with Government of DRC started projects aimed to increase production of tantalum minerals in
the country, out of “conflict area”. Besides that, increased tantalum prices encouraged mining of
minerals in the countries and development of deposits where operations were considered as une-
conomic when market prices were low.
Combination of all these factors led to oversupply of the market with tantalum raw materials and
falling prices during the second half of 2011 and the first quarter of 2012. In April 2012, the
world largest tantalum raw materials supplier, GAM in Australia, suspended its operations. This
28
action kept prices out of further falling, and even slight increase of tantalite prices was observed
at the time of preparation of this Report.
Asianmetal. Chinese tantalite (import) and tantalum oxide (export) prices in 2012, $/kg, end of quarter
Товар 10-Q1 10-Q2 10-Q3 10-Q4 11-Q1 11-Q2 11-Q3 11-Q4 10-Q4
/11-Q4
12-Q1
Tantalite * 108.03 126.77 156.53 240.30 260.15 284.40 277.78 218.26 -9.2 % 213.85
Та2O5 99.5% (MG) 150.50 212.50 245.00 370.00 385.00 385.00 398.00 348.00 -6.0% 325.00
Та2O5 99.9% (OG) 175.50 227.50 260.00 432.50 457.50 457.50 457.50 447.50 +3.4% 438.50
Та2O5 99.99%(LN) 182.50 237.50 267.50 460.00 470.00 480.00 480.00 480.00 +4.3% 470.00
*25% Ta2O5 min, price is per 1 kg Ta2O5 contained, cif, MG-metal grade, OG – optical grade, LN – electronic grade
Position in the rare earths industry
End-uses
It has been 217 years since the discovery of element called “yttrium” by its discoverer, Finnish
chemist Johan Gadolin. This is the first in the group of the 15 elements collectively called “rare
earths”.
Despite UIPAC applies the term “rare earths” to a group of 17 elements which have single va-
lency “3” and similar properties and which occur in the earth’s crust collectively, but one of
them, promethium (Pm) does not occur naturally, while another, scandium (Sc), is typically ac-
counted separately.
However, in individual form, each rare earths element enhances its own properties and in mixed
form the properties of one element depresses properties of the other element. This is the reason
that these elements are normally separated for further use.
The main end uses by element:
Cerium (Се) – catalyst in emission combustion systems, polishing powders, modifier for nodular
iron production, decolorizer and ultraviolet absorption addition for glass, flints, heat-resistant
aluminium and magnesium alloys. Lanthanum (La) – oil cracking catalysts, camera and laser op-
tics, fiber optics, modifier for nodular iron production, additive for HSLA grade steels, NiMH
batteries and hydrogen storage systems, sensors, architectural and electronic ceramics, capaci-
tors, resistors and thermistors, heat-resistant magnesium alloys. Praseodymium (Pr) – color glass
and enamels, magnets, creep and heat resistant magnesium alloys. Neodymium (Nd) – magnets,
capacitors, creep and heat resistant magnesium alloys, energy saving lights, lasers, color enam-
els, catalysts of polymerization. Samarium (Sm) - magnets, lasers. Europium (Eu) - phosphors,
LCD, energy-saving lights, neutron absorption. Gadolinium (Gd) - phosphors, magnets, medical
devices, creep and heat resistant magnesium alloys, microwave ovens, superconductors. Yttrium
(Y) - phosphors, ceramics, color glass, heat and creep resistant magnesium and aluminium alloys.
Altogether, approximately 55% of rare earths are used in optics, electronics, and electrical engi-
neering; 15% in catalysts; 15% in ceramics and glass; 10% in metallurgy; and 5% in other minor
applications.
The situation in electronic industry is described in the section on «Tantalum compounds», above.
Besides electronics, notable market drivers for rare earths are hybrid and electric vehicles, solar
and other types of renewable energy, restrictions on filament bulbs in Europe and implementa-
tion of energy saving lamps, enforcement of fuel-saving and pollution control programs in
emerging markets, and the growth of iron and steel production. However, the use of rare earths
in all of these programs is presently uncertain due to the unprecedented price hike and lack of
confidence in enough supply.
Rare earths market forecast
2010 market for rare earths was estimated 125 thousand tones TREO contained, and it was pre-
dicted that the market will reach between 185 and 208 thousand tones TREO in 2015 with aver-
29
age growth of 9-12% per annum driven by projected surge of output of hybrid and electric vehi-
cles, new generations of electronic devices and alternative energy programs.
This outlook was downgraded after rare earths market was affected by high prices and uncertain-
ty in supply. However, start of new operations outside China should add confidence in supply,
and significantly dropped prices make rare earths more attractive, and these factors may revive
plans to use more rare earths in these projections.
Molycorp Inc. Rare earths market forecast by end-use until 2020, ‘000 mt TREO
Rare earths market review
Shipments from China cover more than 95% of the total world supply of rare earths (REEs).
Besides China, Solikamsk and Molycorp in USA, were the main sources of rare earths supply to
the market, independent on China. Solikamsk supplied 1.4 thousand tones TREO and Molycorp
shipped 3.5 thousand tones TREO in 2011.
Official Chinese statistics was not accessible to the date of compilation of this Report. Solikamsk
estimates that output of processed rare earths products in China in 2011 was approximately the
same as it was in 2010 and accounted for ~130 thousand mt TREO. Chinese export statistics
were also not accessible, but according to different publications, it is estimated that official Chi-
nese exports reflects ~ 17 thousand tons of processed products in 2011, while import statistics of
the main rare earths - consuming countries reflect numbers 3 times, or 30-40 thousand tons more
than that estimated for Chinese export statistics.
Based on the data above, worldwide rare earths production is estimated 135 thousand tons TREO
in 2011, and SMW’s share was 1.0% in that, and 100% in Russia.
Estimated world rare earths production in 2005-2011, ‘000 mt TREO contained
30
China
Efforts of Chinese Government enforced in the middle of 2010 and aimed to enhance perfor-
mance of rare earths industry and conserve rare earths reserves in the country had a temporary
effect.
At the end of June 2011, it became known that majority number of producers used its production
quotas issued by Government for the whole year, but continued to operate and produce above
quota . As the result, in terms of export restrictions, excessive inventories in the country rose to
estimated 60-90 thousand tones to the end of Q3 2011.
Discouraged by this fact, Chinese Government developed a system of special invoices for rare
industry that is aimed to turn producers back to the law. Quantity of material in these invoices
should not exceed numbers indicated in production quotas issued by Government. Any trade
without these special invoices is prohibited. Introduction of this system is scheduled in June
2012, but news about development of this system caused panic sales of inventories by producers
who violated its quotas and caused free falling prices in all of the markets.
Rest of the world
Chinese policy toward a complete prohibition of exports in 2015, reduction of export quotas, and
the sharp hike of export prices for all rare earth products, encouraged rare earths mining and pro-
cessing projects outside China and intensified R&D to develop products which are able to re-
place or reduce usage of rare earths in different applications.
At the end of 2011, the following mining and processing projects were announced as alternatives
to Chinese supply:
(1) LGOK in Russia intensified efforts to increase production of loparite at its Karnasurt mine
from 5.4 Kt in 2010 to 12-13 Kt in 2015 with an increase of rare earths output from 1.5 Kt
TREO in 2010 to 3.5 Kt TREO in 2015. Development of other possible deposits and rare earths-
containing ores available in the Lovozero massif are recently under study.
(2) In Q4 2012, Molycorp, USA, financially supported by Japanese companies, plans to arrange
mining and processing of rare earths with initial capacity 20 thousand tons TREO of processed
products under “from mine to magnet” strategy and upgrade this capacity up to 40 thousand tons
TREO in Q4 2013. Following this strategy, Molycorp acquired AS Silmet in Estonia, 2 compa-
nies involved in production of magnetic alloys and wind turbines in the US, and Neo Materials in
Canada -the company which owns 2 rare earths separation plants in China, with total capacity 8
thousand tons TREO per annum, and plants making magnetic materials that nobody else can
produce around the globe.
(3) Lynas in Australia, also financially supported by the Japanese, made arrangements to mine
Australian yttro-monazite with enhanced content of heavy rare earths and further process this
concentrate in Malaysia. Capacity of the project is 22 thousand TREO per annum. The start of
mining operations in Australia was primarily scheduled in Q4 2011 and processing operations in
Malaysia in Q1 2012, but company was not able to obtain a license from Malaysian Government
in due time, and start of Malaysian facility was re-scheduled to June 2012, though it is rumored
that start of this facility may be once again re-scheduled to later date.
(4) Approximately 200 other rare earths projects have been announced in different parts of the
world, but all of them are still under study due to lack of financing, technology, or resistance of
local governments.
Prices in the rare earths market
Multiple price growth for all rare earths was observed in the first half of 2011. Encouraged by
high profitability of operations, Chinese manufacturers increased its output paying just a little
31
attention to government production quotas and actual demand in the market that resulted free
falling prices in all of the markets since August 2011 and this downward trend continued until
April 2012, when symptoms of price stability appeared on the market and prices for certain rare
earths even turned slightly up.
A market price schedule for 2010 – Q1 20121 – which covers oxides of light rare earths elements
(Ce, La, Nd, Pr) accounting for the vast majority in rare earths mix in carbonates manufactured
by Solikamsk – is provided in the table below.
Metal-Pages. End-quarter Chinese export prices on light rare earths in 2010 – Q1 2012, $/kg
10-
Q1
10-
Q2
10-
Q3
10-
Q4
11-
Q1
11-
Q2
11-
Q3
11-Q4 11-Q4
/10-Q4
12-Q1 12- Q1/
11-Q4
СеО2, 99% 5.85 6.95 38.95 59.95 121 149 71 42.50 -1.4 р. 25.50 -1.67 р.
