Solikamsk Magnesium Works Annual Report 2015 English web

ADOPTED BY:
Annual General Assembly of Shareholders
Of JSC Solikamsk Magnesium Works
Date of General Assembly od Shareholders
28 June 2016
Protocol №2
of 01 July 2016
Provisionally Approved by:
The Board of Directors
Of JSC Solikamsk Magnesium Works
Protocol № 5
of «20 » May 2016
JOINT-STOCK COMPANY
SOLIKAMSK MAGNESIUM WORKS
ANNUAL REPORT
2015
General Director ________________ Dmitriy L. Melnikov
(signature)
Solikamsk
2016
TABLE OF CONTENT
Page
LETTER TO SHAREHOLDERS
MISSION
GENERAL COMPANY’S INFORMATION
2
3
4
History in Brief
Solikamsk Magnesium Works in Brief
Registration Data
Auditor of the Company
Register-keeper of the Company
Authorized Capital of the Company
Shareholders of the Company
Market Capitalization of the Company
Subsidiaries (Dependent Entities) of the Company
SMW’s Membership in Organizations & Associations
4
5
6
6
6
7
7
7
8
8
PRIORITY ACTIVITIES OF THE COMPANY
REPORT OF THE BOARD CONCERNING PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES
Financial Overview
Performance by Operations
9
9
9
11
Magnesium Operations
Rare Metals Operations
Niobium Compounds
Tantalum Compounds
Compounds of Rare Earths
Titanium Sponge & Compounds
Chemical Operations
11
13
15
15
16
18
19
Usage of Raw Materials & Energy Resources
Technical Development & IT-Technologies
Compliance of Management System with International Requirements
19
19
20
Compliance with International Code of Conduct for the Industry
Integrated Management System of the Company & Due Diligence on Trade with “Conflict Minerals”
20
20
Operational & Industrial Safety
List of the Company’s Licenses
Social Responsibility
POSITION IN THE INDUSTRY
21
23
23
24
Position in the Magnesium Industry
Position in the Rare Earths Industry
Position in the Titanium Industry
Position in the Niobium Industry
Position in the Tantalum Industry
Position in the Chemical Industry
24
27
30
31
33
35
PROSPECTS OF THE COMPANY
RISK FACTORS
35
36
Technical & Operational Risks
Risks Associated with Lawsuits
Risks Associated with Inability to Prolong Existing Licenses of the Company
Risks Associated with Potential Liability of the Company under Obligations of the Third Parties
Risks Associated with the Potential Loss of Large Customers
36
38
39
39
39
CORPORATE GOVERNANCE
39
Obligations and Activities of the General Assembly of Shareholders in the Reporting Period
Obligations and Activities of the Board of Directors in the Reporting Period
Dividend Statements
List of the Company’s Deals Those May Be Referred to as the Large Deals under Legislation
List of the Company’s Deals Those May Be Referred to as the Deals with Interest under Legislation
The Board of Directors of the Company
Information on the Person Who Holds the Position of Exclusive Executive Body of the Company
The Main Provisions of the Company's Policy in the Field of Compensation and Reimbursement of Expenses, as well
as the Criteria for Determining the Amount of Remuneration and Compensations Paid to the Members of the Board of
Directors of the Company for 2015
The Main Provisions of the Policy of the Company's Remuneration and Reimbursement of Expenses, as well as the
Criteria for Determining and Amount of Remuneration and Compensations Paid to the Members of the Executive
bodies of the Company During 2015
Information (report) on Compliance with Principles and Recommendations of the Code of Corporate Governance
Recommended by the Bank of Russia
Information Concerning Approval of Annual Report
39
39
40
40
41
41
43
KEY PERFORMANCE INDICATORS OF THE COMPANY
REPORT OF AUDITOR
Annexes (available only electronically in Russian under link:
http://смз.рф/raport/2016/2015_godovoj_otchet_smz_2015_dlja_sajta.pdf )
45
46
Annex № 1 List of the Company’s Licenses
Annex № 2 List of “Deals with Interest”
Annexе № 3 Compliance with Code of Corporate Governance Recommended by CBRF
Entire Version of this Report is located on the Company’s site under link http://смз.рф/index/en_information/0-104
1
43
44
44
44
LETTER TO SHAREHOLDERS
Dmitriy L. Melnikov
General Director of OAO Solikamsk Magnesium Works
Last year – 2015 – was the most challenging year in the markets for the vast majority of
commodities, fossil fuels, and raw materials since the crisis of 2008 - 2009.
The global economy continued to slow down, and its growth was well below initial
expectations, due, primarily, to the low growth rate of the Chinese economy, the recession in
oil and gas producing countries like Brazil and Russia, and the stagnation of the European,
Japanese, and other developed economies.
This was a reason for the downward trend in prices for the whole reporting year, and this
negative trend expanded to more and more industries during the year. Products of Solikamsk
Magnesium Works were not immune from this negative tendency.
Despite these adverse circumstances, the performance of the Company was on a positive trend
in the reporting year.
Sales revenues increased from 5’164.7 million rubles to 6’395.5 million rubles or by 23.8% yearto-year. Sales income amounted to 686.7 million rubles, which was an increase of 890.4 million
rubles year-to-year compared to a loss of 203.7 million rubles in 2014. Net income increased
from 40.0 million rubles in 2014 to 474.5 million rubles in the reporting year.
The global economic forecast for 2016 is not optimistic, and this outlook is regularly worsened
by international financial organizations (IMF, World Bank, etc.).
All of this is a signal of a more complicated year ahead than the reporting year which has just
passed.
Nevertheless, the management of the Company hopes to overcome any challenges that may
arise during 2016 and to strengthen the technical and financial performance of the Company
in the coming year and beyond.
2
MISSION
Activities of our Company are concentrated on the manufacturing of quality
magnesium, chemical and rare metals products designed for use in High-Tech
industries.
Our long-term and reciprocal relationships with customers, suppliers,
employees, shareholders and the community are established with use of
efficient, environment-friendly and modern engineering approaches.
VISION
We confidently remain on leading market positions, meeting improved and
modified customers’ requirements by the way of development environmentfriendly and efficient processes.
High-skilled, self-motivated and devoted employees are considered as the basic
source of the Company’s success in the market.
Efficient and reciprocal relationships with our partners give us a competitive
edge.
3
GENERAL COMPANY INFORMATION
History 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 (SMW)
● 1939: SMW had started production of alloy magnesium for aircraft industry
● 1946: the Experimental Plant was founded, the first experimental plant inside an operating facility in
the Non-ferrous Industry of the Soviet Union. All of the main basic technologies recently utilized by
CIS magnesium and titanium companies and Israeli DSM were developed here
● 1962-1966: A proprietary technology to produce Mg-Zr master alloy and MZr1N3 magnesium super
alloy was implemented to source the Soviet Space Program and Aircraft Industry
● 1971: Rare Metals Operations were brought on stream with use of chlorine generated in Magnesium
Operations as the main reagent to process loparite and other raw materials in these operations
● 1977: a line to separate niobium pentachloride out of tantalum pentachloride with production of
technical grade niobium pentoxide was put into operation
● 1983: a line to produce optoelectronic grades of tantalum and niobium pentoxides was brought on
stream
● 1985: SMW awarded with the Order of Great Patriotic War 1941-1945 recognizing importance of
SMW’s supply for Soviet Army and Navy to win the War
● 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”)
● 1996: in joint venture partnership with Almamet GmbH, Germany, a plant to produce magnesium
granules, powders and mixes for desulfurization of iron and steel – Solikamsk Desulfurizers Works
OOO SZD - was brought on stream. This event pushed mass introduction of desulfurization process in
the Russian Steel Industry
● 2000: a line to produce rare earths carbonates was brought in operation
● 2000: the first ISO 9001 certification
● 2009: the first stage of titanium sponge project was brought on stream with capacity 2’500 tons per
year out of total projected of 5’000 tons per year
● 6 November 2009: the first 1’000’000th ton of magnesium metal was melted by SMW
● 2010: the first ISO 14001 certification
● 2013: production of separated and individual rare earths compounds was arranged
● 2014: facility to process by-products of Magnesium Operations was brought on stream
Solikamsk is a modern, continuously developing company which gradually increases the range of
products with enhanced features and keeps leading positions in Magnesium and Rare Metals
Industries of Russia accounting for, virtually, 100% output of tantalum, niobium and rare earths
chemicals, and more than 60% of commodity pure & alloy magnesium metal and 4% of titanium
sponge production in the country, with Integrated Management System conforming to appropriate
international standards and requirements.
4
Solikamsk Magnesium Works In Brief
SMW’s suppliers of the main raw materials
SMW’s Group of the Companies
SMW
Solikamsk
Solikamsk Desulfurizers
Works
Mart
50%
50%
Russian R&D Institute
of Titanium &
Magnesium
68%
SOLIKAMSK PRODUCTION FLOW CHART
Raw material supply
Finished Products
Production
•Pure & alloy Mg metal
•Potash (40% К2O)
•Carnallite
•Fluxes, etc
•Ca hypochlorite solution
Magnesium Operations
Carnallite
Chlorine (gas)
Lime stone
Lime slurry
MgCl2
•32% CaCL2 solution
•Lime
•Lime slurry
•Liquid chlorine
Chemical Operations
ООО Галополимер-Пашия
Mg
Chlorine, Lime slurry milk
рутил
лопарит
Chlorination
Production of titanium sponge
Rare Metals
Operations
Ti, Nb, Ta chlorides
Rare Earths
Chlorides
TiCl4
Production of Nb, Ta, Ti compounds
Production of rare earths compounds
•Titanium sponge
•Nb pentachlorides & oxides
•Та pentachlorides & oxides
•Ti tetrachloride •Nb
пентахлориды и оксиды
•Rare
earths carbonates
•Та пентахлориды
и оксиды
•Се
carbonates & oxides
•Ti тетрахлорид
•La carbonates & oxides
•Nd carbonates & oxides
•Pr carbonates & oxides
•Nd/Pr carbonates & oxides
•SmEuGd carbonates & oxides
Annual capacities to manufacture main products
Magnesium Operations
- Pure & alloy Mg – up to 18’200 mt, including 16’200 mt output for sales;
- Potash, fluxes, etc. – up to 79’320 mt;
- Calcium hypochlorite solution – up to 60’000 mt
Rare Metals Operations
Capacity for loparite processing is up to 13’000 mt that enables to produce:
- Niobium compounds – up to 855 mt Nb2O5 contained
- Tantalum compounds – up to 60 mt Та2О5 contained
- Rare earths compounds – up 3’600 mt Total Rare Earths Oxide (TREO) contained
- Titanium sponge & titanium compounds – up to 2’600 mt Ti contained
Chemical Operations
- Chlorine, liquid – up to 3’000 mt
- Lime – up to 20’000 mt
- Calcium chloride solution (32% CaCL2) – up 72’000 mt
5
Registration Data
Complete Name of the Company
In Russian: Открытое акционерное общество «Соликамский магниевый завод»
In English: Open joint stock company «Solikamsk Magnesium Works»
Short Name of the Company:
In Russian: ОАО «СМЗ»
In English: JSC «SMW»
Company Location: 9 Pravda Str., 618541, Solikamsk, Perm Region. RUSSIA
Tel: +7(34253) 51171 Fax: +7(34253) 52375 E-mail: [email protected]
htpp:// 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: 10.09.2002
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 inorganic chemicals
- Production of minor non-ferrous metals
- Production of castings
- Processing of metallic scrap & residues
- Building & construction works for general purposes
- Exploration of gravel and sand pits
OKVED
OKVED
OKVED
OKVED
OKVED
OKVED
24.13
27.45
27.5
37.10
45.21
14.21
- Generation, transfer & distribution of steam and hot water (heating energy)
- Cooking in canteens belonging to enterprises
- Managing of sports entities
- Medical practices
OKVED
OKVED
OKVED
OKVED
40.30
55.51
92.61
85.12
- Managing of medical entities
- Education of adults and other kinds of education not included in other groups
- Retail in shopping trays and market places
- Wholesale of other food
- Wholesale of processed food and meal
- Retail of alcohol-free soft drinks
- Other retail activity out of shops
OKVED
OKVED
OKVED
OKVED
OKVED
OKVED
OKVED
85.11
80.42
52.62
51.38
51.38.22
52.25.2
52.63
The main activity in 2015:
Production of minor inorganic chemicals
OKVED
24.13
Sources of information about the Company: Company’s newspaper “Magnievik”, city’s newspaper
«Solikamskiy rabochiy», Company’s web-site http://www.smw.ru, ООО «CRCI - Interfax»
http://www.e-disclosure.ru/portal/company.aspx?id=6100
Representative offices and affiliated branches: not available
Auditor of the Company
Name: Closed type joint-stock company Firm Legion-Audit (ZAO Auditing Firm Legion-Audit)
Location: ul. Kostycheva 42a, 614031, Perm. RUSSIA
INN: 5903029169 OGRN: 1025900766870 E-mail address: [email protected]
Auditor is a member of Self-Regulatory Organization of Auditors Chamber of Auditors of Russia
(Association) (SRO APR, OGRN 1037739752687, ORNZ 10401003022)
Register-keeper of the Company
Name: Closed Type Joint-Stock Company Registrator Intraco
Location: ul. Lenina,64, Floor №2, 614990, Perm. RUSSIA
Tel/fax: +7(342) 233-01-63/233-01-64, http://www.intraco.ru
License number: 10-000-1-00272 of 24 December 2002
Issuing Agency: The Russian Federal Securities Commission
Validity: unlimited
Registrator Intraco is a member of Professional Association of Register holders, Transfer Agents and
Depositaries (PARTAD). Performs function of Register-keeper of the Company since 23 December 1996
6
Authorized Capital of the Company
Authorized 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
Shareholders of the Company
Number of persons registered in the list of shareholders on the last date of the reporting year is 698,
including 1 nominal shareholder.
List of the main registered shareholders of the Company was changed during reporting year. On 25
November 2015, companies Canemare Enterprises Limited and K2 Bank sold its shares to new owners.
List of shareholders owing at least 5% of authorized capital or not less than 5% of ordinary (voting)
shares of the Company on 31 December 2015:
1. Igor Leonidovich Pestrikov – 24.9997 %
2. Slontecco Investments Limited – 24.0002%
3. Vojiesko Holdings Limited – 17.7100 %
4. Fullcircle Facilities Management (Cyprus) Ltd – 15.7018%
5. Sergei Yurievich Kirpichev – 7.0432%
6. Other shareholders – 10.5451 %
Information concerning any agreement of any shareholder(s) and/or person(s) who keep(s) a control
on any shareholder(s) act together with participation of the other shareholder(s), which may have
significant impact on the Company’s activities, under which parties of such agreement(s) assume its
obligations act together in connection with business activities including managing of the Company, is
not available.
