Net profit dropped down

Primarily, such increase was achieved due to the growth of production of metallurgical coal by 40% (i.e. by 483 thousand tons as against the last year indices), which was backed up by development of the coal reserves of Belon Group (in 2006 Novaya-2 mine was incorporated in Belon Group), as well as by preproduction mining at the Novobachatsky open-pit mine.

However, in accordance with IFRS, the key financial indices of the Company slightly declined. In 2006, Belon’s revenues reduced by 18% and amounted to 10,430 million rubles (VAT not included). The financial performance was significantly affected by unfavorable price situation on the coal concentrate market. Prices for this type of product dipped down by 24–25% in the first half of 2006.

Another factor was the decision of Belon Group on reduction of coal preparation volume on the tolling basis. The reason for such decision consisted in the desire of the Company to ensure high quality of the produced coal and keep good business relations with its time-honored clients and partners.

Net profit dropped down together with the revenues and amounted to 1,222 million rubles, which is 63% less than the respective figure of the 2005 performance. Inflation-based growth of uncontrolled costs was the factor besides market prices that affected financial performance of the Company and led to the decline in the business profitability. Namely, there was a significant increase in business expenses due to the growth of railroad rates. In addition, the increased mining safety expenses indirectly contributed to the growth of overall costs.

However, all the above factors will not prevent the Company from following its course towards increasing the volume of coal production and preparation. With the overall decline in financial performance, Belon Group is actively developing the key investment projects—construction of the Listvyazhnaya Coal Preparation Plant and the Kostromovskaya mine, and development of Novobachatsky open-pit mines. Within the current year, the total coal production volume at the operating facilities is expected to increase thus reaching 4.7 million tons of coal.