La2O3, 99% 6.90 8.10 38.95 60.10 121 148 79 51.00 -1.2 р. 26.00 -1.96 р.
Nd2O3,99% 31.20 37.50 75.00 86.00 202 318 263 195 +2.3 р. 130 -1.50 р.
Pr6O11, 99% 31.05 36.75 72.00 87.00 196 238 219 165 +1.9 р. 130 -1.27 р.
It is necessary to stress that a rapid price hike and further drop was observed not only for export
prices, but also for prices inside China, though amplitude of domestic prices was in lower range
than that for export prices.
Position in the titanium industry
After the start of titanium sponge operations in 2009, the production of titanium dioxide in
Solikamsk was suspended. The share of titanium tetrachloride in total titanium output is very
small, and the market was not estimated for this product.
End uses
Titanium is the lightest among refractory metals, and it exhibits certain enhanced properties such
as high plasticity, strength, and corrosion resistance including resistance to corrosion in high
temperature environments. End-uses of titanium metal are the production of parts and mill prod-
ucts for the aerospace (40-50%) and chemical and energy (30-40%) industries, production of
military equipment, shipbuilding, medical appliances (implants and others), sports applications
(golf clubs and other uses), and certain other applications which, depending on demand, may ac-
count for between 5 and 20% of the total market for the metal.
Review of titanium sponge market
Six countries produce titanium sponge: China, Russia, Japan, Kazakhstan, USA, and Ukraine. At
the beginning of 2011, India announced the start of a titanium sponge facility in the country.
In accordance with data provided by attendees of International Titanium Association (ITA) con-
ference, world output of titanium sponge was estimated at 205 thousand tons in 2011 and this is
a rise by +55 thousand tons or by +36.7% compared to 150 thousand tons produced in 2010. Out
of this total, according to CNIA, 61 thousand tons were produced in China, and for the rest of the
countries, output was estimated as follows: 9 thousand tons in Ukraine, 21 thousand tons in Ka-
zakhstan, 55 thousand tons in Japan, 23 thousand tons in the US, and 36 thousand tons in Russia
with output of VSMPO-AVISMA around 34-35 thousand tons and SMW of 1.6 thousand tons.
Based on these data, Solikamsk’s output share was 4.8% in Russia and 0.8% in the world.
Further increase of titanium sponge output and consumption is expected in 2012 driven by de-
mand from aerospace industry.
Estimated world titanium sponge capacities to the end of 2011 and forecast for 2015, ‘000 tpy
Company Country Capacities in
2011.
Output in 2011 Capacities in
2015
14 companies China 115 61 124
VSMPO-AVISMA Russia 40 34 44
32
Solikamsk Russia 3 2 3
Total Russia 43 36 47
UKTMK Kazakhstan 27 21 27
ZTMK Ukraine 10 9 10
Toho Titanium Japan 24 24
Osaka Titanium Japan 36 41
Total Japan 60 55 65
Timet USA 13 12 13
ATI USA 22 11 27
Honeywell USA <0.5
Total USA 35 23 39
KMML India 0 0 1
WORLD TOTAL 262 205 313
Estimated word titanium sponge output in 2005 – 2011, ‘000 tpy
According to forecast for 2012-2015, it is expected that there will be notable growth in demand
for titanium metal in all of the main areas of end-uses, primarily in the aerospace industry. The
trend for the aerospace industry is described in the section on “Situation in the niobium market”,
above.
After flight tests of the B-787 Dreamliner, it was found that the use of carbon composites as a
substitute for titanium in the design of Rolls-Royce engines was a mistake, and Rolls-Royce re-
introduced titanium into the design of its engines which resulted in an increase in titanium’s
share in the Dreamliner by 3-5%, depending on the modification. Due to this redesign, the start
of deliveries of B-787 was rescheduled to 2012. It is also expected that Airbus will start produc-
tion of its A-380 and A-450M models in 2012. As a result, a significant growth of the build rate
of new models in aerospace industry is scheduled for 2012-2014.
The revival of passenger and cargo air traffic in conjunction with rising prices for oil caused by
suspension of oil shipments from Libya, sanctions against Iran and political instability in North-
ern Africa and the Middle East is a stimulus for air carriers to replace older models of airplanes
with new, more fuel-efficient models. The remarkable growth of titanium consumption is ex-
pected in the energy and chemical industries as well as in military applications and other indus-
tries.
The most notable growth of consumption is forecast in China.
In the energy sector, the growth of titanium consumption is driven by plans to increase atomic
power generation, exploration of shelf oil deposits, and seawater purification as well as to in-
crease liquid petroleum gas (LPG) production . The number of atomic power generation facilities
worldwide is scheduled to increase from 439 to 569, or by +130 units, by 2020 year. Each atom-
33
ic power facility as well as each shelf platform or LPG equipment requires from 250 to 500 mt of
titanium parts for assembly. The share of LPG in total gas production is scheduled to increase
from the current 6% to 16% by 2030.
Stable growth in demand, between + 5 to 8% per annum, is observed for sports applications and
medical implants. A growth of orders is also observed in Western and Russian military sectors.
In particular, in 2010, a contract was signed to supply 300 Russian fighters to the Indian Air
Force, and the re-equipping of the Russian Army is also on schedule.
Average growth of titanium consumption is forecast at rate 6-7% per annum in 2011-2020.
Titanium sponge prices
Metal-Pages. Titanium sponge prices in 2011 – Q1 2012, $/kg
Titanium sponge prices fluctuated throughout 2011. Earthquakes and tsunami affected titanium
sponge output in Japan at the beginning of the year, and prices went up after that. Rapid growth
of output during the year resulted falling prices at the end of the year. However, surged prices on
titanium raw materials observed in Q1 2012 turned sponge price up again and it is expected that
prices will be flat during 2012.
Position in chemical industry
Calcium chloride is a result of gas-scrubbing in the processes utilizing chlorine as a reagent, and
this material is supplied to the oil industry and for production of de-icers. Output of oil increased
by +0.8% in 2011 and further growth of +0.5-1% is scheduled in 2012. The market for this prod-
uct is very competitive with a large number of suppliers offering the material. Solikamsk esti-
mates the Russian market for this product at 900 – 1’000 thousand tons as recalculated to 32%
CaCL2 in 2011 with Solikamsk’s share 5-6% of the market.
Chlorine is used as a disinfectant for drinking water and for waste disposal, as well as a reagent
in the production of chlorine-containing organic and inorganic chemical compounds. The market
for this product is very competitive. Estimated chlorine production in Russia was above 1 million
tons in 2011, and SMW’s share in the Russian market is estimated at 0.7%.
Lime and milk-of-lime slurry are substitutes for each other, and both are used in the disposal of
industrial wastes as well as components of mixtures for building and construction. According to
ROSSTAT, lime production in Russia was more than 10 million tons in 2011. SMW’s share is
estimated at 0.5% of that figure in 2011.
THE COMPANY’S DEVELOPMENT PROSPECTS
Further development of Solikamsk is scheduled as follows:
34
Development and implementation of new technologies – increase of dehydrated carnallite output
in fluid bed furnace up to projected capacity.
Improvement of production equipment:
- development of detailed design of cyclonic melting pot for carnallite chlorinator;
- test of modernized electrolytic cell to study possibility of operations with lower voltage and
lower electricity consumption;
- test of retorts for titanium sponge reduction and vacuum distillation with changed geometry to
study possibility to increase its life-time;
Improvement of product’s quality:
- replacement of the old type rotary vacuum filter with a new one on the stage of controlling fil-
tration in rare earths carbonate production;
- change of size distribution screening system for titanium sponge by the way of replacement of
wedge wire screen with drum screen.
Decrease of anthropogenic impact on the environment
- implementation of new project for waste water disposal;
- rebuilding of the 1st system for water-soda ash off-gas scrubbing with implementation of dual-
camera scrubber (finishing).
Protection of priority R&Ds – patenting.
Certification – supervisory audit of ISMEQ on compliance with ISO 9001 and ISO 14001; certi-
fication audit of analytical laboratory on compliance with ISO/MEC 17025.
RISK FACTORS
Risks of the industry
Risk of failure to perform obligations before owners of the Company’s securities
The Company did not issue privileged shares and bonds. Therefore, the risk of failure to perform obligations to pay dividends to owners of privileged shares and interest to holders of bonds as well as liabilities to re-purchase bonds (which may happen if the market changes) is not assessed herein.
Price fluctuation on raw materials and/or services utilized by the Company in its operations
(separately in Russia and abroad), and its influence on the Company’s results
Raw materials: Growing prices on raw materials are taken into account by SMW in its plans and
these will not essentially affect performance of the Company’s operations and social programs of
the Company.
Energy resources: SMW’s production is energy intensive. Growing energy prices are taken into
account by the Company in its plans, but if actual prices on energy resources exceed scheduled
prices in the second half of 2012, and this additional increase will not be compensated by subse-
quent price increase on the Company’s products, it may essentially affect performance of the
Company’s operations and social programs of the Company.
Price fluctuation on products and/or services manufactured/performed by the Company (sepa-
rately in Russia and abroad) and its influence on the Company’s results
Magnesium products: More than 90% of magnesium scheduled for production in 2012 is sold
with fixed prices therefore price fluctuation in the Russian market and abroad will not essentially
affect performance of the Company’s operations. Moreover, price increase on magnesium is ob-
served in the market, the result of coordinated actions of Chinese producers (more than 85% of
total world magnesium production is concentrated in China) who want to avoid losses encoun-
35
tered by the industry at the end of 2011 and beginning of 2012, therefore risk of significant price
drop is unlikely.
Other products of Magnesium Operations: Risk of price fluctuation on other products of Magne-
sium Operations is not described in this Report due to insignificant share of these products in
total sales revenues of the Company.
