ADOPTED BY:

Annual General Assembly of Shareholders

Of JSC «SMW»

Date of General Assembly of Shareholders:

« 05 » June 2020

Provisionally Approved by:

The Board of Directors

Of JSC «SMW»

Protocol №3

of «30» April 2020

OPEN JOINT-STOCK COMPANY

SOLIKAMSK MAGNESIUM WORKS

(JSC SMW)

ANNUAL REPORT

2019

General Director ________________ Dmitriy L. Melnikov

( signature)

Solikamsk

2020

1

TABLE OF CONTENT Page

LETTER TO SHAREHOLDERS 2 MISSION OF JSC SMW 3 GENERAL COMPANY’S INFORMATION 3 History in Brief 3 Solikamsk Magnesium Works in Brief 4 Registration Data 5 Auditor of the Company 5 Register-keeper of the Company 6 Authorized Capital of the Company 6 Shareholders of the Company 6 Market Capitalization of the Company 6 Subsidiaries (Dependent Entities) of the Company 6 SMW’s Membership in Organizations & Associations 7

PRIORITY ACTIVITIES OF THE COMPANY 7 REPORT OF THE BOARD CONCERNING PROGRESS IN THE COMPANY’S PRIORITY ACTIVITIES 7 General Overview 7 Sales by Market Areas 8 Sales by Operations 8 Magnesium Operations 9 Rare Metals Opertaions 10 Compounds of Rare Earths 10 Titanium Sponge & Tetrachloride 11 Niobium Compounds 12 Tantalum Compounds 13 Chemical Operations and Goods, Works & Services 13

Usage of Energy Resources 13 Technical Development 14 Integrated Management System and Compliance with International Due Diligence Requirements for Tantalum Supply Chain

14

Operational & Industrial Safety 16 List of the Company’s Licenses & Permissions 17 Social Activities 17 POSITION IN THE INDUSTRY 18 Position in the Magnesium Industry 18 Position in the Rare Earths Industry 20 Position in the Titanium Industry 21 Position in the Niobium Industry 22 Position in the Tantalum Industry 24 Position in the Chemical Industry, in the Market of Goods, Works & Services 25

PROSPECTS OF THE COMPANY 26 THE MAIN RISK FACTORS CONNECTED WITH THE COMPANY’S ACTIVITIES 26 CORPORATE GOVERNANCE 28 Duties and Activity of the Board in the Reporting Period 28 Dividend Statement 29 List of the Company’s Deals Those May Be Considered as the Large Deals in Accordance with Federal Law Joint Stock Companies

29

List of the Company’s Deals Those May Be Considered as the Interested Party Transactions In Accordance with Federal Law Joint-Stock Companies

29

The Board of Directors of the Company 29 Corporate Secretary 31 Information on the Person Who Holds the Position of Exclusive Executive Body of the Company 32 The Main Provisions of the Company's Policy on Remuneration The Main Provisions of the Company's Policy on Remuneration & Compensation of Expenses as well as Criteria for Determining the Amount of Remuneration and Compensations Paid to the Members of the Board of Directors of the Company

32

32 The Main Provisions of the Company’s Policy on Remuneration and Reimbursement of Expenses, as well as the Criteria for Determining the Amount of Remuneration and Compensations Paid to the Exclusive Executive Body of the Company

32 Information (report) on Compliance with Principles and Recommendations of the Code of Corporate Governance Recommended by the Bank of Russia

33

Information Concerning Approval of this Annual Report 33

KEY PERFORMANCE INDICATORS OF THE COMPANY 34 INDEPENDENT AUDITOR CONCLUSION 35 ANNEXES(available only in Russian electronic version http://смз.рф/index/godovye_otchety/): Annex № 1 List of the Company’s Licenses & Permissions Annex № 2 Report on Compliance with Code of Corporate Governance issued by Bank of Russia This Report is readily available on SMW’s official web-site under link http://смз.рф/index/en_information/0-104 )

2

LETTER TO SHAREHOLDERS

Dmitriy Leonidovich Melnikov

General Director JSC SMW

The reporting year – 2019 - was relatively favorable for SMW.

The year was accompanied by slowdown of a global economy growth, trade wars, sanctions, regional wars, and plane crashes.

Markets for niobium compounds, pure & alloy magnesium sagged strongly. We faced customer refusals from SMW’s tantalum products due to the sharp decline in the tantalum market.

This negative impact was partially offset by the positive sales results of our rare earths and titanium products.

Sales revenues of the Company exceeded 8 billion rubles, and despite inflated costs caused by price increases on raw and other materials net income accounted for 291.6 million rubles.

This allowed the Company to carry out a large amount of maintenance and restoration works, to commission new production lines.

Coming year - 2020 – is expected to be very difficult for the industry. However, I am sure that our Company will do everything to solve possible problems.

3

THE MISSION OF JSC SMW

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 environment-friendly 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.

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 compounds was brought on stream

● 1985: SMW was 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 into operation; the first ISO 9001 certification

● 2009: the first millionth ton of magnesium metal was smelted by SMW; the first titanium sponge facility was brought on stream with capacity 2’500 tons per year out of total projected capacity of 5’000 tons per year

● 2010: the first ISO 14001 certification

● 2014 - 2019: facilities to process by-products of Magnesium Operations and produce granular potash and potash flux were brought on stream; technologies to produce new products were developed: new grades of creep resistant alloys for elevated temperature applications; master alloys with rare earths; lithium niobate and tantalate; calcium – strontium carbonate

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, more than 60% of commodity pure & alloy magnesium metal and 4-5% of titanium sponge production in the country, with Integrated Management System conforming to appropriate international standards and requirements.

4

Solikamsk Magnesium Works In Brief

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 to 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 to 72’000 mt

Solikamsk, Perm Region

Magnesium Operations

•Pure & alloy Mg metal •Potash (40% К2O) • Dehydrated Carnallite •Fluxes, etc • Calcium hypochlorite solution

Chemical Operations

•Calcium chloride solution (32%) • Lime • Lime slurry • Liquid chlorine

Хл

ор

ир

ова

ни

е

TiCl4

Production of rare earths compounds

• Nb pentachlorides & oxides • Та pentachlorides & oxides • Ti tetrachloride

SOLIKAMSK PRODUCTION FLOW CHART

Raw material supply

Rutile

Rare Earths Chlorides

Production

•Titanium sponge • Magnesium chloride

Finished Products

Известковый камень

Chlorine, Lime slurry

Mg

Revda, Murmansk Region

SMW’s suppliers of the key raw materials

Magnesium chloride

Chlorine (gas)

Lop[arite

Lime slurry

Редкометальное производство

•Rare earths (RE) carbonates • Ca-Sr carbonate

Carnallite

Production of Nb, Ta, Ti compounds

Production of titanium sponge

Carnallite

Ti, Nb, Ta chlorides

Loparite

к

5

Registration Data

Name of the Company registered as the trademark or service mark

Registration data for Trademark: In the State Register of Trademarks and Service Marks of the Russian Federation in the name of the Company is registered a trademark and are issued two Trademark Certificates on priority and exclusive rights with respect to the list of goods of the Company, grouped by classes in accordance with International Classification of Goods and Services (ICGS)

Certificate Number Priority Validity

108235 08.10.1991 08.10.2021

493622 22.02.2011 22.02.2021

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/Postal Address: 9 Pravda Str., 618541, Solikamsk, Permskiy Krai. RUSSIA Tel: +7(34253) 51171 Fax: +7(34253) 52375 E-mail: smw@smw.ru htpp:// www.smw.ru, www.смз.рф

Date of State Registration and Register Number: Order of Solikamsk City Administration № 919.1 of 10 Nov 1992

Key State registration number of juridical person (OGRN): 1025901972580 Date of registration: 10 September 2002

Taxpayer Identification Number (INN): 5919470019 Name of Issueing 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 other inorganic chemicals ОКВЭД 20.13 - Production of other non-ferrous metals ОКВЭД 24.45

- Casting of metals ОКВЭД 24.5

- Generation, transfer & distribution of steam and hot water; air conditioning ОКВЭД 35.30

- Exploration of gravel and sand pits, mining of clay and kaolin ОКВЭД 08.12

- Building & construction of residential and non-residential buildings ОКВЭД 41.20

- Activity of sports entities ОКВЭД 93.11 - Activity of medical entities ОКВЭД 86.10

- General medical practice ОКВЭД 86.21

- Professional education not included in other groups ОКВЭД 85.42.9 - Activity of canteens and buffets belonging to enterprises ОКВЭД 56.29.2

- Retail in non-stationary retail objects and market places ОКВЭД 47.8 - Wholesale trade of other food including fish, crustaceans & mollusks ОКВЭД 46.38 - Wholesale trade of homogenized food products, children's and dietary food ОКВЭД 46.38.21 - Retail of alcohol-free soft drinks in special shops ОКВЭД 47.25.2 - Other retail activity out of shops, shopping trays & market places ОКВЭД 47.9

The main activity in 2019: Production of other inorganic chemicals OKVED 20.13

Sources of information about the Company: Company’s newspaper “Magnievik”, city’s newspaper «Solikamskiy rabochiy», Company’s web-site http://www.smw.ru, www.смз.рф and web-page of Center of Corporate Information Disclosure ООО «Interfax - CRCI» http://www.e-disclosure.ru/portal/company.aspx?id=6100

Representative offices and affiliated branches: not available

Auditor of the Company

Name: Limited Liability Company “Invest-Audit” (LLC “Invest-Audit”) Location: 50 Lenina Str., Suite 94, 614099, Perm. RUSSIA INN: 5902119814 OGRN: 1025900528543 E-mail address: invest-audit.perm@gmail.com Auditor is a member of accredited professional union of auditors Self-Regulatory Organization of Auditors “Commonwealth” Association, ORNZ 12006074520.