Market Capitalization of the Company
Market price of shares of Solikamsk Magnesium Works OAO on MICEX, ruble per share
Ordinary shares of JSC SMW (trade index - MGNZ) are included in the Level 3 List of Securities
permitted for trade in ZAO “Stock Exchange MICEX” (SE MICEX) since 09 June 2014.
Location of exchange: 13 Bolshoi Kislovskiy pereulok, 125009, Moscow. RUSSIA
Tеl: +7 (495) 363-3232, fax: +7 (495) 705-9622
Information concerning market price of SMW’s shares is readily available under link:
http://www.micex.ru/marketdata/analysis?secid=MGNZ&boardid=EQNE&linetype=candles&peri
od=-1d .
7
Information concerning market capitalization of the Company is readily available under link:
http://moex.com/a3503.
Market capitalization of the Company on the 31st December of subsequent year was as follows, RUB:
2011
3’856’945’702.40
2012
2’374’179’046.40
2013
2’395‘446‘771.20
2014
1'362'090'240.00
2015
1’752'396'800.00
Subsidiaries (Dependent Entities) of the Company
1. OOO SZD
Complete subsidiary name: Limited Liability Company Solikamsk Desulfurizers Works
Short subsidiary name: OOO SZD
Location: 9 Pravda Street, 618541, Solikamsk, Perm Region. RUSSIA
INN: 5919492823 OGRN: 1025901973459
Company’s information: www.szd.ru
The main activity: production of other non-ferrous metals
SMW’s share in Authorized Capital of the subsidiary,%: 50
Share of the subsidiary in total shares of SMW, %: 0
Share of the subsidiary in voting shares of SMW, %: 0
2. OAO RITM
Complete subsidiary name: Open Joint-Stock Company "The Russian Titanium & Magnesium Research,
Development & Designing Institute”
Short subsidiary name: OAO RITM
Location: 101 Lenina Avenue, 618421, Berezniki, Perm Region. RUSSIA
INN: 5911030023 OGRN: 1025901707237
Company’s information: www.oao-ritm.ru
The main activity: research and development works in areas of natural and technical science
SMW’s share in total shares of subsidiary, %: 68
SMW’s share in total voting shares of subsidiary, %: 68
Share of subsidiary in total SMW’s shares, %: 0
Share of subsidiary in voting shares of SMW, %: 0
3. ООО Mart
Complete subsidiary name: Limited Liability Company "Mart"
Short subsidiary name: OOO Mart
Location: 9 Pravda Street, 618541, Solikamsk, Perm Region. RUSSIA
INN: 5919491570 OGRN: 1025901972656
The main activity: production of lime products
SMW’s share in subsidiary’s Authorized Capital,%: 67.54%
Share of subsidiary in total SMW’s shares, %: 0
Share of subsidiary in voting shares of SMW, %: 0
4. ZAO Octane – inactive
5. ZAO Ecomag - inactive
Subsidiaries do not have quasi-securities (shares of SMW) at their disposal.
SMW’s Membership in Organizations and Associations:
1. Tantalum – Niobium International Study Center (TIC) - from 1992
2. Perm Chamber of Commerce - from 1992
3. Verkhne-Kamskaya Chamber Of Commerce - from 1995
4. Association of Analytical Centers Analitika - from 1995
5. Non-commercial alliance Association of Chlorine Industry (Association RusChlor) - from 2006
6 ZAO Inter-state Association Titan - from 2008
7. Association of Energy Facilities of Western Urals - from 1997
8. Self-regulatory Organization Non-commercial Partnership Union of Architectural & Designing
Organizations of Perm Region - SRO NP SAPO - from 2009
9. Self-regulatory Organization Non-commercial Partnership Alliance of Builders - from 2011
10. Non-commercial Partnership Council of Managing Directors of Enterprises in Solikamsk City and
Solikamsk District - from 2002
8
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 commodities and
services, and earn a profit.
The Company’s strategy is gradual development of products with enhanced features in order to assure
sustainable sales of the Company’s products in changing market conditions.
REPORT OF THE BOARD CONCERNING PROGRESS IN THE
COMPANY’S PRIORITY ACTIVITIES
FINANCIAL OVERVIEW
The growth of the global economy was well below expectations in the reporting year. It was due to
slowdown of Chinese economy, negative trends in oil and gas producing countries, uncertain growth
of leading developing and developed countries. Forecast for 2016 is also not optimistic.
Bearish trend in demand and prices affected virtually all products in the mining and processing sectors,
and SMW’s products were also affected by that.
Dropped oil prices caused further devaluation of Russian ruble. Softening of Russian ruble increased
competitiveness of Russian producers, because particularly dampened inflated costs which was a
result of Government increases in prices of products and services of natural monopolies, in taxes and
non-tax fees, in key interest rate of Russian Central Bank.
World prices for all of the products of the Company deflated in 2015, but key performance indicators
of SMW improved due to devaluation of Russian ruble.
Sales revenues of the Company accounted for ₽6’395.495 mln in the reporting year. This is a rise of
+23.8% compared to ₽5’164.738 mln in 2014. The same parameter in US$ terms totaled US$104.864 mln
representing a drop of – 21.6% compared to US$133.795 mln in 2014.
Sales income accounted for + ₽686.735 mln (+ US$ 11.260 mln), net income totaled +₽474.540 mln (+US$
7.792 mln) compared to sales loss of - ₽203.666 mln (-US$ 5.297 mln) and net income of +₽40.023 (+US$
1.041 mln) in 2014.
US$mln – Exchange rate, ₽/US$
₽ mln
SMW. Sales revenues and income ₽ mln, US$ mln, exchange rate ₽/US$
Sales revenues in the Russian market increased by a factor of 1.47 Y-o-Y, from ₽2'593.914 mln in 2014
to ₽3’820.781 mln in 2015, while, in USD terms, the same result accounted for US$68.514 mln and
9
US$62.757 mln respectively representing a drop of -8.41% Y-o-Y. Share of sales to Russia in total sales
revenues of the Company increased from 51.2% до 59.7%.
US$ mln – Exchange rate, ₽/US$
₽ mln
SMW. Sales revenues, ₽ mln and US$ mln, exchange rate ₽/US$
In combination with shipments to Kazakhstan and Belarus, share of sales to EAEC market accounted
for 64.4% in total sales revenues of SMW.
Export sales revenues increased by +0.15%, from ₽2’570.824 mln in 2014 г to ₽2’574.714 mln in 2015,
while, in USD terms, this is a drop by a factor of 1.55, from US$65.282 mln in 2014 to US$42.107 mln in
2015. Export share in total sales revenue of SMW dropped from 48.8% to 40.3% respectively.
SMW. Sales by market areas, ₽ mln and US$ mln, % on the graphs
₽ mln
2005
2006
2007
2008
2009
2010
RU 582.927 917.773 1’406.640 1'589.463 1’226.148 1’747.359
BY+KZ+KG+AM
27.400
65.264 146.325 178.775 251.208 330.613
Total EAEC
610.327 983.037 1'552.965 1'768.238 1'477.356 2'077.972
Americas 401.318 334.083 185.138 279.309 118.523 395.136
Asia
44.400
32.368
45.818
95.542 107.885 170.166
Europe, others 620.415 624.017 757.092 974.316 823.056 704.560
ROW
1'066.133 990.468 988.048 1'349.167 1'049.464 1'269.862
TOTAL
1'676.460 1'973.505 2'541.013 3'117.405 2'526.820 3'347.834
10
2011
2‘674.856
1 388.396
4'063.252
78.812
290.559
2'077.465
2'446.836
6'510.088
2012
3’172.561
238.671
3'411.232
198.792
238.849
1'672.027
2'109.668
5'520.900
2013
2’867.001
335.514
3'202.515
336.134
346.091
570.830
1’253.055
4’455.570
2014
2'593.914
425.794
3'019.708
749.857
717.292
677.881
2'145.030
5'164.738
2015
3'820.781
294.969
4'115.750
939.917
610.819
729.009
2'279.745
6'395.495
US$ mln
RU
BY+KZ+KG+AM
Total EAEC
Americas
Asia
Europe, others
ROW
TOTAL
2005
20.588
0.968
21.556
14.174
1.568
21.912
37.654
59.210
2006
33.822
2.405
36.227
12.312
1.193
22.996
36.501
72.728
2007
55.051
5.727
60.778
7.246
1.793
29.630
38.669
99.446
2008
63.901
7.187
71.088
11.229
3.841
39.170
54.240
125.328
2009
38.598
7.908
46.506
3.731
3.396
25.909
33.036
79.543
2010
57.523
10.884
68.407
13.008
5.602
23.194
41.804
110.211
2011
90.998
47.233
138.230
2.681
9.885
70.675
83.240
221.471
2012
102.096
7.681
109.777
6.397
7.686
53.808
67.891
177.668
2013
89.857
10.516
100.372
10.535
10.847
17.891
39.273
139.645
2014
68.514
10.896
79.410
19.075
17.922
17.388
54.385
133.795
2015
62.647
4.836
67.484
15.411
10.015
11.953
37.380
104.864
SMW. Sales revenues by Operations in ₽ mln, US$ mln, %% on the graphs
₽ mln
Magnesium Operations
Rare Metals Operations
Chemical & Services
TOTAL, ₽ mln
US$ mln
Magnesium Operations
Rare Metals Operations
Chemical & Services
TOTAL, US$ mln
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1'112.110 1'287.519 1'376.143 1'938.084 1’519.937 1’850.875 1'925.943 2’050.233 2’081.928 2’117.357 2’744.153
463.471 551.162 895.832 956.945 793.769 1'226.470 4'159.545 2’963.816 1'830.148 2'538.288 3’220.397
100.879 134.824 269.038 222.376 213.114 270.489 424.600 506.851 543.494 509.092
430.945
1’676.460 1'973.505 2'541.013 3'117.405 2’526.820 3’347.834 6'510.088 5'520.900 4'455.570 5’164.737 6'395.495
2005
39.278
16.369
3.563
59.210
2006
47.448
20.311
4.969
72.728
2007
53.857
35.060
10.529
99.446
2008
77.916
38.472
8.940
125.328
2009
47.847
24.987
6.709
79.543
2010
60.931
40.376
8.905
110.211
2011
65.520
141.506
14.445
221.471
2012
65.979
95.379
16.311
177.668
2013
65.251
57.360
17.034
139.645
2014
55.826
64.590
13.379
133.795
2015
45.197
52.567
7.100
104.864
Share of Magnesium Operations in total sales revenue increased from 41.0% in 2014 to 42.9% in 2015.
Sales revenues of these Operations rose from ₽2’117.357 mln to ₽2’744.153 mln respectively. This is a
growth of + 29.6% in terms of Russian rouble, but this is a drop of -19.0% in USD terms Y-o-Y, from
US$ 55.826 mln to US$ 45.197 mln.
Share of Chemical Operations & Services in total sales revenues declined from 9.9% in 2014 to 6.7% in
2015. Sales revenues of these Operations dipped from ₽509.092 mln to ₽430.945 mln or by – 15.4% Yo-Y. In USD terms, this is a drop of -46.9%, from US$13.379 mln to US$7.100 mln
As the result of sales of separated rare earths, with higher value than original rare earths carbonate,
share of Rare Metals Operations in total sales revenues improved from 49.1% in 2014 to 50.4% in 2015.
Sales revenues of these Operation rose by +26.9% Y-o-Y, from ₽2'538.288 mln in 2014 to ₽3’220.397 mln
in 2015, while, in USD terms, this is a drop of -18.6% Y-o-Y, from US$ 64.590 mln to US$ 52.567 mln.
PERFORMANCE BY OPERATIONS
MAGNESIUM OPERATIONS
The production of magnesium metal is the starting point of the processes utilized by Solikamsk.
Chlorine generated in the production of magnesium metal is the main reagent used to process loparite
and other raw materials utilized by the Rare Metals Operations.
Part of magnesium capacity is employed in the titanium-magnesium cycle of the titanium sponge
production where magnesium metal is used as the reducing agent to extract titanium from titanium
tetrachloride with generation of titanium sponge and magnesium dichloride. Magnesium dichloride is
then recycled back to magnesium metal and chlorine in the Magnesium Operations, and magnesium
11
SMW. Shipments of products of Magnesium Operations, mt
Other products of Mg Operations, т
Pure & alloy Mg , т
is then reverted back to the process of titanium sponge production, while chlorine is used to process
raw materials on chlorination stage of the Rare Metals Operations.
SMW. Shipments of products of Magnesium Operations by areas, ₽ mln and US$ mln, % (graphs)
₽ mln
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
RU
346.003 686.312 787.891 950.869 725.289 1'069.342 1'513.027 1'593.712 1'770.394 1'564.447 2'087.137
KZ+BY+KG+AM
25.426
12.412
17.706
64.278 141.752
59.629
74.358
59.099
55.883
86.782
54.528
Total ЕАEС
371.429 698.724 805.597 1'015.147 867.041 1'128.971 1'587.385 1’652.811 1'826.277 1'651.229 2'141.666
Americas
353.513 301.409 145.509 213.598
90.097 347.386
41.177
16.947
15.720 234.785 221.453
Asia
0.000
0.000
1.573
90.752
88.535 113.769 197.789 199.387 113.724 120.073 185.825
Europe and others 387.168 287.386 423.464 618.587 474.264 260.749
99.592 181.088 126.207 111.270 195.220
Total ROW
740.681 588.795 570.546 922.937 652.896 721.904 338.558 397.422 255.651 466.128 602.498
TOTAL
1’112.110 1'287.519 1'376.143 1'938.084 1'519.937 1'850.875 1'925.943 2'050.233 2'081.928 2'117.357 2'744.163
US$ mln
RU
KZ+BY+KG+AM
Total ЕАEС
Americas
Asia
Europe and others
Total ROW
TOTAL
2005
12.220
0.898
13.118
12.486
0.000
13.674
26.160
39.278
2006
25.292
0.457
25.749
11.108
0.000
10.591
21.698
47.448
2007
30.835
0.693
31.528
5.695
0.062
16.573
22.329
53.857
2008
38.227
2.584
40.812
8.587
3.648
24.869
37.104
77.916
2009
22.832
4.462
27.294
2.836
2.787
14.930
20.553
47.847
12
2010
35.203
1.963
37.166
11.436
3.745
8.584
23.765
60.931
2011
51.473
2.530
54.002
1.401
6.729
3.388
11.518
65.520
2012
51.287
1.902
53.189
0.545
6.416
5.828
12.789
65.979
2013
55.487
1.751
57.239
0.493
3.564
3.956
8.013
65.251
2014
41.648
2.326
43.974
5.948
3.051
2.921
11.92
55.894
2015
34.425
0.929
35.354
3.532
2.976
3.336
9.844
45.197
Pure & alloy magnesium are the main products of Magnesium Operations, while other or minor products
of these Operations include processed carnallite mainly used to produce salts for balneotherapy, potash
(min. 40% K2O) mainly used as the fertilizer, fluxes and other salts mainly used in the non-ferrous
industry, and calcium hypochlorite solution used for disinfection of premises and paper bleach.