Niobium compounds: 100% of niobium compounds scheduled for production in 2012 are sold
under fixed prices therefore any changes of the Company’s earnings is not expected for these
products. Moreover, market for niobium is firm and moderate price increase is observed in this
market.
Tantalum compounds: 100% of niobium compounds scheduled for production in 2012 are sold
under fixed prices therefore any changes of the Company’s earnings is not expected for these
products. Market is uncertain, but prices are stable in the market.
Titanium sponge: Prices on titanium sponge are in range of prices taken into account by SMW in
its plans for 2012. Growing prices on titanium raw materials resulted subsequent price increase
on titanium sponge in all of the markets, therefore risk of significant price drop is low.
Rare earths compounds: After significant price drop in the second half of 2011 and first quarter
of 2012, prices on light rare earths presented in rare earths mix of SMW’s carbonates, became
stable and Chinese producers – 97% of total world production of rare earths is concentrated in
China – make efforts to increase prices in the market, and slight rise of export prices is observed
on Pr and Nd. It is necessary to stress that the largest Chinese producer of rare earths, Baotou
Steel that produces 30-40% of rare earths in China, still does not have export license.
However, market situation remains uncertain due to scheduled start of operations of large scale
facilities outside China in June and Q4 of 2012 that may significantly affect rare earths prices in
either of direction, up or down.
Products of Chemical Operations: Risk of price fluctuation on products of Chemical Operations
is not described in this Report due to insignificant share of these products in total sales revenues
of the Company.
Based on the factors described above, risks of financial performance of the Company below ex-
pectations remains high and it may affect production and social programs of the Company.
Risks of the country and regional risks
Risks of the country
JSC SMW is the company that is registered and operates on the territory of Perm Region of the Russian Federation.
Political stability in Russia was observed for the last 9 years. This stability lowers political risks
and provides a favorable climate for investments in the Russian economy.
Certain risks of investments in Russia are present. Increased oil prices stabilized the macroeco-
nomic situation in the country, and the growth of Russian economy is observed since the 2nd
half
of 2009, and this trend has been continued in 2011. However, worsening of global market condi-
tions, lowering of sovereign ratings of leading European countries and the US, and renewal of oil
supply from Libya may negatively affect sovereign ratings of Russia and certain signals of that
are already present. As for example, Moody’s is going to lower forecast for banking system of
Russia from “stable” to “negative”. Standard & Poor’s notified Russian Government that the
agency will lower sovereign ratings of Russia if oil prices drop significantly.
Assessments of credit risk of investments in Russia released by the three world leading rating
agencies at the end of 2011 were as follows:
36
- Fitch ratings: long term rating for operations in national and foreign currency is “ВВВ”, fore-
cast “positive”, short-term rating for operations in foreign currency F3, rating of country’s top
level «ВВВ+», rating under national scale AAA (rus);
- Moody’s ratings: sovereign risk – BBB, currency risk – BB, deposits in foreign currency –
Ваа1/P-2, debts in foreign currency – A2/P-1, forecast – “stable”;
- Standards & Poor ratings: operations in foreign currency “BBB/А-3”, in national currency
”ВВВ+/А-2”, rating under national scale “ruAAA”, forecast – “stable”.
At present, the political situation in Russia is assessed as “stable”.
Regional risks
Concentration of power in the Federal Government substantially reduced the power of regional
Governments and, consequently, reduced the influence of regional authorities on the Company’s
activities. Accordingly, the regional political risk is assessed as “low”.
Technogeneous catastrophe nearby the railway station in Berezniki City destroyed rail tracks and
caused interruption in rail communication of SMW with its raw materials suppliers for Rare
Metals Operations and with its customers of voluminous goods. This disaster may cause short-
shipments of raw materials for the Company’s Rare Metals Operations and subsequent interrup-
tion of these Operations as well as failure to perform contractual obligations before clients for
voluminous products.
The Company is located in region where risks of military operations, strikes, enactment of the
state of emergency as well as potential acts of God, and so on, are “very low”.
Financial risks
The main financial risks are currency, credit, market, and liquidity risks. The main currency risk
for the Company is fluctuation of exchange rates of Russian ruble versus Euro and US dollar.
Depreciation of Russian ruble versus these currencies rises ruble value of loans obtained in for-
eign currency, and costs to serve these loans in ruble terms. The credit portfolio of the Company
are loans with interest rates based on LIBOR plus internal funding rate of the bank. Increase of
this rate caused rising costs to serve the Company’s credit lines, therefore, the risks connected
with the fluctuation of rates increased.
The fluctuation of exchange rates and market prices make it difficult to predict export revenues.
Non- payment for goods sold in due time from customers causes lack of finance to cover invoic-
es of suppliers in due time. It causes sanctions (penalties) those rise risks of liquidity and in-
crease of turnover period for accounts payable.
Legal risks
Legal risks may arise if tax legislation or currency and customs regulations are revised by State
authorities. Any changes may affect the Company’s finances.
By monitoring of information in the mass media as well as actions of the Federal Parliament, it is
possible to assess legal risks as “low”. Several changes in legislation support this assessment.
These actions confirm the general state policy to liberalize tax, customs, and currency legisla-
tion.
Exports are one of the main activities of SMW. Therefore, state policy with respect to revision
of regulations for customs control, rates of export taxes, and methods of their collection plays a
key role for the Company. However, joining of Russia to WTO limits State authorities in their
efforts to rise export taxes or impose new ones, therefore it is possible to assess these risks as
“unlikely”.
The risks of revision to the general licensing regulations are assessed as “low”. The requirements
to obtain licenses for the main activities of the Company remain unchanged.
37
Risks of the Company
The Company is not involved in lawsuits related to licensing of its main activities, including li-
censes issued by Russian Ministry of Mineral Resources.
Legal risks of enforcement of additional licensing as well as inability to prolong existing licenses
are assessed as “low”.
Risks connected with potential responsibility of the Company under debts of third parties includ-
ing debts of the Company’s subsidiaries are assessed as “low”.
Estonian company AS Silmet, who is a customer of SMW’s rare earths carbonates, was sold to
the US company Molycorp, who is itself a producer of rare earths raw materials, and it may hap-
pen that whole processing capacities of AS Silmet will be involved in processing of rare earths
materials supplied by this new owner, and this customer of carbonates may be lost for
Solikamsk.
Competition in the market is the only factor that may result loss of other customers with value of
sales 10% or more of the total sales revenues of the Company. Solikamsk is in long-term rela-
tionships with such customers therefore risk of loss of such clients is assessed as “low”.
CORPORATE GOVERNANCE
Information about Charter Capital of the Company
Charter capital of the Company: is 99’568 (ninety nine thousand five hundred sixty eight) rubles
which is divided into 398’272 (three hundred ninety eight thousand two hundred seventy two)
personal ordinary (voting) shares with a nominal value of 0.25 rubles per share.
State registration number of shares’ issue: 1-01-00283-А.
Date of State registration of shares’ issue: 05 June 2007.
Information about Company’s shareholders
The total number of registered shareholders at the end of the reporting year is 779, where 4
shareholders are nominal shareholders.
Information about shareholders who own at least 5% of charter capital, or at least 5% of voting
shares: Limited Liability Company “Perm Stock Company” – nominal shareholder.
Number of shares registered on the name of this company: 356 274 штуки (89.45%).
Dividend statements
The Company did not make any decision to pay any dividends for results of the first quarter, the
half a year, the nine months of the year and the whole reporting year (2011).
List of the Company’s deals that may be referred to as “large deals” under legislation
In 2011, the Company did not conclude any deals that may be referred to as a “large deal” under
the Federal Law “About Joint Stock Companies” or that require approval as a “large deal” under
the Charter of the Company.
List of the Company’s deals that may be referred to as “deal with interest” under legisla-
tion
In 2011, the Company concluded 59 deals that may be referred to as “deals with interest”. List of
these deals is provided in Annex №4 to this Report (Annex№4 is placed on SMW’s web-site un-
der link http://smw.ucoz.ru/index/godovye_otchety/0-11)
The Board of Directors of the Company
The Board of Directors of the Company consists of 9 members.
38
As of 31 December 2011, the following persons were members of the Board (elected by General
Assembly of Shareholders on 28 June 2011):
Chairman of the Board:
Dr. Alexander S. Gutin
Year of birth: 1968
Employing entity: ООО «Kris»
Education and speciality under diploma: high education (Perm State Medical Institute, speciality
“Stomatology” in 1990; Perm State University, speciality “Jurisprudence” in 1997, doctor de-
gree in jurisprudence)
Position in the employing entity: Director
Member of the Board since 2003.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Members of the Board:
Victor N. Beliakov
Year of birth: 1973
Employing entity: ОАО «Uralkaliy»
Education and speciality under diploma: high education (Tver’ State Technical University, spe-
ciality “Automated systems of managing and database processing” in 1995,Kingston Business
School (UK), speciality «Information systems in economics” in 1997, MBA degree)
Position in the employing entity: Director for Economics and Finance
Member of the Board since 2010.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Evgeniy K. Kotliar
Year of birth: 1958
Employing entity: ОАО «Uralkaliy»
Education and speciality under diploma: high education (Perm Polytechnical Institute, speciality
“Technology and complex mechanization of underground mining of potassium deposits”).
Position in the employing entity: Director for Production
Member of the Board since 2003.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Dr. Dmitriy L. Melnikov
Year of birth: 1961
Employing entity: ОАО «Solikamsk Magnesium Works»
Education and speciality under diploma: high education (Moscow Institute of Fine Chemical
Technology with name of M.V. Lomonosov, speciality “Technology of rare and trace elements”
in 1984, doctor degree in technology).
Position in the employing entity: Chief Engineer
Member of the Board since 2009.