6

Register-keeper of the Company

Name: Joint-Stock Company Registrator Intraco Location: ul. Lenina 64, Suite 209, 614990, Perm. RUSSIA Tel: +7(342) 233-01-63/233-01-64, fax: +7 (342) 236-08-44, http://www.intraco.ru License number: 057-14025-000001 of 24 December 2002 Issuing Agency: Federal Security Commission of Russia Validity: unlimited Registrator is a member of self-regulatory association Professional Association of Register-keepers, Transfer Agents and Depositaries (PARTAD). Performs function of Register-keeper of the Company since 23 December 1996

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 668, including 1 nominal shareholder. 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 2018: 1. Timur Vladimirovich Starostin – 25.0020% 2. Igor Leonidovich Pestrikov – 25.0000 % 3. Petr Ivanovich Kondrashev – 24.0002 % 4. Sergei Yurievich Kirpichev – 15.4533% Other shareholders – 10.5445 %

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 According to data provided by Public Joint-Stock Company Moscow Exchange MICEX-RTS (PAO Moscow Exchange), market capitalization of SMW on the last date of the reporting year (31 December 2019) accounted for 1’652’828’800.00 rubles. Ordinary shares of JSC SMW (trade index – MGNZ, international identification code (number) - RU0009100911) are included in the 3rd Level of Securities List permitted for trade in PAO Moscow Exchange. Location of exchange: 13 Bolshoi Kislovskiy pereulok, 125009, Moscow. RUSSIA. http://moex.com/ Information concerning market price of SMW’s shares and market capitalization of SMW on the basis of trading in the stock market of PAO Moscow Exchange, at the end of reporting period, is readily available under link: http://moex.com/a7150

Subsidiaries (Dependent Entities) of the Company

1. Limited Liability Company Solikamsk Desulfurizers Works (OOO SZD)

Location: 9 Pravda Street, 618541, Solikamsk, Permskiy Krai. RUSSIA. Web: www.szd.ru INN: 5919492823 OGRN: 1025901973459 The main activity: production of other non-ferrous metals (ОКVED 24.45) SMW’s share in Authorized Capital of the subsidiary,%: 50

2. Open Joint-Stock Company "The Russian Titanium & Magnesium Research, Development & Designing Institute” (JSC “Russian Titanium & Magnesium Institute”(RITM))

Location: 101 Lenina Avenue, 618421, Berezniki, Permskiy Krai. RUSSIA Web: www.oao-ritm.ru INN: 5911030023 OGRN: 1025901707237 The main activity: research and development works in the area of natural and technical science (ОКVED 72.19) SMW’s share in the authorized capital of subsidiary, %: 68 SMW’s share in total voting shares of subsidiary, %: 68

3. Limited Liability Company "Mart" (OOO Mart)

Location: 9 Pravda Street, 618541, Solikamsk, Permskiy Krai. RUSSIA INN: 5919491570 OGRN: 1025901972656 The main activity: production of lime products (ОКVED 23.52.1)

7

SMW’s share in subsidiary’s Authorized Capital%: 67.54%

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. Association of Energy Facilities of Western Urals - from 1997 6. Non-commercial Partnership Council of Managing Directors of Enterprises in Solikamsk City and Solikamsk District - from 2002 7. Non-commercial alliance Association of Enterprises of Chlorine Industry (Association RusChlor) - from 2006 8. Inter-state Association Titan, JSC - from 2008 9. Union Self-regulatory Organization Non-commercial Partnership Architectural & Designing Organizations of Permskiy Krai – Soyuz SRO APO - from 2009 10. Self-regulatory Organization Union of Builders ZapadUralStroy “Alliance of Builders”– SRO SS ZapadUralStroy - from 01 August 2017

PRIORITY ACTIVITIES OF THE COMPANY The Charter of the Company constitutes 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 the 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

GENERAL OVERVIEW Despite the deteriorating situation in markets of SMW products, as well as inflated prices and tariffs for the resources consumed by the Company, efforts to diversify markets and products, coupled with a weakening ruble against the US dollar and Euro, led to an increase in sales revenues and net profit of the Company in the reporting year. Sales revenues of the Company increased by +3.5% (+₽ 270.364 million), from ₽ 7'808.859 million in 2018 to ₽8'079.223 million in 2019. Sales income accounted for + ₽371.238 million in 2019 and net income totalled + ₽291.598 million compared to sales income + ₽609.797 million and net profit + ₽238.269 million in 2018.

SMW. Key Performance Indicators, ₽ million

2018 2019

SALES REVENUES, ₱ mln 7 808.859 8 079.223

Net income, ₱ mln 238.269 291.598

0.000300.000600.000900.000

1 200.0001 500.0001 800.0002 100.0002 400.0002 700.0003 000.0003 300.0003 600.0003 900.0004 200.0004 500.0004 800.0005 100.0005 400.0005 700.0006 000.0006 300.0006 600.0006 900.0007 200.0007 500.0007 800.0008 100.000

₽m

ln

8

SALES BY MARKET AREAS

Russian sales revenues totaled ₽5'522.846 million in 2019, this is a rise of +14.7% (+ ₽706.479 million) compared to ₽4'816.367 million in 2018. Share of the Russian market in total sales revenues increased from 61.7% to 68.4%.

Export sales revenues accounted for ₽2'556.377 million, this is a drop of -14.6% (- ₽ 436.115 million) compared to ₽2'992.492 million in 2018. This number in US dollar terms accounted for US$39.525 million representing a decline of -17.0% (-US$ 8.121 million) compared to US$47.646 million in 2018. Share of export in total sales revenues decreased from 38.3% to 31.6%.

SMW. Sales revenues by market areas, ₽ million

SALES BY OPERATIONS SMW. Sales revenues by operations, ₽ million

2018 2019

Export to Europe and other, ₽ mln 1'142.648 1'045.205

Export to Asia, ₽ mln '450.194 '449.769

Export to Americas, ₽ млн '664.480 '617.792

Export to EAEC, ₽ mln '735.170 '443.611

Russia, ₽ mln 4'816.367 5'522.846

TOTAL EXPORT, ₽ mln 2'992.492 2'556.377

TOTAL, ₽ mln 7'808.859 8'079.223

'0.000'500.000

1'000.0001'500.0002'000.0002'500.0003'000.0003'500.0004'000.0004'500.0005'000.0005'500.0006'000.0006'500.0007'000.0007'500.0008'000.0008'500.000

₽ m

ln

2018 2019

Chemical Operations, services & goods, ₱ mln

404.570 '416.637

Rare Metals Operations, ₱ mln 3'861.693 3'793.385

Magnesium Operatios, ₱ mln 3'542.596 3'869.201

TOTAL, ₱ mln 7'808.859 8'079.223

'0.000'500.000

1'000.0001'500.0002'000.0002'500.0003'000.0003'500.0004'000.0004'500.0005'000.0005'500.0006'000.0006'500.0007'000.0007'500.0008'000.0008'500.000

₽m

illi

on

9

Sales revenues of Magnesium Operations accounted for ₽ 3'869.201 million. This is a rise of +9.2%(+ ₽ 326.605 million) compared to ₽ 3'542.596 million in 2018. This growth was driven by product diversity and softening of ruble. Share of Magnesium Operations in total sales revenues of the Company increased from 45.9% in 2018 to 47.9% in 2019. Sales revenues of Magnesium Operations accounted for ₽ 3'793.385 million. This is a drop of -1.8% (- ₽ 68.308 million) compared to 3'861.693 million in 2018. Sales revenues were affected by price decline and customer refusal from tantalum products despite increased output and softened ruble. Share of Rare Metals in total sales revenues of the Company decreased from 49.5% in 2018 to 47.0% in 2019. Sales revenues of Chemical Operations, services and goods accounted for ₽ 416.637 million. This is a rise of + 3.0% (+ ₽ 12.067 млн) compared to ₽ 404.570 million in 2018. Share of these operations in total sales revenues - 5.2% - remained unchanged year-to-year.

MAGNESIUM OPERATIONS

SMW. Shipments of pure & alloy magnesium, mt

SMW. Shipments of pure & alloy magnesium by market areas, mt

2018 2019

Alloy magnesium 866 480

Pure magnesium 14 887 14 856

TOTAL 15 753 15 336

01 0002 0003 0004 0005 0006 0007 0008 0009 000

10 00011 00012 00013 00014 00015 00016 000

2018 2019

Export to Europe and others 161 273

Export to Asia 0 0

Export to Americas 1 733 2 418

Export EAEC 418 384

Russia 13 441 12 261

TOTAL EXPORT 2 312 3 075

TOTAL SHIPMENTS 15 753 15 336

01 0002 0003 0004 0005 0006 0007 0008 0009 000

10 00011 00012 00013 00014 00015 00016 000

10

The production of the magnesium metal is the starting point of the processes utilized by the Company. Chlorine generated in the production of this metal is the main reagent used to process loparite and other raw materials utilized by the Rare Metals Operations. While, the 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 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. Pure & alloy magnesium are the main products of Magnesium Operations. Other products of these operations include processed carnallite mainly used to produce salts for balneotherapy and other purposes, potash (>40% К2О) mainly used as the fertilizer or in solutions for oil drilling, fluxes (potash, carnallite, oxide and others) mainly used in the non-ferrous industry, and calcium hypochlorite solution used for disinfection of premises and paper bleach

SMW shipped to its customers 15’336 mt of pure & alloy magnesium in 2019. This is a drop of -2.6% (-417 mt) compared to 15’753 mt in 2018. Shipments to Russian customers declined by - 8.8% (-1’180 mt), from 13'441 mt in 2018 to 12'261 mt in 2019.. Export to EAEC countries accounted for 384 mt. This is a decline of -8.1% (-34 mt) compared to 418 mt in 2018. Export outside EAEC totaled 2'692 mt of pure & alloy magnesium. This is a climb by a factor of 1.42 times (+798 mt) compared to 1’894 mt in 2018.

RARE METALS OPERATIONS

Loparite is the main mineral processed in Rare Metals operations of the Company. This mineral 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. Certain other minerals containing titanium, niobium and tantalum could also be involved in processing at these Operations. As the result of raw materials processing, the following products are produced by Solikamsk in these operations: carbonate of rare earths; tantalum – niobium chemical concentrate, pentachlorides and pentoxides of niobium and tantalum; titanium sponge and titanium tetrachloride; calcium – strontium carbonate; anhydrous magnesium dichloride.