SMW. Shipments of pure & alloy magnesium by areas, mt and in %% (graphs)
RU
KZ+BY+KG+AM
Total ЕАEС
Americas
Asia
Europe and others
Total ROW
TOTAL
2005
4'222
355
4'578
5'315
0
5'625
10'940
15'518
2006
7'642
274
7'916
6'257
0
6'080
12'337
20'253
2007
8'643
213
8'856
2'441
21
6'391
8'853
17'709
2008
6'460
596
7'056
2'570
1 003
5'952
9'525
16'581
2009
5'861
240
6'101
901
215
4'903
6'019
12'120
2010
9'307
154
9'461
3'544
80
2'376
6'000
15'461
2011
11'809
549
12'358
375
0
784
1'159
13'517
2012
12'868
399
13'267
142
0
389
531
13'798
2013
13'315
330
13'645
138
20
167
325
13'970
2014
11'207
609
11'816
1'695
0
233
1 928
13'744
2015
10'729
243
10'972
1'051
0
437
1'488
12'460
Low priced imports to EAEC countries, mainly from China, were the main reason of dropped output
and shipments of magnesium products in the reporting year. In 2015, SMW shipped 12’460 mt of pure
& alloy magnesium. This is a drop of – 9.3% or -1’284 mt compared to 13’744 mt in 2014.
Shipments of pure magnesium (min.99.9%) accounted for 11'425 mt, ultra-pure magnesium
(min.99.5%) totaled 401 mt, magnesium super (MZr1Nd3) and master (L2, L4, M2) alloys accounted
for 113 mt, and shipments of common grade of magnesium alloys amounted to 521 mt.
Shipments to EAEC market declined from 11’816 mt in 2014 to 10’972 mt in 2015. This is a drop of -844
mt or -7.1% Y-o-Y. Out of this total, shipments to Russia accounted for 10’729 mt. This is a decline of 478 mt or -2.7% compared to 11’207 mt in 2014.
Exports outside EAEC accounted for 1’488 mt in 2015. It was a drop of -440 mt or -22.8% compared to
1’928 mt exported in 2014.
Out of other products of Magnesium Operations, potash is the main product of export, while other
products are mostly sold in Russia and shipments abroad are very few.
RARE METALS OPERATIONS
Loparite is the main raw material processed in Rare Metals Operations (RMO) of the Company. This
material is a complex titanate –niobate - tantalate of rare earths, alkali and alkali-earths elements, and
typically contains 35-38% TiO2, 28-30% TREO, 7.5-8% Nb2O5 and 0.5-0.8% Ta2O5. As the result of
processing of raw materials, the following products are produced by Solikamsk: carbonates and oxides
of rare earths; chemical concentrate, pentachlorides and pentoxides of niobium and tantalum; titanium sponge
and tetrachloride.
Solikamsk processed 8’509 mt of loparite in 2015. This is a growth of +810 mt or +10.5% compared to
7’699 mt in 2014. In contrast to previous years, loparite was the only raw material processed in 2015.
13
Growth of shipments was observed for all aggregate categories of products of Rare Metals Operations,
except for tantalum compounds.
SMW. Raw materials processing in Rare Metals Operations, mt
SMW. Shipments of Rare Metals Operations by aggregate product category, mt of the main substance contained
Rare Earths compounds, mt TREO
Titanium products, mt Ti
Niobium compounds, mt Nb2O5
Tantalum compounds, mt Ta2O5
2005
2'026.8
1'413.7
638.7
35.4
2006
2'935.0
1'716.1
656.2
37.8
2007
2'711.0
2'231.3
688.4
47.7
2008
2'470.0
1'788.3
584.9
39.3
2009
1'898.0
647.7
511.0
34.8
2010
1'495.5
1'605.8
397.1
31.0
2011
1'443.6
1'694.9
430.8
27.0
2012
2'131.3
1'874.7
450.2
31.4
2013
1'443.1
1'452.2
510.7
32.2
2014
2'133.8
1'981.8
580.7
39.9
SMW. Sales revenues of Rare Metals Operations by market areas, ₽ mln, US$ mln, %% (graphs),
₽ mln
RU
KZ+BY+KG+AM
Total EAEC
Americas
Asia
Europe and others
Total ROW
TOTAL
US$ mln
2005
2006
2007
2008
2009
145.062
6.181
151.243
47.805
44.400
220.022
312.228
463.471
247.492
52.853
300.344
32.674
32.368
185.776
250.818
551.162
192.328
128.619
320.947
330.647
1.573
242.665
574.885
895.832
406.884
114.497
521.381
65.711
10.988
358.865
435.564
956.945
266.324 374.353
109.457 270.984
375.780 645.336
28.425
47.750
35.983
56.397
353.581 476.986
417.989 581.134
793.769 1'226.470
2010
2005
2006
2007
2008
2009
2011
704.189
1'314.038
2'018.227
37.635
92.769
2'010.914
2'141.318
4'159.545
2012
2013
2014
2015
1'071.931 553.113 520.375 1'302.709
179.571 279.631 339.012 240.441
1'251.502 832.744 859.387 1'543.150
179.179 320.414 515.072 533.789
36.897 237.269 597.219 718.464
1'496.238 439.721 566.611 424.9937
1'712.314 997.404 1'678.902 1'677.247
2'963.816 1'830.148 2'538.289 3'220.397
2010
2011
2012
2013
2014
2015
RU
5.123
9.121
7.527
16.358
8.384
12.324
23.956
34.496
17.336
13.554
21.233
KZ+BY+KG+AM
Total EAEC
0.218
5.342
1.948
11.068
5.034
12.561
4.603
20.961
3.446
11.829
8.921
21.245
44.703
68.659
5.779
40.275
8.764
26.100
8.570
22.124
4.132
25.365
Americas
1.688
1.204
12.940
2.642
0.895
1.572
1.280
5.766
10.042
13.128
11.570
Asia
1.568
1.193
0.062
0.442
1.133
1.857
3.156
1.187
7.436
14.871
7.113
7.771
11.027
16.369
6.846
9.243
20.311
9.497
22.499
35.060
14.427
17.511
38.472
11.130
13.158
24.987
14
15.702
19.131
40.376
68.410
72.847
141.506
48.151
55.104
95.379
13.782
31.260
57.360
14.467
42.466
64.590
8.519
27.203
52.567
Europe and others
Total ROW
TOTAL
2015
2'312.3
2'013.9
628.2
31.6
Niobium Compounds
Due to increased output, shipments of niobium compounds rose from 580.7 mt Nb2O5 contained in
2014 to 628.2 mt Nb2O5 in 2015. This is a growth of +47.5 mt or +8.2% Y-o-Y.
SMW. Shipments of niobium compound by market areas, mt Nb2O5 contained and in %% (graphs)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
RU
131.0
130.9
174.6
153.7
269.4
260.4
318.8
325.9
175.3
153.6
242.2
KZ+BY+AM+KG
Total EAEC
15.1
146.2
35.2
166.1
83.9
258.5
0.2
153.9
0.1
269.5
0.2
260.6
0.1
318.9
0.2
326.1
0.1
175.4
0.1
153.7
0.0
242.2
367.1
Americas
91.5
117.4
89.6
206.1
41.8
56.3
21.1
90.0
247.6
403.6
Asia
129.6
75.3
43.7
10.1
28.8
0.0
0.0
0.0
0.0
0.0
0.0
Europe and others
Total ROW
TOTAL
271.4
492.5
638.7
297.5
490.2
656.2
296.7
429.9
688.4
214.9
431.0
584.9
170.9
241.5
511.0
80.2
136.5
397.1
90.8
111.9
430.8
34.1
124.2
450.2
87.7
335.3
510.7
23.4
427.0
580.7
18.9
386.0
628.2
Shipments of niobium compounds by product grades, mt Nb2O5
Shipments to EAEC grew from 158.7 mt Nb2O5 in 2014 to 242.2 mt Nb2O5 in 2015 due to increased
demand in Russia. This is a rise by a factor of 1.53 or by +83.5 mt Nb2O5 Y-o-Y. Shipments to Belarus
and Kazakhstan were very few.
Shipments outside EAEC decreased from 427.0 mt Nb2O5 in 2014 г to 386.0 mt Nb2O5 in 2015. This is a
drop of -41.0 mt Nb2O5 or -9.6% Y-o-Y.
Shipments of metallurgical grade pentoxide accounted for 608.4 mt Nb2O5 and high purity grade
compounds for optics and electronics totaled 19.7 mt Nb2O5.
Tantalum Compounds
Russian demand for tantalum compounds is relatively small due to lack of commercial scale tantalum
metal facilities inside Russia and covered by shipments of SMW, while demand of Russia for tantalum
metal is covered by imports, mainly from Kazakhstan.
15
Due to oversupply, tantalum market worsened during a year and part of tantalum compounds
remained in inventory.
In 2015, SMW shipped to its customers 31.6 mt Та2О5 contained. This is a drop of -8.3 mt Та2О5 or 20.8% compared to 39.9 mt Та2О5 in 2014.
SMW. Shipments of tantalum compounds by market areas, in %% (graphs) and mt Ta2O5
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
RU
3.2
1.7
2.7
1.3
2.0
2.1
2.0
3.0
1.6
2.4
3.4
KZ+BY+AM+KG
Toal ЕАEС
0.0
3.2
13.5
15.2
25.0
27.7
22.4
23.7
26.2
28.2
19.6
21.7
0.0
2.0
3.1
6.1
25.0
26.6
34.2
36.6
16.2
19.6
Americas
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.0
Asia
2.5
0.2
4.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
29.7
32.2
35.4
22.4
22.6
37.8
15.7
20.0
47.7
15.6
15.6
39.3
6.6
6.6
34.8
0.0
9.3
31.0
25.0
25.0
27.0
25.3
25.3
31.4
5.6
5.6
32.2
2.4
3.3
39.9
12.0
12.0
31.6
Europe and other
Total ROW
TOTAL
2015
SMW. Shipments by product grades, mt Ta2O5 contained
Compounds of Rare Earths
Original rare earths carbonate manufactured by Solikamsk has a limited range of applications, and the
main use of this product is a semi-product to produce separated and individual rare earths by further
extraction.
In 2015, SMW shipped to its customers 2’312.3 mt TREO contained in rare earths compounds. This is a
rise of +178.5 mt TREO or +8.4% compared to 2'133.8 mt TREO in 2014.
Shipments of original carbonates accounted for 1’772.4 mt TREO. This is an increase of +323.4 mt TREO
or +22.3% compared to 1’449.0 mt TREO in 2014. Shipments of separated products totaled 539.9 mt
TREO in 2015. This is a drop of – 144.9 mt TREO or – 21.2% compared to 684.8 mt TREO in 2014.
16
Shipments to EAEC market accounted for 228.6 mt TREO. This is a growth of +118.8 т TREO or by a
factor of 2.08 compared to 109.8 mt TREO in 2015 including 4.9 mt TREO in the form of original
carbonate and 223.7 mt TREO in the form of separated products, all of them to Russia.
Shipments outside EAEC (ROW) accounted for 2’083.7 mt TREO. This is a rise of +59.9 mt TREO or
+2.9% compared to 2’024.0 mt TREO в 2014 including 1’548.7 mt TREO in the form of original carbonate
and 535.0 mt TREO in the form of separated products.
Out of ROW shipments, shipments to Asia amounted 888.8 mt TREO including 564.8 mt TREO in the
form of original carbonate and 324.0 mt TREO in the form of separated products. Sales to Europe
increased from 1’171.1 mt TREO in 2014 to 1’194.9 mt TREO in 2015. This is a growth of +23.8 mt TREO
or +2.0% including 983.9 mt TREO in the form of original carbonate and 211.0 mt TREO in the form of
separated products.
SMW. Shipments of rare earths compounds by product category, mt TREO contained
SMW. Shipments of rare earths compounds by market areas, in %% (graphs) and mt TREO
2005
RU
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
48.5
41.0
37.0
12.8
8.2
30.0
22.0
83.7
48.7
109.8
228.6
KZ+BY+KG+AM
Total EAEC
54.2
102.7
146.7
187.7
435.5
472.5
502.0
514.8
150.8
159.0
448.4
478.4
656.4
678.4
213.0
296.7
0.0
48.7
0.0
109.8
0.0
228.6
Americas
257.7
0.0
250.3
0.0
0.0
12.0
0.0
0.0
0.0
0.0
0.0
0.0
300.5
113.0
0.0
0.0
102.2
55.1
0.0
784.2
852.9
888.8
1’666.4
1'924.1
2’026.8
2’446.7
2'747.3
2'935.0
1'875.2
2'238.5
2'711.0
1'955.2
1'955.2
2'470.0
1'739.0
1'739.0
1'898.0
872.9
987.1
1'465.5
710.3
765.4
1'443.8
1'834.6
1'834.6
2'131.3
610.1
1'394.4
1'443.1
1’171.1
2'024.0
2'133.8
1’194.9
2’083.7
2'312.3
Asia
Europe and others
Total ROW
TOTAL
17
Titanium Sponge and Compounds
In 2015, SMW shipped to its customers 2’013.9 mt Ti contained in all the forms of titanium products.
This is a rise of +32.1 mt or +1.6% Ti compared to 1’981.8 mt Ti in 2014. Out of this total, 1’981.0 mt
were shipped in the form of titanium sponge (Ti sponge) and 32.9 mt Ti (130.1 mt physical tonnage) in
the form of titanium tetrachloride (TiCL4).
Shipments to EAEC market accounted for 1620.1 mt Ti in 2015. This is a rise by a factor of 1.66 or +645.8
mt Ti compared to 974.3 mt Ti shipped to this market in 2014. Out of this total, shipments to Russia
accounted for 1’615.1 mt Ti, a growth by factor of 1.66 or +640.8 mt Ti compared to 974.3 mt Ti in 2014,
while shipments to other EAEC countries amounted 5.0 mt of Ti sponge.
Shipments outside EAEC (ROW) totaled 393.5 mt of Ti sponge in 2015. This is a drop by a factor of 2.56
or -613.7 mt compared to 1’007.5 mt in 2014.
