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JSC "NIKOMAG" STRATEGIC DEVELOPMENT PLAN

JSC “NIKOMAG”GROUP OF COMPANIES NIKOCHEM

JSC "NIKOMAG" 400097, Volgograd, str. 40 let VLKSM, 57, tel.: +7 (8442) 406990, fax: +7 (8442) 406010, e-mail: [email protected]

JSC "NIKOMAG" was founded in 2006 in order to make a separate direction of the integrated bischofite processing program being realized

within Group of Companies NIKOCHEM development strategy.

In 2006, the company started up a magnesium chloride flakes and prills production complex with capacity 30 thousand tons/year. As of

today, JSC "NIKOMAG" is the largest magnesium chloride prills producer on the territory of the Russian Federation.

The company is developing the deicing segment very actively - now bischofite (magnesium chloride) and the solid DIA GreenRide are in the

range of produced goods. The formulations of the produced reagents are constantly improved thanks to research activities carried out. The

icemelter GreenRide is actually a state-of-the-art MULTICOMPONENT material for winter slipperiness control, having higher melting ability

and lower corrosivity compared with analogs.

At the moment, a big investment project is being realized together with JSC RUSNANO. The main products of the project will be

nanostructured magnesium hydroxide with modified surface used as an effective environmentally safe flame retardant and smoke

suppressant and high-purity magnesium oxide. As of today, Russian demand for these products is met by import supplies from Europe, USA

and Israel. The project also foresees solid magnesium chloride grades production capacity increase up to 60 thousand tons/year.

ABOUT THE COMPANY


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PRODUCTS OF THE PROJECT: nanostructured magnesium hydroxide, high-purity magnesium oxide, bischofite (magnesium chloride).

DESIGNED CAPACITY:

Ι for magnesium hydroxide - 25 thousand tons/year;

Ι for magnesium oxide - 30 thousand tons/year;

Ι for magnesium chloride – 30 thousand tons/year (addittionally to the existing plant).

RAW MATERIAL SUPPLY:

For nanostructured magnesium hydroxide and high-purity synthetic magnesium oxide production bischofite brine containing high-purity

magnesium chloride will be used. Explored bischofite reserves и received licenses for mining it guarantee raw material supply for the project

during the next 150 years.

CURRENT STATE: in realization stage, production startup is in the 1st quarter of 2015

GENERAL CHARACTERISTICS OF THE PROJECT

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ￜ RAW MATERIALS. Near magnesium chloride (bischofite) deposit and own-produced caustic soda. For nanostructured magnesium

hydroxide production bischofite brine coming through a pipeline from Svetloyarskoye Deposit and containing high-purity magnesium

chloride will be used, which ensures minimum brine purification expenses.

ￜ INFRASTRUCTURE. The industrial site of Group of Companies NIKOCHEM in Volgograd has a highly developed infrastructure with

reserve capacities regarding heat and electric energy, treatment facilities, maintenance services etc. which will be used in the project with

the according efficiency increase.

ￜ LOGISTICS. Easy access to transport junctions for exports and physical proximity of major industrial centers of the Russian Federation.

Minimum expenses for transporting main raw materials - bischofite solution and caustic soda (by pipeline).

ￜ FURTHER DEVELOPMENT POTENTIAL. Further diversification of the complex is possible with introducing the stage of isolating

bromine from bischofite solution fed for magnesium hydroxide production and further synthesis of bromine compounds with high added

value, for e.g. sodium bromide.

ADVANTAGES OF THE PROJECT

4 JSC "NIKOMAG" 400097, Volgograd, str. 40 let VLKSM, 57, tel.: +7 (8442) 406990, fax: +7 (8442) 406010, e-mail: [email protected]


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NANOSTRUCTURED MAGNESIUM HYDROXIDE

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Index DenominationNorm Value

Grade A Grade B Grade M7 Grade M10

AppearanceWhite

powderWhitepaste

Whitepowder

Whitepowder

Mass fraction of magnesium hydroxide, %, minimum 99.0 50.0 97.0 97.0Mass fraction of volatile substances at 105 С, %, maximum 0.3 50.0 0.3 0.3Iron fraction of total mass calculated on ferric oxide (Fe2O3), %, maximum 0.01 0.02 0.01 0.01 Calcium chloride fraction of total mass calculated on calcium hydroxide (CaO), %, maximum