SMW. Raw materials processing in Rare Metals Operations, mt

SMW. Shipments of products of Rare Metals Operations by combined group, mt

2018 2019

Compounds of rare earths, mt TREO 2'595.7 2’619.9

Titanium products, mt Ti 1'991.5 1’945.8

Niobium compounds, mt Nb2O5 668.7 659.3

Tantalum compounds, mt Ta2O5 44.1 31.6

Calcium-strontium carbonate, mt 172.7 167.3

Compounds of Rare Earths

Carbonate of mixed rare earths 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 solvent extraction. Rare

2018 2019

Loparite (90%) 9 224 9 472

Rutile 137 34

0500

1 0001 5002 0002 5003 0003 5004 0004 5005 0005 5006 0006 5007 0007 5008 0008 5009 0009 500

11

earths extraction facilities are limited in Russia, that is that the vast majority of this product is exported. Carbonate of mixed rare earths was the only rare earths product manufactured by SMW in 2019 and 2018. In 2019, SMW shipped to its customers 2’619.9 mt TREO contained in rare earths compounds. This is a rise of +0.9% (+24.4 mt) compared to 2'595.7 mt in 2018. Shipments to Russia accounted for 50.0 mt TREO in 2019. This is an increase of +9.2% (+ 4.1 mt TREO) compared to 45.9 mt TREO in 2018. SMW shipped neither of rare earths to EAEC countries in 2019, while 0.5 mt TREO were shipped in 2018. Export outside EAEC accounted for 2’569.9 mt TREO in 2019. This is a growth of +20.6 mt TREO compared to 2'549.3 mt in 2018.

SMW. Shipments of rare earths compounds by market areas, mt TREO

Titanium Sponge & Tetrachloride

SMW. Shipments of titanium products by market areas, mt Ti

2018 2019

Export to Europe and others 2'105.8 2'076.4

Export to Asia '443.5 '493.5

Export to Americas '0.0 '0.0

Export to EAEC '0.5 '0.0

Russia '45.9 '50.0

EXPORT TOTAL 2'549.8 2'569.9

TOTAL SHIPMENTS 2'595.7 2'619.9

0.0100.0200.0300.0400.0500.0600.0700.0800.0900.0

1 000.01 100.01 200.01 300.01 400.01 500.01 600.01 700.01 800.01 900.02 000.02 100.02 200.02 300.02 400.02 500.02 600.02 700.0

2018 2019

Export to Europe and others 360.5 '162.0

Export to Asia 10.0 '0.0

Export to Americas 0.0 '0.0

Export to EAEC 1.5 '6.2

Russia 1619.5 1'777.6

TOTAL EXPORT 372.0 '168.2

TOTAL SHIPMENTS 1'991.5 1'945.8

0.0100.0200.0300.0400.0500.0600.0700.0800.0900.0

1000.01100.01200.01300.01400.01500.01600.01700.01800.01900.02000.0

12

SMW shipped 1'945.8 mt Ti in titanium products in 2019. This is a drop of -2.3% (-45.7 mt) compared to 1’991.5 mt Ti in 2018. Shipments of titanium sponge accounted for 1'906.4 mt, while 39.4 mt Ti were shipped in the form of titanium tetrachloride (156.0 mt physical weight). 1'777.5 mt Ti in titanium products were delivered to the Russian customers. This is a rise of + 9.8% (+158.1 mt Ti) compared to 1’619.5 mt Ti in 2018. Shipments to EAEC countries amounted to 6.2 mt of titanium sponge. This is a climb by a factor of 4.1 times (+4.7 mt) compared to 1.5 mt in 2018. Exports outside EAEC totaled 162.0 mt of titanium sponge. This is a drop by a factor of 2.3 times (-208.5 mt) compared to 370.5 mt in 2018.

SMW. Shipments of titanium products, mt Ti

Product 2018 2019

Titanium tetrachloride, mt Ti 51.5 39.4

Titanium sponge, mt 1’940.0 1906.4

TOTAL, mt Ti 1'991.5 1’945.8

Niobium Compounds

SMW. Shipment of niobium compounds by market areas, mt Nb2O5

Shipments of niobium compounds accounted for 659.3 mt Nb2O5 contained. This a drop of - 1.4% (-9.4 mt Nb2O5) compared to 668.7 mt Nb2O5 in 2018. Shipments of metallurgical grade niobium pentoxide amounted for 638.1 mt Nb2O5 and 21.2 mt Nb2O5 of high-purity grade compounds for production of carbide, optics and electronics. Shipments to Russia accounted for 603.1 mt Nb2O5. This is a climb of +38.4% (+167.3 mt Nb2O5) compared to 435.8 mt Nb2O5 in 2018. Exports to EAEC countries dropped to 0.05 mt Nb2O5 in 2019 from 14.5 mt Nb2O5 in 2018. Export outside EAEC totaled 56.2 mt Nb2O5 in 2019. This is a drop by a factor of 3.9 times (--162.3 mt Nb2O5) compared to 218.4 т Nb2O5 in 2018.

SMW. Shipments of niobium compounds by grades, mt Nb2O5

Grade 2018 2019

Niobium pentoxide metallurgical grade, mt Nb2O5 635.8 638.1

Niobium compounds high-purity grade, mt Nb2O5 32.9 21.2

TOTAL, mt Nb2O5 668.7 659.3

2018 2019

Export to Europe and others 28.0 18.2

Export to Asia 0.1 0.0

Export to Americas 190.3 38.0

Export to EAEC 14.5 0.1

Russia 435.8 603.1

TOTAL EXPORT 233.0 56.2

TOTAL SHIPMENTS 668.7 659.3

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

550.0

600.0

650.0

700.0

13

Tantalum Compounds

SMW. Shipments of tantalum compounds by market areas, mt Ta2O5

Shipments of tantalum compounds accounted for 31.6 mt Та2О5 contained. This is a drop of - 28.3% (-12.6 т Та2О5) compared to 44.1 mt Та2О5 in 2018. Shipments to Russian customers climbed by a factor of 2.49 times (+5.2 т Та2О5), from 3.5 т Та2О5 in 2018 to 8.7 mt Та2О5 in 2019 thank to start of metal production in Russia. Export to EAEC countries dropped by a factor of 2.47 times (-23.5 mt Та2О5), from 39.5 mt Та2О5 in 2018 to 16.0 mt Та2О5 in 2019. Export outside EAEC totaled 6.9 mt Та2О5. This is a jump by a factor of 6.9 times (+5.9 mt Та2О5) compared to 1.0 mt Та2О5 in 2018. Shipments of technical grade compounds for metal and carbide production accounted for 41.1 mt Та2О5, while shipments of high-purity grade compounds for optics and electronics totaled 1.3 mt Та2О5.

SMW. Shipments of tantalum compounds by grade, mt Та2O5

Grade 2018 2019

Tantalum compounds technical grade, mt Ta2O5 41.1 30.3

Tantalum compounds high-purity grade, mt Ta2O5 3.0 1.3

TOTAL, mt Ta2O5 44.1 31.6

CHEMICAL OPERATIONS, GOODS, WORKS & SERVICES

Share of Chemical Operations, goods, works & services in total sales revenues of the Company is low that is that these activities are not detailed therein.

USAGE OF ENERGY SOURCES

Electricity is the main energy resource utilized by the Company, and it is the main production factor in Magnesium Operations. Natural gas is directly used in the generation of heat, production of lime and cell feed preparation. Heavy oil (heating 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 2019, energy expenses increased by +9.9% year-to-year.

Other types of energy resources from the outside (including nuclear energy, thermal energy, electromagnetic energy, oil, coal, oil shale, peat, etc.) were not used by the Company.

2018 2019

Export to Europe and others 1.0 4.9

Export to Asia 0.0 0.0

Export to Americas 0.0 2.0

Export to EAEC 39.5 16.0

Russia 3.5 8.7

TOTAL EXPORT 40.5 22.9

TOTAL SHIPMENTS 44.1 31.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

14

Usage of Energy Sources in 2019

Name Unit Quantity Value, ‘000 rubles

Electricity МWh 470'639.09 1'543'155.02

Natural Gas ‘000 m3 62'470.99 274'060.05

Gasoline mt 88.61 4'332.48

Diesel mt 346.75 15'510.56

Heavy Oil mt 553.22 9'606.05

Coke mt 2'393.09 37'381.02

Total 1'884'045.18

TECHNICAL DEVELOPMENT In 2019, Solikamsk invested ₽196.658 million in renewing equipment, developing technology, and improving operational and works’ safety. This is a drop of -25.2% (- ₽ 66.217 million) compared to ₽ 262.875 million in 2018. A total of ₽79.676 million in 2019 were spent on the implementation of the Technical Development Plan, compared to ₽95.184 million in 2018, where R&D expenses accounted for 22.411 million and 20.461 million in 2019 and 2018, respectively. The following works and R&D were performed: in Magnesium Operations:

- in February 2019, a mixer for the production of synthetic carnallite with a capacity of 50 mt per day was put into operation. The output of synthetic carnallite totaled 5’833.8 mt, 10.552 mt of magnesium were recovered in 2019 - the improved BEN-PK-98 electrolytic cell with hollow cathodes and a small inter electrode distance was built and commissioned - works continued on the implementation of the project for gas-dynamic removal of sublimates from the main chlorine gas pipelines between Plants №1 and №4 - tests of the electrolytic cell BEN № 67 with mono-anodes were completed - works to design screening equipment to sieve grinded potash and potash flux in the grinding facility were continued. This equipment will allow to obtain a product of various grain sizes - at the loading site of potash and potash flux, a gantry crane is mounted and put into operations

in Rare Metals Operations:

- Plant №3 developed technology to produce low valence titanium chloride used to produce MG95

in the Chemical and auxiliary operations :

- capacity to pour liquid chlorine into tank-container and cisterns at chlorine warehouse was built and put into operations - in the ammonia refrigeration system, changes were made to the ammonia piping scheme with the installation of an additional oil separator - in the chlorine compressing facility of Plant № 4, chlorine filter № 5 and new intensified refrigerator for sulfuric acid to improve the performance of chlorine compressors were built and commissioned - design of improved calcium chloride pouring system was performed and brought for installation

in area of operational & industrial safety:

- the re-equipment of the ammonia refrigeration facility was continued to meet industrial safety requirements - reclamation of map B of the polygon for solid industrial waste was continued. In the IT-technology, design documentation has been developed aimed at increasing the reliability and security of information storage and processing.

INTEGRATED MANAGEMENT SYSTEM AND COMPLIANCE WITH INTERNATIONAL DUE DILIGENCE REQUIREMENTS FOR TANTALUM SUPPLY

CHAIN SMW developed and implemented Integrated Management System (IMS) conforming to ISO 9001 and ISO 14001 requirements, that, in 2011, was amended with requirements of OECD Due Diligence Guidance for Tantalum Supply Chain from Conflict – Affected and High-Risk Areas, 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 latest version of Quality Policy, Environmental Policy and Conflict Free Raw Materials Purchasing Policy of Solikamsk Magnesium Works OAO those are readily available under link http://www.смз.рф/index/en_information/0-104 . Inspection audit of IMS on compliance with ISO 9001:2015 and ISO 14001:2015 was performed by Certification Association Russian Register. IMS of the Company was found compliant to the requirements of these Standards and proper performance of IMS was confirmed. Analytical Laboratory of SMW was audited on compliance with ISO/MEC 17025:2005 and GOST ISO/MEC 17025:2009 requirements. The issued accreditation certificates confirm the technical competence in the declared areas of accreditation and the effectiveness of the activities.