SMW. Shipments of titanium by product category, mt Ti contained
SMW. Shipments of titanium products by market areas, in % (graphs) and mt Ti
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
RU, mt Ti
1'413.7
1'716.1
2'231.3
1'778.3
242.3
643.0
885.5
1 055.9
967.2
974.3
1’615.1
KZ+BY+KG+AM
Total EAEC
0.0
1'413.7
0.0
1'716.1
0.0
2'231.3
0.0
1’778.3
0.4
242.7
0.0
643.0
0.0
885.5
0.2
1'056.1
3.0
970.2
0.0
974.3
5.0
1'620.1
Americas
0.0
0.0
0.0
0.0
14.4
0.0
0.0
112.0
0.0
0.0
0.0
Asia
0.0
0.0
0.0
0.0
96.0
130.6
48.0
104.0
60.0
522.0
0.3
0.0
0.0
1’413.7
0.0
0.0
1'716.1
0.0
0.0
2'231.3
0.0
0.0
1‘778.3
294.6
405.0
647.7
832.2
962.8
1'605.8
761.4
809.4
1'694.9
602.6
818.6
1’874.7
422.0
482.0
1'452.2
485.5
1'007.5
1'981.8
393.5
393.8
2'013.9
Europe and others
Total ROW
TOTAL, mt Ti
18
CHEMICAL OPERATIONS
The range of commodities manufactured in the Chemical Operations include calcium chloride solution
(32% CaCl2), liquid chlorine (Cl2), lime (CaO) and lime slurry milk (Ca(OH)2 ● xH2O).
Historical shipments of these products are provided in the table below.
SMW. Shipments of products of Chemical Operations, mt
Calcium chloride solution 32% CaCL2
Liquid chlorine
Lime
Lime slurry milk, m3
2005
52'688
784
9'671
2'913
2006
61'735
1’216
11’947
1'908
2007
62'938
1'271
11’642
1'243
2008
50'453
1'328
11'641
1'218
2009
38’914
1'514
6'561
658
2010
44'489
1'571
9’620
709
2011
53'645
1'566
19'440
693
2012
58'881
1'561
14’975
605
2013
53'099
1'519
16'557
568
2014
53’885
1'384
13'223
923
2015
46'368
971
14'368
1’058
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 the Magnesium Operations - carnallite; in the
Rare Metals Operations– loparite; in the Chemical Operations – lime stone.
Raw materials’ suppliers in 2015 were: carnallite - SKRU-1 of PАО «Uralkaliy», Solikamsk City, Perm
Region, Russia; loparite – ООО «Lovozerskiy Mining & Concentration Works» (LGOK), township
Revda, Murmansk Region, Russia; lime stone – AVISMA branch of ОАО “VSMPO-AVISMA
Corporation” and AO “Berezniki Soda Works”, all of them are located in Perm Region, Russia.
Name
Carnallite
Loparite
Rutile
Lime stone
2009
258'212
6'628
0
89'343
2010
302'733
5'120
344
115'352
SMW. Raw material receipts, mt
2011
2012
2013
2014
243'319
6'226
1'200
139’789
225'584
6'712
1'023
126'961
219'700
7'485
1'268
117’022
225’340
7’770
105
117’235
2015
Country of Origin
200’677
8’482
0
103’864
Russia
Russia
Ukraine, Australia
Russia
Compliance with international “conflict minerals” regulations
UN imposed an embargo on trade with materials containing tantalum, tungsten, tin and gold originated
in “conflict area” of the 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 2009-2015.
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 heat, production of lime and cell feed
preparation. Heavy oil (mazut) is used as the reserve fuel in heat generation and cell feed preparation.
Gasoline (benzin) and diesel fuel are the energy sources for internal-combustion engines in automotive
transport employed by SMW. Coke is used as the reducing agent in the processes of Magnesium and
Rare Metals Operations.
In 2015, expenses on energy resources dropped by -4.9% compared to 2014 with the following
distribution per each kind of resource (change in % Y-oY): electricity - ₽972.815 mln (- 6.7%); natural
gas - ₽233.608 mln (- 2.3%); heavy oil (mazut) - ₽5.801 mln (– 20.1%); gasoline (benzin) - ₽3.868 mln (-11.5%);
diesel fuel - ₽11.966 mln (--13.7%); coke - ₽20.835 mln (+ 3.7%). Consumption of each kind of energy
resource was as follows (change Y-o-Y in %): 408'144.72 МWh (-6.0%); 57’322’720 м3 ( -6.1%); 655.280
mt (- 4.8%); 101.013 mt (- 21.8%); 425.679 mt (- 6.0%); 1’990.46 mt (+5.1%) respectively.
Consumption of fresh water (artesian and river water) accounted for 4.148 mln м3 (-3.0%) in 2015.
TECHNICAL DEVELOPMENT AND IT-TECHNOLOGIES
In 2015, Solikamsk invested ₽159.060 mln (US$2.612 mln) in renewing equipment, developing
technology, and improving operational and works’ safety. This is a drop by a factor of 1.13 (factor of
1.80 in US$ terms) compared to ₽ 180.305 mln (US$ 4.690 mln) in 2014.
R&D expenses accounted for ₽22.102 mln in 2015. This is a rise of +13.1% compared to ₽19.550 mln
incurred for the same purposes in 2014.
The following works and R&D were performed:
- in the Magnesium Operations:
- test of electrolytic cell designed with use of the most recent developments in technology was
continued. Test results were better than those obtained on conventional electrolytic cells in operation;
19
- continuous refining furnace was redesigned to meet quality requirement for magnesium intended for
use in Ti sponge production in April 2015;
- new Zr and Nd containing materials were tested to produce magnesium alloy MgZr1Nd3;
- pilot equipment and technology to produce granular potash were developed and set of designing
documentation for commercial scale plant was ordered
- in the Rare Metals Operations:
- trial lot of lithium niobate was produced to test with potential customers;
- new quartz equipment for purification of niobium & tantalum chlorides were tested;
- designing documentation for equipment to modernize Ti sponge operations was completed;
- new technology of hydrolysis to produce high density niobium pentoxide was tested
- in Chemical and auxiliary operations:
- new filter fabrics for purification of chlorine were tested and device to control quality was installed;
- chlorine store was modernized to improve its safety;
- development of technology for treatment of acid drains with waste solutions after off-gas scrubbing
of Magnesium Operations was continued
IT & communications:
SMW’s Data Center was improved to enhance reliability, technical solutions to accelerate CPU speed
and virtualization (HP DL360 Gen9, EMC NXe3200, Symantec BackupExec, VMware vSphere) were
implemented. New version of ORACLE in DBMS Alfa was installed. Sanatorium was connected with
internet and IP- telephony through optical wire.
COMPLIANCE OF MANAGEMENT SYSTEM WITH INTERNATIONAL
REQUIREMENTS
Compliance with International Code of Conduct for the industry
Solikamsk performed unaudited self-assessment on compliance with Supplier Code of International
Die – Casting Association (IDCA) and EICC Code of Conduct. Result of this self-assessment is
provided on the web-site of SMW under links
in Russian: www.смз.рф/index/integrirovannaja_sistema_menedzhmenta/0-90
in English:
www.смз.рф/en/manag_system/new2014/Compliance_with_Code_of_Conduct_for_the_Industry.
pdf
Integrated Management System and Compliance with “Conflict-Free Smelter” Requirements
SMW developed and implemented Integrated Management System (IMS) conforming to ISO 9001:2008
“Quality Management System” and ISO 14001:2004 “Environmental Management System” that, in
2011, was amended with requirements of Due Diligence on trade with tantalum materials enforced by
UN Security Council Resolution № S/2010/596. Successful maintenance and improvement of this
System is an incontestable priority for the Company.
Administering of IMS is performed in accordance with Quality Policy, Environmental Policy and
Conflict Free Raw Materials Purchasing Policy of Solikamsk Magnesium Works OAO.
All these documents are readily available on the Company’s official web-site under links:
In Russian: http://www.смз.рф/index/integrirovannaja_sistema_menedzhmenta/0-90
In English: http://www.смз.рф/index/en_information/0-104
In 2015, the following third-party inspection audits were performed by certifying organizations:
- IMS was inspected on compliance with ISO 9001 and 14001 by Intercertifica -TUV together with TUVTuringen. Certification audit is scheduled in 2016;
- tantalum supply chain was audited by EICC under Conflict-Free Smelter Program. SMW was granted
with 3 years’ Conflict Free Smelter status, until 2018, provided with certain requirements are met;
- Analytical Laboratory of SMW was audited on compliance with GOST ISO/MEC 17025-2009 by
Association of Analytical Centers Analitica.
Since 2007, SMW surveys customers’ satisfaction and loyalty with respect to main products
manufactured by the Company to improve IMS. 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 8.4 out of 9, and customers’
loyalty was 3.8 out of 5 in 2015. These results mean that the Solikamsk products meet customers’
expectations.
20
Customers’ loyalty in 2014-2015
Customers’ satisfaction in 2014-2015
The following customers performed second-party certification audits of SMW’s products:
- PAO VSMPO-AVISMA. SMW’s IMS and Ti sponge production were ranked 98 out of 100, Solikamsk
was certified as the Class A (the top in VSMPO’s ranking) supplier;
- ОАО «RUSAL». SMW was certified as the Green supplier, the top in RUSAL’s ranking;
The Company is certified supplier for:
- magnesium alloys with ОАО Aircraft Reducers & Transmissions – Perm Motors (ОАО «REDUCTOR
- PM», Perm, certificate № 275-02-2015)
- Mg – Zr master alloy and carnallite flux - ОАО KUMZ, certificate № 27
- magnesium alloys - ОАО VASO, certificate № 0699-148/ОССМКиС.
OPERATIONAL AND INDUSTRIAL SAFETY
Care of life, health and safety of SMW’s employees, residents and guests of Solikamsk city is
unavoidable priority of the Company.
21
An integrated systematic approach in the field of operational and industrial safety is performed in
accordance with the Company’s Regulations The Managing System of Operational & Industrial Safety.
Operational & Works Safety
SMW’s System of Operational & Works Safety is maintained in accordance with the Company’s
Regulations The Operational & Works’ Safety, requirements of Section VIII The Operational & Works’
Safety. Term & Conditions in Collective Labor Agreement between the Company & Trade Union as well
as in accordance with statutory requirements in the Russian Federation.
SMW’s expenses to maintain abovementioned System accounted for ₽ 52.3 mln including ₽23.7 mln for
personal protection and ₽29.2 mln for safety techniques. These expenses do not include compensation
paid to personnel in accordance with legislation.
Industrial & Environmental Safety
SMW’s System of Industrial & Environmental Safety is maintained in accordance with the Company’s
Policy in Industrial Safety, Environmental Policy, Regulations The Production Control on Compliance with
Industrial Safety Requirements as well as in accordance with statutory requirements in the Russian
Federation and international environmental standards.
SMW’s expenses to maintain this System accounted for ₽17.670 mln. These expenses do not include
environmental costs specified for production processes.
Measures prescribed by Schedule for 2015 to maintain industrial & environmental safety have been
completely performed by SMW.
In 2015, supervisory State agencies (RosTechNadzor, RosPotrebNadzor, RosTrud, EMERCOM)
performed 6 surveys of the Company. Certain non-conformities were found during audits, and
elimination of these non-conformities is performed under schedule developed with these authorities.
SMW’s Sanitary – Production Laboratory (SPL) monitors sanitary conditions of air in industrial areas
and buildings, air conditions in defined points of control, residential zone, and sanitary-protective zone
of Sanatorium. This monitoring is performed in accordance with the Program of Production Control on
Compliance with Sanitary Regulations and Sanitary – Anti Epidemic Prophylactic Practices.
SMW continuously monitors contamination of air, water, and soil. This measuring helps to act
effectively if pollution exceeds environmental norms. The system of radioactivity control of the
surrounding environment is developed and implemented. This system guarantees radiation safety for
the local residents.
OAO “RITM”, Perm CGMS, KamVNIIVH, FBU CLATI, OOO ZUIVEP, FBUZ “Centre of Hygiene &
Epidemiology” were also employed for the purposes of environmental monitoring. SMW paid ₽ 1.705
mln to these contractors.
Avoidance of pollution is the main issue of concern at the time of design and production decisions.
The Company has all permissions for use of natural resources.
SMW systematically schedules and implements measures to improve off-gas scrubbing equipment and
reduce negative effect of polluting the air. The Company modernized off-gas scrubbers in Magnesium
Operations, aspiration equipment in Rare Metals Operations and chlorine storage equipment.
Expenses to protect atmosphere accounted for more than ₽13.0 mln in 2015.
The Company has all permissions for air pollution covering all of the Company’s areas (industrial area,
sanatorium, polygon of solid wastes).
Total release of polluting substances in atmosphere was 707.2 mt in 2015 mt compared to 773.5 mt in
2014. No cases of excess of TLV for chlorine and hydrogen chloride were fixed during the reporting
year. Annual average concentration of hydrogen chloride was 0.15 of TLV.
12 times a year emergency mode of operations was announced due to critical weather conditions, total
number of critical weather conditions were fixed 20 times a year. In the case of emergency mode, SMW
has a schedule of specific safe mode of operations.
In 2015, SMW has been continued works for adjustment of equipment and technology to neutralize
acidic waste water, reconstruction of waste water transportation channel, modernization of local
treatment facilities and rainy water channels, reclamation of Ch’ornaya river including designing
works for reclamation of river floodplain.
In 2015, SMW disposed 2’513.41 mt cakes from purification of calcium chloride. This is a rise by a factor
of 1.91 Y-o-Y.
8’225’190 m3 of waste water, including waste water of OOO Vodokanal, were entered settling pond for
purification in 2015. This waste water contained 39’010 mt of solid wastes in 2015. Due to increased
22
concentration, this is approximately +12’360 mt above that in 2014. The Company met solid substances
TLV requirements in purified waste water.
Total expenses for water treatment and purification exceeded ₽ 1.7 mln in the reporting year.
Consumption of recycled water accounted for 7’189’970 m3.
SMW have licenses to operate hazardous substances and limits for disposal of wastes as well as its own
polygon to store solid residues registered under № 59-00034-Х-00479-010814 in the State Register.