% of the Company’s shares:: 0.0005
% of the Company’s voting shares: 0.0005
Alexei V. Prokopenko
Year of birth: 1974
Employing entity: ОАО «Solikamsk Magnesium Works»
Education and speciality under diploma: high education (Karl-Franzens Universität Graz, Aus-
tria, speciality "Managing of enterprises" in 1997; Perm State Technical University, speciality
“Economics and managing of enterprises” in 1998).
39
Position in the employing entity: General Director
Member of the Board since 2011.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Valentin A. Sidak
Year of birth: 1947
Employing entity: Moscow Office of ОАО «Uralkaliy»
Education and speciality under diploma: high education (Moscow Institute of Fine Chemical
Technology with name of M.V. Lomonosov, speciality “Engineer and chemist for processing of
rare and trace elements” in 1971, Council of Ministers of USSR Institute of KGB awarded with
Red Flag Order, speciality “International expert” in 1976; Academy of National Economy of
Russian Government, speciality “Specialist in State policy and management of State” in 1999).
Position in the employing entity: manager
Member of the Board since 2010.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Igor G. Tzuranov
Year of birth: 1964
Employing entity: ОАО «Uralkaliy»
Education and speciality under diploma: high education (Moscow State Institute of Electronics,
speciality “Technology of micro-electronics, mathematic modeling, programming”).
Position in the employing entity: Director for Strategy and Investments
Member of the Board since 2011.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Sergei B. Shalaev
Year of birth: 1956
Employing entity: information is not available
Education and speciality under diploma: high education (Perm Polytechnical Institute, speciality
" Technology and complex mechanization of underground mining of deposits").
Position in the employing entity: information is not available
Member of the Board since 2005
% of the Company’s shares: 0.001
% of the Company’s voting shares: 0.001
Marina V. Shvetzova
Year of birth: 1972
Employing entity: ОАО «Uralkaliy»
Education and speciality under diploma: high education (Perm State University with name of
A.M. Gorkiy, speciality “Jurisprudence”).
Position in the employing entity: Director for Legal Issues and Corporate Governance
Member of the Board since 2011.
% of the Company’s shares: 0
% of the Company’s voting shares: 0
Before elections of 28 June 2011, members of the Board were as follows:
1. Denis S. Belousov
Year of birth: 1968
Employing entity: ОАО «Uralkaliy»
Position in the employing entity: Vice-President
% of the Company’s shares: 0
% of the Company’s voting shares: 0
40
2. Victor N. Beliakov
3. Dr. Alexander S. Gutin
4. Evgeniy K. Kotliar
5. Alexei V. Prokopenko
6. Valentin A. Sidak
7. Igor G. Tzuranov
8. Sergei B. Shalaev
9. Marina V. Shvetzova
Before the Board elections during extra-ordinary General Assembly of Shareholders on 18 Janu-
ary 2011, the members of the Board were as follows:
1. Dr. Alexander S. Gutin
2. Irina F. Kondratieva
Year of birth: 1957
Employing entity: ООО «Trading Company «Mineral»
Position in the employing entity: General Director
% of the Company’s shares: 0
% of the Company’s voting shares: 0
3. Alexander A. Kouznetzov
Year of birth: 1960
Employing entity: ООО «Mining Machines of Urals»
Position in the employing entity: General Director
% of the Company’s shares: 0.0025
% of the Company’s voting shares: 0.0025
4. Dr. Dmitriy L. Melnikov
5. Alexander S. Panteleev
Year of birth: 1957
Employing entity: ОАО «Uralkaliy», Solikamsk Potash Mine № 1
Position in the employing entity: Chief Engineer
% of the Company’s shares: 0
% of the Company’s voting shares: 0
6. Galina I. Petukhova
Year of birth: 1962
Employing entity: ОАО «Solikamsk Magnesium Works»
Position in the employing entity: Director for Economics and Finance
% of the Company’s shares: 0
% of the Company’s voting shares: 0
7. Valentin A. Sidak
8. Timur V. Starostin
Year of birth: 1975
Employing entity: ОАО «Silvinit»
Position in the employing entity: Deputy General Director for Legal Issues
% of the Company’s shares: 0.00025
% of the Company’s voting shares: 0.00025
9. Sergei B. Shalaev
There were no deals with the Company’s shares concluded by the Board members in 2011.
41
Information about the person who holds the position of Exclusive Executive Authority
Pursuant to article 69 of Federal Law № 208-FZ of 26 December 1995 “About Joint Stock Com-
panies” and internal documents of the Company (article 12 of the Company’s Charter, Statute of
General Director of OAO “Solikamsk Magnesium Works”), the Company is managed by Gen-
eral Director of the Company (Exclusive Executive Authority).
General Director of the Company is: Alexei V. Prokopenko, 1974 year of birth, General Direc-
tor and member of the Board since 2011.
There were no deals with Company’s shares concluded by the General Director in 2011.
Criteria of determination of fees and amount of fees paid to the person who has the posi-
tion of Exclusive Executive Authority and to members of the Board
The criteria for determining the wages of the General Director are set forth in sub-article 12.2 of
The Company’s Charter, article 1.3 of The Statute of General Director and the contract between
the Company and General Director.
Pursuant to Statute of the Board of Directors, each member of the Board has the right to receive
a monthly fee to execute the functions of a Board member. The amount of these fees is equal to
the average monthly salary of industrial employees of the Company. Total fees paid to the Board
members accounted for 6 089.061 thousand rubles.
Compliance with the Code of Corporate Conduct
The Company does not have its own Code of Corporate Conduct or other similar document,
however, SMW provides to shareholders all appropriate ability to participate in managing of the
Company and sources them with information about the Company’s activities in compliance with
Federal Law “About Joint-Stock Companies”, Federal Law “About Securities Market” and nor-
mative enactments of federal executive agency responsible for market of securities (Federal Ser-
vices for Financial Markets)
The main principles of OAO “Solikamsk Magnesium Works” in building its relationships with
shareholder and investors is reasonable balance between the Company’s interests as the operat-
ing subject and the Company’s interests as the joint-stock company that protects rights and legal
interests of its shareholders. Shareholders and investors are regularly sourced with information
about activities of the Company through official web-site of SMW www.smw.ru where pub-
lished Charter and internal documents of the Company, quarterly reports, annual financial state-
ments and reports, list of affiliated persons, information about essential facts (also published by
RIA Interfax), documents for General Assembly of Shareholders. The Company’s governing
bodies tend to follow principles and recommendations stipulated in the Code of Corporate Con-
duct recommended in Instruction № 421/p of 4 April 2002 “About Recommendation for Imple-
menting of the Code of Corporate Conduct” by the Federal Commission for Securities Market.
The Charter and internal documents of the Company contain certain norms and regulations pre-
scribed by the Government in its Model Form of the Code of Corporate Conduct. Compliance of
the Company’s actions and documents with this Model Form of the Code of Corporate Conduct
is provided in Annex № 5 (available on the Company’s web-site under link http://smw.ucoz.ru/index/godovye_otchety/0-11)
42
THE MAIN FINANCIAL RESULTS OF THE COMPANY
Aggregated balance sheet on 31 December 2011 (in thousand rubles)
ASSETS LIABILITIES
1. Fixed assets 1’578’426 1. Equity 1’750’969
2. Inventories and expenses 592’472 2. Accounts payable and other liabilities 1’886’117
3. Accounts receivable,
banking accounts and
other assets
1’766’381 3. Loans 300’193
including:: including::
Banking accounts and
short-term investments
210’358 Short-term loans -
Accounts receivable and
other assets
1’556’023
Long-term loans 300’193
TOTAL ASSETS 3’937’279 TOTAL LIABILITIES 3’937’279
Income statements for 2011 (in thousand rubles)
Item name Line code 2011
2010
Sales revenues 2110 6'510’088 3’347’834
Cost of goods sold 2120 (3’734’180) (3’041’405)
Gross margin (loss) 2100 2’775’908 306’429
Selling expenses 2210 (273’898) (219’196)
General and administrative expenses 2220 (277’765) (218’459)
Sales income (loss) 2200 2’224’245 (131’226)
Earnings from participation in other entities 2310 20’830 19’456
Interests receivable 2320 583 85
Interests payable 2330 (28’782) (56’455)
Other revenues 2340 466’319 137’192
Other expenses 2350 (753’219) (269’821)
Including doubtful debts 2351 (6’776)
Expenses for assessed liabilities 2352 (52’898) (3’364)
Income (loss) before taxation 2300 1’929’976 (300’769)
Current income tax 2410 (289’316)
Including fixed tax liabilities (assets) 2421 54’166 20’284
Changes of deferred tax liabilities 2430
Changes of deferred tax assets 2450 (63’996) 36’627
Others 2460
Net income (loss) in the reporting period 2400 1’576’664 (264’142)
FOR REFERENCE.
Result of re-assessments of net assets not included into net income (loss) 2510 0 221’089
Results from other operations not included into net income (loss) 2520 0 0
Total financial result in the reporting period 2500 1’576’664 (43’053)
Earnings (losses) per share 2900 4.43 (0.11)
Diluted earnings (losses) per share 2910
43
REPORT OF THE COMPANY’S AUDITOR
44
ANNEX №1 To Annual Report 2011
Of JSC Solikamsk Magnesium Works
Conflict Free Raw Materials Purchasing Policy
Conflict Free Raw Materials Purchasing Policy of Solikamsk Magnesium
Works OAO
A. INTRODUCTION.
Top Management of Solikamsk Magnesium Works OAO (“Solikamsk”) read the United Nations
Resolutions №S/2010/1952 and №S/2010/596 describing the nature of conflict in the
Democratic Republic Of Congo (DRC – Zaire) and in the 11th
countries adjoining DRC as well
as the UN Committee findings that operations to mine minerals containing tantalum, tungsten,
tin and gold (3T&G) on the territory of these 12 countries are either under control of armed
bloody terroristic troops that terrorize and perform genocide on this territory, or these troops
legalize these raw materials through these mines and/or even certain authorized officials in these
countries, and sales of these 3T&G minerals constitute the main source of finance to fire and
continue the conflict in this area. That is that the territory of these 12th
countries is further
referred to as the “Conflict Area” and mineral mined and/or processed in this Conflict Area are
further referred to as “Conflict Minerals” for short, independently whether processed, or not.