15

During the proxy audit of the supply chain of tantalum raw materials, Responsible Mineral Initiative (RMI), a part of Responsible Business Alliance - RBA (formerly EICC), confirmed that the Company complied with the requirements of the OECD Due Diligence Guidance for Tantalum Supply Chain, and SMW continued to prepare the system for compliance with the new standard. All abovementioned certificates are readily available on the Company’s web under link: http://www.смз.рф/index/en_information/0-104.

Customers’ loyalty in 2018 and 2019

Customers’ satisfaction in 2018 and 2019

3.6

3.8

3.0

3.0

3.5

3.0

3.0

4.0

3.0

3.24.0

3.7

3.0

3.8

3.4

4.2

4.3

3.43.0

4.0

3.0

5.0

3.1

3.3

2.7

3.0

3.1

2.8

3.7

4.03.0

3.5

3.0

3.0

3.4

3.0

4.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Titanium sponge

Ca-Sr carbonate

Rare Earths Carbonate

Titanium tetrachloride

Niobium pentachloride

Niobium pentoxide metallurgical grade

Niobium pentachloride

Niobium pentachloride HP grade

Tantalum pentoxide HP grade

Tantalum pentoxide technical grade

Liquid Chlorine

Lime slurry

Lime

Calcium chloride solution (32%)

Calcium hypochlorite solution

Dehydrated carnallite

Granular potash

Potash, potash flux

Carnallite flux

Pure & alloy magnesium

2019 2018

8.9

8.7

0.0

9.0

0.0

0.0

8.59.0

9.00.0

0.0

0.0

8.1

8.3

7.1

7.9

'9.0

'8.5

'8.0

'8.6 '8.9

'8.8

'6.1

'9.0

'9.0

'8.9

'8.9

'8.9

'8.6

'8.5

'8.6

'7.8

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

Titanium sponge

Rare Earths Carbonate

Niobium pentachloride

Niobium pentoxide metallurgical…

Tantalum pentachloride

Tantalum pentoxide technical grade

Liquid Chlorine

Lime slurry

Lime

Calcium chloride solution (32%)

Calcium hypochlorite solution

Dehydrated carnallite

Granular potash

Potash, potash flux

Carnallite flux

Pure & Alloy magnesium

2019 2018

16

Since 2007, SMW surveys customers’ satisfaction and loyalty with respect to main products manufactured by the Company to improve IMS and products. 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 8.5 out of 9 (the lowest was 6.1), and customers’ loyalty was 3.4 out of 5 (lowest was 2.7) in 2019. These results mean that the Solikamsk products meet customers’ expectations and IMS is properly maintained by the Company. Customers on-site audited and certified production of titanium sponge, niobium pentoxide and pure magnesium. Proxy second-party audits were performed for production of pure & alloy magnesium, niobium pentoxide, titanium sponge, carnallite flux and potash. As the result of these on-site and proxy audits, SMW was included in the lists of approved suppliers of those products of these customers. Certification of pure magnesium for production of hafnium and zirconium is in progress.

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. An integrated systematic approach in the field of operational and industrial safety is performed in accordance with the Company’s Regulations The Managing System in 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 & Employees of the Company as well as in accordance with statutory requirements in the Russian Federation. SMW’s expenses to maintain abovementioned System accounted for ₽ 69.2 million including ₽49.9 million for personal protection and ₽19.3 million for safety techniques. These expenses do not include safety expenses specified for production processes (like ventilation and others) and compensation paid to personnel for unusual job conditions in accordance with Russian 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. Measures prescribed by Schedule for 2019 to maintain industrial & environmental safety have been completely

performed by SMW. SMW’s expenses to maintain this System accounted for ₽27.558 million in 2019. These expenses do not include environmental costs specified for the production processes. SMW continued commitment of its water protection obligations in compliance with terms & conditions of water use in the Schedule for 2017 – 2023. Total expenses to protect water objects exceeded ₽5.5 million in 2019. The following measures were performed under this Schedule: re-building and overhaul of local treatment facilities; cleaning and repair of wells of gravity rainy sewers, rainy drainage ditches, repair of the ends of the wells of rainy sewers; the maintenance and landscaping of a settling pond and a channel for transporting wastewater and adjacent roads; monitoring of conditions of water object (monitoring of morphometric features and other parameters of on-ground water objects); works to restore the capacity of the channel for wastewater. Consumption of river and artesian water accounted for 3’184’520 m3 and 1’423’700 m3 respectively in 2019. Total water consumption dropped by -1.7% year-to-year.

Use of recycled and secondary water totaled 8’201 thousand m3 in 2019. This is a rise of +7.2% year-to-year. Release of wastewater to settling pond, including waste water released by OOO Vodokanal, accounted for 9’547.8 thousand m3 in 2019.That contained 45.5 thousand mt of contaminants, which is -5.059 thousand mt less than that in 2018. SMW met its norms for contaminants in waste water. There were no accidental emissions of pollutants into the atmosphere. All premises (plant, sanatorium, polygon for solid waste) have appropriate permissions on air pollution. Air pollution accounted for 700.98 mt in 2019, this is a drop of -39.43 mt year-to-year. Expenses to protect air totaled ₽6.454 million in 2019. The main task of waste disposal is their further processing. Generation of wastes accounted for 13.6 thousand mt in 2019. This a rise of +1.1 thousand mt year-to-year. The vast majority of that was processed into saleable products. Disposal of other kinds of residues (ferrous and non-ferrous scrap collection, other residues) was continued in line with technical requirements. The Company has its own polygon for solid industrial waste registered under № 59-00034-Х-00479-010814 in the State Register. 4.191 thousand mt of residues were disposed at this polygon in 2019. Reclamation of map B of the polygon for solid industrial waste was continued, expenses accounted for ₽2.145 million.

17

SMW permanently monitors contamination of air, water objects and soil. This measuring helps to act effectively if pollution exceeds environmental norms. Part of measuring is performed by special outside entities. SMW paid to these contractual expenses for monitoring of environment accounted for ₽ 0.981 million in 2019. SMW has arranged production environmental control, based on which an analysis is made in the area of industrial safety and the prevention of environmental damage. The monitoring results are recorded on paper and/or magnetic media and are submitted to the authorized federal and regional environmental supervision bodies. SMW is a transparent company, participates in the Days of Environment Protection arranged by Solikamsk City Administration each year. Environmental activities of the Company are regularly disclosed to the public in the Company’s newsletter “Magnievik” and radio reports.

List of the Company’s Licenses and Permissions

Certain activities of SMW are subject to licensing. List of the Company’s licenses and permissions is provided in Annex №1 to this Annual Report.

SOCIAL ACTIVITIES Social activity of the Company is concentrated on improvement of the welfare and professional skill of employees; support to the Company’s veterans and pensioners; and support to culture, sports and education. These aspects of social activities of SMW are included into Collective Labor Agreement between the Company and Trade Union on behalf of employees of the Company.

Training and Improvement of Professional Skill of Employees

In 2019, 1’290 employees were trained by SMW that accounted for 46.3% of the average number of employees. 154 employees were trained and 1’134 employees were educated under programs of improvement of professional skill, 162 employees were awarded with higher skill rank, 277 specialists and managers were trained on compliance with the rules of RosTechNadzor. 24 students have a scholarship grants under contracts with the Company and should revert back to SMW after finishing the colleges. 38 employees study in universities and 58 employees study in colleges out of working hours, 198 students of universities and colleges were trained by the Company at its facilities. The Company has granted ₽ 0.369 million of loans to its employees to study in universities themselves or to fund their children’s studies in 2019. SMW’s expenses for training and improvement of professional skill of employees totaled ₽14.421 million in 2019.

Employment and Salaries

The Company, along with PSJC Uralkali and JSC 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. Nominal average monthly salary accounted for ₽37’100/month per employee in 2019. This a rise of +8.6% compared to ₽34’164/month per employee in 2018.

SMW. Number of employees and salaries

2018 2019

Non-industrial employees 104 104

Industrial employees 2 690 2 679

Total average number ofemployees

2 791 2 783

Average monthly salary, ₽/month/employee

34 164 37 100

02 0004 0006 0008 00010 00012 00014 00016 00018 00020 00022 00024 00026 00028 00030 00032 00034 00036 00038 000

0100200300400500600700800900

1 0001 1001 2001 3001 4001 5001 6001 7001 8001 9002 0002 1002 2002 3002 4002 5002 6002 7002 800

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18

Social Programs

Social expenses of the Company increased from ₽45.575 million in 2018 to ₽55.371 million in 2019. SMW has spent ₽31.248 million to support social infrastructure and ₽8.833 million to support veterans and finance other social programs. Payment of social bonuses to the Company’s employees and certain other personnel related expenses accounted for ₽15.451 million.

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

Note: Magnesium covered by this article is a primary magnesium metal. 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 in-site electrolysis of this magnesium dichloride.

End-uses

Magnesium is a silvery-white metal, 1.5 times lighter than aluminium. Being the lightest among structural metals, magnesium exhibits the best strength-to-weight ratio 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, 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, strontium and 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.

Magnesium Market Overview

In accordance with variety of sources, world magnesium output accounted for 940 thousand tones (hereinafter – kilotons or Kt) in 2019. This is a rise of + 9.8% (+ 93 Kt) compared to 847 kilotons in 2018. Based on this estimate, SMW’s share in global magnesium output accounted for 1.6% and ~65-70% of that in Russia and EAEC countries. After a significant decline in magnesium production in China in 2018, due to the introduction of new environmental requirements for the industry, and the sale of magnesium inventories by Chinese manufacturers, in 2019 there was a significant increase in production, which was greatly facilitated by government support, which resulted in a reduction in VAT and UST, easing lending terms and interest rates, emission of money as measures to support the Chinese economy in a trade war with the United States. Outside China, imposition of antidumping and countervailing duties on imports of magnesium from Israel by the U.S. Department of Commerce has caused significant magnesium price increase in the U.S. market. This price increase encouraged re-start of operation of magnesium plant in Turkey operation of which was suspended at the beginning of 2018. In January 2020, the U.S. International Trade Commission found ‘no injury’ from imports of magnesium for the U.S. magnesium industry, and antidumping and countervailing duty order with respect to magnesium from Israel enforced in 2019, was terminated by this the U.S. ITC decision. Remarkable growth of the world primary magnesium output was accompanied by a different directions in production of magnesium consuming industries. Auto and aluminium industries faced a decline in production, while production in steel and titanium industries experienced a growth, however chronic overproduction of magnesium in China and declining prices were observed during the whole reporting year.