The number of residues generated inside SMW was 71’622 mt in 2015. This is a drop of -10.5 kilotons
compared to number of 2014. Residues of Magnesium Operations were completely processed into
saleable products. 4’472.7 mt of residues were disposed in the Company’s polygon, 2.67 kilotons were
transported for processing to outside facilities for recycling, 1’212.7 mt were disposed in the city
polygon and 447.3 mt in the polygon of Kizel city, 13.82 mt of residual oil were shipped to ZAO Perm
Oil Plant, 5’112 Hg-containing lamps (1.2251mt Hg contained) were transported to UralTradeGroupOil for recycling, 10.28 mt of used tires and 5.92 mt of used rubber were shipped to OOO Ecoshina, 20
mt of plastic wastes were transported to OOO Green-City and IP Tveritinov , 98 units of computer
devices were shipped to OOO IT MAX and 1’116.4 mt of steel and non-ferrous scrap were sold.
SMW maintains production environmental control which enables to assess compliance with industrial
safety requirements and avoid impact on environment. Results of monitoring are recorded on paper
and/or electronic media.
SMW is a transparent company. Environmental activities of the Company are regularly disclosed to
the public in the Company’s newsletter “Magnievik” and radio reports. SMW participates in the Days
of Environment Protection arranged by Solikamsk City Administration each year.
In 2015, the Company was granted with award of Parliament (State Duma), Council of Federation,
Russian Chamber of Commerce and International Academy of Quality and Marketing Top-100
Organizations in Russia. Environment and Environmental Management
LIST OF THE COMPANY’S LICENSES
Certain activities of SMW are subject to licensing. List of the Company’s licenses is provided in Annex
№1 to this Annual Report (available only electronically in Russian under link
http://смз.рф/raport/2016/2015_godovoj_otchet_smz_2015_dlja_sajta.pdf).
SOCIAL RESPONSIBILITY
Social responsibility is an undisputable 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 Company’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 of the Company, into Collective Labor Agreement between the Company and
the Trade Union, as well as in the Agreements between the Company and the Administration of
Solikamsk city.
Improvement of Welfare and Intellectual Development of Personnel
Professional training and education of personnel
In 2015, 490 employees were trained and educated by SMW that accounted for 17.7% of the total
number of employees.
347 employees were educated under programs of improvement of qualification, 168 employees were
awarded with higher skill rank, 109 specialists and managers were trained and certified on compliance
with the rules of RosTechNadzor.
3 students study at universities at the Company’s expense, and 20 students have a scholarship grants
under contracts with the Company.
62 employees study in universities and 104 study in colleges out of working hours, more than 90
students of universities and colleges were trained by the Company at its facilities.
The Company has granted ₽ 0.647 mln of loans to its employees to study in universities themselves or
to fund their children’s studies in 2015.
Employment and salaries
OAO Solikamsk Magnesium Works, along with PAO Uralkaliy and OAO Solikamsk Pulp & Paper
Works, ranks among the essential companies in Solikamsk city and maintains the second position in
the city by the number of employees.
23
In accordance with ROSSTAT, in 2015, growth of nominal salaries in Perm Region, in Russia and
Russian metallurgical industry accounted for +3.7%, +4.6% and + 7.6% respectively.
Consumer price indices (CPI or official inflation) in Perm Region and in Russia accounted for +12.9%
and +12.6%, respectively.
Salaries, ₽/mo
Number of employees
SMW. Number of employees and salaries
In 2015, nominal salaries of SMW’s employees increased due to labor tariff rise twice a year, by +6%
from 1 March 2015 and +7% from 1 September 2015, and average bonuses growth from 25.9% to 39%
due to improved financial performance of the Company in the reporting year.
Social Programs
Social expenses of the Company decreased from ₽ ₽ 53.608 mln in 2014 to ₽ 50.617 in 2015. SMW has
spent ₽22.681 mln to support social infrastructure (sports, sanatorium, culture and others) and ₽8.405
mln to support retirees, veterans and other social programs. Payment of social bonuses to the
Company’s employees and certain other expenses accounted for ₽19.531 mln.
POSITION IN THE INDUSTRY
Disclaimer:
This part of Annual Report includes certain estimates performed by SMW itself, and/or outside third parties. These studies
are based on the facts collected from statistical reports, estimates, outlooks and other similar sources of information which,
by SMW opinion, are based on reasonable assumptions. Nevertheless, SMW, in neither event, is and will be liable, if actual
results differ of those expressed in this Section below, as well as SMW, in neither event, is and will be liable for potential losses
and/or injury those may happen of use of this information.
Position in the Magnesium Industry
End-uses
Magnesium is a silvery white metal, 1.5 times lighter than aluminium. Magnesium exhibits the best
strength-to-weight ratio and it is the lightest among structural metals, and contributes other important
physical and chemical properties. That is that magnesium is widely used in the automotive, aerospace,
and electronic industries as well as serves as an alloying additive in the production 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 reducing agent in the production of certain
non-ferrous metals; for cathodic protection of steel structures from corrosion; as the metal for
alternative energy sources; and other applications.
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, titanium, polymers, composites,
24
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, cerium, calcium;
- titanium sponge production - sodium and calcium. Titanium may also be produced by an electrolytic
process and by a process of thermal decomposition of titanium iodide.
Primary Magnesium Market Overview
Definitions: Primary magnesium is a magnesium metal produced by the way of decomposition of natural raw materials and
does not include secondary magnesium that is produced by the way of remelting of magnesium scrap and residues. Primary
magnesium also does not include magnesium produced by titanium sponge manufacturers from recycled magnesium dichloride
generated inside titanium-magnesium cycle of titanium sponge production that is then reverted back to this process after insite electrolysis of this magnesium dichloride.
2015 was the first year since the crisis of 2008-2009 years when world output and consumption of
primary magnesium was affected by eventual slowdown of the world economy.
In accordance with statistics from China (CNIA), USGS and SMW’s own estimate, world primary
magnesium output declined from 1’004 kilotons (Kt) in 2014 to 982 Kt in 2015. This is a drop of -22 Kt or
-2.2% Y-o-Y.
Based on this estimate, in 2015, the Solikamsk’s share was 1.3% in the world total primary magnesium
output and approximately 64% of that in Russia and EAEC countries.
Drop of primary magnesium output was observed in the all producing countries except for the United
States where US Magnesium finished 1st stage of its expansion project providing capacity increase from
63.5 to 76.5 Kt per year and adjusted its output accordingly. Total capacity of expansion project is 90
Kt per annum and further development of project is recently under decision.
ICL (Israel) announced its plans to close Dead Sea Magnesium in 2017 due to changed tax conditions,
but final decision in this respect is not officially published yet.
CNIA, USGS, SMW. Estimated world primary magnesium output, kilotons
* do not include primary magnesium involved in production of Ti sponge
Sources: Kazakhstan, Russia and USA are SMW estimates. Israel and Brazil are USGS estimates
http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/mcs-2016-mgmet.pdf , China output is CNIA data
under link http://cnm.minmetals.com.cn/default.jsp?column_no=0330
25
Magnesium supply-demand balance, Kt 1
2005 2006 2007 2008 2009
2010
470
525
627
631
501
654
169
153
127
123
105
117
639
678
754
754
606
771
353
135
408
396
234
384
169
153
127
123
105
117
522
503
535
519
339
501
2011 2012 2013 2014 2015
Output - China2
661
694
770
874
852
Output – outside China1,3
126
131
128
130
130
World output
787
825
898
1004 982
Exports from China1
400
371
412
435
406
Output outside China
126
131
128
130
130
Total shipments outside China
526
502
540
565
536
including:
EU-281
173
169
179
174
101
165
158
150
160
164
165
USA3
122
112
109
119
52
88
87
92
113
104
93
Canada1
44
50
33
47
24
47
48
51
50
64
61
Japan1
47
50
49
43
33
40
40
38
37
40
38
Brazil1,3
13
14
25
26
22
24
24
23
30
30
24
EAEC1
10
14
15
15
7
13
18
19
22
22
20
Others 4
113
94
125
95
100
124
151
129
128
141
135
Consumption in China 5
107
157
263
158
172
232
277
310
352
371
365
TOTAL CONSUMPTION
625
660
796
677
511
733
803
812
892
936
901
Output – consumption balance
+14
+18
-44
+77
+95
+38
-16
+13
+6
+68
+81
1 SMW’s estimate based on customs statistics and output. Customs statistics Brazil http://aliceweb.mdic.gov.br/#, China
http://info.hktdc.com/hktdc_offices/mi/ccs/index_static_type/ChemicalExport.htm,
Japan
http://www.customs.go.jp/toukei/srch/indexe.htm?M=01&P=0,
Russia
http://stat.customs.ru/apex/f?p=201:2:2982514202106882::NO, EUROSTAT http://ec.europa.eu/eurostat/data/database#,
Kazakhstan
http://e.customs.kz/wps/portal/customs/
Canada
http://cansim2.statcan.gc.ca/cgiwin/cnsmcgi.pgm?Lang=E&ResultTemplate=CII_CIMT5&CIMTSrch=1&RootDir=&Sort=0&Year=2011&Month=12&Freq=
6&C2DB=PRD&Commod=81
2 China Non-ferrous Metals Monthly http://cnm.minmetals.com.cn/default.jsp?column_no=0330
3 USGS http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/mcs-2016-mgmet.pdf
4 Balance between Total shipments outside China – areas listed before
5 CNIA
SMW*. Estimated consumption of magnesium by end-use (+/-10%) in 2010-2015, Kt and %
End-use
2010 %
2011 %
2012 %
2013 %
2014 %
2015e %
Total cosumption
733 100.0
803 100.0
812 100.0
892 100.0
936 100.0
901 100.0
Metal reduction
45
6.1
48
6.0
72
8.9
90
10.1
100
10.7
100
11.1
Structural uses
250
34.1
280
34.9
270
33.3
325
36.4
300
32.1
250
27.7
Desulphurization
143
19.5
124
15.4
129
15.9
140
15.7
128
13.7
118
13.1
Nodular iron
33
4.5
35
4.4
32
3.9
33
3.7
35
3.7
30
3.3
AL alloying and other uses
262
35.7
316
39.4
309
38.0
304
34.1
373
39.9
403
44.7
* Estimation is based on CNIA, USGS, and other sources of information
Asianmetal. Average magnesium metal (min.99.9%) prices, US$/mt
26
Magnesium Market Outlook
Implementation of programs connected with decrease of fossil fuel consumption and greenhouse gas
emission through weight reduction of aircrafts and vehicles provides for magnesium prospectus of
growth at CAGR at +7.7% (http://www.platts.com/latest-news/metals/munich/global-magnesiumdemand-projected-to-rise-77year-26800334) due to substitution of steel with magnesium containing
aluminium alloys in the body of vehicles, increasing use of parts made with magnesium alloys in the
design of vehicles and aircrafts, and possible substitution of lithium with magnesium in batteries.
Significant drop of magnesium prices during last 5 years may support more intensive use of
magnesium alloys as alternative to plastics and aluminium in design of tablets, laptops and other
consumer electronics.
Historical consumption of magnesium in 2005-2015 and outlook until 2025, Kt
Supply – Demand Balance is not observed in this report and it is not an issue of concerns. Installed
capacities to produce primary magnesium in the world exceeded 1’750 Ktpa at the end of 2015.
Position in the Rare Earths Industry
Note: All data in this sub-section is provided in total rare earths oxide (TREO) content independently on actual form of use,
e.g. mixed rare earths or individual element, chemical compound or metal, unless otherwise stated
End-uses
The term Rare Earths Elements (REEs), according to UIPAC, is assigned to 17 elements of Periodic
Table, but, due to the fact that Sc (21) is extracted from other kinds of ores than other REEs, and Pm
(61) is a synthetic element, in industrial practice, this term is applied to 15 elements with numbers of
57-60, 62-71 (Lantanides) and 39 (Yttrium). Despite all 15 REEs have single valence and similar
properties, and typically occur in the earth’s crust collectively, however, in individual form, each REE
enhances its own properties and in mixed form the properties of one element depress properties of the
other element. This is the reason that these elements are normally separated for further use.
The main uses of rare earths 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 optics, fiber optics,
modifier for nodular iron production, additive for HSLA grade steels, NiMH batteries and hydrogen
storage systems, sensors, architectural and electronic ceramics, capacitors, resistors and thermistors,
heat-resistant magnesium alloys. Neodymium (Nd) – high strength permanent magnets, ceramic
capacitors and other components of electronics, glazes and colored glass, lasers, petroleum cracking
and polymerization catalysts, magnesium super alloys, energy saving lamps, lasers. Praseodymium (Pr)
– electronic and traditional ceramics, glass and enamels, high strength permanent magnets, yellow
ceramic pigments, tiles, ceramic capacitors, with neodymium in combination for goggles to shield glass
makers against sodium glare, cryogenic refrigerant, creep resistant magnesium alloys for elevated
temperature applications (magnesium super alloys). Samarium (Sm) – permanent magnets, microwave
filters, lasers, nuclear applications, constituent of computer memory chips. Europium (Eu) - phosphors,
LCD/LED, energy-saving lights, neutron absorption. Gadolinium (Gd) - phosphors, permanent
27
magnets, refrigerators, medical devices, magnesium super alloys, microwave ovens, superconductors.
Yttrium (Y) - phosphors, ceramics, color glass, magnesium and aluminium super alloys. Terbium (Tb) –
permanent magnets, phosphors, optical computer memories, hard disc components, magnetostrictive
alloys. Dysprosium (Dy) – permanent magnets, phosphors, ceramics, nuclear applications. Holmium (Но)
– permanent magnets, ceramics, lasers, nuclear applications. Erbium (Er) – ceramics, glass color, infrared absorption glass, fiber optics, lasers, medicine and nuclear applications. Ytterbium (Yb) –
metallurgical and chemical research. Lutetium (Lu) – single crystal scintillators, deoxidizer in stainless
steel production, rechargeable batteries, medical uses, phosphors, superconductors. Thulium (Tm) –
magnetic resonance imaging, phosphors.
Rare Earths Market Overview
IMCOA, SMW. World output of rare earths and outlook until 2025, Kt TREO
Conditions of REE market were significantly changed during the reporting year.
Following WTO decision, China eliminated export quotas on REEs since 01 January and export duties
on the same since 02 May 2015. Along with removal of export duties, China imposed new resource tax
on REEs ores based on the value of processed products effective since 02 May 2015, in contrast to
previous taxes based on tonnage mined. The following new resource taxes were imposed: from 7.5%
to 11.5% for concentrates of light REEs and 27% for concentrates of heavy REEs, and these taxes may
be changed in the future.
Removal of export restrictions in the country caused growth of Chinese REEs exports, rising
competition outside China and significant drop in prices, but this move improved confidence of
developers and producing customers outside China in reliability of Chinese REEs supply.
Mandatory production plan for REEs processing in China was initially set forth at 105 Kt TREO for
2015, but this was revised down to 95 Kt at the end of the year, under proposal of producers. However,
actual output is estimated 150 Kt including illegal mining and processing, unchanged Y-o-Y.