Solikamsk condemns bloody rebels, activities of individuals, entities, agencies and/or
organizations whose directly and/or indirectly support, and/or finance the rebels operating in the
Conflict Area, in particular, through the way of purchase of these Conflict Minerals.
Top Management of SMW supports to Rules in the Section 1502 Dodd-Frank Wall Street
Reform & Consumer Protection Act, Conflict Minerals Rules of the US Securities & Exchange
Commission as well as activities of Organization of Economic Cooperation & Development
(OECD) and the both Electronic Industry associations, Electronic Industry Citizenship Coalition
(EICC) and Global e-Sustainability Initiative (GeSI), as well as other entities supporting the UN
in resolution of the conflict and/or operating under aegis of the UN Security Council.
B.PROCESSING OF TANTALUM RAW MATERIALS BY SOLIKAMSK MAGNESIUM
WORKS
In accordance with Charter of the company, production of magnesium, rare metals and chemical
products, and providing the services are priority activities of Solikamsk.
Tantalum chemicals are produced among products manufactured in Rare Metals Operations of
the company and loparite, that is mined and supplied by Lovozerskiy Mining & Concentration
Works OOO, Revda, Murmansk Region, THE RUSSIAN FEDERATION, is the main mineral
processed by SMW and this mineral is the only source of tantalum of Solikamsk for now.
In the case of purchase of tantalum containing minerals other than loparite, Solikamsk will
follow principles described in Sections B and C of this Policy, Due Diligence Guidance provided
in the Chapter IX of the UN Security Council Resolution №S/2010/596 and Due Diligence
Guidance of OECD as well as Audit Instructions issued by EICC/GeSI in this respect.
Solikamsk does not use in its operation either of tungsten, tin and gold minerals for now and
does not schedule to use either of those, nevertheless, if either of these minerals is processed by
Solikamsk, all regulations listed above as well as all issues discussed in Sections C and D of this
Policy below, are applicable to such materials at the same extent as for tantalum minerals.
C. PURPOSES OF THIS POLICY
Purposes of this Policy are to support the image of Solikamsk as the reliable and responsible
supplier of conflict free tantalum products for all the customers around the Globe as well as
avoidance of Conflict Minerals from the company’s supply chain, according to definition of
Conflict Minerals above.
D. ACTIONS TO MEET REQUIREMENTS OF THIS POLICY
After study of all the circumstances described by the UN Committee for DRC in UN Council
Resolution №S/2010/596 as well as requirements prescribed by Section 1502 Dodd-Frank Wall
Street Reform & Consumer Protection Act, Conflict Minerals Rules of The US Securities &
Exchange Commission, OECD Due Diligence Guidance and EICC/GeSI Conflict Free Smelter
Audit Instruction,
Top Management of Solikamsk assumes the following obligations:
- Do not purchase any Conflict Minerals and do not use in operations any raw material
semi-products including residues and scraps (except “Excluded Scraps”) made with use
of Conflict Minerals originated and/or processed in the following 12 countries:
1. Democratic Republic of Congo – DRC
2. Republic of Congo
3. Kenya
4. Tanzania
5. Republic of Sudan (Sudan)
6. South Sudan
7. Burundi
8. Rwanda
9. Uganda
10. Central African Republic
11. Zambia
12. Angola
Even if materials are offered allegedly legal with official certifications of State Authorities, or by
internationally recognized respectful entity, without paying attention to any price incentives.
- In the case of purchase of tantalum minerals and/or raw material semi-products including
scraps and residues (except “Excluded Scrap”) allegedly declared as originated from the
following 59 countries suspected in legalization and/or use of Conflict Materials:
1. Algeria, 2. Benin, 3. Botswana, 4. Burkina-Faso, 5. Cameroon, 6. Canary Islands, 7. Cape
Verde, 8. Ceuta, 9. Chad, 10. Comoros, 11. Cote d’Ivore, 12. Djibouti, 13. Egypt, 14. Equatorial
Guinea, 15. Eritrea, 16. Ethiopea, 17. Gabon, 18. Gambia, 19. Ghana, 20. Guinea, 21. Guinea-
Bissau, 22. Hong Kong, 23. Lesoto, 24. Liberia, 25. Lybia, 26. Madagascar, 27. Madeira, 28.
Malawi, 29. Mali, 30. Mauritania, 31.Mauritius, 32. Mayotte, 33. Melilla, 34. Morocco, 35.
Mozambique, 36. Namibia, 37. Niger, 38. Nigeria, 39. Reunion, 40. Saint Helene, 41. San Tome
and Principe, 42. Senegal, 43. Seychelles, 44. Sierra Leone, 45.Somalia, 46. South Africa (SAR,
South African Republic), 47. Swaziland, 48. Togo, 49. Tunisia, 50. Western Sahara, 51.
Zimbabwe, 52. Singapore, 53. Japan, 54. USA (The United States of America, The US, The
United States), 55. Belgium, 56. Germany, 57. Great Britain ( United Kingdom, GB, UK), 58.
UAE (United Arabian Emirates), 59. Oman
Solikamsk will follow principles of due diligence described in the Annex 11 to the Process Card
“Purchases” of Solikamsk Integrated Environmental & Quality Management System (IEQMS) in
accordance with rules for the Level 2 countries and may perform certain other actions to be sure
that offered materials do not contain any involvement of Conflict Minerals.
- In the case of purchases of tantalum minerals and/or semi-products including residues and
scraps (except “Excluded Scraps”) allegedly declared as originated from countries not listed
above, including Russia, countries of Customs Union Russia-Kazakhstan-Belorussia and other
CIS countries, Solikamsk will continue to follow principles of due diligence described in Annex
11 to Process Card “Purchases” of IEQMS in accordance with rules for the Level 1 countries and
may perform certain other actions to be sure that offered materials do not contain any
involvement of Conflict Minerals.
- Follow Electronic Industry Code of Conduct to the extent permitted by Russian legislation
- Strictly follow transport regulations with respect to transportation of dangerous substances
including 7 Class materials, if appear.
E. FINAL ISSUES
1. This Policy is published on Solikamsk official web-site www.smw.ucoz.ru in Russian and in
English translation under link http://smw.ucoz.ru/index/sistema_kachestva/0-40
2. This Policy is communicated to employees of the Company who uses Process Card
“Purchases” of IEQMS of Solikamsk, and description of actions how to meet requirements of
this Policy are described in Annex 11 to this Process Card.
3. This Policy is communicated to Solikamsk tantalum materials main suppliers and all other
supplier will be also duly informed with terms and conditions of this Policy at the time of the
first contact.
This Policy is put into effect since 10 October 2011.
Acting General Director of Solikamsk Magnesium Works OAO
Chief Engineer of the Company
________________________________________ Dmitriy L. Melnikov
07 October 2011
ANNEX № 2 to Annual Report 2011
of JSC Solikamsk Magnesium Works
Compliance to Code of Conduct for the Industry
Compliance to Code of Conduct for the Industry
This self-assessment is based on the Supplier Code developed by the International Die-Casting
Association (IDCA) and the Electronic Industry Code Of Conduct developed by the Electronic
Industry Citizenship Coalition (EICC). As soon as Solikamsk sourced both industries with its
products, self-assessment was performed in compliance with both Codes. The requirements of
both Codes are combined and results of self-assessment are provided in the table below.
1. Business Ethics Compliance
1.а. Compliance with legislation The Company must be in compliance with all applicable national and international laws and
regulations, as well as with relevant international agreements. Yes
1.b. Product safety The products and services provided by the Company must never endanger persons or the
environment, and must meet the agreed and legally specified product safety standards.
Instructions on their safe use are adequately communicated by the Company.
Yes
1.с. Anti-corruption No form of corruption will be tolerated. This pertains in particular to the payment of bribes and
payoffs and to extortion in order to exert influence on business partners and representatives of
the political, administrative, and judicial systems or the public.
Yes
1.d. Fair Competition, Advertising and Business The Company shall apply the rules governing fair business, advertising and competition to all
its business activities. It complies with the relevant antitrust laws as well as legislation
prohibiting unfair business practices. Standards of fair business, advertising and competition
are to be upheld. Appropriate means to safeguard customer information must be available.
Yes
1.е. Protection of Intellectual Property The Company respects the intellectual property rights of third parties; transfer of technology
and know-how is to be done in a manner that protects intellectual property rights. Yes
1.f. Disclosure Of Information.
Information regarding business activities, structure, financial situation and performance is to
be disclosed in accordance with applicable regulations and prevailing industry practices. Yes
2.Human Rights
2.а. Prohibition of Child Labor The Company may not employ anyone under the age of 15. In countries where economic
standards and educational facilities are less developed, the minimum age is 14 years and for
light work 13 years. The use of legitimate workplace apprenticeship programs, which comply
with all laws and regulations, is supported. Dangerous work may only be performed by
persons over the age of 18. (ILO Conventions 79, 138, 142, 182, Recommendation 146).
Yes
2.b. Prohibition of Forced Labor Any and all forced or compulsory labor including bonded, indentured or prison labor is
prohibited. All work will be voluntary, and workers shall be free to leave upon reasonable
notice. The Company or Labor Agent may not require employees to hand over personal
documents, such as identification card, passport or work permit, as a condition of employment.
(ILO Conventions 29, 105).