19

Asianmetal*, USGS**, SMW***. World Primary Magnesium Output, ‘000 mt per year

Primary Magnesium Market Outlook

World Primary Magnesium Market Outlook, ‘000 tpy

The combined average annual growth rate (CAGR) of magnesium market is projected at a rate of + 5.4% for the

period 2020 – 2029 (https://roskill.com/market-report/magnesium-metal/).

Key driver is the growth of consumption of aluminium mill products and magnesium alloy parts in transport industries.

2018 2019

UKTMP, Kazakhstan *** 1 2

Royal Metal Ingot Co, Iran *** 5 5

ESAN, Turkey ** 4 5

VSMPO-AVISMA, Russia *** 7 6

SMW, Russia *** 16 15

Rima Industrial,Brazil ** 15 15

Dead Sea Magnesium, Israel ** 21 20

US Magnesium, USA **,*** 63 63

China >50 plants* 715 809

TOTAL 847 940

Share of SMW,% 1.9% 1.6%

0.0%0.1%0.2%0.3%0.4%0.5%0.6%0.7%0.8%0.9%1.0%1.1%1.2%1.3%1.4%1.5%1.6%1.7%1.8%1.9%2.0%

050

100150200250300350400450500550600650700750800850900950

1000

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of

SM

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Ou

tpu

t, '0

00

tp

y

2017 2018 2019 2020 2029

000 tpy 989 847 940 990 1590

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

20

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), in industrial and commercial practices, is applied to 15 elements with numbers of 57-60, 62-71 (Lantanides) and 39 (Yttrium) in Periodic Table. Pm (61) is also a rare earth, but it is synthetic element. 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 end-uses of rare earths by element: Cerium (Се) - catalyst in emission combustion systems, polishing powders, modifier for nodular iron production, decolorizer and ultraviolet absorption additives for glass, flints, creep resistant aluminium and magnesium alloys for elevated temperature applications. 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, creep resistant magnesium alloys for elevated temperature applications. Praseodymium (Pr) – electronic and traditional ceramics, glass and enamels, high strength permanent magnets, creep resistant magnesium alloys for elevated temperature applications. Neodymium (Nd) – high strength permanent magnets, ceramic capacitors and other components of electronics, creep resistant magnesium alloys for elevated temperature applications, energy saving lamps, lasers, color enamels, lasers, catalysts for polymerization. Samarium (Sm) – permanent magnets, microwave filters, lasers, nuclear applications. Europium (Eu) - phosphors, LCD/LED, energy-saving lights, neutron absorption. Gadolinium (Gd) - phosphors, permanent magnets, refrigerators, medical devices, creep resistant magnesium alloys for elevated temperature applications, microwave ovens, superconductors. Yttrium (Y) - phosphors, ceramics, color glass, aluminium and magnesium alloys for elevated temperature applications. Terbium (Tb) – permanent magnets, phosphors. Dysprosium (Dy) – permanent magnets, phosphors, ceramics, nuclear applications. Holmium (Но) – permanent magnets, ceramics, lasers, nuclear applications. Erbium (Er) – ceramics, glass color, infra-red absorption glass, fiber optics, lasers, medicine and nuclear applications. Ytterbium (Yb) – metallurgical and chemical research. Lutetium (Lu) – single crystal scintillators. Thulium (Tm) – magnetic resonance imaging, phosphors

REE substitutes are available in a variety of applications, but, normally, they are less effective.

Rare Earths Market Overview SMW, Lynas, Asianmetal, IMCOA. World Primary Rare Earths Output, ‘000 mt TREO

2018 2019

Others 2 2

CBMM, Brazil 1 1

TREI,India 3 4

Lynas, Malaysia 18 20

SMW, Russia 3 3

China 174 208

TOTAL 201 238

Share of SMW, % 1.3% 1.3%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1.3%

1.4%

1.5%

1.6%

0102030405060708090

100110120130140150160170180190200210220230240

Sh

are

of

SM

W,%

Ou

tpu

t, '0

00

mt

TR

EO

21

According to different sources (Asianmetal, company’s report), estimated world REEs output totaled 238 Kt TREO in 2019. This is a rise of +18.4% (+37 Kt TREO) compared to 201 Kt TREO in 2018. In accordance with this estimate, Solikamsk’s share in the global market of primary rare earths is estimated 1.3% and more than 90% of that in Russia and EAEC. Estimated REEs output in China accounted for 208 kilotons TREO in 2019. This is a rise of +19.5% (+34 Kt TREO) compared to 174 Kt TREO in 2018. It is observed remarkable growth of REE concentrates imports to China. Output outside China is estimated at 30 kilotons TREO in 2018. This is a rise of +11.1% (+3 kilotons TREO) compared to 27 kilotons TREO in 2018 due to increased output at Lynas LAMP facility in Malaysia and IREL-TREI in India and others.

Rare Earths Market Outlook

CAGR of rare earths market is projected at +7.5% for period 2020-2025 driven by alternative types of energy generation and transport https://www.mordorintelligence.com/industry-reports/rare-earth-elements-market

IMCOA. World Rare Earths Market Outlook, ‘000 tpy TREO

Position in the Titanium Industry

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. Substitutes: Few materials possess titanium metal’s strength-to-weight ratio and corrosion resistance. In high strength applications, titanium competes with aluminum alloys, composites, intermetallics, specialty steels, and superalloys. Cu-Ni alloys, specialty steels, and Zr alloys may be substituted for titanium for applications that require corrosion resistance.

Titanium Sponge Market Overview

According to different sources, world titanium sponge output accounted for 231 kilotons in 2019. This is a rise of + 16.1% (+32 kilotons) compared to 199 kilotons in 2018. Based on this estimate, SMW’s share in the global output accounted for 0.9%, 4.3% in Russia and 2.8% in EAEC countries.

According to reports at conferences of the International Titanium Association (ITA) in Europe and the USA in 2019, there was a significant decrease in inventories and an increase in consumption of titanium sponge, which triggered an increase in titanium sponge output, both through higher operating rate of available titanium sponge capacities and through the launch of the a new titanium sponge plant in Saudi Arabia, AMIC, Japan-US-Saudi joint venture, with a capacity of 15 thousand tons of titanium sponge per year

2017 2018e 2019e 2020f 2026f

000 tpy TREO 168 180 190 200 260

0102030405060708090

100110120130140150160170180190200210220230240250260

22

Asianmetal*, ITA**, SMW***. World Titanium Sponge Output, ‘000 mt

Titanium Sponge Market Outlook

World Titanium Sponge Market Outlook, ‘000 tpy

According to reports at conferences of ITA and other sources, CAGR of titanium sponge is projected at +3.6% https://custom.cvent.com/C2795141339A407CA590D38C49421294/files/511b70ac8fcb45a095b5652f6685e5f8.pdf

Position in the Niobium Industry

Note: All data in this sub-section is recalculated into niobium pentoxide (Nb2O5) content independently on actual form at which pure niobium is produced or consumed unless otherwise stated.

2018 2019

AMIC, Saudi Arabia** 0 2

TIMET, USA** 10 11

ZTMP, Ukraine** 7 8

UKTMP, Kazakhstan** 16 23

SMW, Russia*** 2 2

VSMPO-AVISMA, Russia*** 42 44

Japan ** 52 55

China * 70 86

TOTAL 199 231

Share of SMW, % 1.0% 0.9%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

0102030405060708090

100110120130140150160170180190200210220230240

Sh

are

of

SM

W,

%

Ou

tpu

t, '0

00

mt

2017 2018 2019 2020 2023 2026

000 tpy 195 210 221 231 251 271

0102030405060708090

100110120130140150160170180190200210220230240250260270280

23

End-uses

The market of niobium (Nb) is divided into two main markets, which are little dependent on each other: 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, which includes metal and alloys with niobium, niobium compounds, 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 medical equipment (MRI and other), high resolution audio and video devices, fiber optics, lasers; substance of catalyst for the decomposition of water by sunlight to produce hydrogen - lenses for digital, video and still cameras; eye-glasses; coating of computer screens; niobium oxide capacitors - substance of catalyst for palm oil decomposition to produce bio-fuel ; - high speed hard alloy cutting tools; - scintillators; - additive in Li-ion batteries in the form of niobium-titanium oxide to accelerate charging, increase the power of the batteries and the range of the electric vehicle (2) in the form of metal: - vacuum grade NiNb and FeNb used to produce super alloys for jet engines and gas fueled turbines; - superconductor alloys used to produce medical equipment (MRI and other) based on magnetic resonance, magnetic levitation transport systems, sub-atomic and other physical science like Large Hadron Collider; - Al-Nb-B modifier used to improve technical parameters of aluminium alloys for production of wheels and engine blocks - mill and wrought pure & alloy niobium products for chemical processing equipment; sputtering targets; corrosion protection systems for large structures; devices for cinematography; niobium capacitors

The following materials can be substituted for pure niobium, but a performance loss or higher cost may ensue: ceramic matrix composites, molybdenum, tantalum, titanium and tungsten in high-temperature (superalloy) applications; tantalum, lanthanum, hafnium, plastics, electronic ceramics, quartz in optics and electronics; tantalum, tungsten, titanium, silicon in hard alloys and molybdenum in catalysts.

Pure Niobium Market Overview TIC, SMW. World Pure Niobium Shipments, mt Nb2O5

According to TIC, pure niobium shipments accounted for 9’064 mt Nb2O5 in 2019. This is a drop of -4.1%(-378 mt Nb2O5) compared to 9’451 mt Nb2O5 in 2018. Based on this data, Solikamsk share is estimated at 7.3% in global pure niobium market supply and estimated 100% of niobium oxide output in Russia. Companies and countries producing pure niobium and niobium concentrates prefer to keep their production data confidential. The main suppliers to the metallic pure niobium market are CBMM (Brazil), SMW, Chinese producers, Hermann C. Starck (Germany), AMG (Brazil), NPM Silmet (Estonia), АО Ulba Metallurgical Plant (Kazakhstan). The main suppliers to the market of high purity grade products are Hermann C. Starck (Germany), Chinese producers, СВММ (Brazil), Mitsui Mining & Smelting (Japan), GAM (Australia-USA) and SMW.