0.15 0.08 0.20 0.20

Chlorides fraction of total mass, %, maximum 0.10 0.05 0.10 0.10Silicon dioxide (SiO2) fraction of total mass, %, maximum 0.05 ― 0.08 0.10Sulfates fraction of total mass, %, maximum 0.10 ― 0.20 ―Aluminum fraction of total mass calculated on aluminum oxide (Al2O3), %, maximum 0.05 ― 0.10 ―Mass fraction of loss on ignition at temperature 1000 С, % 30.0-33.0 ― 30.0-33.0 30.0-33.0Bulk density, g/cm3, minimum 0.40 ― 0.30 0.30Weight of oil adsorbed by magnesium hydroxide, g, maximum 60.0 ― 40.0 50.0Specific surface, m2/g ― ― 5.0-8.0 8.0-15.0Particle-size distribution:diameter of 10 % of particles (d10), maximumdiameter of 50 % of particles (d50), maximumdiameter of 90 % of particles (d90), maximum

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NANOSTRUCTURED MAGNESIUM HYDROXIDE IS USED:

Ι as a highly effective non-toxic inorganic flame retardant, filler and smoke suppressant additive for producing practically all

kinds of plastics and pigmented (co)polymer compounds based on PVC, PA, PS, PP, PE, PET etc.;

Ι in paper and cardboard production;

Ι as a mild neutralizing agent for water treatment;

Ι as a raw material in the pharmaceutical branch.

MAIN QUALITY FACTORS:

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High producibility of both magnesium hydroxide itself and polymer compounds based on it associated with passing one the geometrical

dimensions (flake height) to the category of nanosizes conditions a fundamental change in nanostructured magnesium hydroxide properties

and its easier and completer distribution in the mass of polymer matrix.

Polymer compounds produced using nanostructured magnesium hydroxide with modified surface have been tested together with Russian

leading manufacturers and specialized institutes, such as Federal State Unitary Enterprise Fire Safety Research Institute. The full set of

certification tests has bee carried out. Feedback received from the end users allows us to state with certainty the doubtless technical and

technological advantages of nanostructured magnesium hydroxide compared to the analogs availabe in the market. As a result, as early as

the design stage, NIKOCHEM concluded a number of off-take contracts for delivering nanostructured magnesium hydroxide.

CONFIRMED PRODUCIBILITY AND EFFECTIVENESS

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APPLICATION ADVANTAGES:

COMPARED TO THE NATURAL ANALOG - BRUCITE

COMPARED TO ALUMINUM TRIHYDRATE

COMPARED TO THE SUBMICRON ANALOG

regular crystalline structure, chemical purity, particle-size distribution constancy ensure stability of the indices of the produced compounds and their processing conditions; extruder motor load decrease to 30%: increasing the thermostability polymer compounds, possibility of producing white compounds and finished products; increasing the rate of processing the compounds to 40% and their plasticity.

decreasing the thermal degradation of plastics due to higher heat absorption in the process of decomposition (to 328 kcal/g), a higher temperature range of thermal degradation (330-450 ° C in case of magnesium hydroxide compared to 220 ° C in case of aluminum hydroxide), much higher qualitative characteristics: whiteness, abrasivity and controlled dispersion.

better processability (electric energy saving while processing); higher electrical resistance (it is more efficient in insulating materials production); higher fire resistance of compounds and finished products, their higher level of safety for people and lower environmental impact at combustion.



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CONFIRMED PRODUCIBILITY AND EFFECTIVENESS

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COMPARING THE PROPERTIES OF THE MAIN FLAME RETARDANTS

Index Denominations Magnesium hydroxide Aluminum Trihydrate Bromine-Containing

Decomposition temperature, 0С 340-380 180 up to 400

Smoke density decrease at combustion 3-9 times 2-5 times smoke density increases

Electric conductivity (10% in Н2О), S/cm 350 200 not rated

Heat absorption at decomposition 1220 1075 none

Whiteness (Elrepho 357 nm) >96 >94 not rated

Smoke toxicity at decomposition does not form toxic or pungent gases bromine-containing toxic gases

Consumption rate, % up to 40 up to 50 up to 10

Finished product recycling technology level, % 90-100 50-60 10-20

The given consumption rate values of various flame retardant types characterize to a greater extent maximum values for the most popular

compounds and will vary in rather wide range for particular formulations, depending on the required fire resistance and other characteristics.



