Mechel Announces Its Victory at the Auction to Acquire the Controlling Stakes In Yakutugol OJSHC And Elgaugol OAO

Mechel JSC announced that it has won the auction to acquire 75% less one share of Yakutugol OJSHC and 68.86% of the shares of Elgaugol OAO. The acquisition of the controlling stakes in the companies is in line with Mechel's strategy to further develop its mining segment, intensify synergies between the group’s subsidiaries, and increase its coking coal output.

As the results of the auction, which was held on October 5, 2007, Mechel acquired 3,031,488 ordinary registered shares of Yakutugol OJSHC comprising 75% less one share of its charter capital and 586,000 ordinary registered shares of Elgaugol OAO comprising 68.86% of its charter capital, for a total of RUR58.2 billion (approximately $2.3 billion).

In addition, a real estate complex owned by JSC Russian Railways was put to the auction and acquired by Mechel The complex includes the railway spur track from Zeisk station of the Far Eastern Railway to the Elga coal deposit and an access road from Zeisk station of the Far Eastern Railway to the Elga deposit.

As the result of its winning at the auction, Mechel’s stake in the charter capital of Yakutugol OJSHC increases to 100%, given that the company already held 25% plus one share in its ownership.

Yakutugol OJSHC mines mainly coking coal with a certain steam coal output. Its total coal output is about 10 million tonnes annually. The coal reserves of Yakutugol’s existing assets are estimated at approximately 200 million tonnes according to Russian reserve valuation standards. Yakutugol is the largest Russian exporter of coking coal and sells most of its output to countries in the Pacific region, including Japan, South Korea, and Taiwan.

Elgaugol OAO holds the license for development of the Elga coal deposit with the total reserves of fat coking coals amounting to approximately 2.2 billion tonnes. According to the experts’ estimates, coal reserves in this region can reach 30 billion to 40 billion tonnes.

Igor Zyuzin, Mechel’s Chief Executive Officer, commented on the transaction: “We are pleased with our victory at the auction. By acquiring Yakutugol, we have gained control over the last operating unprivitized coal asset, concluding a three-year privatization process. Although there had been some uncertainty among some investors that Mechel would obtain control over Yakutugol, we are glad that we proved our ability to bring all our undertakings to conclusion. Yakutugol will significantly strengthen Mechel’s position on the Russian and international coking coal markets. Secondly, we obtained access to the largest deposit of high quality coking coals, which lays a reliable foundation for long term development of Mechel’s coal mining. With ownership of Southern Kuzbass, Yakutugol, and Elgaugol, we hope to establish a world-class modern coal mining company. We plan to ship most of the mined coal to Russian consumers including Mechel's subsidiaries.”