2018 2019

TOTAL, mt Nb2O5 9 451 9 064

including SMW, mt Nb2O5 669 659

Share of SMW,% 7.1% 7.3%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%8.5%9.0%

0500

1 0001 5002 0002 5003 0003 5004 0004 5005 0005 5006 0006 5007 0007 5008 0008 5009 0009 500

Sh

are

of

SM

W,%

Pu

re n

iob

ium

sh

ipm

ents

, mt

Nb

2O

5

24

Pure Niobium Market Outlook

CAGR of pure niobium market is projected at +5.9% during period from 2019 to 2024

(https://www.mordorintelligence.com/industry-reports/global-niobium-market-industry). Aerospace, gas energy,

physical science and new types of Li – ion batteries will be key market drivers. https://roskill.com/news/niobium-

brazils-cbmm-is-betting-on-ev-batteries-for-future-niobium-usage-growth/

World Pure Niobium Market Outlook, mt Nb2O5

Position in the Tantalum Industry

Note: All data in this sub-section is recalculated into tantalum pentoxide (Ta2O5) content independently on actual form in which tantalum is produced or consumed unless otherwise stated.

End-uses Tantalum market could be sub-divided by the two main sections:

(1) Market of tantalum compounds used to produce: - lithium tantalate which is the base of surface acoustic wave filters used to produce medical equipment (MRI and other); high precision audio and video devices; fiber optics; lasers; substance of catalyst for the decomposition of water by sunlight to produce hydrogen - optics for digital and still cameras, spectacles; X-ray films; ink jet printers; - high-speed plates for carbide tools and tips of drilling rigs; - scintillators;

(2) Market of tantalum metal used to produce: - capacitor grade powder for electronic and electric devices; - jet turbines and rocket nozzles; - alloys with shape memory for hard drives; - 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, auto management modules; 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 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.

2017 2018 2019 2024

tpy Nb2O5 7 701 9 451 9 064 13 331

0500

1 0001 5002 0002 5003 0003 5004 0004 5005 0005 5006 0006 5007 0007 5008 0008 5009 0009 500

10 00010 50011 00011 50012 00012 50013 00013 500

25

Tantalum Market Overview According to TIC, world tantalum processors shipments totaled 2’277 mt Та2О5 in 2019. This is a drop of -16.9% (-462 mt Та2О5) compared to 2’739 mt Та2О5 in 2018. According to data expressed above, share of Solikamsk in global tantalum processors shipments accounted for 1.4% and 100% of tantalum oxide output in Russia. Companies producing tantalum prefer to keep their production data and capacities confidential. Suppliers to metal market are Hermann C. Starck (Germany), GAM (Australia-USA), Chinese processors, Mitsui Mining & Smelting (Japan), AMG (Brazil), NPM Silmet (Estonia), SMW. 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 SMW.

TIC, SMW. World Tantalum Shipments, mt Та2О5

Tantalum Market Outlook

CAGR of tantalum market is projected at +4-+5% during 2019- 2028 (https://roskill.com/market-

report/tantalum/). IT-sector and aerospace will be the key market drivers. World Tantalum Market Outlook, mt Та2О5

Position in the Chemical Industry, Markets of Goods and Services

Position in the market of products of Chemical operations, goods and services is not observed in this Report due to small share of these operations in the Company’s sales revenues.

2018 2019

TOTAL, mt Ta2O5 2 739 2 277

including SMW, mt Ta2O5 44 32

Share of SMW, % 1.6% 1.4%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2 200

2 400

2 600

2 800

3 000

Sh

are

of

SM

W,

%

Ta

nta

lum

sh

ipm

en

ts, m

tT

a2

O5

2017 2018 2019 2023 2028

tpy Ta2O5 2 943 2 739 2 277 3 350 4 070

0200400600800

1 0001 2001 4001 6001 8002 0002 2002 4002 6002 8003 0003 2003 4003 6003 8004 000

26

PROSPECTS OF THE COMPANY Further development of the Company is scheduled in the following directions:

Development and implementation of new technologies: - re-equipment of cast house in the Plant №1 (Magnesium Operations) - re-equipment of grinding facility for potash and potash flux in the Plant №1

- re-equipment of analytical laboratory in in the Plant №1 - monitoring of performance of modernized magnesium electrolytic cell BEN-98 PK during the first year in operation - completion of system for gas-dynamic removal of sublimates from the main chlorine gas pipeline between

Plants №1 and №4 - development of the project Re-equipment of ammonia refrigeration system

- re-equipment of chlorine compressing system in the Plant №4 - commissioning of an air separation plant using the Vacuum Swing Adsorption - commissioning of gas boiler in the sanatorium

Modernization of equipment:

- completion of store place for potash and potash flux in the Plant №1 - modernization of chlorine filter №4

- reconstruction of an overpass for pouring of calcium chloride in the Plant №4 - modernization of titanium tetrachloride pipeline in the Plant №7 - modernization of lime slurry milk pipeline in the Plant №7 - modernization of system for removal of gases from titanium tetrachloride in the Plant №9 - modernization of equipment in the Plant №18 (silicon electricity converter, electricity transformers for carnallite chlorinators, 6-10 kV electricity converters)

Operational safety, environment and industrial safety:

- installation of an automatic fire alarm, warning and evacuation system in case of fire (design and completion) - design and completion of air pollution control system for the content of carbon monoxide and methane in steam and hot water boilers

- reclamation of field B at the polygon for disposal of solid waste

Protection of priority in R&Ds – patenting

Certification – inspection audit under requirements of ISO 9001:2015 and ISO 14001:2015. Confirmation of the competence of the Central Analytical Laboratory and its compliance with the requirements of ISO / IEC 17025 in the declared area of accreditation, widening the scope of accreditation. Assessment of Due Diligence in Purchase of Tantalum Minerals.

THE MAIN RISK FACTORS CONNECTED WITH THE COMPANY’S ACTIVITIES

Risk Management Policy of the Joint Stock Company Solikamsk Magnesium Works

The process of continuous management of internal risks at the JSC SMW is based on a set of protective measures to prevent factors and minimize the main risks associated with the activities of the Company - disclosure of information about the Company in accordance with the Russian legislation and regulatory requirements of the Bank of Russia; technical, operational environmental (staff compliance with technological requirements, regulations, job and work instructions, readiness for emergency situations and response to them, including personnel actions when fulfilling emergency response plans drawn up in the Plants № 1,4,7,9,20 of the Company), improvement of the organization of production, implementation of production, radiation and environmental control by the controlling services of the Company and heads of departments at each level of each division, annual insurance of property interests and civil liability and the Company in case of emergency. Information on the types of risk, their consequences, methods and capabilities for risk management, their assessment, as well as requirements for planning actions to respond to risks and opportunities in order to ensure compliance with MC ISO 9001 for QMS and MC ISO 14001 for EMS of the Company are established in the Methodological Instruction MI OUSK 6.1-01-2017 Planning with Risk Assessment and Opportunity of the Department for Management of Quality System

Technical and Operational Risks

Technical and operational risks are caused by the level of development of production. The Company's policy in managing such risks consists of improving processes and stricter control in production, conducting preventive measures, forecasting, applying various types of insurance of property interests and civil liability of the Company in the event of emergencies.

Production and Environmental Control

27

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, the Company implemented set of preventive (prophylactic) measures in the following areas:

- systematic training of employees and representatives of contractors to form and conduct safe behavior, examination of their knowledge before providing an admission to perform their jobs; - supervision in the form of telic, regular, spontaneous and detailed inspections with involvement of employees of Department of Vice-Chief Engineer for Work’s, Environmental and Industrial 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 on sites, 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 Team with use of technics in the accredited SMW’s Laboratory of Radiation Control (LRC). It is performed under Program of Radiation Control in Loparite Concentrate Processing approved by RosPotrebNadzor. LRC performs control of radiation on surfaces (surfaces of production equipment, skin, workwear, devices for individual protection, transport), in the sanitary-protective zone, in the 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 Sanitary – Production Laboratory; - performing of maintenance and capital repair of tools; timely revision, repair and replacement of equipment and means of transport; - implementation of environmental measures and special Programs for protection of water basin, atmosphere, 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; - performance of environmental control over production aiming compliance with limits of pollution, limits for use of natural resources and requirements to quality conditions of environment in areas affected by the Company’s activities; - conducting of trainings for alarm cases, training sessions and exercises aiming coherent interaction of plant’s personnel and specialized outside emergency services; - avoidance of pollution is the preventive approach when making decision for design/engineering, reconstruction, organization of new production facilities; - timely renewal, prolongation obtaining of new licenses and permissions for certain types of construction works that may affect safety of objects under construction; - providing free therapeutic and preventive nutrition, 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 and/or harmful/dangerous works, fluorographic examination of all employees (according to approved schedule), conducting of the annual preventive medical examinations of women; - providing affordable health care procedures in the Company’s medical center and/or sanatorium.

SMW’s Policy in Industrial Safety is readily available on the official web of the Company under link

http://смз.рф/en/manag_system/The_Policy_Of_Industrial_Safety_Of_Solikamsk_Magne.pdf. In this Policy are

disclosed goals and obligations assumed by the top management of the Company to minimize risks of accident in the production facilities and principles to manage industrial safety. The control of the SMW's operational and environmental activities is performed by Federal executive authorities in the form of scheduled and accidental inspections.

Insuarance 1. In order to protect its property interests and risks of transportation, SMW insures transportation of goods with the JSC "Insurance Company of Gas Industry", Perm Division 2. 20 dangerous objects are insured under terms & conditions of Mandatory Insurance of Civil Liability of Owner of Dangerous Facility in the case of injury as the result of accident. (Insurer: PJSC Insurance Joint-Stock Company ENERGOGARANT) 3. Contract for Insurance of Civil Liability of Entity Exploiting Atomic Energy covering compensation of loss and harm for third party caused by radiation or other harmful exposure is concluded with respect to 6 objects of the Company (Insurer: PJSC Insurance Joint-Stock Company ENERGOGARANT)

28

4. Employees of the Company’s Gas Rescue Team are insured under terms & conditions of Contract for Voluntary Insurance in the case of accidents during performance of their duties which provides insurance of property interests connected with life, health and workability of these employees. (Insurer: PJSC Insurance Joint-Stock Company ENERGOGARANT). 5. In accordance with Insurance Policy under terms & conditions for Mandatory Insurance of Civil Liability of Owner of Transport Vehicles (OSAGO), the Company insures risk of liability for harm to life, health and/or injury to property of persons affected by road accidents. 6. In accordance with Contract for Voluntary Medical Insurance for the Company’s employees, access to payable medical services in the case of acute illness or exacerbation of chronic illness under terms & conditions of Voluntary Medical Insurance Programs for providing outpatient care and inpatient care in case of emergency hospitalization is arranged.