Yes
2.с. Prohibition of Discrimination Equal opportunity shall be afforded all employees in hiring, employment practices and remu-
neration, promotions, rewards, and access to training. The Company should not discriminate
against anyone on the grounds of gender, age, ethnic origin, nationality, religion, sexual
orientation, union affiliation or any type of disability. (ILO Conventions 100, 111, 143, 158,
159).
Yes
2.d. Prohibition of Disciplinary Measures and Inhumane Treatment The Company’s disciplinary policies and procedures shall be clearly defined and
communicated to workers.
There is to be no harsh and inhumane treatment, including any sexual harassment, sexual
abuse, corporal punishment, mental or physical coercion or verbal abuse of employees: nor is
there to be the threat of any such treatment.
The Company may not inflict corporal punishment or coercion of any kind on its employees.
This is particularly true in the event that employees report in good faith business practices that
Yes
violate national, international or internal regulations.
3.Socially Responsible Working Conditions
3.а. Safe and Healthy Workplaces Occupational safety and health protection should be provided as a minimum in the scope of the
national regulations. Employee exposure to potential safety hazards including, but not limited
by that, electrical and other energy sources, fire, vehicles, potentially dangerous chemicals,
biological and natural substances as well as fall hazards are to be controlled through proper
design, engineering and administrative controls, preventative maintenance and safe work
procedures (including lockout/tagout of potentially dangerous objects), and ongoing safety
training. Where hazards cannot be adequately controlled by these means, employees are to be
provided with appropriate, well-maintained, personal protective equipment. The Company
must implement occupational health and safety guidelines and procedures and inform its
employees of these in order to reduce or prevent accidents and occupational diseases.
Risks of employees exposure to the hazards of physically demanding tasks, including manual
material handling and heavy or repetitive lifting, prolonged standing and highly repetitive or
forceful assembly tasks is to be identified, evaluated and controlled.
Production and other machinery is to be evaluated for safety hazards. Physical guards,
interlocks and barriers are to be provided and properly maintained where machinery presents
an injury hazard to employees.
Employees are to be provided with ready access to clean toilet facilities, potable water and
sanitary food preparation, storage, and eating facilities. Employees dormitories are to be
maintained clean and safe, and provided with appropriate emergency egress, hot water for
bathing and showering, and adequate heat and ventilation and reasonable personal space along
with reasonable entry and exit privileges.
Employees shall not be disciplined for raising safety concerns. (ILO Convention 155,
Recommendations 164, 190).
Yes
3.b. Emergency Preparedness
Emergency situations and events are to be identified and assessed, and their impact minimized
by implementing emergency plans and response procedures, including: emergency reporting,
employee notification and evacuation procedures, employee training and drills, appropriate fire
detection and suppression equipment, adequate exit facilities and recovery plans.
Yes
3.с. Occupational Injury and Illness
Procedures and systems are to be in place to prevent, manage, track and report occupational
injury and illness, including provisions to: a) encourage employee reporting; b) classify and
record injury and illness cases; c) provide necessary medical treatment; d) investigate cases
and implement corrective actions to eliminate their causes; and e) facilitate return of
employees to work.
Yes
3.d. Living Wages, Wages and Benefits The Company shall compensate its employees adequately and in accordance with the legally or
contractually stipulated minimum wages or in line with the industry standard.
In compliance with local laws, employees shall be compensated for overtime at pay rates
greater than regular hourly rates.
The basis on which employees are being paid is to be provided in a timely manner via pay stub
or similar documentation.
Compensation should be sufficient to meet the basic needs of every employee and his
immediate family, in addition to having a discretionary income.
The Company furthermore provides the social benefits to which the employee is entitled by
law. Compensation is paid transparently, at regular intervals and in the legal means of
payment. Illegal and unauthorized wage deductions as well as deductions in the form of
disciplinary measures are not permissible. (ILO Conventions 26, 131).
Yes
3.e. Regulated Working Hours The Company ensures that its employees do not work more than the maximum number of
hours legally prescribed or collectively agreed upon in the respective country or dictated by the
industry standard.
The maximum working requirement should not exceed 60 hours a week (including overtime).
Overtime should be voluntary and compensated by the Company according to applicable law.
Employees are to be granted at least one day off following six consecutive workdays.
Employees are furthermore entitled to a regular annual holiday. (ILO Conventions 1, 14).
Yes
3.f. Freedom of Association and Collective Bargaining Open communication and direct engagement between employees and management are the
most effective ways to resolve workplace and compensation issues. Yes
Employees have the right to bargain collectively and to organize themselves in labor unions.
Should a labor union not be permitted in a country for political reasons, the Company must
facilitate independent alliances in another form. The Company may not discriminate against
employee representatives on the grounds of their function or against unionized employees
because of their membership. Employees shall be able to communicate openly with
management regarding working conditions without fear of reprisal, intimidation or harassment.
(ILO Conventions 87, 98, 135, 154, Recommendation 143).
4. Environmental Standards
4.a. Environmental Permits and Reporting All required environmental permits (e.g. discharge monitoring), approvals and registrations are
to be obtained, maintained and kept current and their operational and reporting requirements
are to be followed.
Yes
4.b. Sustainable Use of Resources The Company shall reduce to a minimum the consumption of resources for every business
activity. Particular emphasis shall be given to the conservation of energy and water. The use of
renewable resources is encouraged wherever possible.
Yes
4.c. Prevention and Reduction of Environmental Impact, Avoidance of Hazardous
Substances
The Company shall reduce or eliminate emissions and waste of all types, including water and
energy, at the source or by practices such as state of the art technologies, and shall control
harmful emissions and treats them prior to discharge. Waste is to be avoided or recycled
wherever possible. Materials should be reused at every opportunity.
Substances which pose a threat to health and the environment are to be avoided if possible.
The Company shall put in place a hazardous substances management that ensures the safe use,
transport, storage, treatment and disposal of hazardous substances.
Wastewater and solid waste generated from operations, industrial processes and sanitation
facilities are to be characterized, monitored, controlled and treated as required prior to
discharge or disposal.
Chemical and other materials posing a hazard if released to the environment are to be
identified and managed to ensure their safe handling, movement, storage, use, recycling or
reuse and disposal.
Air emissions of volatile organic chemicals, aerosols, corrosives, particulates, ozone depleting
chemicals and combustion by-products generated from operations are to be characterized,
monitored, controlled and treated as required prior to discharge.
Yes
4.d. Environment-friendly Products The Company shall develop products and services that are efficient in their consumption of
energy and natural resources and that can be recycled, reused and disposed of safely.
The Company is to adhere to all applicable laws, regulations and customer requirements
regarding prohibition or restriction of specific substances, including labeling for recycling and
disposal.
Yes
5. Management Systems
The Company shall establish management systems that adhere to the fundamental principles
set forth in this Code and certify these according to recognized standards. Customer shall give
preference to Companies who actively operate a quality management system according to ISO
9001, an environmental management system according to ISO 14001, in addition to OHSAS
18001 for occupational health and safety, or other comparable systems. A manage-ment
system for social accountability in line with SA 8000 standards is recommended.
Yes
5.а. Company Commitment
Corporate social and environmental responsibility policy statements affirming Company’s
commitment to compliance and continual improvement, endorsed by executive management. Yes
5.b. Management Accountability and Responsibility
The Company clearly identifies Company representative[s] responsible for ensuring
implementation of the management systems and associated programs. Senior management
reviews the status of the management system on a regular basis.
Yes
5.с. Legal and Customer Requirements
Identification, monitoring and understanding of applicable laws, regulations and customer
requirements. Yes
5.d. Risk Assessment and Risk Management
Process to identify the environmental, health and safety and labor practice and ethics risks Yes
associated with Company’s operations. Determination of the relative significance for each risk
and implementation of appropriate procedural and physical controls to control the identified
risks and ensure regulatory compliance.
Areas to be included in a risk assessment for environmental health and safety are production
areas, warehouse and storage facilities, plant/facilities support equipment, laboratories and test
areas, sanitation facilities (bathrooms), kitchen/cafeteria and employee housing/dormitories.
5.е. Improvement Objectives
Written performance objectives, targets and implementation plans to improve the Company’s
social and environmental performance, including a periodic assessment of Company’s
performance in achieving those objectives.
Yes
5.f. Training
Programs for training managers and employees to implement Company’s policies, procedures
and improvement objectives and to meet applicable legal and regulatory requirements. Yes
5.g. Communication
Process for communicating clear and accurate information about Participant’s policies,
practices, expectations and performance to workers, suppliers and customers. Yes
5.h. Employees Feedback and Participation
Ongoing processes to assess employees’ understanding of and obtain feedback on practices
and conditions covered by this Code and to foster continuous improvement. Yes
5.i. Audits and Assessments
Periodic self-evaluations to ensure conformity to legal and regulatory requirements, the content
of the Code and customer contractual requirements related to social and environmental
responsibility.
Yes
5.j. Corrective Action Process
Process for timely correction of deficiencies identified by internal or external assessments,
inspections, investigations and reviews. Yes
5.k. Documentation and Records
Creation and maintenance of documents and records to ensure regulatory compliance and
conformity to Company requirements along with appropriate confidentiality to protect privacy. Yes
6. Implementation
6.а. Monitoring and Verification The Company should perform a self-assessment, provide correct and comprehensive infor-
mation, and monitor execution of these requirements. Yes
6.b. Non-Compliance
If Company’s management system does not comply with listed requirements, the Company
should apply corrective actions in order to adjust its managerial system to abovementioned
requirements.