Outside China, in 2015, increased output was reported by Lynas, IREL and SMW, while Molycorp
announced suspension of its operations in Resource Division (Mountain Pass, USA) at the end of 2015
and appealed for protection under Chapter 11 (bankruptcy). Estimated output of Molycorp’s Resource
Division was 4 Kt TREO during first 10 months of 2015.
Output outside China is estimated, approximately, 18 Kt with breakdown as follows: ~ 2 Kt by SMW in
Russia, ~4 Kt by Molycorp in USA, ~9 Kt by Lynas Corp (Malaysia), ~ 2 Kt by IREL in India and ~ 1Kt
by others.
Altogether, world output of rare earths is estimated ~ 168 Kt in 2015.
In accordance with this estimate, Solikamsk’s share in the global market of primary rare earths is
estimated 1.4% and more than 90% of that in Russia.
28
Asianmetal, SMW. Composite price* of rare earths oxides in SMW’s rare earths carbonates, FOB China, US$/kg TREO
*Composite price = Price of individual rare earths oxide х content of individual rare oxide in SMW’s rare earths carbonate, kg/kg TREO
According to IMCOA, world consumption of rare earths was as follows:
IMCOA. World rare earths consumption in 2010 – 2015, Kt TREO
2010
2011
2012
2013
2014
China
80
82
84
87
92
ROW
47
36
38
41
44
TOTAL CONSUMPTION
127
118
122
128
136
2015е
97
49
146
IMCOA. World consumption of rare earths by end-use in 2010-2015, Kt TREO
End-use/year
2010
2011
2012
2013
2014
2015е
Magnets
33
30
31
35
40
45
Metal Alloys
24
21
22
24
24
25
Catalysts
20
20
21
24
25
28
Polishing
16
18
19
15
19
20
Glass (including optics)
11
8
8
8
8
8
Phosphors (including pigments)
8
8
6
7
6
6
Ceramics
5
6
7
7
6
6
Other
10
7
13
8
8
8
TOTAL:
127
118
122
128
136
146
Rare Earths Market Outlook
IMCOA. Consumption of rare earths by areas - outlook until 2025, Kt TREO
Area/year
2015
2020f
2025f*
China
97
128
160
ROW
49
72
90
TOTAL
146
200
250
IMCOA. Consumption of rare earths by end-use - outlook until 2025, Kt TREO
Область применения
2015
2020f
2025f*
Magnets
45
75
100
Metal Alloys
25
30
35
Catalysts
28
32
36
Polishing
20
25
30
Glass (including optics)
9
12
15
Phosphors (including pigments)
5
6
7
Ceramics
6
8
10
Other
8
12
17
TOTAL:
146
200
250
Supply – Demand Balance is not observed in this report and it is not an issue of concerns. Installed
capacities to produce rare earths in the world exceeded 300 kilotons/year at the end of 2015.
29
Position in the Titanium Industry
After the start of Ti sponge operations in 2009, the production of titanium dioxide in Solikamsk was
discontinued. The share of titanium tetrachloride in total titanium output is a very few, and the market
of this product is not estimated.
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 products 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 account for between 5 and 20% of
the total market for the metal.
Titanium Market Overview
In accordance with CNIA, JTA, USGS, announcements of producers and SMW’s own estimates, Ti
sponge output accounted for 179 Kt in 2015. This is a drop of – 3 Kt or – 1.6% compared to 182 Kt in
2014. Drop of production was observed in China (-7 Kt), USA (-2Kt) and Russia (-2 Kt) while Japan and
Ukraine increased its output.
Based on this estimate, SMW’s share in the global output accounted for 1.0% and 4.8% in Russia.
2015 year was complicated for the world titanium industry.
World Ti sponge output, Kt
Ti sponge and FeTi prices, US$/kg
Scheduled increase of capacities to produce new models of aircrafts by Boeing and Airbus was not
come on stream yet, while start of production of Chinese jetliner C-919 was delayed by COMAC. This
was a reason that consumption in this sector was below initial expectations.
30
Slowdown of world economy caused low demand in chemical processing industry and energy sectors.
Then, significantly dropped oil and gas prices affected certain seabed projects where titanium is used
in desalination and liquid petroleum gas installations.
Global market conditions worsened during a year and caused lower demand and prices in the market.
At the end of the year, it was announced start of production of 2 new models narrow-body jetliners in
2016: long-waiting C-919 by COMAC in China at the beginning of 2016 and MS-21 by Irkut (division
of UAC) in Russia in June 2016.
Titanium Market Outlook
In accordance with Proceedings of Titanium Europe 2016, titanium demand outside China is forecast
to grow at CAGR +4% during 2016 – 2025.
Titanium consumption in China is forecast to rise from 59 Kt in 2015 to 122 Kt in 2020 and estimated at
CAGR +4% thereafter, until 2025.
Demand for Ti sponge in 2010-2015 and outlook until 2025, Kt
Supply-Demand Balance is not observed in this Report and it is not an issue of concerns. Total installed
capacities exceeded 340 kilotons per annum (Ktpa) at the end of 2015, including 159 Ktpa in China and
184 Ktpa in the Rest of the World (ROW).
Position in the Niobium Industry
Note: All data in this sub-section is recalculated to niobium pentoxide (Nb2O5) content independently on actual form at which
pure niobium is produced or consumed unless otherwise stated.
End-uses
Entire niobium (Nb) market is generally divided into two main markets:
1. HSLA Grade FeNb that accounts for approximately 85-90% of total world niobium market.
HSLA Grade FeNb or Standard Grade FeNb is used to produce high strength low alloy (HSLA) steels.
Supply of Solikamsk to this market is a very few that is that this market is not observed in this Report.
2. Pure niobium market that accounts for remaining 10-15% of entire niobium market.
Pure niobium market could also be sub-divided to two aggregate markets categories as follows:
(1) in the form of chemicals:
- production of lithium niobate which is the base of surface acoustic wave filters used to produce high
resolution audio and video devices, fiber optics, lasers;
- lenses for digital and still cameras, eye-glasses, coating of computer screens;
- niobium oxide capacitors;
- niobium carbide for hard alloy cutting tools;
- niobic acid for bio-fuel and auto catalysts, other uses
(2) in the form of the metal:
- vacuum grade NiNb and FeNb used to produce super alloy for jet engines and gas fueled turbines;
31
- superconductors for magnetic resonance imaging devices, magnetoencephalography, magnetic
levitation transport systems, sub-atomic and other physical science like Large Hadron Collider;
- mill and wrought pure & alloy niobium products for chemical processing equipment, sputtering
targets, corrosion protection systems for large structures, sodium vapor lamps
The following materials can be substituted for pure niobium: ceramics, molybdenum, tantalum, tungsten
and titanium in high temperature applications; tantalum, lanthanum, hafnium, polymers, aluminium,
poly-silicon and electronic ceramics in optics and electronics; tantalum, tungsten, titanium and silicon
in cemented carbides; and molybdenum in catalysts.
Pure Niobium Market Overview
TIC, SMW. Pure niobium shipments and share of SMW, mt Nb2O5 contained
According to TIC, niobium processors’ shipments decreased from 6’460 mt Nb contained (equivalent
of 9’254 mt Nb2O5 contained) in 2014 to 6’451 mt Nb (9’228 mt Nb2O5) in 2015. This a decline of - 0.1%
or - 9 mt Nb (-13 mt Nb2O5) Y-o-Y.
Based on the data provided above, Solikamsk share in total world pure niobium market supply is
estimated at 6.3% and 100% of niobium oxide output in Russia
Asianmetal. Average prices on niobium pentoxides and columbite, US$/kg
Solikamsk operates to different extents in both sectors of the pure niobium market, i.e., in supply of
technical grade pentoxide for the market of metallic niobium and in supply of high purity grade
niobium compounds for optoelectronic market, although supply to the metal market represents the
vast majority of SMW’s shipments.
32
Companies producing pure niobium and niobium concentrates prefer to keep their production data
and capacities confidential.
The main suppliers to the metallic pure niobium market are CBMM (Brazil), Solikamsk, AMG (Brazil)
and Chinese processors. The other suppliers to this market are Hermann C. Starck (Germany),
Molycorp Silmet (Estonia), АО Ulba Metallurgical Plant (Kazakhstan), Mitsui Mining & Smelting
(Japan).
The main suppliers to the market of high purity grade products are Hermann C. Starck (Germany),
Chinese processors, СВММ (Brazil), Mitsui Mining & Smelting (Japan). The other suppliers are GAM
(Australia) and Solikamsk.
Pure Niobium Market Outlook
Pure niobium market is forecast to rise with CAGR +4 - +5%.
Super alloys market will be the main driver of entire pure niobium market with CAGR +9 - +10% - see
http://www.researchandmarkets.com/publication/mrb3ylc/3498682.
Pure niobium market outlook, mt Nb2O5
Supply-Demand Balance is not observed in this Report and it is not an issue of concerns. Installed
capacity is enough to cover demand until 2025.
Position in the Tantalum Industry
Note: All data in this sub-section is recalculated to tantalum pentoxide (Ta2O5) content independently on actual form at which
tantalum is produced or consumed unless otherwise stated.
End-use
Tantalum market could be sub-divided by the two main sections:
(1) Market of tantalum compounds used to produce:
- lithium tantalate that is the base of surface acoustic wave filters used in high precision audio and
video devices, fiber optics, lasers;
- optics for digital and still cameras, spectacles, X-ray films, ink jet printers;
- tantalum carbide for hard alloy cutting tools;
(2) Market of tantalum metal used to produce:
- capacitor grade powder for electronic and electric industries;
- jet turbines and rocket nozzles;
- alloys for hard drives with shape memory;
- sputtering targets;
- high temperature parts of furnaces;
- corrosion resistant parts of chemical processing equipment, corrosion protection systems for large
structures;
- implants and prosthesis;
- DVD/BD-ROM, signal masts, battery charges, power rectifiers, engine management modules and
auto components like ABS and airbag activation, other electronic components operating at wide range
of temperature.
The following materials can be substituted for tantalum: niobium, aluminum and ceramics in capacitors;
glass, polymers, niobium, platinum, alloys of refractory metals and full alloy steels, titanium and
33
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, silicon and tungsten in hard alloys.
Tantalum Market Overview
TIC, SMW. Tantalum processors’ shipments and share of SMW, mt Та2О5 contained
According to TIC, tantalum processors shipments increased from 2’001 mt Ta (2’444 mt Та2О5) in 2014
to 2’153 mt Ta (2’629 mt Та2О5) in 2015. This is a rise of + 152 mt Та (+185 mt Та2О5) or +7.6% year-toyear.
According to data expressed above, share of Solikamsk in global tantalum processors shipments
accounted for 1.2% and 100% of tantalum oxide output in Russia.
Suppliers to metal market are Hermann C. Starck (Germany), GAM (Australia-USA), Chinese
processors, Mitsui Mining & Smelting (Japan), AMG (Brazil), Molycorp Silmet (Estonia), Solikamsk.
Suppliers of high purity chemicals used to supply optoelectronic market are Hermann C. Starck
(Germany), GAM (Australia-USA), Chinese processors, Mitsui Mining & Smelting (Japan) and
Solikamsk.
Asianmetal. Average prices on tantalum pentoxides and tantalite, US$/kg
34
Tantalum Market Outlook
Reliability of tantalum supply is improved due to increased mining in Latin America and in “nonconflict” areas of Central Africa. CAGR of tantalum consumption is estimated 2.89%
(http://www.researchandmarkets.com/publication/mn5j2jd/3512445 )
Tantalum market outlook, mt Та2О5
Position in the Chemical Industry
Position in the market of products of Chemical Operations is not observed in this Report due small
share of these Operations in the Company’s sales revenues.
PROSPECTS OF THE COMPANY
Further development of the Company is scheduled as follows:
Development and implementation of new technologies:
- building of line for granular potash production
- designing of carnallite warehouse
- monitoring of parameters of operations with modernized electrolytic cell BEN - 90
- test of electrolytic cells with single-bar anodes
- test of electrolytic cells with ceramic baffle designed to improve lifetime and chlorine yield
- designing of electrolytic cell BEN–165
- pilot production of rare earths - containing magnesium alloys for casting with enhanced properties
- development of technology for complete neutralization of acid waste with residual solutions from
off-gas scrubbers
Modernization of equipment:
- start-up works with modernized equipment of Chlorine Storage Unit
- installing of devices to measure dust contamination of chlorine gas on filter №2 in real-time behavior
– designing of improved main equipment and parts for titanium sponge production
- designing of equipment for automation of process in rotary kilns
- designing of equipment for chlorine filter №5
Decrease of anthropogenic impact on the environment
- building of unit N16 for radioactive waste disposal
- reclamation of polygon for disposal of solid waste under Map Б
- monitoring of conditions of ground and surface water around polygon for disposal of solid waste
- survey of ground contamination in area of polygon for solid waste disposal and sanitary zone
35
Protection of priority R&Ds – patenting
Certification – certification audits of Integrated Management System on compliance with ISO 9001 and
14001, and Due Diligence in tantalum materials purchasing
RISK FACTORS
Technical & Operational Risks
The continuous management of internal risks at the Company is based on a set of protective measures
aiming to prevent the main factors and minimize the main types of risks – strategical (avoidance of
risky investments), market (diversification of market areas, etc), reputation (keeping reputation of
reliable and conscientious supplier, compliance to the main principles of corporate governance and
business practices, disclosure of complete and reliable information concerning the Company activities
in accordance with legislation covering the securities market), technical, operational, environmental
(compliance with technological regulations and operational manuals, maintaining of production and
environmental control by responsible departments of the Company (Works Safety and Production
Control Department, Radioactivity Control Department, Environment Protection Bureau, EMERCOM
representative) and plant’s managers of different levels in each division, improvement in organization
of production) and insurance (insurance of property and civil liability of the Company in the case of
emergency), as well as other kinds of risks described below.