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High-purity magnesium hydroxide is mainly used an effective environment-friendly flame retardant filler in the manufacturing of polymer

compounds and finished products. At the present time, a fundamental change in flame retardant market structure is observed. The main

trend is step-by-step halogen flame retardant abandonment in favor of halogen-free ones. This process is tooke place in conformity with EU

Regulation on halogen flame retardant use restriction coming into effect in 2013. First of all, it relates to the low ecological and toxic safety

level of halogen flame retardants, which, in its turn, determines high and constantly growing demand for halogen-free flame retardants in

general and magnesium hydroxide in particular.

After passing the Federal Law of the Russian Federation of July 22, 2008 Nr. 123-ФЗ "Technical regulations for fire safety requirements"

requirements to fire safety of polymer compounds are toughening significantly in Russia. As the result, polymer compounds produced using

imported submicron magnesium hydroxide available in the market do not meet the requirements of the Law in respect of many indices.

In case of adding same flame retardant amounts, polymer compound containing nanostructured magnesium hydroxide has a number of

advantages compared to analogs including submicron magnesium hydroxide available in the market:

Ι better processability (electric energy saving while processing);

Ι higher electrical resistance (it is more efficient in insulating materials production);

Ι lower combustibility and higher level of ecological safety at combustion.

DEMAND IN THE MARKET



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ￜ The target segment of the world market is the market of EU countries and the reasons for this are logistical considerations and its price

attractiveness (compared with other regions of active demand).

ￜ The present magnesium hydroxide market volume in European Union countries is assessed to be at the level of 30 tons/year with further

growth potential.

ￜ According to the pessimistic forecast, 5% growth of magnesium hydroxide market is expected in the medium term; the optimistic forecast

is 9-10%. The main growth segments are power supply cables with projected growth approximately 5-8%, as well as cables and wires for

automobile use with growth within 4-11%.

ￜ Russian magnesium hydroxide market potential is approximately 9 thousand tons. The main regions of demand concentration in the

domestic market are: Samara, Sterlitamak, Dzerzhinsk, Vladimir, Volgograd, Moscow. The main direction is the European part of the

Russian Federation, because the most consumers are situated in this part.

ￜ The markets of CIS countries also have some demand potential:

ￜ Ukraine - up to 3 000 t;

ￜ Belarus - up to 150 t;

ￜ Kazakhstan - up to 500 t.




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SYNTHETIC MAGNESIUM OXIDE

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SYNTHETIC MAGNESIUM OXIDE IS USED:

Ι in transformer steel production to form the insulating layer; Ι as a vulcanizing agent in rubber production;Ι as a filler in the production of rubber, plastics, mastic compounds, adhesive materials;Ι in medicine and perfumery;Ι in chemical agent production;Ι in crude oil and petroleum product removal;Ι in producing various magnesium compounds;Ι in gas purification;Ι in leatherware production (leather dressing);Ι as a component of drilling muds.

MAIN QUALITY INDEXES:

Index

Norm value

grade A(chemicals)

grade Бtransformer steel

grade B(general mechanical rubber

goods, plastics)Mass fraction of magnesium oxide (MgO), %, min 99 99 99

Mass fraction of calcium oxide (CaO), %, max 0,35 0,30 0,30

Mass fraction of silicon dioxide SiO2, %, max 0,05 - 0,05

Mass fraction of iron oxide Fe2O3, %, max 0,05 - 0,05

Mass fraction of aluminum oxide Al2O3, %, max - - 0,05

Mass fraction of chloride ion Сl -, %, max 0,10 0,03 0,10

Mass fraction of sulfate ions SО42-, %, max 0,20 0,20 0,15

Mass fraction of sodium ion (Na+) and potassium ion (К+), %, max 0,1 - 0,1

Loss of ignition, %, max 0,8-2,0 2,0-4,0 4,0-10,0

Specific surface area (BET), m2/g, within 4-20 - 40-170

Citric acid reactivity, seconds, within - 60-80 -

Particle size: passes 325 mesh (wet screening), %, min 99,0 99,5 99,9



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The world demand for the magnesium oxide of high-purity is focused on the following main applications:

Ι food and pharmaceutical industry;

Ι production of lubricating oil additives;

Ι general mechanical rubber goods production;

Ι chemical compounds production;

Ι transformer steel production.