Yes
ANNEX № 3 To Annual Report 2011
Of JSC Solikamsk Magnesium Works
List of Company’s Licenses
List of Company’s Licenses
№ Kind of activity License № Date of issue Validity Issuing Authority
1. Registration card for external trade
№ 10200/000776
19.03.2003 Indefinite,
prior changes
Volga Territorial Agency
of Federal Customs,
Perm’ Office
2. Use and maintenance of X-ray
equipment. List of X-ray equipment
& devices: X-ray apparatus for
spectral and structural analysis, X-ray
defectoscopy
59.55.11.002.Л000089.07.
06
31.07.2006 01.08.2016 Perm’ Territorial Agency
Of Federal Agency For
Supervision In Area Of
Customers Protection &
Human Welfare
3. Exploiting of complexes containing
radioactive substances
ВО -03-205-1770 29.09.2008 29.09.2011 Federal Services for the
Supervision Of
Environment, Technology
And Nuclear (FS For
SETN)
4. Activity in collecting, processing &
sales of non-ferrous scrap & residues
№ 130 17.08.2006 17.08.2011 Department Of Industry,
Agriculture & Food Of
Perm’ Region
5. Emission of air contaminants by
stationary polluting units located
within main producing facilities and in
the shop for calcination of limestone
Permission № 199. 02.04.2009 31.12.2011 State Inspection For
Environment & Nature
Management In Perm’
Region
6. Local telephonia excluding coin-
phones and telephone access outside
№ 46557 01.01.2007 01.01.2012 Federal Services For
Supervision in Area Of
Communications
7. Operations of stationary unit for
disposal of radioactive wastes &
residues
ВО -03-308-1978 26.10.2009 26.10.2012 FS For SETN
8. Disposal of contaminants with waste
waters in water basin – Chernaya
River
Permission For Environ-
mental Pollution (water
basins) № 2
20.11.2008 31.12.2012 Perm’ Inter-Regional
Agency For Supervision
of Technology &
Environment
9. Medical activity ЛО-59-01-000039 06.02.2008 06.02.2013 Ministry Of Health-care
Of Perm’ Region
10. Exploiting of facilities producing
hazardous substances
ВП-00-010099 (ЖХ) 15.05.2009 15.05.2014 FS For SETN
11. Exploiting of facilities producing
explosive substances
ВП-00-010111 (ЖКМСХ) 15.05.2009 15.05.2014 FS For SETN
12. Mining of fresh underground water in
water intake “Kaliyetz” for household
& industrial use within SMW
ПЕМ 00660 ВЭ
04.05.2005 07.07.2015 Perm’ Territorial Agency
For Subsoil Management
(Perm’ Nedra)
13. Mining of fresh underground water for
household use in Sanatorium of SMW
ПЕМ 00659 ВЭ
04.05.2005 07.07.2015 Perm’ Nedra
14. Mining of fresh underground water for
household & industrial use in Pig-
breeding farm
ПЕМ 01956 ВЭ 04.05.2005 07.07.2015 Perm’ Nedra
15. Activity in collection, use, processing,
transportation & disposal of Class 1-4
wastes & residues
ОП-48-001746(59) 20.08.2010 20.08.2015 FS For SETN
16. Loading/reloading operations with
dangerous materials in railway
transport
Series ПРД № 5905734 21.01.2011 21.01.2016 Federal Agency For the
Supervision in Area of
Transportation
(ROSTRANSNADZOR)
17. Exploiting of source of radiation -
complex containing radioactive
substances
№ ВО-03-210-2372 29.09.2011
29.09.2016 FS For SETN
18. Pollution of the atmosphere with
contaminants (hazards)
Permission №03-04-0320 27.12.2011 10.11.2016 Perm’ Agency of Federal
Services For the
Supervision in Area of
Nature Management
ANNEX № 4 to Annual Report 2011
of JSC Solikamsk Magnesium Works
List of the Company’s Deals with Interest
Contracts for sale and supply of goods and services Date of
deal Approving Authority Person
representing interested party
Basis of interest № of deal/ agreement/amendment
Name of interested party
Subject of the contract/agreement/amendment Validity of the contract
Contract. Services payable.
05.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board Member of SMW Board
Contract № 3-1/2011 Solikamskstroy ZAO (Solikamskstroy) - contractor
Building of reservoir РВС-700 м3 at the Plant № 4 March-July 2011
06.07.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Protocol № 7 to contract № 26-11 of 03.02.2011
RITM OAO (RITM)– contractor
Negotiation of fees for training of managers and specialists of SMW
25.07.2011-12.08.2011
21.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Protocol № 9 to contract 26-11 of 03.02.2011
RITM – contractor Negotiation of fees for training of managers and specialists of SMW
05.12.2011-23.12.2011
21.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Protocol № 10 to contract 26-11 of 03.02.2011
RITM – contractor Training and certification of personnel in accordance with operating rules for heating electric equipment
05.12.2011-07.12.2011
15.08.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Additional Agreement № 1 with Amendment to contract № 22-11 of 15.03.2011
RITM – contractor Changes in the list of services for design of crucible with discharge of chlorides from the bottom
From date of signing to date of fulfillment
08.08.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 51-11 for designing works
RITM – contractor Development of designing documentation for object "Building of straight arch between large and small silos”
From date of signing to date of fulfillment
05.09.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Additional Agreement № 1 to contract № 60-10 of 01.11.2010
RITM – contractor Revision of price in the contract From date of signing to date of fulfillment
30.08.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-004 RITM – contractor Training and certification of slusher operators From date of signing to date of fulfillment
30.08.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-005 RITM – contractor Training and certification services for personnel From date of signing to date of discharge of
obligations
30.08.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-004 RITM – contractor Training and certification services for personnel From date of signing to date of fulfillment
30.08.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Additional Agreement № 5 to contract № 45-09 of 04.08.2009
RITM – contractor Additional works under project: "Increase of dehydrated carnallite output in fluid-bed furnace КС-50, detailed design"
From date of signing to date of fulfillment
30.08.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contact № УЦ № 03-003
RITM – contractor Training and certification of hookers From date of signing to date of fulfillment
03.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-006 RITM – contractor Training and certification of repairmen for lifting equipment
28.11.2011-02.12.2011
03.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ № 03-007
RITM – contractor Training and certification of electricians for lifting equipment
From date of signing to date of fulfillment
22.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-008 RITM – contractor Training and certification of hookers From date of signing to date of fulfillment
30.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-009 RITM – contractor Training and certification of workers servicing equipment with high pressure inside
From date of signing to date of fulfillment
30.11.2011 The Board D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № УЦ 03-010 RITM – contractor Training and certification of personnel in accordance with rules for handling and storage of balloons with compressed liquefied gases
From date of signing to date of fulfillment
20.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 06-12 RITM – contractor Development of designing documentation to replace plenum –and-exhaust ventilation in canteens of the Shop № 15
From date of signing to date of fulfillment
10.01.2012 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 28-12 with Amendments № 1-6
RITM – contractor Performance of work: "Technical and economic analysis of operations in the Shop of Electrolysis of the Plant №1”
From date of signing to date of fulfillment
23.08.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of the Supervisory Board of Registrator Intraco ZAO
Member of the Board of SMW
Contract on rendering of additional services w/o number
Registrator Intraco ZAO - contractor
Registration of members of SMW’s General Assembly of Shareholders – employment as the counting board
From date of signing to date of fulfillment
01.10.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of the Supervisory Board of Registrator Intraco ZAO
Member of the Board of SMW
Contract Registrator Intraco ZAO - contractor
Replication and distribution of voting bulletin to SMW’s shareholders
From date of signing to date of fulfillment
05.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-1/2011 Solikamskstroy - contractor
Building of reservoir РВС-700 м3 at the Plant № 4 March 2011-July 2011
05.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-2/2011 Solikamskstroy - contractor
Rebuilding of SMW’s Shop for Tare Production December 2011
05.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-5/2011 Solikamskstroy - contractor
Performance of works for strengthening of building structures at the Plant № 1
until the date of discharge of obligations
15.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-4/2011 Solikamskstroy - contractor
Performance of works for strengthening of building structures at the Plant № 1 (Shop of rotary kilns)
until the date of discharge of obligations
15.04.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 1/КРЭ-2011
Solikamskstroy - contractor
Performance of works for capital repairs of water pipelines of SMW
31.05.2011
05.04.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-6/2011 Solikamskstroy - contractor
Performance of works for object "House of 3rd potline in Plant №1” of SMW
01.12.2011
05.05.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-7/2011 Solikamskstroy - contractor
Performance of repair works for sports pavilion until the date of discharge of obligations
10.07.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-8/2011 Solikamskstroy - contractor
Performance of construction works for reserve furnace СШО-7 pos. 3
From date of signing to date of fulfillment
10.07.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-9/2011 Solikamskstroy - contractor
Performance of construction works for water-and-soda gas scrubbing system in Plant № 1
From date of signing to date of fulfillment
25.07.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 1/2011 Solikamskstroy - contractor
Performance of construction works for lime slurry milk pipeline in Plant № 7
From date of signing to date of fulfillment
25.07.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-10/2011 Solikamskstroy - contractor
Performance of works in the shop for flux grinding in Plant № 1
From date of signing to date of fulfillment
05.09.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-10/2011 Solikamskstroy - contractor
Performance of works for object "Waste water disposal system of the company"
From date of signing to date of fulfillment
01.09.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3/КРМ/2011
Solikamskstroy - contractor
works under contract From date of signing to date of fulfillment
09.09.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Additional Agreement № 1 to contract № 3-2/2011
Solikamskstroy - contractor
Performance of additional works in the shop for production of tare
From date of signing to date of fulfillment
15.12.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Additional Agreement № 1 to contract № 3-2/2011 of 05.03.2011
Solikamskstroy - contractor
Extension of date of completion of works for rebuilding of the shop for production of tare
From date of signing to 01.04.2012
22.08.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 3-3/2011 Solikamskstroy - contractor
Performance of works for rebuilding of polygon for disposal of solid wastes
From date of signing to date of fulfillment
15.12.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Additional Agreement № 1 to contract № 3-3/2011 of 22.08.2011
Solikamskstroy - contractor
Extension of date of completion of works for rebuilding of polygon for disposal of solid wastes
From date of signing to 01.04.2012
01.11.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Solikamskstroy Board
Member of SMW Board
Contract № 4/КРМ-2011
Solikamskstroy - contractor
Performance of works for replacement of crane КБ-309 in SMW
15.11.2011-31.01.2012
18.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Additional Agreement № 3 to contract № 16-10 of 15.12.2009
RITM – contractor Development of designing documentation for improvement in design of equipment for titanium operations
until the date of discharge of obligations
08.08.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 5-11 with Amendments № 1-4
RITM – contractor Development of designing documentation From date of signing to date of fulfillment
17.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 02-12 RITM – contractor Development and certification of sampling methodology for determination of mass concentration of chlorate-ion in superficial water
4th Quarter 2012
17.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 01-12 RITM – contractor Analysis of chemical composition of water in Kama and Chernaya rivers
4th Quarter 2012
17.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 03-12 RITM – contractor Analysis of chemical composition of soil in area of SMW’s polygon for disposal of solid wastes
2nd Quarter 2012
17.10.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 04-12 with Amendments № 1-4
RITM – contractor Analysis of chemical composition of products made in pilot technologies, performance of certification and other analysis
From date of signing to 29.12.2012
29.12.2011 General Assembly of Shareholders
D.L. Melnikov Member of RITM Board
Member of SMW Board
Contract № 27-12 with Amendments № 1-4
RITM – contractor Performance of works: "Supervision of testing operations of retort with conic shell, determination of deformation parameters. Conclusion with respect to usability in operations.”