Control of Production
One of the most important ways to manage risks of industrial enterprise is to control the safe
conducting of technological process with the aim to defend the vital interests of individuals and
community from accidents at production facilities operating with dangerous substances and from
consequences of such accidents. In order to prevent accidents in production and injury to personnel
due to availability in the structure of the Company facilities operating with hazardous and explosive
substances, as well as facilities where processed minerals (loparite concentrate) containing increased
level of natural radionuclides, in order to reduce professional risks connected with probability of harm
to the health of employees from exposure of hazardous and/or dangerous production factors at the
time of performance of their jobs, the Company implemented set of preventive (prophylactic) measures
in the following areas:
- systematic training employees and representatives of contractors to form and conduct safe behavior,
examination of their knowledge before giving an admission to perform their jobs;
- supervision in the form of telic, regular, spontaneous and detailed inspections with involvement of
Department of Deputy Chief Engineer for Works, Technological, Industrial, and Environmental Safety,
leading managers and public inspectors to control proper technical conditions of hazardous operations,
safe operations of equipment and lifting machines, implementation and performance of measures
prescribed by “The Schedule of Measures to Guarantee Industrial Safety” and ”The Agreement
Concerning Improvement of Conditions in Workspaces and Supplementary Utilities” at the plants and
shops of the Company, compliance with works safety requirements, use of certified workwear and
protective devices, compliance with requirements to take individual respirator for each person entering
industrial area of the Company;
- radiation control is maintained by the personnel of Radiation Safety Services (RSS) utilizing capacity
of accredited SMW’s Laboratory of Radiation Control (LRC). It is performed under “Program of
Radiation Control in Loparite Concentrate Processing” approved by RosPotrebNadzor; LRC controls
radiation of surfaces (surfaces of production equipment, skin, workwear, devices for individual
protection, transport), sanitary-protective zone, soil, in the stream of off-gases and in the air of
industrial areas and workspaces;
- permanent monitoring of air condition of workspaces, and physical factors affecting employees under
requirements of “Program of Production Control for Compliance with Sanitary Rules and Performance
of Sanitary – Antiepidemic Measures” using capacities of SMW’s SPL;
- maintenance works and capital repair of tools; timely revision, repair and replacement of equipment
and means of transport;
36
- implementation of environmental measures and special Programs aimed gradual reduction of
negative effect to water and air from solid wastes disposal under principles of Environmental Policy
and requirements of federal, local and international environmental regulations and standards;
- implementation and maintenance of production environmental control aiming compliance with limits
of pollution, use of natural resources and requirements to quality conditions of environment in areas
affected by the Company’s activities;
- conducting of annual exercises and training sessions, in accordance with approved schedule, aiming
coherent interaction of plant’s personnel and specialized outside emergency services (EMERCOM,
Police, Medical Services) under schedule of complex interactions prescribed in emergency response
plan. Tactical training in fire-fighting was performed on 22 April 2015, tactical emergency training
under plan of interactions in the case of accident “Squeeze of liquid chlorine as the result of destruction
impermeability of chlorine tank” were held under supervision of Western-Urals Division of
RosTechNadzor on 24 July 2015, regular training in deployment of restoration works and other training
under supervision of EMERCOM;
- avoidance of pollution is the preventive approach in any decision connected with projection,
rebuilding and/or production (rebuilding of polygon for storage of solid production residues,
processing of by-products generated in production of magnesium metal and titanium sponge,
processing of residues in Rare Metals Operations and other measures);
- timely obtaining and prolongation of licenses and permissions to certain types of construction works
connected with safety of structures;
- providing free nutrition, fermented milk products or dietary food recommended by regulations and
medical norms to employees working under harmful and dangerous conditions;
- conducting the annual preventive medical examinations of employees engaged in heavy work or
work under harmful and dangerous working conditions (medical examinations are performed by
physicians of Medical Center “Philosophy of Beauty & Health”, Perm, from 2012);
- conducting of the annual preventive medical examinations of women by physicians of Perinatal
Center, Solikamsk city;
- providing affordable health care procedures in the Company’s medical center and/or sanatorium.
New SMW’s regulations concerning safety of employees ИОТ-03-1-2015 were put into effect by the
Company’s Order № 219 of 20 October 2015.
SMW’s “Policy in Industrial Safety” is readily available on the Company web-site under link
http://смз.рф/en/manag_system/The_Policy_Of_Industrial_Safety_Of_Solikamsk_Magne.pdf . The
Policy contains objectives and obligations of the Company’s management to minimize risks of
production accidents and describes principles of management in industrial safety.
SMW developed and implemented its own Regulations “Production Control on Compliance with
Industrial Safety Requirements” prepared under requirements of Federal Law “Industrial Safety of
Dangerous Production Facilities” No 116-FZ of 21 July 1997 (as amended to date of 2 July 2013).
Due to increased international terroristic activity, SMW tightened requirements and control of
admission to the plant and improved protection of dangerous objects and, specifically, extremely
dangerous Chlorine Storage Unit by the Company’s Order № 240 of 19 November 2015 Additional
Counter- terroristic Measures to Improve Security of Objects.
The Company formed special department of United State System for Prevention and Liquidation ExtraOrdinary Natural, Technogenic and Military Disasters and adopted its organization structure by Order
№ 244 of 26 November 2015 in compliance with statutory regulations of Russian Federation in this
respect.
Monitoring of the Company’s activities is performed by supervisory authorities in the form of
scheduled and spontaneous inspections.
Insurance of Risks
1. In order to protect its property interests, SMW insures goods (chemical products, non-ferrous metals,
titanium sponge, tantalum & niobium oxides & chlorides, rare earths carbonates & compounds, nonferrous metals, potash) those are transported in containers, by auto, marine, railway or air transport in
accordance with Rules for Transport Insurance of Goods with the JSC "Insurance Company of Gas
Industry" (JSC "SOGAS"), Perm Division, under the General Insurance Police № 2215CG0071 of
October 2015.
37
2. In accordance with Article 15 of the Federal Law "Industrial Safety of Dangerous Production
Facilities" of 21 July 1997 № 116 – FZ, Federal Law № 225 of 27 July 2010 and the Rules of Mandatory
Insurance of Civil Liability by Owners of Dangerous Facilities for Injury Caused by Accident in
Dangerous Object, SMW insures its civil liability under these Rules with insurance company OAO
Alfa Insurance under the Contract for Mandatory Insurance of Civil Liability № 6191R/921/0167/5 of
28 June 2015. Contract covers 14 dangerous facilities of the Company those are the main technological
divisions and dangerous areas of servicing workshops listed in Annex №1 to this contract.
3. In accordance with legislation of Russian Federation and licensing requirements of RosTechNadzor
for entities operating with objects using atomic energy (Article 56 of the Federal Law "Use of Atomic
Energy” № 170 - FZ of 21 November 1995), the Company signed the Contract for Insurance of Civil
Liability of Entity Exploiting Atomic Energy № 6191R/788/0235/5 of 28 September 2015 with OAO
Alfa Insurance covering compensation of loss and harm for third party caused by radiation exposure
at the objects of the Company where sources of ionizing radiation are available:
1) Storage facility for radioactive waste; 2) Complex containing radioactive substances; 3) Transport
packing container ПУ type – 2 units; 4) Radon generator in Radon laboratory; 5) X – ray equipment
for spectral and structural analysis; 6) X-ray equipment for detection of defects;
4. In accordance with Article 31 of the Federal Law "The emergency services and the status of rescuers"
of 22 august 1995 № 151-FZ, SMW has its own Gas Rescue Team (GRT).
Contract of Collective Insurance in the Case of Disaster № 6193R/186/0258/5 of 12 August 2015 with
OAO Alfa Insurance covering insurance of property interests of GRT employees connect with harm to
life and health during the time of performance of their jobs in accordance with Rules for Insurance.
5. In accordance with Contract (police) of Civil Liability Insurance with OAO Alfa Insurance №
6191R/906/0280/5 of 12 November 2015 for member of self-regulatory organization, which includes
members involved in building works, for cases of injury caused by defects of building & construction
that affect safety of structures, the Company insures its own and third parties property interests
connected with risks of civil liability those may arise as the result of defects affecting safety of structures
caused by improper performance of building and construction works under SMW’s permission №
0943-2011-5919470019-С-018 of 06.12.2011 issued by NP SRO “Alliance of Builders”. This Police grants
amount of compensations not exceeding value covered by insurance police and within limits described
in the contract in accordance with Insurance Rules of Insurer (period of insurance is from 06 December
2015 to 05 December 2016)
6. In accordance with the rights of SRO NP “Union of Architectural & Designing Organizations of Perm
Region” (NP SAPO SRO) to conclude collective insurance contracts on behalf of its members, this
organization concluded the civil liability insurance contract ГОС № 38-57/0025/15-26 with insurance
company OOO “Building Insurance Group” for complex insurance of civil liability and financial risks
of SRO members covering cases of injury and additional expenses those may arise as the result of
defects affecting safety of structures caused by improper performance of works. This Police guarantees
payment of insurance compensations for injury, reimbursement of compensation fees and fees
connected with lawsuits those may arise during performance of works, designing & engineering
services as defined in the SMW’s Certificate of Permission № 0691.04-2010-5919470019-П-063 of
01.10.2012 issued by NP SAPO SRO (period of insurance is from 18.10.2015 to 17.10.2016)
7. The Company insures its civil liability for harm to life, health and injury to property of persons
affected by road accidents under contract of mandatory civil liability insurance (OSAGO) of 24 June
2015 with OAO Alfa Insurance under Rules of OSAGO.
8. In order to support in access to additional medical services to SMW’s employees, the Company
concluded the Contract for Voluntary Medical Insurance with IPAO Ingosstrakh where employees may
select its own class of insurance police. Basic insurance police is free for employees and completely
paid by the Company.
Risks Associated with Lawsuits
The Company's is involved in critical lawsuits as the defending party.
In the case of cognovits of petitions in critical lawsuits, where SMW is involved as the defending party,
and enactment of these decisions, it may be possible to appeal the court for recognition of the Company
as the insolvent (bankrupt).
In the case of enactment of Central Bank’s petitions with respect to SMW, the Company will be charged
with significant penalties.
38
Risks Associated with Inability to Prolong Existing Licenses of the Company
Risks of revocation, suspension or refusal to prolong the licenses for the main activities of the Company
is virtually nonexistent.
SMW builds its forecasts on the base of compliance of its actual results with requirements to prolong
appropriate licenses.
SMW conscientiously meets its environmental obligations and adjusts its activities towards
requirements prescribed by Russian legislation as well as requirements prescribed by international
standards, agreements, conventions and protocols. Efforts to improve efficiency of the Company’s
production activities include, inter alia, efforts to reduce pollution and discharge of hazardous
substances, building of waste disposal facilities.
Changes in environmental legislation, enforcement of more strict requirements for licensing could rise
expenses connected with improvement of production process as well as different fees and duties.
The Company strives to comply with requirements governing the licensing of its activities, provides
resources and arrange appropriate measures for that.
Risks Associated with Potential Liability of the Company under Obligations of Third Parties
The Company has neither obligations against debts of third parties.
Risks Associated with the Potential Loss of Large Customers
Risks associated with the potential loss of customers accounting for at least 10% in total sales revenues
of the Company are moderate, and competition in the market is the only factor which may result this
failure. In the event of such a case, SMW has opportunity to sell its products to other customers without
any significant loss of profitability.
CORPORATE GOVERNANCE
Obligations and Activity of the General Assembly of Shareholders in the Reporting Period
In accordance with Article 10.1. of SMW’s Charter, the General Assembly of Shareholders (GAS) is a
top governing body of the Company.
The Annual GAS was convened under initiative of the Board and was held on 05 June 2015. GAS
adopted Annual Report and Accounting/Financial Statements for 2014 year, decided not to share the
income and not to pay any dividends, elected new Board and Audit Commission, approved ZAO
Auditing Company Legion-Audit as the auditor of SMW Accounting/Financial reporting for 2015 year,
approved deals which may be referred to as the deals with interest (9) including prospective deals.
Obligations and Activity of the Board of Directors in the Reporting Period
In accordance with SMW’s Charter, the Board of Directors performs general management of the
Company during the period between GASs. Federal Law Joint-Stock Companies grants the Board the
most important role in development and implementation of strategy, in supporting financial and
general activity of companies as well as in granting of the shareholders’ rights.
Obligations of the SMW’s Board members are described in the Section 5 of the SMW’s Board Statute.
13 proxy Meetings of the Board were convened and held under rules of the Board Statute during the
reporting year. These Meetings were called by the Chairman of the Board as well as under requests of
the following the Board members: Dr. Dmitriy L. Melnikov, Ksenia S. Zlobina and Dr. Pavel G. Detkov.
From 5 to 8 the Board members participated in proxy votes while quorum threshold is 5 members in
accordance with Article 10.3. of the Board Statute, that is that all Meetings were considered as
constituent and results of votes are valid.
In accordance with Article 65 of Federal Law Joint-Stock Companies № 208-FZ of 26 December 1995,
Article 11 of SMW’s Charter and provisions of the SMW’s Board Statute, the following issues, assigned
to the Board competence, were discussed and voted:
- approval of the budget for 2015 for the main activities of the Company;
- discussion of candidates to the Board and Audit Commission proposed by the shareholders owing at
least 2% shares of the Company and selection of nominees to the list for vote by GAS;
- approval of the Company’s representatives to the managing and controlling bodies of
subsidiaries/depending entities where SMW is a shareholder/co-owner or partner (OAO RITM, ZAO
Octane, OOO SZD);
39
- conclusion of the deal with respect to property valued from 5% to 50% of asset balance value on the
date of discussion of the deal;
- convening the Annual GAS and setting its Agenda;
- provisional approval of Annual Report and Financial/Accounting Statements for 2014 year, Auditor
of the Company for 2015 year and recommendations to the GAS concerning sharing the income for
2014 year;
- concerning approval of deals which may be referred to as the deal with interest;
- concerning approval of deals, which may be referred to as the deal with interest, that may be concluded
during normal course of business (under rules of the Article 6 of Federal Law Joint-Stock Companies),
and decision concerning inclusion of proposed deals for approval by Annual GAS;
- early retirement of Sergei B. Shalaev from the position of General Director and termination of his
power, payment of bonuses for results of the reporting period in accordance with labor contract;
- appointment of Dr. Dmitriy L. Melnikov on the position of the General Director and signing of the
labor contract with him;
- election of the Chairman, Deputy Chairman and Secretary of the Board;
- under provision of Article 11.3 of the Charter and proposal of General Director, approval of the
Company’s Organizational Structure and persons on the positions of Deputy General Director: Deputy
General Director for Development – Ivan I. Shatrov from 27.03.2015, Chief Engineer – Vasiliy A. Kiselev
from 16.07.2015;
- foundation of Committee for Strategical Development, adoption of its Statute and its members;
- approval of Auditor’s fees;
- approval of loan contracts (3) with VTB Bank (PAO) under provisions of sub-article 22 of Article 11.3
in the SMW’s Charter;
- recognition of previously concluded SMW’s contracts (4) inconsistent with terms and conditions of
Agency Agreement between SMW and OOO Mineral Trading of 28.11.2014;
- approval of contracts №PF/PC-2015-01 of 30.06.2015 and №PF/PC-2015-02 of 22.07.2015 with Polyfer
Handels Ges.m.b.H. referred to as the deal with interest under provisions of Article 84 of Federal Law
Joint Stock Companies;
- early termination of Chairman power of Alexander S. Gutin and election оf Dr. Pavel G. Detkov on
the position of the Chairman of the Board;
- convening the Extra-Ordinary GAS and setting its Agenda under decision of the Chairman of the
Board;
- issues related with convocation of Extra-Ordinary GAS;
- foundation of Committee for Personnel Policy and Corporate Ethics, adoption of the Committee
Statute and its members.