According to the data in the report by «SRI Consulting» the consumption growth up to 2.5% per year is projected in the main markets of

magnesium oxide (CCM) – the USA and EU during 2012-2016. The main prospects of synthetic magnesium oxide demand growth are

conditioned by consumption increase in the segments of general mechanical rubber goods and transformer steels at the level of as much as

4% by 2016:

Ι -in general mechanical rubber goods production due to predictable structural change from simple general mechanical rubber

goods to more sophisticated ones - vulcanized with some elements (metal, plastic etc.), mechanical engineering development:

Ι -in transformer steel production due to the trend of modernization and building new production facilities with cluster

arrangement manner and to general electric power consumption growth and the corresponding transformer infrastructure revamping.




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FLAKED MAGNESIUM CHLORIDE

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MAGNESIUM CHLORIDE IS USED:

Ι as an independent deicing agent and as part of modern multicomponent icemelters;

Ι for handling of dust-forming and freezable cargoes in mining and metal industry;

Ι in oil and gas industry as a component of magnesia cement mortars;

Ι in building industry: in production of magnesia concretes, glass-magnesium sheet, foam magnesium carbonate etc.

Ι in chemical industry: preparation of magnesium-containing compounds, production of synthetic rubbers and thiokol;

Ι in textile industry;

Ι in production of fire-proof and abrasive materials.

MAIN QUALITY INDEXES:

INDEX NAME VALUE

Mass fraction of magnesium ions (Mg2+), %, not less than 11,8

Mass fraction of magnesium ions (Mg2+), % calculated as MgCl2 * 6H2O, %, not less than 97

Mass fraction of calcium chloride calculated as calcium oxide (CaО),%, not more than 0,1

Mass fraction of sulfates calculated as sulfate ion, %, not more than 0,1

Mass fraction of alkali metals ions (Na++ K+), %, not more than 0,8

Mass fraction of water-insoluble residue, %, not more than 0,2



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The Russian magnesium market volume has been growing during last five years. In 2007 the market was assessed at 5500 tons, in 2010 -

13300 tons, at year-end 2012 it reached 25800 tons which is equivalent to the annual average growth of consumption by more than 60%. In

2014 the market has grown by 23% to a greater extent due to the consumption expansion of the following segments:

ￜ handling of freezable cargo (up to 9000 t);

ￜ oil and gas industry (up to 7600 t).

The most prospective applications of bischofite (magnesium chloride) are anti-icing industry, oil and gas industry and application as an

antifreeze compound for bulk cargo in metal industry and mining industry and the total prospective volume of 50000 tons per year.

In the short term the projected consumption growth of magnesium chloride is not less than 20% per year considering the existing potential of

the magnesium chloride application and the lack of the plans concerning the commissioning of new capacities by Russian manufacturers

(except for CJSC “NIKOMAG”) and if there are some free volumes it will be at the level of the really reached ones over a period of 2007-2012

- not less than 40% per year.


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INVESTMENTS IN COMPANY DEVELOPMENT

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INVESTMENTS IN COMPANY DEVELOPMENT TOTAL

TOTAL INVESTMENTS: 128.7

1. Own funds 46.7

2. Contribution of RUSNANO to equity NIKOMAG 16.2

3. Loan by RUSNANO 24.9

4. Bank loan by Sberbank 40.9

For recalculating the future payments the exchange rate of 01.10.2014 - RUB 40/$ is accepted

Million USD



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PROJECT PARAMETERS:

When the project is implemented, CJSC “NIKOMAG” will be in the top three of the largest manufacturers of magnesium oxide and

magnesium hydroxide high-purity grades along with such companies as “ICL” (Israel) and “KOYOWA” (Japan) which are market leaders in

these goods.

FUTURE PROSPECTS OF THE COMPANY

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INDICATORS, USD MILLIONS 2014 WHEN REACHING THE DESIGN

CAPACITY

REVENUE 12,72 127,5

NET INCOME 1,98 32,4

EBITDA 4,13 50,6

AVERAGE STAFF NUMBER, PERS. 60 290

PB 6.9 years

DPB 8.4 years

NPV 22.9 mio $.

IRR 18,25 %



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CONTACT INFORMATION

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Ι LLC “NIKOCHEM”

Ι 400097 Volgograd, 40 Let VLKSM Street, 57Ι tel.: +7 (8442) 40 69 90Ι fax: +7 (8442) 40 60 10Ι http: www.nikochem.comΙ e-mail: [email protected]

Ι CJSC “NIKOMAG”

Ι 400097 Volgograd, 40 Let VLKSM Street, 57Ι tel.: +7 (8442) 40 69 92Ι fax: +7 (8442) 40 60 10Ι http: www.nikomag.comΙ e-mail: [email protected]

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