4th Quarter 2012
Sales or Purchases
23.12.2011 General Assembly of Shareholders
D.L. Melnikov Member of SZD Board
Member of SMW Board
Sales contract Solikamsk Desulfurizers Works OOO (SZD) - buyer
Shipments of pure magnesium MG90 GOST 804-93 31.12.2012
27.12.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Amendment № 1 to purchase contract № 916/ОМ-094 of 06.12.2010
Uralkaliy OAO (Uralkaliy) – supplier
Protocol of price agreement to purchase contract
27.12.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Additional Agreement № 2 to purchase contract № 916/ОМ-094 of 27.12.2011
Uralkaliy – supplier Prolongation of the contract, quantity agreement 31.03.2012
24.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 714/2011/МТО
Uralkaliy – supplier cupboard снол-67/350 15.09.2011
24.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 712/2011/МТО
Uralkaliy – supplier Goods in accordance with specification (equipment, materials)
15.09.2011
24.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 713/2011/МТО
Uralkaliy – supplier Goods in accordance with specification (equipment, materials)
15.09.2011
24.03.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 715/2011/МТО
Uralkaliy – supplier Goods in accordance with specification (equipment, materials)
15.09.2011
27.12.2010 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 916/ОМ
Uralkaliy – supplier Supply of table salt Kamskaya 01.07.2011-30.09.2011
08.12.2011 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 2011/ОЗ
Uralkaliy – supplier Supply of table salt Kamskaya 31.12.2012
2012 General Assembly of Shareholders
M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Contract w/o number with Amendment
Uralkaliy - buyer artesian water supply по 01.01.2013
05.09.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Purchase contract № 09/11
Solikamskstroy – supplier
Supply of goods (supports for rail) From date of signing to date of fulfillment
05.09.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Specification № 2 to Purchase contract № 09/11
Solikamskstroy – supplier
Supply of electrolytic cell casing From date of signing to date of fulfillment
16.12.2011 The Board M.V. Shvetzova V.N. Belyakov
Member of Uralkaliy Board
Member of SMW Board
Additional Agreement № 1 to Purchase contract № 09/11 of 05.09.2010
Solikamskstroy – supplier
Prolongation of the contract for 2012
ANNEX №5 To Annual Report 2011
Of JSC Solikamsk Magnesium Works
Compliance to Russian Code of Corporate Conduct
№ Article in the Model Code Compliance (+)
Notes
1 2 3 4
General Assembly of Shareholders
1 Ability of shareholder to read the list of persons who have rights to participate in the Assembly from the date of announcement until the moment of closure the Assembly or, in the case of an absentee ballot Assembly, until the date on which voting ballots are accepted.
+ Article 10.18 of the Charter
2 The shareholder should be able to propose agenda items for the Assembly and request convening the Assembly without presentation of an extract from the list of shareholders if registration of his/her shareholder’s rights is made in the system of keeping the register of shareholders, and, if his/her share-holder’s rights are registered in the stock deposits, an extract from the register of stock deposits is sufficient to prove his/her rights
+ Article 10.10 of the Charter, articles 3.1 through 3.12 of The Statute of General Assembly Of Shareholders
3 The shareholder should have an access to information (documents) to be discussed during the Assembly, including access through internet and other electronic media
+ Article 10.13 of the Charter
4 If the Assembly discusses the election of Board members, members of executive authorities, General Director, Internal Auditing Commission and external auditing entity, it is mandatory that candidates to these positions should attend the Assembly
Usually comply
5 The Company’s internal documents should describe the registering procedure for attendees of the Assembly
+ Articles 12.1 through12.8 of The Statute of General Assembly of Shareholders
The Board of Directors
6 The Company’s Charter should grant the Board the authority to approve the Company’s annual financial and business plans
+ Sub-article 1 of article 11.3 of the Charter
7 The Company’s Charter should grant the Board the authority to suspend the authority of General Director appointed by the General Assembly of Shareholders
+ Sub-article 27 of article 11.3, article 12.4 of the Charter
8 The Company’s Charter should grant the Board the authority to set forth the requirements for the qualification and compensation for the General Director, members of the managerial board, and heads of the main structural units of the Company
+ Article 11 of the Charter
9 The Company’s Charter should grant the Board the authority to approve the terms and conditions of the contracts with the General Director and members of the managerial board
+ Sub-article 27 of article 11.3, article 12.2 of the Charter
10 The Board should not include individuals who were convicted of economic crimes, and/or crimes against the interests of State, against the interests of governmental, regional and municipal agencies, and/or persons who have records of administrative offences in the areas of entrepreneurship, finance, taxes and duties, and/or
+
operations with securities.
11 The Board should not include individuals who are shareholders (owners, participants), and/or members of the board, general directors and/or members of managerial authorities, and/or employees of a competing legal entity
+
12 The Company’s Charter should contain requirements for election of the Board by means of cumulative voting
+ Article 10.9 of the Charter
13 Meetings of the Board should be held at least once each six weeks during the year covered by the annual report of the Joint Stock Company
Usually comply
14 Internal documents should describe the procedures for conducting the Board meetings
+ Articles 7.1 through 7.11, 8.1 through 8.7 of the Board Statute
15 Internal documents of the Company should include provision(s) that deals with value not less than 10 % of the Company’s assets should be provisionally adopted by the Board
+ Article 11.3 of the Charter
16 Internal documents of the Company should grant members of the Board the authority to obtain from the executive authorities and the heads of main structural units all the information they need to perform their duties as well as set forth penalties for failure to provide such an information
+ Article 3 of the Board Statute
17 The Board should include Committee for Strategic Planning, or other committee, except committee responsible for audit and/or personnel and/or fees, should bring function of strategic planning
+ Sub-articles 1 and 36 of article 11.3 of the Charter
18 The Company’s Charter should describe the procedure of determining the quorum of the Board members that grants mandatory representation of independent directors in the Board meetings
+ Article 11.10 of the Charter
Executive Authorities
19 The executive authorities of the Company should not include individuals who are shareholders (owners, participants), and/or members of the board, general directors and/or members of managerial authorities, and/or employees of a competing legal entity
+
20 The executive authorities of the Company should not include individuals who were convicted of economic crimes, and/or crimes against the interests of State, against the interests of governmental, regional and municipal agencies, and/or persons who have records of administrative offences in the areas of entrepreneurship, finance, taxes and duties, and/or operations with securities.
+
21 Contracts of the Company with General Director (managing organization, executive officer) and managerial authorities should include provisions to keep safe from disclosure any confidential and business proprietary information of the Company as well as responsibility for violation of these non-disclosure obligations.
+
Corporate secretary of the Company
22 The Company’s Charter or internal documents should describe the procedure for appointing (electing) the Secretary and his/her rights and obligations
+ Sub-article 23 of article 11.3 of the Charter, article 7.3 of
the Board Statute
Critical corporate actions
23 The Company’s Charter or internal documents should require that “large deal” must be approved prior to its signing
+ Articles 10 and 11 of the Charter
24 Absence from the Company’s Charter of any provision that a buyer is free from obligations to offer other shareholders to sell voting shares (or other issued securities convertible into voting shares) in the case of takeover (absorption) of the Company
+
Disclosure of information
25 Internal documents of the Company should describe the information and documents those should be presented to shareholders to discuss issues included in the agenda of the General Assembly of Shareholders
+ Articles 10.13 and 10.14 of the Charter
26 The Company should have and maintain its own web-site and should regularly disclose information about the Company on this web-site
+ Articles 16.9 and 16.10 of the Charter
Supervision of Financial & Economic Activities
27 The Company should have the regulatory document adopted by the Board that describes procedures for audit of financial and economic activities of the Company by the Internal Auditing Committee.
+ Articles 5.1 through 5.10, 6.1 through 6.6 of the Statute of Internal Auditing Committee
28 The Internal Auditing Committee should not include individuals who were convicted of economic crimes, and/or crimes against the interests of State, against the interests of governmental, regional and municipal agencies, and/or persons who have records of administrative offences in the areas of entrepreneurship, finance, taxes and duties, and/or operations with securities.
+