At the first time in practices of the Board, it was a conflict of interests between certain members of the
Board and the Company and between SMW’s Agent OOO Mineral Trading and the Company. Member
of the Board Ksenia S. Zlobina appealed Arbitration Court of Perm Region with petitions covering
submission of information and documents by the Company as the inconsistent to Joint Stock Companies
Federal Law as well as recognition as invalid certain decisions of the Board. Information concerning
these lawsuits is readily available on the Company’s web in the section of Акционерам –
Корпоративные споры
The Board priorities are improvement of corporate management and profitability, sustainability,
reliability and competitiveness of the Company in the main markets.
Dividend Statements
Neither decision to pay any dividends for the results of 2014 year as well as for the results of the first
quarter, the half a year, the nine months of the year, as well as for whole 2015 year were adopted by
the Company.
List of the Company’s Deals That May Be Referred to as the Large Deals under Legislation
Neither deal or (trans)action, that fall under criteria ‘large’ in accordance with the Federal Law “Joint
Stock Companies” and/or the Charter of the Company, were signed by the Company in 2015.
40
List of the Company’s Deals That May be Referred to as the Deals with Interest under Legislation
In 2015, the Company concluded deals that may be referred to as “deals with interest”. List of these
deals is provided in Annex №2 to this Report (Available only electronically in Russian under link
http://смз.рф/raport/2016/2015_godovoj_otchet_smz_2015_dlja_sajta.pdf).
The Board of Directors of the Company
The Board of Directors of the Company consists of 9 members.
In accordance with decision of General Assembly of Shareholders of 05 June 2015, the following
persons were elected to the Board:
Dr. Pavel G. Detkov
Chairman of the Board from 22.12.2015
Member of Committee for Personnel Policy and Committee for Corporate Ethics
Year of birth: 1960
Education: M.V. Lomonosov’s Moscow Institute of Fine Chemical Technology, specialty Chemical
Technology of Rare & Trace Elements, 1984. Russian Academy of External Trade, specialty
International Economic Relations (World Economy), 1995. Doctor Degree in Technology
Director of Polyfer Handels GmbH (Wien, Austria) from 2008
Member of the SMW’s Board from May of 2014 and was a member of the earlier Boards.
% in the Authorized Capital of SMW: 0.1599
% in Voting Shares of SMW: 0.1599
Sergei B. Shalaev
Deputy Chairman of the Board
Chairman of the Board Committee for Strategical Development
Member of the Board Committee for Personnel Policy and Corporate Ethics
Year of birth: 1956
Education: Perm Polytechnic Institute, specialty Technology & Complex Mechanization of
Underground Mining of Mineral Deposits, 1978
Member of the Board from 2005
% in the Authorized Capital of SMW: 0.001
% in Voting Shares of SMW: 0.001
Dr. Alexander S. Gutin
Member of the Board, former Chairman of the Board (until 22.12.2015)
Year of birth: 1968
Education: Perm State Medical Institute, specialty Stomatology, 1990. Perm State University, specialty
Jurisprudence, 1997. Doctor Degree in Jurisprudence.
Director of OOO Kris (01.2008-06.2014), information concerning recent job is not available
Member of the Board from 2003
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Ksenia S. Zlobina
Member of the Board
Year of birth: 1976
Education: Perm State University, specialty Aircraft Engines and Energy Systems, 1998. Federal State
High Professional School of the President’s Russian Academy of Economy and Education of
Government Personnel, specialty Management of Organizations – Management of Business
Competitiveness, 2012.
General Director of ОАО Echo/ZAO Echo (09.2011-02.2015), information concerning recent job is not
available
Member of the Board from 2015
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Vadim V. Manin
Member of the Board
41
Year of birth: 1970
Education: Omsk Polytechnic Institute, specialty Missiles Engines, 1993. Russian Institute for Economics
& Finance, specialty Finance and Credits, 1995.
Managing Director of ZAO Aksioma Capital (2013-2014); Deputy Chairman, member of the Board
ОАО EcoPromBank (05.2014-08.2014), information concerning recent job is not available
Member of the Board from 2015
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Dr. Dmitriy L. Melnikov
Chairman of the Board Committee for Personnel Policy and Corporate Ethics
Member of the Board Committee for Strategical Development
Year of birth: 1961
Education: M.V. Lomonosov’s Moscow Institute of Fine Chemical Technology, specialty Chemical
Technology of Rare & Trace Elements, 1984. Doctor Degree in Technology, 1987.
General Director of SMW, Chief Engineer of SMW from 09.2005 to 03.06.2015
Member of the Board from 2015
% in the Authorized Capital of SMW: 0.0005
% in Voting Shares of SMW: 0.0005
Artem M. Nechaev
Secretary of the Board Член комитета Совета директоров по кадровой политике и корпоративной этике
Member of the Board Committee for Personnel Policy and Corporate Ethics
Year of birth: 1976
Education: Perm State University, specialty Jurisprudence, 1998. Perm State University, specialty
Management, 2012.
SMW Director for Legal Affairs
Member of the Board from 2015
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Evgeniy Yu. Syrtzev
Member of the Board Committee for Personnel Policy and Corporate Ethics
Year of birth: 1983
Education: Webster University (Wien, Austria), Master of Business Administration, 2008.
General Director of KPI GmbH
Member of the Board from 2015
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Alexei V. Chibisov
Member of the Board
Year of birth: 1971
Education: S.M. Kirov’s Urals Polytechnic Institute, specialty Economics & Management in Metallurgy,
1993
Deputy Prime-Minister of Perm Region – Minister of Industry, Business and Trade of Perm Region
Member of the Board from 2014
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Before the Board elections by General Assembly of Shareholders of 06 June 2015, the Board consisted
of the following members:
Dr. Alexander S. Gutin
Dr. Pavel G. Detkov
Dr. Dmitriy L. Melnikov
Alexei Yu. Pykhteev
42
Member of the Board
Year of birth: 1975
Education: Perm State University, specialty Economist, in 1997.
Director of OOO Business-contact
Member of the Board from 2012
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Evgeniy Yu. Syrtzev
Alexei V. Chervonnykh
Member of the Board
Year of birth: 1968
Education: Perm State University, specialty: English and French, 1992. Academy of National Economy
of Russian Government, Master of Business Administration, 2007.
General Director of ОАО PermOblNeft.
Member of the Board from 2012
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Alexei V. Chibisov
Sergei B. Shalaev
Ivan I. Shatrov
Member of the Board Committee for Strategical Development (07.2015-09.2015)
Year of birth: 1983
Education: Perm State University, specialty Jurisprudence, 2005. Perm State Technical University,
specialty Economist – Manager, 2010.
General Director of ООО ART-Technology, former SMW Deputy General Director for Development
(03.2015-09.2015)
Member of the Board from 2012
% in the Authorized Capital of SMW: nil
% in Voting Shares of SMW: nil
Neither deals with the Company’s shares were concluded by the Board members in 2015.
Information on the Person Who Holds the Position of Exclusive Executive Body of the Company
Pursuant to article 69 of Federal Law № 208-FZ of 26.12.1995 Joint Stock Companies and the SMW’s
Charter, the Company is managed by General Director (Exclusive Executive Body of the Company).
General Director of the Company is Dmitriy Leonodovich Melnikov since 04 June 2015, 1961 year of birth,
former Chief Engineer of the Company (from 09.2005).
Neither deals with the Company’s shares were concluded by General Director in 2015
The Main Provisions of the Company's Policy in the Field of Compensation and Reimbursement
of Expenses, as well as the Criteria for Determining the Amount of Remuneration and
Compensations Paid to the Members of the Board of Directors of the Company for 2015
In accordance with Article 4.1 of the SMW’s Board Statute – adopted by Annual GAS of 12.05.2014 the Board members have a right to a monthly remuneration for performance of their duties in the
amount equal to monthly average salaries of industrial employees of the Company and/or
compensation of expenses connected with performance of their functions as the Board members.
The total remuneration of the Board, including salaries of the Board members who are the Company’s
employees, including bonuses, remunerations, fees paid individually for their participation in the
governing body, other types of remunerations those were paid by the Company during the reporting
year totaled 38’082.61 thousand rubles.
Compensations of expenses related to the performance of the functions of the Board member were not
paid by the Company during 2015 year.
43
The Main Provisions of the Company’s Policy in the Field of Remuneration and Reimbursement
of Expenses, as well as the Criteria for Determining the Amount of Remuneration and
Compensations Paid to the Members of the Executive Bodies of the Company During 2015
The criteria for determining and amount of remuneration of the General Director (GD) are defined in
the article 12.2 of the Charter of the Company, in the article 1.3. Statute of the General Director and in
the labor contract between the General Director and the Company.
The remuneration of GD is determined as a fixed monthly tariff of salary in accordance with the labor
contract. This tariff is subject to indexing in proportion to indexing of fixed monthly tariffs of salary for
regular employees the Company in accordance with Collective Labor Agreement between the
Company and Trade Union.
For each period, under decision of the Board, additional remuneration (bonus for period/annual
bonus) may be paid to GD depending on results of the Company’s performance during the reporting
period including compensation of travelling expenses, in proportion to the period of employment in
this position within reporting period.
The remuneration of General Director is subject to the Company’s regulations on confidentiality and it
is not disclosed separately.
Information (report) on Compliance with Principles and Recommendations of the Code of
Corporate Governance Recommended by the Bank of Russia
The Company does not have its officially adopted Code of Corporate Governance or other similar
document, however, in accordance with requirements of Federal Law Joint-Stock Companies, Federal
Law Securities Market and regulations of the Bank of Russia, SMW provides to shareholders and
investors all appropriate ability to participate in managing of the Company and obtaining the
information concerning the Company’s activities. This information is published by the Company on
its own web-site http://www.смз.рф and on the web-page of Center of Corporate Information
Disclosure of OOO Interfax http://www.e-disclosure.ru/portal/company.aspx?id=6100 and includes
general company information, banking account and price for copying of documents that company
should provide in accordance with the Russian legislation under request of owners of the Company’s
securities and other interested persons, Charter and internal documents of the Company, quarterly and
annual financial statements and reports, list of affiliated persons, information about essential facts (also
published by RIA Interfax).
Duties of the Secretary of the Board are performed by the specially appointed person whose job duties
include provisions recommended in the CB RF Code of Corporate Governance and provisions of
internal documents of the Company aiming implementation of the basic principles of corporate
governance. The Company's Department of Corporate Relations enforces managing bodies of the
Company and the Company’s executives to comply with the procedural requirements guaranteeing
the legitimate rights and interests of the shareholders, timely disclose an information making this
information readily available to the public. For the convenience of shareholders, who are physical
persons, and for implementation of rights of owners of the Company’s securities, the Company
provides services to get documents from shareholders required for recording of operations in register,
and arranges transfer of these papers to the Company’s Register-keeper.
The Company’s governing bodies tend to follow principles and recommendations stipulated in the
Code of Corporate Governance approved and recommended for implementation by the Board of Bank
of Russia on 21 March 2014 for public joint-stock companies. Statement on compliance of the Company
with the Code of Corporate Governance under requirements of Annex 1 to Recommendations of
Completion of the Statement on Compliance with Principles and Recommendations in the Code of
Corporate Governance (Annex to Letter of Bank of Russia № ИН-06-52/8 of 17.02.2016) is provided in
Annex №3 to this Annual Report (available electronically and in Russian only under link
http://смз.рф/raport/2016/2015_godovoj_otchet_smz_2015_dlja_sajta.pdf).
Information Concerning Approval of Annual Report
In accordance with sub-article 5 of Article 3.1. of the SMW’s Board Statute, Annual Report is subject to
provisional approval by the Board.
Authenticity of information contained in Annual Report, under requirements of Article 16.2 of the
SMW’s Charter, should be confirmed by internal Audit Commission that is the Company’s supervisory
body on financial and general activity of the Company.
44
In accordance with sub-article 11 of Article 10.2. of the SMW’s Charter, Annual Report should be
adopted by the General Assembly of Shareholders. Text of Annual Report adopted by the General
Assembly of Shareholders should be published on the web with free access to the Report during three
years, at least.
KEY PERFORMANCE INDICATORS OF THE COMPANY
Aggregated balance sheet on 31 December 2015 (in thousand rubles)
ASSETS
LIABILITIES
1
2.1
Fixed assets
Inventories and expenses
2’273’545
1’199’529
3
4
2.2
Cash, accounts receivable and other
assets, including
Cash and equivalent
Accounts receivable and other assets
TOTAL ASSETS
1’635’498
5
172’240
1’463’258
5’108’572
Equity
Long-term loans and other long-term
borrowings
Accounts payable and other liabilities
2’934’922
1’225’554
TOTAL LIABILITIES
5’108’572
948’096
Income Statement for 2015 year (in thousand rubles)
Name
Line №
Sales revenues
Cost of goods sold
Gross margin (loss)
Selling expenses
General & Administrative expenses
Sales income (loss)
Earnings from participation in other entities (dividends)
Interest receivable
Interests payable
Other revenues
Other expenses
Income (loss) before taxation
Сurrent income tax
Including fixed tax liabilities (assets)
Deferred tax liabilities
Deferred tax assets
Other
Net income (loss) in the reporting period
FOR REFERENCE.
Result of re-assessments of net assets which is not included into
net income (loss) of the reporting period
Results from other operations which are not included into net
income (loss) of the reporting period
Total financial result for the reporting period
Earnings (losses) per share
Diluted earnings (losses) per share
45
2110
2120
2100
2210
2220
2200
2310
2320
2330
2340
2350
2300
2410
2421
2430
2450
2460
2400
2015
6'395'495
(4’990'877)
1'404'618
(383'913)
(333'970)
686'735
59'022
1'883
(45’632)
507'894
(590'223)
619'679
(144'650)
49'210
(538)
(72)
121
474’540
2510
2014
5’164’738
( 4'699'448)
465’290
( 329'549)
(339’407)
( 203'666)
45’160
2’791
( 66'581)
581'401
( 318'972)
40’133
( 7'911)
19’935
7’687
( 25'932)
26'046
40’023
115’455
2520
2500
474'540
2900
1.19
2910
-
155'478
0.10
-
REPORT OF AUDITOR
46
47