Risks Associated with Lawsuits

SMW is not involved as the Defendant in lawsuits, as well as in appeal for initiation of lawsuits that may endanger the existence of the Company.

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. 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 either third party.

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 significant loss of profitability.

CORPORATE GOVERNANCE 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 of 21 June 2019 adopted the Annual Report of the Company for 2018, the annual accounting (financial) statements for 2018, new version of Statute of the Board of Directors of the Company, and the decision to pay dividends for 2018 in the amount of 150.00 rubles per ordinary share allocating 59’740’800.00 rubles for that (25.07% of the net profit); gave the permission to conclude interested-party transactions; elected members of the Board, members of the Internal Audit Commission, and the Auditor of the Company.

Duties and Activity of the Board in the Reporting Period

The rights and duties of the Board members are defined in the Statute of the Board of Directors of the Company (hereinafter - Statute) approved by the Annual GAS of 28 June 2016, and in the Statute of the Board of Directors of a new version approved by the Annual GAS of 21 June 2019, the both versions the Statute are readily available on the corporate website of the Company (http://смз.рф/raport/2016/polozhenie_o_sovete_direktorov_oao_smz-v_novoj_red.pdf; http:// смз.рф/raport/polozh/26062019_polozhenie_o_sd-2.pdf) and on the web of information agency OOO Interfax-CRKI (https://www.e-disclosure.ru/portal/files.aspx?id=6100&type=1). In accordance with this Statute, the Board develops and regulates implementation of the Company's development strategy, controls the activities of the Company's executive body and performs general management of the Company except certain issues assigned to the competence of the GAS and certain controlling functions assigned to the competence of Internal Audit Commission by the Charter of the Company and by legislation The Chairman of the Board initiated 6 Meetings of the Board during the reporting year, which were convened and held under rules of the Statute. 3 Board Meetings were held in the form of proxy votes, while 3 Board Meetings were held in-person where participated 8 or 9 members of the Board. In the case of inability to participate in-person, Board members voted by mailing their written opinions. Thus, in accordance with article 24 of section 7 of the Statute, all meetings of the Board were competent. In accordance with Article 65 of Federal Law Joint-Stock Companies № 208-FZ of 26 December 1995, and Article 11 of SMW’s Charter and provisions of the SMW’s Statute, the following issues, assigned to the Board competence, were discussed and voted:

29

- discussion of candidates to the Board and Internal Audit Commission and selection of nominees to the list for votes at GAS - approval of the Company’s representatives to the managing and controlling bodies of subsidiaries/depending entities where SMW is a shareholder/co-owner - approval (or dismissal) of persons on the positions of directors (deputies and/or assistants of General Director), Chief Accountant and/or other positions assigned to the competence of the Board - discussion of the draft Report оn Financial Results and approval of results (budget execution) of the Company performance in 2018; - approval of budgets of the Company for 2019; - approval of General Director; - procedure for convening the Annual GAS - recommendations to the Annual GAS concerning sharing the profit for 2018, the amount and procedure for paying dividends - recommendations to the Annual GAS concerning approval of the Auditor of the Company for 2019 - recommendations to the Annual GAS concerning approval the new version of The Statute of the Board of Directors - discussion the Agenda of the General Assembly of Shareholders (GAS) and making decisions on the approval of the forms and text of ballots; drafting the decisions on the issues involved into the Agenda; approval of the notice concerning GAS convocation and information submitted to shareholders for preliminary familiarization with the materials in preparation for the GAS - provisional approval of Annual Report and financial statements for 2018 - approval of interested-party transactions - election of Chairman and Deputy Chairman of the Board, Corporate Secretary - approval of fees to Auditor - performance (budget execution) of the Company in the 1st quarter, 1st half and 9 months of 2019.

In the coming years, the Board will continue improvement of its corporate governance in accordance with recommendations of Russian Code of Corporate Governance, improvement of corporate profitability, sustainability, reliability and competitiveness of the Company in the main markets.

Dividends Statement

On 21 June 2019, General Assembly of Shareholders approved dividends for results of 2018 at rate of 150 (one hundred fifty) rubles 00 kopecks per 1 (one) ordinary share, total value of dividends transmitted to shareholders was 59’740’800.00 rubles. Date on which list of persons entitled to receive dividends was determined: 02 July 2019. Total value of dividends received by shareholders accounted for 56’878’582.00 rubles to the deadline date for the payment of dividends (no later than 16 July 2019 to the nominal shareholder and no later than 06 August 2019 to other shareholders in the Register). Remaining amount was reverted back to SMW due to incorrect data in the Company’s Register with respect to address and banking account of shareholders entitled to receive dividends.

List of the Company’s Deals That May Be Referred to as the Large Deals in Accordance with Federal Law Joint-Stock Companies

Neither deal or (trans)action, that fall under criteria ‘large’ in accordance with the Federal Law Joint Stock Companies were concluded by the Company in 2019.

List of the Company’s Deals That May be Referred to as the Interested-Party Transactions in Accordance with Federal Law Joint-Stock Companies

Information concerning interested-party deals or (trans)actions concluded by the Company during the reporting year is readily available on the Company’s web under link http://www.смз.рф/index/godovye_otchety/0-11 (available in Russian only) Identification of document: report is placed in the section of SMW web «Акционерам», sub-section « Годовые отчеты », name of document: «Отчет о совершенных году сделках с заинтересованностью», 2019. Placed on the web on 15 May 2020.

The Board of Directors of the Company

In accordance with decision of General Assembly of Shareholders of 21 June 2019, the following persons were elected to the Board:

Dr. Pavel G. Detkov

Independent Member of the Board Chairman of the Board Year of birth: 1960 Education: M.V. Lomonosov’s Moscow Institute of Fine Chemical Technology, specialty Chemical Technology of Rare & Trace Elements, in 1984, post-graduate school in 1987 with Doctor Degree in Technical Science. Russian

30

Academy of External Trade, specialty International Economic Relations (World Economy), qualification Economist with knowledge of foreign language, in 1995. Job: Director of Polyfer Handels GmbH (Wien, Austria) from 2008 Member of the Board from 12 May 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 Year of birth: 1956 Education: Perm Polytechnic Institute, specialty Technology & Complex Mechanization of Underground Mining of Mineral Deposits, qualification Mining Engineer, in 1978 Job: Member of the Boards of JSC SMW, OOO Lovozerskiy GOK and OOO SZD Member of the Board since 12 May 2014, member of Board from 2005 to 2011 % in the Authorized Capital of SMW: 0.001 % in Voting Shares of SMW: 0.001

Alexei E. Butenko

Member of the Board Year of birth: 1969 Education: Perm Polytechnic Institute, specialty Electric Transmissions & Automation of Industrial Machines and Technological Complexes, qualification Engineer in Electricity, in 1992. Perm State Technical University, specialty Economics & Management of the Company, qualification Engineer, in 1997. Job: General Director of OOO Mineral Group First elected to the Board at the Extraordinary General Assembly of Shareholders on 25 March 2016 % in the Authorized Capital of SMW: 0 % in Voting Shares of SMW: 0

Dmitriy L. Kargapol’tsev

Independent Member of the Board Year of birth: 1973

Education: Viatka State Agricultural Academy, specialty Economics & Management in Agriculture, qualification Economist in Production, Accounting & Finance, in 1996. Perm State University, specialty Jurisprudence, qualification Lawyer, in 2002. Job: Director of OOO Inform-NalogConsulting First elected to the Board by GAS on 21 June 2019 % in the Authorized Capital of SMW: 0 % in Voting Shares of SMW: 0

Alexander N. Lemiagov

Independent Member of the Board Year of birth: 1964 Education: Juridical Institute of Soviet Union, specialty Jurisprudence, qualification Lawyer, in 1989. Job: Deputy General Director of OOO Juridical Firm Aisenman & Partners First elected to the Board by GAS on 23 June 2017 % in the Authorized Capital of SMW: 0 % in Voting Shares of SMW: 0

Dr. Dmitriy L. Melnikov

Member of the Board Year of birth: 1961 Education: M.V. Lomonosov’s Moscow Institute of Fine Chemical Technology, specialty Chemical Technology of Rare & Trace Elements, in 1984, post-graduate school in 1987 with Doctor Degree in Technical Science. Job: General Director of JSC SMW Member of the Board since 05 June 2015, first elected to the Board by GAS on 09 June 2009 % in the Authorized Capital of SMW: 0.0005 % in Voting Shares of SMW: 0.0005

Artem M. Nechaev

Member of the Board Year of birth: 1976

31

Education: Perm State University, specialty Jurisprudence, in 1998. Perm State University, specialty Management, in 2012. Job: Head of State Budget Enterprise ‘Center for Development of Information in the Perm Region’ First elected to the Board by GAS on 05 June 2015 % in the Authorized Capital of SMW: 0 % in Voting Shares of SMW: 0

Yuriy A. Savin

Independent Member of the Board Year of birth: 1968 Education: Sergo Orjonikidze’s Moscow Aircraft Institute, specialty Radio Engineer, qualification Engineering in Radio, in 1991. Interdisciplinary Institute for Skills Improvement & Training of Leading Managers, division of G.V. Plekhanov’s Russian Economic Academy, specialty Banking & Finance, 1996. Job: General Director of OOO Stroylux. General Director of AO SUFLEX. President of Fund for Business Support. First elected to the Board by GAS on 23 June 2017 % in the Authorized Capital of SMW: 0 % in Voting Shares of SMW: 0

Timur V. Starostin

Member of the Board Year of birth: 1975 Education: Perm State University, qualification: Lawyer, specialty Jurisprudence, in 1999 Job: Advisor of General Director of OOO Mineral Group. Vice-Director OOO Capital Invest Centre Member of SMW’s Board from 25 March 2016 and was a member of the Boards in 2004-2010 % in the Authorized Capital of SMW: 25.0020 % in Voting Shares of SMW: 25.0020

During 2019, before election in June 2019 by General Assembly of Shareholders, the following persons were being the Board Members:

1. Dr. Pavel G. Detkov

2. Tatiana R. Aflatonova Independent Member of the Board Year of birth: 1964 Education: Perm State University (‘Order of Red Banner of Labor’ award), specialty Accounting & Analysis of Operational Activity, qualification Economist, in 1985 Job: Information concerning recent job is not available. First elected to the Board at the Extraordinary General Assembly of Shareholders on 25 March 2016 % in the Authorized Capital of SMW: 0% (nil) % in Voting Shares of SMW: 0% (nil)

3. Alexei E. Butenko

4. Alexander N. Lemiagov

5. Dr. Dmitriy L. Melnikov

6. Yuriy A. Savin

7. Artem M. Nechaev

8. Timur V. Starostin

9. Sergei B. Shalaev

During the reporting year, transactions for the acquisition or disposal of the Company's shares by the Board members were not being made.

