OREANDA-NEWS. March 14, 2008. The Magnitogorskiy Steel Mill (MMK) and OAO Belon are forming a strategic alliance. This was announced by Andrey Dobrov, the Director General of OAO Belon, and Viktor Rashnikov, the Chairperson of the Board of Directors of OAO Magnitogorskiy Steel Mill, at the joint press conference held in Moscow.

The formation of a strategic alliance was the result of a deal made between OAO MMK and Sapwood Investments Ltd. In accordance with the terms of the deal, ММК purchased 50% of Onarbay Enterprises Ltd, which held 82.6% of the shares of OAO Belon. The transaction value amounted to \\$230.4 mln. Thus, the indirect share of MMK in the management of OAO Belon increased to 41.3%. Another 50% of the shares of Onarbay Enterprises Ltd are controlled by Sapwood Investments Ltd.

The main goal of the strategic alliance is to form a foundation for expanding the business of the Magnitogorskiy Steel Mill and of Belon Group, as well as to increase the competitive advantage of each participant, and to improve the possibility of mutual insurance against market risks. In the framework of the partnership, the operational management of Belon will stay with the Group’s current management led by Andrey Dobrov.

According to Andrey Dobrov, Belon’s participation in the strategic alliance opens a prospect of stable long-term sales of its main product—coal concentrate. "Our partnership with MMK will also give a powerful impetus to the development of the entire sector of coal production and preparation, and will allow the Company to bring its sales of steel mill products to a new level,” says the Director General.

As Viktor Rashnikov noted, this deal is an important strategic step on MMK’s way to achieving the stated goal of ensuring stable long-term supply of the main types of raw materials. “Building up our strategic partnership with Belon will provide us with additional competitive advantages,” says Mr. Rashnikov.

In accordance with Belon Group’s development strategy, by 2012 the total coal production at the Company’s enterprises will reach 14–15 mln tons, and the production of coal concentrate will amount to 5.1 mln tons. The participation in the strategic alliance will allow the Company to have guaranteed sales of up to 50% of its products.

The participants of the alliance are now considering such prospects of its further development as the expansion of production of metallurgical coals by acquiring operating enterprises, and by building new facilities which will operate based on the existing resources of Belon, and on the coals to be produced under the licenses held by MMK which are to be transferred to Belon. It is quite probable that power generation facilities will be set up on the basis of steam coal to meet the growing electricity demand of each participant of the alliance. This partnership also allows for the establishment of a modern mining company on the basis of Belon Group which would be engaged in the production and preparation of not only coal but also of other mineral resources.