Corporate Secretary

Artem M. Nechaev

Corporate Secretary since 09 July 2018 ( Protocol of the Board Meeting № 5 of 09 July 2018) Year of Birth: 1976 Education: Perm State University, specialty Jurisprudence, in 1998; Perm State University, specialty Management, in 2012 Job: Head of State Budget Enterprise Center for Development of Information in the Perm Region % in the Authorized Capital of SMW: 0% % in Voting Shares of SMW: 0%

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Olga V. Lesnikova

Corporate Secretary since 05 July 2019 (Protocol of the Board Meeting № 4 of 08 July 2019) Year of Birth: 1979 Education: Urals State Juridical Academy, specialty Jurisprudence, in 2001 Job: Director for Legal Issues of JSC SMW % in the Authorized Capital of SMW: 0% % in Voting Shares of SMW: 0%

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 December 1995 Joint Stock Companies and the SMW’s Charter, the Company is managed by General Director of the Company. Since 04 June 2015 Dmitriy Leonodovich Melnikov has been holding a position of the General Director of SMW. Earlier, since September 2005 until his appointment on the position of the General Director, he had been holding a position of the Chief Engineer of SMW. During the reporting year, transactions for the acquisition or disposal of the Company's shares by a person holding the position of the Exclusive Executive Body were not being made.

The Main Provisions of the Company's Policy in Remuneration

The Company’s Policy in Remuneration is based on the following principles:

- compliance with the requirements of the Labor Code of the Russian Federation; - the remuneration of each employee and group of employees of the Company depends on employee’s labor contribution and quality of works performed as well as from production & financial performance of the division and the Company in whole.

SMW uses time & bonus and piecework & bonus systems of remuneration. Under time-based system, salary is calculated for the actual time worked depending on tariff per hour or monthly salary, while under piecework system, salary is counted depending on tariff per quantitative and qualification parameters of works performed. Bonuses are accrued in accordance with the Company’s Regulation on Bonuses for Employees.

Tariffs for workers are assigned in accordance with scope in Unified Tariff Qualification Schedule under 8th rank unified Russian tariff system in accordance with labor conditions and complexity of job.

Monthly salaries for executives, managers, engineers and clerical employees are assigned in accordance with Schedule of Monthly Salaries for each group of employees depending on qualification, work’s experience, level of responsibility for decisions, as well as skill of employee.

The SMW’s Regulation on Bonuses provides conditions and bonus indicators for each structural unit, subject to the fulfillment of which a bonus may be accrued in the base amount and which may be paid in a larger amount depending on the results of the Company performance as a whole.

The Main Provisions of the Company's Policy on 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

In 2019, remuneration to the Board Members was paid in accordance with the SMW’s Board Statute (Article 4 of Section 4) where is defined that 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 new edition of The Statute of the Board of Directors provides for the addition that “the General Assembly of Shareholders, when considering the results of the Company’s performance for the reporting financial year, may also appoint additional remuneration to the Board members for the period in which they fulfill their duties”. By a majority of votes of the shareholders presented at the GAS on June 21, 2019, it was decided not to pay additional remuneration to the Board members for the results of the Company's performance for 2018. The total remuneration of the Board members accounted for ₽34’395.99 thousand rubles in 2019. This remuneration includes salaries of the Board members who are the Company’s employees including bonuses, remunerations paid individually to the Board members for performance of their duties in the governing body during the reporting year. Compensation of expenses related to the performance of the functions of the Board member were not paid by the Company during 2019.

The Main Provisions of the Company’s Policy on Remuneration and Reimbursement of Expenses, as well as the Criteria for Determining the Amount of Remuneration and Compensations Paid to the Executive Body

of the Company

Collegial Executive Body is not stipulated in the Company’s Charter.

The criteria for determining and amount of remuneration of Exclusive Executive Body - General Director (GD) - are defined in the article 12.2 of the Charter of the Company, in the article 1.3. of the Statute of the General Director and

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in the Labor Contracts between Dmitriy L. Melnikov, the General Director of the Company, and the Company: (a) Labor Contract of 01 June 2017, terms and conditions of this Contract were adopted on the Board Meeting of 31 May 2017 (Protocol of the Board Meeting №4 of 31 May 2017) and Additional Agreement № 1 of 10 October 2018 adopted by the Board; and (b) Labor Contract №172 of 15 May 2019 adopted by the Board on the Board Meeting of 13 May 2019 (Protocol of the Board Meeting №3 of 14 May 2019), after election for the next 2 years period. Under these Labor Contracts, the remuneration (salary) of GD is set as a fixed monthly salary. This salary is subject to indexing in proportion to indexing of fixed monthly salary of officers, managers, engineers and clerical employees in accordance with Collective Labor Agreement between the Company and employees of the Company. For each period, under decision of the Board, additional remuneration (timely or annual bonuses) may be paid to GD, depending on results of the Company’s performance during the reporting period, in proportion to the period of employment in the position of GD within reporting period. The remuneration of General Director is subject to the Company’s regulations on confidentiality and it is not publically disclosed. During the period of employment on the position of the General Director, GD is provided with guarantees and compensations included in the Collective Labor Agreement and in GD’s Labor Contract. Reimbursements and compensations related to business travels are performed in accordance with article 168 of Labor Code of RF. The procedure and rates of compensations for business travels are described in the Company’s Regulation Procedure for Documenting of Business Travels, Compensations for Business Travels, Issuance of Accountable Funds to Employees

Information (report) on Compliance with Principles and Recommendations of the Code of Corporate Governance Recommended by the Bank of Russia

The rules of corporate governance at the Company are introduced in the form of informal rules that are mandatory for compliance. The Company and its governing bodies tend to comply principles and recommendations laid down in the Code of Corporate Governance, approved by the Board of Directors of the Bank of Russia on March 21, 2014 those are recommended for use in public joint-stock companies (the Code), to the such extent as the current organizational & ownership structure of the Company, financial and economic situation, and other factors allow. In accordance with requirements of Federal Law Joint-Stock Companies, Federal Law Market of Securities and regulations of the Bank of Russia, SMW provides shareholders and investors with all appropriate ability to participate in managing of the Company and obtaining the information concerning the Company’s activities that is disclosed by the Company on its own web-site http://www.smw.ru (http://www.смз.рф) and on the web-page of information agency Interfax - Interfax-CRCI http://www.e-disclosure.ru/portal/company.aspx?id=6100. This information includes: general company information; banking account and price for copying of documents which the Company should provide under request of owners of the Company’s securities and other interested persons in accordance with the Russian legislation, Charter and internal documents of the Company; quarterly and annual financial statements and reports; list of affiliated persons; information about essential events in the Company. This information is also provided on the web of Interfax – CRCI LLC in the News section. Duties of the Secretary of the Board are performed by the specially appointed person whose job duties include duties recommended by the CB RF Code of Corporate Governance and by internal documents of the Company on implementation of the basic principles of corporate governance. The Company's Department of Corporate Relations ensures compliance by managing bodies of the Company and the Company’s executives with the procedural requirements guaranteeing the legitimate rights and interests of the shareholders, timely disclosure of 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 receive from shareholders documents, required for records in register, and arranges transfer of these papers to the Company’s Register-keeper (in Perm). Compliance of the Company with the Code of Corporate Governance under requirements of Annex 1 to Recommendations for Completion of Report 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 №2 to Russian version of this Annual Report (available in Russian only).

Information Concerning Approval of this Annual Report

Pursuant to sub-article 25 of Article 11.3. of the SMW’s Charter, 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. 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 readily accessible to the public on the Company’s web for, at least, three years.

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KEY PERFORMANCE INDICATORS OF THE COMPANY

Aggregated balance sheet on 31 December 2019 (in thousand rubles)

ASSETS LIABILITIES

1 Fixed assets 2'582'097 3 Sources of own funds 3'156'573

2.1 Inventories and expenses 1'201’351 4 Long-term loans and other long-term borrowings

827'262

2.2 Cash, accounts receivable and other assets, including

1'165'712 5 Accounts payable and other liabilities

965'325

Cash and equivalent 196'665

Accounts receivable and other assets

969'047

BALANCE 4'949'160 BALANCE 4'949'160

Report on Financial Results for 2019 year (in thousand rubles)

Name Line Code

2019 2018

Sales revenues 2110 8’079’223 7’808’859

Cost of goods sold 2120 (6'733’089) (6’320’988)

Gross margin (loss) 2100 1’346’134 1'487'871

Selling expenses 2210 (565’722) ( 499'880)

General & Administrative expenses 2220 (409’174) ( 378'194)

Sales income (loss) 2200 371’238 609'797

Earnings from participation in other entities (dividends) 2310 141’037 55'711

Interest receivable 2320 988 983

Interests payable 2330 (504) ( 19'006)

Other revenues 2340 148'523 193'514

Other expenses 2350 (306'810) ( 531'316)

Income (loss) before taxation 2300 354’472 309'683

Сurrent income tax 2410 (43'889) ( 72'296)

Including fixed tax liabilities (assets) 2421 114 9'477

Change of deferred tax liabilities 2430 (7’809) 2'177

Change of deferred tax assets 2450 (11'334) ( 1'295)

Other 2460 158 -

Net income (loss) in the reporting period 2400 291'598 238'269

FOR REFERENCE:

Result of re-assessments of net assets which is not included into net income (loss) of the reporting period

2510 - 106'399

Results from other operations which are not included into net income (loss) of the reporting period

2520 - -

Total financial result for the reporting period 2500 291'598 344'668

Earnings (losses) per share 2900 0.73 0.60

AUDITOR'S CONCLUSION

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